2
0
2
0
A
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N
U
A
L
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P
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2 0 2 0
A N N U A L R E P O R T
BEHIND OUR SERVICE
THE STATISTICS BEHIND OUR SERVICE
THE STATISTICS
In the world of industrial supply, there are many fulfillment-focused companies that specialize in packing and shipping cataloged
products. As a supply chain partner, we believe fulfillment is a small part of a much larger opportunity – to help our customers
overcome challenges, operate more efficiently, and ultimately grow their business faster. How do we create this deeper value and,
in turn, differentiate ourselves in the marketplace? The numbers below help tell the story.
PEOPLE
PROXIMITY
SOLUTIONS
DIFFERENTIATORS
20,365
EMPLOYEES
72% directly serve
our customers
3,268
IN-MARKET
SELLING LOCATIONS
(including 1,265 Onsite
locations) spanning 25
countries
110,700
VENDING MACHINES
INSTALLED
including 15,000 leased
check-in/check-out lockers
210+
SUPPLY CHAIN
PROFESSIONALS
dedicated to sourcing, quality,
and logistics functions,
including 80+ experts
positioned outside North
America
816,000
FASTENAL SCHOOL OF
BUSINESS TRAININGS
COMPLETED
18 hours of training per
employee (on average)
90%
OF PRODUCT
TONNAGE SHIPS
ON OUR INTERNAL
TRUCKING FLEET
reducing cost and
enhancing service
91%
OF TOTAL REVENUE
comes from customers
utilizing more than one of
our sales channels and tools,
with 70% of total revenue
from customers utilizing four
or more. 30% of our total
revenue is through FMI.*
320 Million
PRODUCTS MANUFACTURED,
MODIFIED, OR REFURBISHED
by our in-house manufacturing and
industrial services divisions
490+
HIGHLY-TRAINED
SPECIALISTS
engineering, safety, Lean
Six Sigma, metalworking,
construction, solutions,
national accounts
59%
OF OUR
$1.3 BILLION IN
INVENTORY IS
STAGED LOCALLY
for same-day fulfillment
68%
OF NATIONAL
ACCOUNT CUSTOMERS
utilize Fastenal e-commerce
654
CUSTOMER SITE
EVALUATIONS
PERFORMED
by our Lean Solutions Specialists
to uncover sources of supply
chain waste
* Sales channels and tools include branch, Onsite, FMI, national accounts, and web. FMI includes FAST
Vend, FAST Bin, and FAST Stock. See discussion in Item 1 of 2020 Form 10-K for more information.
CONTENTS
TABLE OF OF CONTENTS
TABLE
INSIDE BACK COVER: Directors | Executive Officers | Corporate Information
1-3
Letter to
Shareholders
and Employees
4-5
10-Year Selected
Financial Data and
Financial Highlights
6
Stock and
Financial Data
7
Stock
Performance
Highlights
8
Three Storylines
Behind Our 2020
Success
LETTER TO SHAREHOLDERS AND EMPLOYEES
Thank you for being a shareholder of Fastenal.
We hope you find this annual report useful in explaining our
business, our future, but most importantly, the something special
that is the culture of the Blue Team at Fastenal. We believe if
you truly understand our culture, there’s a good chance you will
remain a shareholder for the long term.
If a reader of this annual report were unaware of the chaotic
environment of 2020, our financial statements would appear
unremarkable. Our sales grew 5.9%, and our operating income
grew 8.0%. At first glance, you might conclude we simply did a
nice job managing expenses in a year with weaker sales growth.
This performance, combined with less interest expense, allowed
our diluted net earnings per share to grow a bit better, at 8.4%.
Again, solid numbers, but unremarkable. What is remarkable is
our team’s ability to produce them during a global crisis.
As a distribution business, our cash flow is directly linked to
our rate of growth and the corresponding need to fund working
capital. With lower sales growth, and solid execution by the team,
our net cash provided by operations grew 30.7%. In regards to
the execution comment, the team performed well in managing
accounts receivable and inventory.
The last five years have seen a rapid expansion of the square
footage in our distribution and manufacturing facilities. (This
expansion also included extensive automation within our
distribution centers.) Given the uncertainty of the year, and with
this rapid facilities expansion largely behind us, we lowered our
net investment in fixed capital by $82 million, or about 34.3%. Not
surprisingly, our free cash flow improved significantly, growing
by 36.0%. (See the footnote on page 5 for a reconciliation of this
measure to net cash provided by operating activities, the most
directly comparable GAAP measure.)
In addition to funding our regular quarterly dividends, our strong
cash flow also funded: (1) the acquisition of the technology used
in our vending platform (including providing direct access to the
supply chain for the vending equipment) and (2) a supplemental
dividend paid in the fourth quarter. Item 2 represents the third
time we have paid a supplemental dividend late in the year. The
first time was during the chaos of the financial meltdown late in
2008, the second time was during the chaotic income tax climate
late in 2012, and the third time was in late 2020. In all three
cases, we had cash we believed wasn’t needed to fund future
growth investments, and we felt the responsible action was to
return the cash to our shareholders. We are very excited about
the strategic value of item 1. This will give us the ability to better
manage and illuminate our customers’ supply chains, and to do
so in a more cost-effective fashion – always a plus.
Every year we produce two annual reports. The first report,
an internal item published in January, is our Annual Report
to Employees. This document provides an overview of the
year, a look at our future, and a celebration of our employees’
accomplishments. This year we celebrated the Class of 1995, 74
new additions to our ever-growing group of 25-year employees.
The second report, portions of which are filed with the Securities
and Exchange Commission in early February, is this Annual Report
to Shareholders. We felt the best way to describe 2020 would be
to use our internal words. Think of it as full transparency. If you
have a moment, please take a look at the next two pages, which
are excerpted from the employee report. The left-hand column
is a list of the articles and topics included in the employee
publication, and perhaps you might notice the final article was
contributed by Bob Kierlin. Even in retirement, Bob continues to
give of himself to the organization. The rest of the two pages is
my attempt to convey a sense of gratitude and respect for the
Blue Team family.
Some will choose to remember 2020 for all of its negative events;
and yes, there were many. We don’t believe this provides much
of a foundation on which to build a future. It is our sincere wish
most will choose to focus on the positive events they witnessed,
perhaps remembering individual acts of caring for a fellow
human or of personal sacrifices made.
Good luck in 2021, and thank you for your belief in the Blue Team
at Fastenal.
DANIEL L. FLORNESS
President and Chief Executive Officer
TURN THE PAGE TO READ DAN’S
MESSAGE TO EMPLOYEES FROM OUR
2020 EMPLOYEE
ANNUAL REPORT
2020 ANNUAL REPORT
1
THIS YEAR’S
ARTICLES & TOPICS
Reflections From a ‘Boring’ Year
A report from our CFO
2020 Milestones & Wins
EVP Insights
Q&A with our sales leadership
Defining Fastenal as a Supply Chain
Partner
Our evolving identity and the value we provide
All Hands on Deck
A customer service case study
Specialize. Streamline. Sell.
Defining and executing our roles
The Keys to Key Account Success
Strategies for building great customer
relationships
The Future is Mobile
What’s new with our mobility program and why
it matters
Key I.T. Wins/Ask BLUE
A look at major projects, including our new
internal retrieval chatbot
Becoming a Billion-Dollar Safety
Company
Safety sales recap and vision
What Will We Keep From 2020?
Government sales recap and vision
Solutions in a Year of Challenges
Fastenal Solutions recap and vision
(vending and bin stock)
Thinking Big About Onsite
A Year of Investment, Innovation, and
Growth
eCommerce recap and vision
Many Countries. One Team.
International sales recap and vision
Moving Fast and Getting It Right
International COVID response strategy
Solutions Our Customers Can Build on
Construction sales recap and vision
Congratulations to Our 25-Year
Employees
Becoming Stronger by Overcoming
Adversity
By Bob Kierlin, Fastenal Founder
2
DAN FLORNESS
President & Chief Executive Officer
W H A T W I L L Y O U
F R O M
R E M E M B E R
2 0 2 0
I have a challenge for the group: How many Fastenal storylines can you list from 2020
without including the name of a certain virus? For me, there are five things about the
Blue Team that really stand out. Please send me others I’ve missed.
1. We run faster (and learn faster) than anyone else.
When hiring new employees, we generally have some core values in mind, so perhaps
we have a natural advantage. These core values include a willingness to always try
(Ambition), a willingness to solve problems (Innovation), a willingness to be trustworthy
(Integrity), and a willingness to help each other succeed (Teamwork). If we ever have a
day when we forget our core values, each of us is blessed to be surrounded by 20,000+
people to remind us.
2. We don’t fracture, we rally to support each other.
The Blue Team grew closer in the toughest moments we encountered in 2020. There’s a
comfort that comes from having a family to help in times of need. Thanks for being there
when the world was scared and uncertain. Thanks for always trying to focus on what
we can do, and then solving what we can’t. We started the year as a cohesive group of
people willing to learn and change, and we ended the year better than we started. Thank
you for that.
3. When we point a finger, it’s usually at ourselves.
This builds off of item 2 above. We improve every situation we encounter, and we don’t
place blame; however, we do take ownership. Perhaps that finger is pointed inward
to indicate we’ve got you covered. If you’ve ever watched the 1995 movie Apollo 13,
you might understand why I often thought of a certain line spoken by the Gene Kranz
character:
“Let’s look at this thing from a … um, from a standpoint of status. What do we got on
the spacecraft that’s good?”
It didn’t matter that we didn’t have everything anticipated and figured out. With every
moment of frustration, a calm perspective quickly emerged within the Blue Team. It
could start with anyone, regardless of their role. In that moment, one shining example
convinces others it’s okay to shine. With this mindset, the team becomes more
resourceful.
4. We have the skill set to help others, and the confidence to stay focused.
Because of our dedication to learning every day, our willingness to embrace new ideas
and new ways of thinking, and our decentralized operating style, our skills get honed
continuously. Because our chain of command is short and agile, and because we have
20,000+ tested leaders, we naturally moved quickly in 2020.
? AN EXCERPT FROM THE 2020 EMPLOYEE ANNUAL REPORT...
5. We always build for the future.
This often means frugality at Fastenal. If I don’t waste something today, we
will have more resources to solve a problem tomorrow. But it also involves
things like training (willingness to learn). As I write this, I honestly don’t know
how many hours of training we will end up completing in 2020 – there’s
a chance it could exceed 2019, even though in-person instructor led training
was removed from our offering. What I do know is that we quickly reinvented
our ability to train, and I believe we will improve our participation in training
every year. This reinventing of our training methods should have happened
years ago. I’m sorry it took the chaos of 2020 to realize its importance – that’s
on me. [Editor’s note: The final numbers showed the Blue Team’s training hours
increased 11% in 2020.]
Building for the future also means investing in ways to improve how we
operate (willingness to change). I honestly believe the biggest opportunities
from 2020 will center on mobility technology. With mobility we can identify
and streamline highly repetitive transactions – this will create scale in our
business, enabling us to become more efficient as we grow. With mobility
we can also gather transactional details – this will illuminate cost-saving
activities and ideas for us and, by extension, for our customers.
Perhaps there are some of you who scratch your head when you hear the
phrase create scale. To me, this simply means identifying the things we
do a lot, or could do a lot, and finding ways to do them more efficiently
as an organization. A great example is how (and where) we pick the
replenishment for vending and bin stocks. Perhaps the best place to do that
is in a local site (a branch or Onsite location), or perhaps it’s in a traditional
distribution center. Today we are exploring a third option, something in
between, which we’re referring to as LIFT (short for “Local Inventory Fulfill-
ment Terminal”). These LIFTs might be located in our distribution centers or
in metro areas – only time will tell. The idea is to free up time for our local
teams, but we need a certain critical mass of transactions (in other words,
a large enough number of vending devices and bin stocks) to create scale
and make the model cost-effective. As we figure this out, both you and the
marketplace will benefit. Creating scale will help the Blue Team grow faster,
and this creates opportunities for everyone.
Warning to the reader, the next two paragraphs go into the weeds a bit;
sorry for all the details.
Cost savings isn’t a confusing topic; however, identifying and quantifying the
opportunities and successes can be incredibly difficult and time consuming.
This is where mobility can lend a helping hand. Mobility can help us tell
a story about how we create value, and it can illuminate ways to operate
more efficiently. This isn’t just about Fastenal. It does allow us to be more
efficient – the old adage “work smarter, not harder” comes to mind – but
it’s really about serving our customers and providing the best supply chain.
While this isn’t intended to be an infomercial about cost savings, I would
challenge each of you to understand the concept and to learn about what
we’ve developed. Since the topic centers on tools in our point of sale
system, most of the learning will be done at the branch or Onsite location,
but everyone touches multiple elements of the supply chain, so the
challenge applies to the entire Blue Team.
We have made big strides within our system in 2020, including the intro-
duction of Cost Savings Projects. This tool takes much of the complexity
out of cost savings reporting and provides flexibility to morph to the needs
of the individual customer. Since the usefulness and understandability of
cost savings information is always about the customer’s perspective, the
Group Creation Onboarding Tool is being built in 2021 to help you better
define and assemble the information to be included in your cost savings
analysis, to better manage the date ranges used, and to do it all without
jumping in and out of multiple screens (we all know how frustrating that
can be). Later in the year, the Restock/Service Visit details from our mobility
platform will be expanded to include more of the savings you provide your
customers through managing bin stocks. Please dive into mobility and start
creating the source data today.
Pulling back out of the weeds, we achieved several milestones in 2020.
First off, we exceeded $1 billion in safety sales for the first time. (Prior
to 2020, only our fastener product line had hit the $1 billion mark in a
calendar year.) Our European business surpassed $100 million in sales for
the first time. We also surpassed $500 million in eCommerce sales for the
first time, and eCommerce exceeded 10% of net sales for the year.
Please note, this is eCommerce as measured in a narrow and somewhat
misguided way: strictly as sales through the web and EDI (electronic data
interchange). eCommerce really should be measured in a much broader
sense, which is why we add things like vending, infrared bins (IR), radio
frequency identification bins (RFID), and Fast Stock (traditional bins with
labels) to our thought process. These elements are redefining the basket of
technology deployed within the supply chain and are moving beyond the
notion of “ordering stuff.” In a truly efficient supply chain, planned spend
shouldn’t always require an order – perhaps it should just be there when
it’s needed. That’s our goal, and thank you for creating that change. If you
add these old and new ideas together, we estimate about 35% of our sales
are electronic, and we believe this will increase to 70%-plus in the years
to come. For the analytical folks reading this, the 35% estimate consists of:
about 20% for vending, about 10% for bin stocks (IR, RFID, and Fast Stock),
and about 10% for traditional eCommerce (web and EDI), less a little bit of
double counting since some of the vending and bins get billed via EDI.
What will the marketplace remember about Fastenal from 2020? I believe
it boils down to this: You can trust the Blue Team to solve problems.
Good luck in 2021, and Go Blue!
2020 ANNUAL REPORT
3
10-YEAR SELECTED FINANCIAL DATA (Amounts in Millions Except
Per Share Information)
Operating Results
2020 % Change
Net sales
Gross profit
% of net sales
Operating income
% 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
% of net sales
Acquisitions and other
Free cash flow (3)
% of net earnings
Dividends and Common
Stock Purchase Summary
Cash dividends paid
% of net earnings
Cash 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 assets
(accounts receivable, net, and inventories)
Net working capital (4)
(current assets less current liabilities)
Fixed capital
(property and equipment, net)
Total assets (4)
Total debt
(current portion of debt and long-term debt)
Total stockholders' equity
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,647.3
2,567.8
45.5%
1,141.8
20.2%
859.1
15.2%
1.50
573.8
1.49
575.7
5.9%
2.1%
8.0%
8.6%
8.5%
0.1%
8.4%
0.2%
2020 % Change
1,101.8
128.3%
(157.5)
2.8%
(124.2)
820.1
95.5%
30.7%
–34.3%
-
36.0%
2020 % Change
803.4
93.5%
1.40
52.0
6.1%
1.6
32.54
61.1%
60.9%
-
-
-
2019
$5,333.7
2,515.4
47.2%
1,057.2
19.8%
790.9
14.8%
1.38
573.2
1.38
574.4
2019
$842.7
106.5%
(239.8)
4.5%
0.1
603.0
76.2%
2019
$498.6
63.0%
0.870
-
-
-
-
2018
$4,965.1
2,398.9
48.3%
999.2
20.1%
751.9
15.1%
1.31
573.9
1.31
574.3
2018
$674.2
89.7%
(166.8)
3.4%
(7.1)
500.3
66.5%
2018
$441.9
58.8%
0.770
103.0
13.7%
4.0
$25.75
2018
2017
$4,390.5
2,163.6
49.3%
881.8
20.1%
578.6
13.2%
1.00
576.4
1.00
576.7
2017
$585.2
101.1%
(112.5)
2.6%
(66.8)
405.9
70.2%
2017
$369.1
63.8%
0.640
82.6
14.3%
3.8
$21.72
2017
1,584.8
893.6
2,910.5
415.0
2,096.9
2016
$3,962.0
1,964.8
2015
$3,869.2
1,948.9
2014
$3,733.5
1,897.4
2013
$3,326.1
1,719.4
49.6%
795.8
20.1%
499.4
12.6%
0.86
577.9
0.86
578.3
2016
$519.9
104.1%
(183.0)
4.6%
(5.1)
331.8
66.4%
2016
$346.6
69.4%
0.600
59.5
11.9%
3.2
$18.58
2016
1,445.1
899.7
2,668.9
390.0
1,933.1
3.8%
50.4%
828.8
21.4%
516.4
13.3%
0.89
582.9
0.88
584.1
2015
$550.3
106.6%
(145.3)
(35.3)
369.7
71.6%
2015
$327.1
63.3%
0.560
292.9
56.7%
14.2
$20.63
2015
1,291.6
818.9
2,532.5
365.0
1,801.3
50.8%
787.6
21.1%
494.2
13.2%
0.83
593.0
0.83
594.6
2014
$501.5
101.5%
(183.7)
4.9%
(5.6)
312.2
63.2%
2014
$296.6
60.0%
0.500
52.9
10.7%
2.4
$22.06
2014
1,207.9
763.9
2,359.1
90.0
51.7%
712.7
21.4%
448.6
13.5%
0.76
593.5
0.75
595.4
2013
$418.9
93.4%
(201.6)
6.1%
(0.1)
217.2
48.4%
2013
$237.5
52.9%
0.400
9.1
2.0%
0.4
$22.70
2013
1,168.6
654.9
2,075.8
-
2012
$3,133.6
1,614.5
51.5%
673.7
21.5%
420.5
13.4%
0.71
592.2
0.71
594.3
2012
$406.4
96.6%
(133.9)
4.3%
(0.1)
272.4
64.8%
2012
$367.3
87.3%
0.620
-
-
-
-
2012
516.4
1,815.8
-
2011
$2,766.9
1,434.2
51.8%
574.6
20.8%
357.9
12.9%
0.61
590.1
0.60
591.7
2011
$268.5
75.0%
(116.5)
4.2%
0.2
152.2
42.5%
2011
$191.7
53.6%
0.325
-
-
-
-
2011
$984.7
435.6
1,684.9
-
2020 % Change
2019
2,106.9
–0.1%
$2,108.1
$1,993.0
$1,700.7
$1,492.7
$1,381.6
$1,331.3
$1,198.4
$1,087.5
1,886.9
–1.3%
1,030.7
3,964.7
405.0
2,733.2
0.7%
4.3%
17.4%
2.5%
1,912.5
1,023.2
3,799.9
345.0
2,665.6
1,878.8
924.8
3,321.5
500.0
2,302.7
1,082.5
1,048.3
1,915.2
1,772.7
1,560.4
1,459.0
All information contained in this Annual Report reflects the 2-for-1 stock splits in both 2019 and 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.
4
Net sales
Gross profit
% of net sales
Operating income
% 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
% of net sales
Acquisitions and other
Free cash flow (3)
% of net earnings
Dividends and Common
Stock Purchase Summary
Cash dividends paid
% of net earnings
Cash 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 assets
(accounts receivable, net, and inventories)
Net working capital (4)
(current assets less current liabilities)
Fixed capital
(property and equipment, net)
Total assets (4)
Total debt
(current portion of debt and long-term debt)
Total stockholders' equity
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,647.3
2,567.8
45.5%
1,141.8
20.2%
859.1
15.2%
1.50
573.8
1.49
575.7
1,101.8
128.3%
(157.5)
2.8%
(124.2)
820.1
95.5%
803.4
93.5%
1.40
52.0
6.1%
1.6
32.54
5.9%
2.1%
8.0%
8.6%
8.5%
0.1%
8.4%
0.2%
30.7%
–34.3%
-
36.0%
61.1%
60.9%
-
-
-
2020 % Change
2020 % Change
1,886.9
–1.3%
1,030.7
3,964.7
405.0
2,733.2
0.7%
4.3%
17.4%
2.5%
2019
$5,333.7
2,515.4
47.2%
1,057.2
19.8%
790.9
14.8%
1.38
573.2
1.38
574.4
2019
$842.7
106.5%
(239.8)
4.5%
0.1
603.0
76.2%
2019
$498.6
63.0%
0.870
-
-
-
-
1,912.5
1,023.2
3,799.9
345.0
2,665.6
2020 % Change
2019
48.3%
999.2
20.1%
751.9
15.1%
1.31
573.9
1.31
574.3
2018
$674.2
89.7%
(166.8)
3.4%
(7.1)
500.3
66.5%
2018
$441.9
58.8%
0.770
103.0
13.7%
4.0
$25.75
2018
1,878.8
924.8
3,321.5
500.0
2,302.7
FINANCIAL HIGHLIGHTS
Operating Results
2020 % Change
2018
$4,965.1
2,398.9
2017
$4,390.5
2,163.6
2016
$3,962.0
1,964.8
49.3%
881.8
20.1%
578.6
13.2%
1.00
576.4
1.00
576.7
2017
$585.2
101.1%
(112.5)
2.6%
(66.8)
405.9
70.2%
2017
$369.1
63.8%
0.640
82.6
14.3%
3.8
$21.72
2017
49.6%
795.8
20.1%
499.4
12.6%
0.86
577.9
0.86
578.3
2016
$519.9
104.1%
(183.0)
4.6%
(5.1)
331.8
66.4%
2016
$346.6
69.4%
0.600
59.5
11.9%
3.2
$18.58
2016
2015
$3,869.2
1,948.9
50.4%
828.8
21.4%
516.4
13.3%
0.89
582.9
0.88
584.1
2015
$550.3
106.6%
(145.3)
3.8%
(35.3)
369.7
71.6%
2015
$327.1
63.3%
0.560
292.9
56.7%
14.2
$20.63
2015
2014
$3,733.5
1,897.4
2013
$3,326.1
1,719.4
50.8%
787.6
21.1%
494.2
13.2%
0.83
593.0
0.83
594.6
2014
$501.5
101.5%
(183.7)
4.9%
(5.6)
312.2
63.2%
2014
$296.6
60.0%
0.500
52.9
10.7%
2.4
$22.06
2014
51.7%
712.7
21.4%
448.6
13.5%
0.76
593.5
0.75
595.4
2013
$418.9
93.4%
(201.6)
6.1%
(0.1)
217.2
48.4%
2013
$237.5
52.9%
0.400
9.1
2.0%
0.4
$22.70
2013
2012
$3,133.6
1,614.5
51.5%
673.7
21.5%
420.5
13.4%
0.71
592.2
0.71
594.3
2012
$406.4
96.6%
(133.9)
4.3%
(0.1)
272.4
64.8%
2012
$367.3
87.3%
0.620
-
-
-
-
2012
2,106.9
–0.1%
$2,108.1
$1,993.0
$1,700.7
$1,492.7
$1,381.6
$1,331.3
$1,198.4
$1,087.5
2011
$2,766.9
1,434.2
51.8%
574.6
20.8%
357.9
12.9%
0.61
590.1
0.60
591.7
2011
$268.5
75.0%
(116.5)
4.2%
0.2
152.2
42.5%
2011
$191.7
53.6%
0.325
-
-
-
-
2011
$984.7
1,584.8
893.6
2,910.5
415.0
2,096.9
1,445.1
899.7
2,668.9
390.0
1,933.1
1,291.6
818.9
2,532.5
365.0
1,801.3
1,207.9
763.9
2,359.1
90.0
1,168.6
654.9
2,075.8
-
1,082.5
1,048.3
516.4
1,815.8
-
435.6
1,684.9
-
1,915.2
1,772.7
1,560.4
1,459.0
(3) Free cash flow is not a financial measure calculated in accordance with GAAP and is reconciled to the most closely comparable GAAP measure, net cash provided by operating
activities, in the chart above, with the GAAP measure presented first under “Cash Flow Summary.” We define free cash flow as net cash provided by operating activities less capital
expenditures, net of proceeds from sale of property and equipment, less cash paid for acquisitions. Our management uses free cash flow as a supplemental measure in the evaluation
of our business as we believe it provides our management and our investors a meaningful evaluation of our liquidity.
(4) Reflects the impact of Accounting Standards Update 2016-02, Leases, adopted January 1, 2019.
5
2020 ANNUAL REPORT STOCK AND FINANCIAL DATA
The following chart displays the daily closing sales price of our shares listed on the Nasdaq Stock Market for the last two years.
2019
Nasdaq: FAST
2020
$55
$50
$45
As of January 22, 2021, there were approximately 1,000 record holders of our common stock, which includes nominees or broker dealers holding
stock on behalf of an estimated 348,000 beneficial owners.
In 2020 and 2019, we paid dividends per share totaling $1.40 and $0.87, respectively. This included a special dividend paid per share of $0.40 in the
fourth quarter of 2020, reflecting our high cash balances. On January 19, 2021, we announced a quarterly dividend of $0.28 per share to be paid on
March 3, 2021 to shareholders of record at the close of business on February 3, 2021. Our board of directors intends to continue paying quarterly
dividends; however, 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.
In 2020, we purchased 1,600,000 shares of our common stock at an average price of $32.54 per share. In 2019, we did not purchase any shares of
our common stock.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollar Amounts in Millions Except Share and Per Share Information)
2020
Net
Sales
Gross
Profit
Pre-tax
Earnings
Net
Earnings
Basic
Net Earnings
per Share (1)
Diluted
Net Earnings
per Share (1)
Cash
Dividends Paid
per Share of
Common Stock
First quarter
$
$
1,367.0
Second quarter
1,509.0
Third quarter
Fourth quarter
1,413.3
1,358.0
636.8
671.6
640.6
618.8
269.2
313.7
287.6
262.2
$
$
5,647.3
2,567.8
1,132.7
202.6
238.9
221.5
196.1
859.1
$
0.35
0.42
0.39
0.34
1.50
0.35
0.42
0.38
0.34
1.49
0.250
0.250
0.250
0.650
1.400
Net
Sales
Gross
Profit
Pre-tax
Earnings
Net
Earnings
Basic
Net Earnings
per Share (1)
Diluted
Net Earnings
per Share (1)
Cash
Dividends Paid
per Share of
Common Stock
Total
2019
First quarter
$
1,309.3
Second quarter
1,368.4
Third quarter
Fourth quarter
1,379.1
1,276.9
624.7
641.2
651.1
598.4
257.5
271.4
278.4
236.4
Total
$
5,333.7
2,515.4
1,043.7
(1) Amounts may not foot due to rounding difference.
6
194.1
204.6
213.5
178.7
790.9
0.34
0.36
0.37
0.31
1.38
0.34
0.36
0.37
0.31
1.38
0.215
0.215
0.220
0.220
0.870
STOCK PERFORMANCE HIGHLIGHTS (1), (2)
9
1,000 shares ($9,000)
invested on
August 20, 1987
Value on
December 31, 2020:
$9,375,360
Stock Split
HISTORICAL STOCK PERFORMANCE
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 33 years later, on December
31, 2020, those 1,000 shares, having split eight times, had become
192,000 shares worth $9,375,360, for a gain of approximately 23.4%
compounded annually. In addition, the holder of these shares would
have received $1,490,784 in dividends since August 20, 1987, for a
total gain of approximately 24.0% compounded annually.
TEN YEARS
On December 31, 2010, 1,000 shares of our stock sold for $59,920.
Ten years later, on December 31, 2020, those 1,000 shares, having split
twice, were 4,000 shares worth $195,320, for a gain of approximately
12.5% compounded annually. In addition, the holder of these shares
would have received $26,740 in dividends since December 2010, for a
total gain of approximately 14.0% compounded annually.
FIVE YEARS
On December 31, 2015, 1,000 shares of our stock sold for $40,820.
Five years later, on December 31, 2020, those 1,000 shares, having split
once, were 2,000 shares worth $97,660, for a gain of approximately
19.1% compounded annually. In addition, the holder of these shares
would have received $8,560 in dividends since December 2015, for a
total gain of approximately 21.1% compounded annually.
DIVIDENDS
We have paid dividends in every year since 1991, and quarterly
dividends since 2011. In addition, Fastenal paid a special one-time
dividend during December 2020, 2012, and 2008.
(1)
(2)
The share data represents past performance, which is no guarantee of future results.
Unless otherwise noted, the amounts on this page are presented in whole numbers versus
millions as is prevalent in the remainder of this document.
A SIMPLE PHILOSOPHY
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 49.4 million shares since 2003 and have
granted our employees options to purchase approximately 30.0 million
shares. (Note: These amounts have been adjusted to reflect the impact
of stock splits.) This 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 $24,299 million and total pre-tax earnings of $4,826
million. During this same time period, we spent approximately $4,619
million to compensate a group of great employees, we supported our
customers’ needs by adding approximately $725 million in operational
working capital assets (accounts receivable, net, plus inventory) and
by spending approximately $860 million in net capital expenditures
(purchases of property and equipment, net of proceeds of sales), and we
returned $2,757 million to our shareholders. The latter was principally
through dividends (approximately $2,460 million), with the remainder
through share purchases.
A final point worth noting: We are an important element of the tax base in
the many communities in which we operate. During the last five years,
we have incurred approximately $1,346 million in income taxes, or
approximately 27.9% of the pre-tax earnings noted above, and incurred or
remitted approximately $1,207 million in employment taxes, $58 million
in property taxes, $809 million in sales, use, and value-added taxes, and
$5 million in other miscellaneous business-related taxes. This adds up
to a total of approximately $3.4 billion in taxes funded in our communities.
7
2020 ANNUAL REPORT THREE
STORYLINES
BEHIND OUR
2020 SUCCESS
In a year of staggering economic disruption, how was Fastenal able to achieve growth? The key, as
always, was our people – a resilient and resourceful team that rose to, and above, the challenges of 2020.
But there were structural factors in play as well, core aspects of our business that enabled us to provide
critical products to critical industries, earn new opportunities, and exit a tumultuous year stronger than we
entered it.
I
Y
T
I
L
I
B
X
E
L
F
L
A
T
I
P
A
C
WORKING CAPITAL &
NET DEBT RELATIONSHIP
$2.4B
$2.3B
$2.2B
$2.1B
$2B
SAFETY
STRENGTH
% OF TOTAL COMPANY SALES —
SAFETY & GOVERNMENT
30%
20%
10%
$450M
$350M
$250M
$150M
$50M
DEC
2019
FEB
2020
APR
2020
JUNE
2020
AUG
2020
OCT
2020
DEC
2020
WORKING
CAPITAL
DEBT, NET
OF CASH
Our conservative financial structure supports growth by keeping
us nimble. In late March, as the pandemic hit North America, we
were able to close an acquisition that adds long-term strategic
value to our vending business. In the second quarter, our ability
to flex to a record level of debt allowed us to carry inventory for
temporarily shuttered customers, solidifying those partnerships.
It also facilitated the sourcing of products that opened doors to
many new customers, particularly in healthcare and state and local
government. In addition, we were able to reward our shareholders
with a special dividend in December.
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2019
2020
SAFETY
GOVERNMENT
The development of our safety program over the past
decade proved critical in helping healthcare and government
customers battle the pandemic. Our ability to understand
local needs, and to source and transport personal protective
equipment in a crisis, resulted in us adding more than 4,500
new state and local government and healthcare customers,
more than doubling those markets in our mix. We believe we’ve
created relationships that can sustainably lift our share in this
large market, in safety products, and in vending services for
years to come.
SOURCING AGILITY
Many supplier partners faced supply restraints in 2020,
requiring us to quickly identify, vet, and develop relationships
with new or secondary sources. In 2019, roughly 80% of the
value of COVID-affected safety and janitorial products came from
18 major suppliers. In 2020, the proportion of our product value
from those major suppliers fell to 40%, while the proportion
coming from secondary and previously unused suppliers was
36% and 24%, respectively. This is a testament to the strength
of our global sourcing and supply chain teams – a perennial
differentiator that shone brighter than ever in 2020.
8
SAFETY & JANITORIAL SUPPLIERS —
COVID-AFFECTED SUPPLIES
19.3%
36.3%
80.7%
40.0%
23.7%
2019
2020
MAJOR
(18 SUPPLIERS)
SECONDARY
(671 SUPPLIERS)
NEW
(791 SUPPLIERS)
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, 2020
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)
41-0948415
(I.R.S. Employer Identification No.)
2001 Theurer Boulevard, Winona, Minnesota
(Address of principal executive offices)
55987-1500
(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
Trading Symbol(s)
FAST
Name of each exchange on which registered
The Nasdaq Stock Market LLC
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 x No o
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 o No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
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 such files). Yes x No o
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 the definitions of "large accelerated filer", "accelerated filer", "smaller
reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated Filer
x
☐
Accelerated Filer
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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2020, the last business day
of the registrant's most recently completed second fiscal quarter, was $24,488,427,338, based on the closing price of the registrant's
Common Stock on that date. For purposes of determining this number, all executive officers and directors of the registrant as of
June 30, 2020 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 22, 2021, the registrant had 574,317,276 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
Item 6.
Equity Securities
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
15
21
22
23
23
24
25
26
41
42
64
64
65
65
67
67
67
67
68
69
71
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the annual meeting of shareholders to be held Saturday, April 24, 2021 ('Proxy Statement')
are incorporated by reference in Part III. Portions of our 2020 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 about capital expenditures, tax rates, inventory levels, in-market locations and signings of
Onsite locations and new machine equivalent units (including industrial vending and FAST Bin technologies), digital and other
product offerings, national accounts as a percentage of overall sales, the advantages of our integrated physical and virtual
model, and the sustainability of our growth in the safety product market that we experienced during the COVID-19 pandemic.
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 (including economic downturns as a result of global pandemics, including
the ongoing COVID-19 pandemic), weakness in the manufacturing or commercial construction industries, competitive pressure
on selling prices, changes in trade policies or tariffs, 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, 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 discrete items 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, difficulty in obtaining continued business from new safety product
customers, 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 splits in both 2019 and 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, 2020 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 spanning more than nine major 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 2020, we had 3,268 in-market locations (defined in the table below) in 25 countries
supported by 15 distribution centers in North America (12 in the United States, two in Canada, and one in Mexico), and one in
Europe, and we employed 20,365 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.
Our Channels to Market
We engage our customers primarily through branch and Onsite locations. Branches and Onsites exist very close to our
customers, usually within miles in the case of the former and most often within our customers' physical locations in the case of
the latter, and together constitute our ‘in-market’ network. Many of our customers engage with us through e-commerce, but
most of our sales through this channel are with customers that use e-commerce to supplement our service through our other
channels.
The following table shows our consolidated net sales for each of the last ten fiscal years; the number of branch, Onsite, and total
in-market locations at the end of each of the last ten fiscal years; their respective sales, as well as the average monthly sales per
location that were generated from our branch and Onsite locations; and our revenue generated from non-traditional sources:
Net sales
$ 5,647.3 5,333.7 4,965.1 4,390.5 3,962.0 3,869.2 3,733.5 3,326.1 3,133.6 2,766.9
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Public branches
Branch revenue(1)
Average sales per
branch location(2)
Onsite locations(3)
Onsite revenue(1)
Average sales per
Onsite location(2)
Other revenue(4)
2,003
2,637
$ 3,587.1 3,660.1 3,625.8 3,399.6 3,198.1 3,281.8 3,225.3
2,114
2,227
2,383
2,503
2,622
2,687
2,652
2,585
$ 145.2
1,265
131.1
894
$ 1,485.6 1,391.7 1,081.7
140.5
1,114
$ 104.1
$ 574.6
115.5
281.9
120.3
257.6
116.0
605
770.2
127.6
220.7
104.0
401
569.2
142.7
194.7
104.0
264
454.3
158.4
133.1
101.0
214
387.7
157.6
120.5
3,268
Total in-market locations(5)
(1) Revenues attributable to our traditional and international branch locations, and our Onsite locations, respectively.
(2) Average sales per month considers the average active base of branches and Onsites, respectively, in the given year, factoring
in the beginning and ending location count, divided by total revenues attributable to our branch and Onsite locations, further
divided by twelve months, respectively. This information is presented in thousands.
2,652
3,228
3,121
2,988
2,904
2,886
2,851
2,687
2,585
(3) Onsite 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.
(4) This portion of revenue is generated outside of our traditional in-market location presence, examples of which include our
custom in-house manufacturing, revenues arising from our leased locker arrangements, and other non-traditional sources of
revenue.
(5) 'In-market locations' is defined as the sum of the total number of public branches and the total number of Onsite locations.
This structure has evolved over time as a result of one of Fastenal's guiding principles since inception: that we can improve our
service by getting closer to the customer. Through much of our history, this was achieved by opening branches, and more
recently, through new Onsite locations. Today we believe there are few companies that offer our North American in-market
location coverage. In 2020, roughly 54% of our sales and 52% of our in-market locations were in major Metropolitan Statistical
3
Areas (MSAs); (populations in the United States and Canada greater than 500,000 people), while 20% of our sales and 18% of
our in-market locations were in small MSAs (populations under 500,000 people), and 26% of our sales and 30% of our in-
market locations were not in an MSA. In our view, this has proven to be an efficient means of providing customers with a broad
range of products and services on a timely basis. Maintaining operations that are physically proximate to our customers'
operations have represented, and continue to represent, the foundation of our service approach.
We have two primary versions of our branch locations:
1.) A 'traditional branch' typically services a wide variety of customers, including our larger national and regional accounts as
well as retail customers. 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 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, traditional branch
openings were a primary growth driver for the company, and we experienced net openings each year over that time span.
However, new growth drivers, business models, and business tools (Onsite, vending, digital solutions) have emerged and
diminished the direct role of traditional branch openings in our growth. Traditional branches were entirely U.S.-based until
1994, when we opened our first location in Canada. At the end of 2020, we had 1,868 traditional branches in the United States
and Canada, and they represented 58.6% of total sales.
Traditional branches are also differentiated by their operating styles. Certain locations are Customer Service Branches (CSBs),
which tend to feature a showroom, regular hours during which it is open to the public, and our standard stocking model of
products designed for contractors. CSBs are similar in function to a hardware store and they often conduct some business with
non-account or retail-like customers. However, this customer set typically represents less than 10% of sales at this type of
location. Other locations operate as Customer Fulfillment Centers (CFCs), which tend to feature a limited showroom, reduced
hours of access to the public, greater usage of will-call, and stock customer-specific inventory. These tend to appear and
function more like an industrial supply house and stocking location and tend not to have transactions with non-account or retail-
like customers unless it is a will call arrangement related to an online transaction. The choice of operating style is made by local
leadership and is based on local market considerations.
2.) An 'international branch' is the format we typically deploy outside the United States and Canada. We first expanded outside
of the United States and Canada when we opened a branch in Mexico in 2001. Since then, we have continued to expand our
global footprint and at the end of 2020, we operated in 23 countries outside of the United States and Canada. Mexico is the
largest of these, and we also operate in Europe, Asia, and Central and South America. Our go-to-market strategy in countries
outside of the United States and Canada focuses primarily on servicing large, national account customers disproportionately
concentrated in manufacturing. From a product perspective, these customers are more heavily oriented toward planned fastener
spend, though non-fastener MRO spend is becoming more common in these markets. Despite strong growth in our international
business in recent years, we are not as well recognized in many of our locations outside of the U.S. and Canada as we are in the
U.S. and Canada. However, our ability to provide a consistent service model, including vending, bin stocks, and Onsites, on a
global basis is attractive to our foreign customer base, much of which are the foreign operations of North American-based
companies. At the end of 2020, we had 135 international branches operating outside the U.S. and Canada, and they represented
4.9% of total sales.
Traditional and international branches sell to multiple customers. 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 111 branches in 2020, 113 branches in 2019, and 156 branches in 2018. Our total decline since 2013 is 684
branches.
Onsite locations may influence the trend in our traditional branch count over time, but are not the primary reason for our
traditional branch closings. The Onsite concept is not new, in that we entered into the first such arrangement in 1992. However,
it was largely a local option that grew slowly before we identified it as a growth driver in 2014. We have made substantial
investments toward accelerating its traction in the marketplace since 2015. In this model, we provide dedicated sales and
service to a single customer from a location that is physically within the customers' facility (or, in some cases, at a strategically
placed off-site location), with inventory that is specific to the customers' needs. In many cases, we are shifting revenue with the
customer from an existing branch location, though we are beginning to see more new customer opportunities arise as a result of
our Onsite capabilities. 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. It has been our experience that sales mix at our Onsite
locations produces a lower gross profit percentage than at our branch locations, but we gain revenue with the customer and our
cost to serve is lower. We have identified over 15,000 manufacturing and construction customer locations in the United States
with potential to implement the Onsite service model. These include customers with which we have an existing national account
relationship today, as well as potential customers we are aware of due to our local market presence. However, as awareness of
our capabilities has grown, we have identified additional Onsite potential with certain agencies of state, provincial and local
government customers and academia. We also believe as we follow our existing national account customers outside the United
States our market potential for Onsite solutions will continue to expand. The international opportunity is substantial, but our
speed is limited by the relatively underdeveloped infrastructure in comparison to the United States. We expect revenues from
Onsite arrangements to increase meaningfully over time. We experienced net increases of 151, 220, and 289 Onsite locations in
4
2020, 2019, and 2018, respectively, and signed 223, 362, and 336 new Onsite locations in 2020, 2019, and 2018, respectively.
We had 1,265 Onsite locations as of December 31, 2020, and they represented 26.3% of total sales. We believe the marketplace
can support 375 to 400 new Onsite signings annually, and our goal in 2021 is to sign that many locations. However, we
recognize that achieving the goal will be challenging, as the continued prevalence of COVID-19 infections has made gaining
access to customer facilities and decision-makers difficult.
We believe the profitability of our in-market locations is affected by the average revenue produced by each site. In any in-
market location, certain costs related to growth are at least partly variable, such as employee-related expenses, while others, like
rent and utility costs, tend to be fixed. As a result, it has been shown that as an in-market location increases its sales base over
time it typically will achieve a higher operating profit margin. This ability to increase our operating profit margin is influenced
by: (1) general growth based on end market expansion and/or market share gains, (2) the age of the in-market location (new
locations tend to be less profitable due to start-up costs and, in the case of a traditional branch, the time necessary to generate a
customer base), and/or (3) rationalization actions, as in the past several years we have seen a net decline in our traditional
branch base. There are many reasons why local or regional management might decide to close a location. Key customers may
have migrated to a different part of the market, factories may have closed, our own supply chain capabilities in a market may
have evolved to allow us to service some areas with fewer traditional branches, and/or our customers may have transitioned to
our Onsite model. An Onsite may also close because local or regional management determines that the business at the location
is unlikely to scale sufficiently to justify our being on premise, in which case the relationship often reverts to being managed in
a local traditional branch. The paths to higher operating profit margins are slightly different in a traditional branch versus an
Onsite location, as the former will tend to have more fixed costs to leverage while the latter will tend to have a smaller fixed
cost burden but have greater leverage of its employee-related expenses. 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 even as its fixed
expenses are largely unchanged.
The following table provides a summary of the public branches and Onsite 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
In-Market Locations - 12/31/18
Starting Branches
Opened Branches
Closed/Converted Branches (5)
Ending Branches
Starting Onsites
Opened Onsites
Closed/Converted Onsites (5)
Ending Onsites
In-Market Locations - 12/31/19
Starting Branches
Opened Branches
Closed/Converted Branches (5)
Ending Branches
Starting Onsites
Opened Onsites
Closed/Converted Onsites (5)
Ending Onsites
United
States
2,656
1,924
1
(119)
1,806
732
271
(78)
925
2,731
1,806
—
(117)
1,689
925
211
(92)
1,044
Mexico &
Caribbean
(1)
Canada
246
186
1
(4)
183
60
18
(7)
71
254
183
—
(4)
179
71
16
(6)
81
133
60
5
(1)
64
73
16
(7)
82
146
64
3
(1)
66
82
18
(7)
93
Subtotal
3,035
2,170
7
(124)
2,053
865
305
(92)
1,078
3,131
2,053
3
(122)
1,934
1,078
245
(105)
1,218
2,733
In-Market Locations - 12/31/20
(1) Mexico, Puerto Rico, and Dominican Republic
(2) Panama, Brazil, Colombia, and Chile
(3) Singapore, China, Malaysia, and Thailand
260
159
3,152
5
Central &
South
America
(2)
Asia
(3)
Europe
(4)
14
6
—
—
6
8
2
(1)
9
23
14
1
(1)
14
9
1
1
11
25
15
14
6
5
—
(1) —
19
5
9
6
—
15
20
11
1
—
12
31
Subtotal
86
57
5
(1)
61
29
7
—
36
97
61
9
(1)
69
36
12
(1)
47
Total
3,121
2,227
12
(125)
2,114
894
312
(92)
1,114
3,228
2,114
12
(123)
2,003
1,114
257
(106)
1,265
49
37
4
—
41
12
4
—
16
57
41
4
—
45
16
5
(1)
20
65
116
3,268
(4) The Netherlands, Hungary, United Kingdom, Germany, Czech Republic, Italy, Romania, Sweden, Poland, Austria,
Switzerland, Ireland, Spain, France, and Belgium
(5) The net impact of non-in-market locations or Onsite locations converted to branches, branches converted to Onsite locations
or non-in-market locations, and closures of branches or Onsite locations.
We utilize additional types of selling locations within our network, but these tend to be more specialized in nature and relatively
few in number, comprising less than five percent of our total selling locations. 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.
Our Business Tools
Fastenal Managed Inventory (FMI)
Over time, we have invested in and developed various technologies that allow us to put physical product closer to the point of
use in a customer location, increase the visibility of a customer's supply chain (to the customer as well our personnel), and/or
improve the ability to monitor or control usage. While there are isolated exceptions, these technologies are not themselves
channels to the market but rather are utilized by our branch and Onsite channels to enhance service to our customers.
Collectively, these tools form our Fastenal Managed Inventory (FMI) capabilities. We believe our fully integrated distribution
network allows us to manage the supply chain for all sizes of customers. FMI programs tend to generate a higher frequency of
business transactions and, coupled with our fully integrated distribution network, foster a strong relationship with customers.
We introduced industrial vending (FAST Vend) in 2008 to provide our customers with improved product monitoring and
control. Benefits include 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 of inventory and
local personnel. For these reasons, the initiative began to gain significant traction in 2011 and we finished 2020 with
approximately 110,700 devices in the field (approximately 15,000 of which relate to a locker lease program with a specific
retail customer). Our discussion generally focuses on the approximately 95,700 product revenue devices. We believe industrial
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.
Our industrial vending portfolio consists of 24 different vending devices, with 15 of these being in either a helix or locker
format. Our most utilized models include the helix-based FAST 5000 and our 12- and 18-door lockers; combined, these
comprise approximately 70% of our installed base of devices. These are either configurable or are available in multiple
configurations to accommodate the various sizes and forms of products that will be dispensed to match the unique needs of our
customers. Target monthly revenues per device typically range from under $1,000 to in excess of $3,000, with our flagship
FAST 5000 device having a targeted monthly throughput of $2,000.
Bin stock (FAST Stock and FAST Bin) programs, where product is held in bins in a customer facility, is similar to our
vending business in that it involves moving product closer to the point of customer use within their facilities. Such programs,
which we call FAST Stock, have existed in the industrial supply industry for a considerable time, with open bins being
clustered in a racking system, each of which holds original equipment manufacturing (OEM) fasteners, maintenance, repair, and
operations (MRO) fasteners, and/or non-fastener products that are consumed in the customers' operations. Historically, these
bins were simply plastic containers that held product and were visually inspected by our customers or Fastenal personnel to
determine replenishment need. These bins in some cases are organized and labeled into customer plan-o-grams which allow for
the scanning of product when product is at a minimum desired level. However, in 2019 we introduced our FAST Bin
technology, which we began to more aggressively commercialize in 2020. FAST Bin is the evolution of FAST Stock into a set
of electronic inventory management solutions that automate process controls by providing 24/7 continuous inventory
monitoring, real-time inventory visibility, and more efficient replenishment of bin stock parts. These technologies come in three
forms: (1) Scales utilize a high-precision weight sensor system to measure the exact quantity on hand in real time, automatically
sending an order to Fastenal when inventory hits an established minimum. (2) Infrared uses infrared sensors lining individual
bins to provide real-time visibility of approximate quantity and inventory values, automatically sending an order to Fastenal
when inventory hits an established minimum threshold. (3) RFID is a Kanban system that utilizes RFID tags so that when an
empty bin is removed from the rack and placed in a replenishment zone (also part of the same racking system) an automatic
refill order is generated. These technologies provide superior monitoring capabilities. These capabilities provide immediate
visibility to consumption changes, allowing for a lean supply chain, avoiding stock outs, and providing a more efficient labor
model for both the customer and the supplier.
We plan on changing our reporting of FMI beginning in 2021. Historically, we have reported only on FAST Vend. However,
the development and commercialization of FAST Bin and its digital capabilities, combined with industrial vending, provides us
with a broader suite of tools with which to best manage our customers' product consumption and fulfillment, which we believe
6
will enhance our ability to manage and grow our OEM and MRO fasteners, hydraulics and pneumatics, and other product
offerings. Further, we view the value-add offered to our customers by FAST Bin as it relates to product monitoring and data
collection to be comparable to our industrial vending solution. As a result, beginning in 2021, we will begin to report 'Weighted
FMI Device' signings and installations, which is the combined activity of FAST Vend and FAST Bin converted into a
comparable unit of measure, or 'machine equivalent unit' (MEU). This conversion takes the targeted monthly throughput of
each FMI device signed or installed and compares it to the $2,000 target monthly throughput of our FAST 5000 vending device.
For example, an RFID enclosure, with target monthly revenue of $2,000 would be counted as '1.00' machine equivalent
($2,000/$2,000 = 1.00). An infrared bin, with target monthly revenue of $40, would be counted as '0.02' machine
equivalent' ($40/$2,000 = 0.02). In 2021, we anticipate weighted FMI device signings to be in a range of 23,000 to 25,000
MEUs. Similar to Onsite, however, we recognize that achieving the goal will be challenging, as the continued prevalence of
COVID-19 infections has made gaining access to customer facilities and decision-makers difficult.
The tables below contain information on how the presentation of weighted FMI devices differs from the industrial vending
information (product revenue devices) on signings and installations that we have previously provided.
Vending device count signed during the period
2020
2019
2018
Machine equivalent vending count signed during the period 2020
2019
2018
Machine equivalent FMI devices signed during the period
Vending device count installed at the end of the period
2020
2019
2018
2020
2019
2018
Machine equivalent vending count installed at the end of the 2020
2019
period
2018
Machine equivalent FMI devices installed at the end of the
period
2020
2019
2018
Annual
16,417
21,857
22,073
15,717
20,563
20,382
15,724
20,593
20,382
Q1
4,798
5,603
5,679
4,561
5,213
5,271
4,564
5,213
5,271
Q1
92,124
83,410
73,561
79,230
69,258
58,571
79,233
69,258
58,571
Q2
3,483
5,439
5,537
3,362
5,058
5,250
3,364
5,075
5,250
Q2
92,615
85,871
76,069
80,123
71,942
61,405
80,128
71,959
61,405
Q3
4,680
5,671
5,877
4,515
5,354
5,251
4,517
5,364
5,251
Q3
94,395
88,327
78,706
82,236
74,686
64,205
82,243
74,713
64,205
Q4
3,456
5,144
4,980
3,279
4,938
4,610
3,279
4,941
4,610
Q4
95,733
89,937
81,137
83,802
76,792
66,784
83,809
76,822
66,784
Digital Solutions
We also invest in digital solutions that aim to deliver strategic value for our customers, leverage local inventory for same-day
solutions, and provide efficient service. While there is a transactional element to our digital services, many of the solutions we
invest in are intended to add value to customers by illuminating various elements of their supply chain. These solutions take
many forms:
1.) Transactional. Our transactional, or e-commerce, platforms (web verticals or integrated catalogs) provides a means for our
customers to effectively and efficiently procure MRO and unplanned spend. One of our e-commerce solutions, Fastenal
EXPRESS, guides our customers to products which are locally stocked, capitalizing on our existing location footprint, in order
to provide same-day or early next-day service for online orders. This positions us to outperform what is most typically a 24- to
48-hour fulfillment expectation. While there is a retail component to our transactional digital services, most of the revenue
attributable to this is with our traditional customer base, nearly all of which purchase digitally as a supplement to other channels
and tools that it utilizes with Fastenal. We attribute the revenue generated from a customer location through our transactional
platforms to the in-market location that traditionally services that customer location.
2.) Digital Visibility. Certain of our digital capabilities are intended to produce operational efficiencies for our customers and
ourselves and/or to deliver strategic value by illuminating customer supply chains. For instance, we have developed, and
continue to develop, 'Mobility' applications, one example of which is our Vending App, which provides a number of benefits. It
provides easy, real-time information pertaining to a customer's local inventory position within their point-of-use devices. It
7
incorporates customer usage data to recommend optimized parts and quantity for specific devices, improving customer
inventories while reducing stock-outs. Moving our fulfillment process from a vending device-based keypad function to a tablet
or scanning interaction improves the restock process, reducing time consumed (greater efficiency) while improving accuracy
(improved quality assurance). We will continue to build out our suite of apps. We also have 'eProcurement Solutions'.
Electronic Data Interchange (EDI), is the connectivity between our system and our customers' procurement systems – whether a
direct integration into their Enterprise Resource Planning (ERP) system or through a third-party procurement network or
marketplace. These solutions provide system-to-system exchange of electronic procurement documents (such as purchase
orders, advanced shipping notices, and invoices for direct and indirect spend). Our eProcurement Solutions provide a bridge
between our FMI replenishment activity and our customers' procurement systems – creating an efficient, accurate and
streamlined procure-to-pay (P2P) process. 'FAST 360' acts as the bridge between our FMI footprint and a customer's view into
our managed service model. FAST 360 surfaces data around these managed services as one central source of information as we
manage our customers' OEM and MRO product lines. This is achieved through our FMI technologies providing locational data
around our FAST Vend, FAST Bin, and FAST Stock footprint, and FAST 360 being the means of surfacing that data and
activities to our customers.
3.) Analytics. We provide solution-based digital platforms (e.g., web verticals or integrated catalogs) which leverages our
existing strategic environment by creating a means of migrating online spend offline, which illuminates our supply chain
capabilities. This is marketed under the 'FAST 360 Analytics' label, as it is an enterprise-centric extension of the digital
visibility capabilities of FAST 360. We bring value to our customers, as well as ourselves, by using these digital platforms and
analytics to shift product from a 'non-sticky' transactional environment (which is online) to a 'sticky' strategic environment
(which is our FMI programs). We create customer cost savings opportunities through this directive by lowering the total cost of
ownership (TCO) as the objective is to 'shrink' the unplanned – high cost – purely transactional spend bucket.
We believe our integrated physical and virtual model, when paired with our national (and increasingly international) scope,
represents a unique capability in industrial distribution when compared to e-commerce as an independent sales channel. We
expect to continue to build out and develop our digital solutions over time.
We believe our global channels to market and business tools, including those that we consider to be growth drivers (Onsites,
international expansion, FMI, and digital solutions) 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 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 operate fifteen regional distribution centers in North America. Twelve are in the United States – Minnesota, Indiana, Ohio,
Pennsylvania, Texas, Georgia, Washington, California, Utah, North Carolina, Kansas, and Mississippi – and three are outside
the United States – Ontario, Canada; Alberta, Canada; and Nuevo Leon, Mexico. We also operate one distribution center in
Europe, located in Dordrecht, Netherlands. These distribution centers give us approximately 4.6 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 77% of our North
American in-market locations receiving service four to five times per week. The distribution centers in Indiana and Kansas also
serve as 'master' hubs, with those in California and North Carolina 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.
We currently operate our Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, North Carolina,
Kansas, and Ontario, Canada distribution centers with automated storage and retrieval systems (ASRS). These eleven
distribution centers operate with greater speed and efficiency, and currently handle approximately 95% of our picking activity.
We expect to add and/or expand new distribution centers over time as our scale and the number of our in-market locations
increases.
Our information systems team develops, implements, and maintains the computer based technology used to support business
functions within Fastenal. Corporate, digital, 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 custom in-
house developed, purchased, and subscription 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. We have registered, or applied for the registration of, various
8
trademarks and service marks. Our registered trademarks and service marks are presumed valid in the United States as long as
they are in use, their registrations are properly maintained, and they have not been found to have become generic. Registrations
of trademarks and service marks can also generally be renewed indefinitely as long as the trademarks and service marks are in
use.
Products
Fastenal was founded as a distributor of fasteners and related industrial and construction supplies. This includes threaded
fasteners, 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 29.9%, 34.2%, and 34.9% of our consolidated net
sales in 2020, 2019, and 2018, 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 also 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 70.1%, 65.8%, and 65.1% of our
consolidated sales in 2020, 2019, and 2018, 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 disproportionately from our development of industrial vending.
The most significant category of non-fastener products is our safety supplies product line, which accounted for 25.5%, 17.9%,
and 17.2% of our consolidated sales in 2020, 2019, and 2018, respectively. This product line has enjoyed dramatic sales growth
in the last ten years which we believe is directly attributable to our success in industrial vending over that period. The exception
to this is the significant increase in safety sales as a percentage of consolidated net sales in 2020, which is directly attributable
to dramatic increases in demand for personal protective equipment (PPE) in response to the COVID-19 pandemic in that year.
Our tools product line represented approximately 8.2%, 9.9%, and 10.0% of consolidated net sales in 2020, 2019, and 2018,
respectively.
In the last several decades we have added 'private label' brands (often referred to as 'Exclusive Brands', or brands sold
exclusively through Fastenal) to our non-fastener offering. These private label brands represented approximately 13% of our
consolidated net sales in each of 2020, 2019, and 2018. We believe it is also appropriate to think about our private label sales as
a percentage of our non-fastener sales for two reasons: (1) branded vs. private label dynamics of fasteners differ from those of
non-fasteners; and (2) non-fastener data is more comparable to information reported by our peers, who do not generally have
our significant mix of fastener business. Private label brands represented approximately 18%, 19%, and 19% of our total non-
fastener sales in 2020, 2019, and 2018, respectively. Our percentage of private label brand sales as a percentage of our total
non-fastener sales in 2020 declined due to strong growth of COVID-related PPE, which was not sold under a private label
brand, while demand was weak for other safety products, many of which are marketed under a private label brand and were
more greatly affected by economic weakness in our traditional manufacturing and construction customers. Prior to 2020, we
generally had experienced increases in sales of private label products as a percentage of total non-fastener sales when looking at
specific sales channels such as Onsite locations, branches, and vending. However, these increases were masked by the relative
sales growth we were experiencing with Onsite locations, which typically have a lower percentage of total sales being private
label than is the case in branches or sales through vending devices.
We plan to continue to add other product lines in the future.
Detailed information about our sales by product line is provided in Note 3 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 development team. 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
level for all stock items and triggers replenishment, or prompts a buyer to purchase, as necessary, based on an established
minimum-maximum stocking level. All branches stock a base inventory and may expand beyond preset inventory levels as
9
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 59%,
60%, and 61% of our total inventory at the end of 2020, 2019, and 2018, respectively. Inventory held at our distribution centers
and manufacturing locations accounted for approximately 41%, 40%, and 39% of our total inventory at the end of 2020, 2019,
and 2018, respectively. The distribution center and manufacturing location inventory, when combined with our trucking
network, allows for fast, next-day service at a very competitive cost.
Manufacturing and Support Services Operations
In 2020, 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 and hardware made to customers' specifications at one of our nine manufacturing locations, or
standard sizes manufactured under our Holo-Krome®, Cardinal Fasteners®, and Spensall® 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 2020.
In the case of fasteners and our private label non-fastener products, we have a large number of suppliers but these suppliers are
heavily concentrated in a single geographic area, Asia. Within Asia, suppliers in China represent a significant source of product.
As a result, the cost and effectiveness of our supply chain is dependent on relatively unfettered trade across geographic regions.
Beyond inventory, we have some concentration of purchasing activity. For example, we utilize a limited number of suppliers
for our distribution equipment and 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.
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 OEM and MRO customers and historically has represented approximately 65% of our business. The non-residential
construction market includes general, electrical, plumbing, sheet metal, and road contractors and historically has represented
approximately 10-15% of our business. Other users of our products include farmers, truckers, railroads, oil exploration
companies, oil production and refinement companies, mining companies, federal, state, and local governmental entities,
schools, and certain retail trades.
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, while a
meaningful part of our revenue is derived from products that are incorporated into final products, we also have a significant
portion of revenue that is derived from products used to maintain facilities. This latter source of revenue tends to be directly
influenced by cyclical changes, but its rate of change tends to be less dramatic.
In 1995, 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 OEM and MRO 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
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these customers has only been strengthened as we have added other channels, such as Onsite, FMI, digital solutions, and
resources to serve these customers' unique demands. As a result, in 2020, national accounts represented 55.0% of our sales,
compared to 53.6% and 50.7% in 2019 and 2018, respectively. We believe sales to national accounts customers will continue to
increase as a percent of our total sales over time.
In an in-market location, our customers' business activity is tracked through 'active accounts'. Customers often have more than
one active account at a single in-market location, reflecting their utilization of different Fastenal services, and frequently have
active accounts at many in-market locations across our global network. During the fourth quarter of 2020, our total number of
active customer accounts (defined as accounts having purchase activity totaling at least $100 within the last 90 days) was
approximately 218,000, while our total 'core accounts' (defined as the average number of accounts with purchase activity of at
least $500 per month within the last 90 days) was approximately 77,000. During 2020, we had a single customer that
represented 5% of our consolidated net sales, whereas all remaining customers fell below that threshold. During both 2019 and
2018, no single customer represented 5% or more of our consolidated net sales.
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 sales team with multi-channel marketing including direct mail and digital
marketing, print and radio advertising, targeted campaigns, promotional flyers, and events. 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 the No. 17 car in the NASCAR® Cup Series, driven by Chris Buescher. In 2020, our sports marketing efforts were
extended when the National Hockey League (NHL®) awarded us as the preferred MRO supplier of the sport.
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 direct and indirect 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 third quarter).
Competition
Our business is highly competitive, and includes large national distributors whose strongest presence tends to be in more
densely populated areas, and smaller regional or local distributors, which compete in many of the 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. With respect to products, many of the larger distributors have trended
toward a broad-line offering over time; however, 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 e-commerce solutions, such as websites, and while this channel has been embraced by many
traditional distributors it also has introduced non-traditional, web-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 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 selling and
stocking presence closer to the customers' 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
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 incremental investment
given the existing branch and distribution structure.
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Human Capital Resources
Employees
At the end of 2020, we employed 20,365 full and part-time employees. Of these, approximately 72% held an in-market or non-
branch selling role. We characterize these personnel as follows:
In-market locations (branches & Onsites)
Non-in-market selling (1)
Selling subtotal
Distribution/Transportation
Manufacturing
Administrative (2)
Non-selling subtotal
2020
2019
12,680
1,952
14,632
3,583
639
1,511
5,733
13,977
1,854
15,831
4,012
711
1,394
6,117
Total
21,948
(1) Our non-in-market selling employee count has grown in recent years due to an increased focus on resources to support our
20,365
growth drivers, particularly Onsite and national account growth.
(2) Administrative primarily includes our Sales Support, Information Technology, Finance and Accounting, Human Resources,
and senior leadership roles and functions. Our administrative employee count has also grown in recent years due to an
increased focus on technology capabilities. For example, 66.7% of the increase in administrative employees in 2020 over
2019 related to our additions to our information technology teams.
Employee Profile
As of December 31, 2020, we had 20,365 employees worldwide, with 16,820 of those employees located within the United
States (U.S.), 2,277 employees located in Canada and Mexico, and 1,268 employees located overseas in 22 other countries
throughout the world. Approximately 72% of our employees maintain customer-facing sales roles, directly interacting with our
customers on a daily basis from one of our 3,268 in-market locations. The remaining population of our workforce comprise our
in-house manufacturing capabilities (3.1%), our captive transportation and distribution functions (17.6%), and our
administrative support functions (7.4%), supporting our sales force and continuing to drive value for our customers.
Based on our 2019 EEO-1 data, which is our most recently filed information, in the United States females and minorities
constitute 24.5% and 20.9% of our workforce, respectively. Based on U.S. Bureau of Labor Statistics data, we believe
Fastenal’s mix of female and minority employees is consistent with, if not higher than, the proportion of females and minorities
working in manufacturing and construction, which is representative of the pool of employees from which we might draw
candidates. Relative to 2012, our female and minority workforces have grown 2.2x and 3.0x faster, respectively, than our
overall U.S. workforce.
Health and Safety
Employee health and safety continues to be a priority in every aspect of our business. We’ve taken a multi-faceted approach to
safety that helps us understand and reduce hazards in our business. Trainings, audits, inspections, risk assessments, safety
coaching, and employee engagement are all programs that help us consistently manage our facility and employee safety. Our
internal scorecard system and safety management system ensures we maintain focus on a variety of risks while we sustain an
inclusive safety environment that contributes to innovation and improved performance. We continue to expand and evolve our
safety programs to better meet our employee needs and workplace conditions as our business grows.
This commitment to, and continuous improvement towards, a safer work environment for our employees has generated
excellent results. A widely accepted measure of organizational health and safety is the Experience Modification Rate (EMR).
An organization’s EMR is established through the comparison of a company’s past and expected losses incurred through
workplace injury against industry averages, which are compiled by the National Council on Compensation Insurance and
consider unique variables such as the size and characteristics of an organization. Industry averages are benchmarked at a 1.00
EMR, with a reduction in the rate being reflective of an organization’s ability to implement superior safety procedures and
protocols, resulting in a safer environment and reducing both personnel and financial risk. In 2020, the most recent year for
which this figure has been calculated, Fastenal had an EMR of 0.45, which is 55% better than the average performance rate for
our industry.
2020 was unique for the impact that the COVID-19 pandemic had on organizations, including ours. Our response has
consistently evolved to meet the turbulent environment:
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•
•
•
•
•
•
•
•
•
The business continuity team implemented regular communication regarding impacts of the COVID-19 pandemic,
including health and safety protocols and procedures.
Implementing a hierarchy of controls to address hand washing, social distancing, cleaning areas and frequency,
personal protective equipment and resources to stay up to date on the changing conditions.
Deployment of face covers, dispensed through our vending technology, across the company for use in areas where
they are required and recommended.
Prohibiting all domestic and international non-essential travel for all employees.
Providing additional days of leave for full- and part-time employees to cope with the illness.
Restricting access to our non-public facilities such as corporate offices, distribution centers, sales offices, and
manufacturing locations.
Providing public branch access by appointment or pickup only in high risk areas.
Implementation of risk assessments in critical operating facilities.
Implementing protocols to address actual and suspected COVID-19 cases and potential exposure.
• Working closely with customers to meet their specific COVID-19 requirements and maintain service.
•
Providing all of our employees with frequent updates to share stories of how we were helping customers and each
other, disclosing COVID-19 statistics within the organization.
We understand the benefits of employee health and safety and continue to invest in programs, products, and resources. We also
understand the environment of trust and fairness that exists when information is openly shared. As an essential provider of
personal protective equipment to critical customers, we also continue to invest in products and services to meet the health and
safety needs of our customers and communities.
Employment and Compensation Philosophy
Fastenal’s success is defined by our people. Our cultural values – Ambition, Integrity, Innovation, and Teamwork – are woven
into the fabric of our human resources processes and protocols, and inform our employment and compensation philosophies.
Several principles underpin our employment philosophy. One is decentralization: placing employees close to our customers'
operations and trusting these employees to independently make local decisions to provide differentiated local service. A second
is that we are a passionately promote-from-within company, guided by a belief that if you work hard, make great decisions,
learn from mistakes, and exemplify our cultural values, you should receive greater opportunity and responsibility.
We believe these principles cultivate an entrepreneurial mindset and foster an environment of trust and empowerment.
As it relates to our compensation philosophy, we believe our combination and mix of base and bonus pay motivates our people
to high levels of individual and company success, as the goals and objectives have been repeatedly demonstrated to be
achievable with superior effort. We are guided by simple principles. (1) Programs should be easy to understand, with goals and
objectives that are clearly communicated and resources for success that are provided. They should be calculable by the
employee and numbers-driven (e.g., not subjective). (2) Total compensation should have a significant component that is based
on how well the employee has grown their piece of the business and served our customers. (3) Employees should receive
incentives as soon as practical upon attainment of the goal.
Approximately 72% of our employees interface directly with customers on a daily or frequent basis, with the remainder
supporting the selling efforts of our customer-facing employees. Typical pay arrangements provide a base amount paid
periodically during the month, along with a major opportunity to earn bonus amounts, paid monthly, based on growth in sales,
gross or pre-tax profit achieved, and prudent management of working capital. In certain roles, there may also be a portion of
compensation based on contribution to attaining predetermined departmental or project and cost containment goals, most
focused on either customer service or better execution of company-wide activities.
Because we believe the growth in the company's stock value should be the reward for achieving long-term success consistent
with being an owner, we have a stock option plan. In the case of certain foreign employees, we have a stock appreciation rights
plan. All of our employees are eligible to receive stock option grants or stock appreciation rights.
We believe our combination of short and long-term rewards and incentives has proven successful as reflected in our historic
performance and acceptable levels of employee retention and turnover.
Our employees are not subject to any collective bargaining agreements and we have experienced no work stoppages. We
believe our employee relations are good.
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Talent Acquisition and Development
Fastenal’s values are integral to our employment process and serve as guideposts for leadership. The ultimate goal is
straightforward: find great people, ask them to join, and give them a reason to stay. Reasons include training, opportunity, and a
welcoming environment. From a practical standpoint, this means that we attract a broad group of candidates and then hire the
candidate who is the best match for the position based on their skills and abilities. In accordance with our decentralized
leadership structure, we believe the person best suited to make this decision is the local leader trying to fill the opening. In light
of our promote-from-within philosophy, we know we are hiring a potential future leader with every new hire.
Our Human Resources department develops efficient processes to expand our reach and pool of diverse talent while balancing
the needs and requirements of data collection and storage. We have created a standardized framework for posting jobs and
interviewing for positions, supplemented with training through the Fastenal School of Business. We have a Diversity and
Compliance team that is heavily involved in developing this standardized framework, which ensures its integrity. Not only is
this process followed for all new hires, we replicate the same procedures for any internal transfers and promotions.
The Fastenal School of Business (our internal corporate university program, known as FSB) develops and delivers a
comprehensive array of industry and company-specific training and development programs that are offered to our employees.
The programs are offered through a combination of classroom instructor-led training, virtual instructor-led training, and online
learning. 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, products,
supply chain, and distribution.
Product Sourcing Endeavors
Sourcing from suppliers with good standing is the foundation of an ethical supply chain. We expect our suppliers to comply
with all regulations and standards, and we conduct risk analysis for suppliers who want to do business with us to obtain
additional supporting documentation affirming their ethics, quality, and reliability, so we can be certain they meet our standards
in these areas, and to ensure that they are complying with Fastenal's Supplier Terms & Code of Conduct, and Global Supplier
Purchase Order Terms & Conditions, as we are subject to the conflict minerals rules. With the help of third-party resources and
global databases scanning over 100 lists of agencies, known risk, adverse media, and financial status, Fastenal monitors key
areas of trade-related risk, including dual-use goods and utilization of sanctioned countries (or entities), as these are common
ways that international trade might provide capital and restricted goods to sanctioned parties, launder funds of drug traffickers,
and otherwise support criminals. We also evaluate our suppliers' approach to labor to ensure that they are using appropriate, and
appropriately compensated, employees.
With a local and global supplier base, continuous monitoring and local representation is a necessity to ensure protocols are
triggered when risk may be evident, ensuring a safeguard against poor and/or impaired quality and regulatory violations that
may otherwise impact our reputation in the marketplace. This is performed not only at the time of supplier vetting and
onboarding, but for the life of the relationship with the supplier. This process promotes a supply chain that is supportive of
Fastenal's Supplier Terms & Code of Conduct and Global Supplier Purchase Order Terms & Conditions. In the event of non-
compliance or potential risk, we work with the supplier to correct the situation. If remediation efforts are not undertaken to
ensure the supplier remains in compliance with Fastenal’s standards and code of conduct, alternative sources for supply may be
considered to ensure the integrity of our supply chain. Supply chain compliance representatives are placed in international
corporate offices to ensure global coverage and governance, ensuring that no matter where a customers' operations may take
them, Fastenal has the infrastructure, resources, and internal processes established to perform its supply chain governance
obligations.
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.
14
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 material 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
Operational Risks
to natural disasters, power
information systems are vulnerable
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.
Interruptions in the proper functioning of information systems or the inability to maintain or upgrade our information
systems, or convert to alternate systems in a timely and efficient manner, could disrupt operations, cause unanticipated
increases in costs and/or decreases in revenues, and result in less efficient operations. The proper functioning of our
information systems is critical to 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. Our information systems are
protected with robust backup systems and processes, including physical and software safeguards and remote processing
capabilities. Still,
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 products or services or
their relationship with us. It is also possible that we are unable to improve, upgrade, maintain, and expand our information
systems. Our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and
maintain the security of company and customer data, as well as the success of our growth drivers, is dependent in varying
degrees on the effective and timely operation and support of our information technology systems. If critical information systems
fail or these systems or related software or services are otherwise unavailable, or if we experience extended delays or
unexpected expenses in securing, developing, and otherwise implementing technology solutions to support our growth and
operations, it could adversely affect our profitability and/or ability to grow.
Cyber security incidents, or violations of data privacy laws and regulations, could cause us to 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 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 and have established and maintained disclosure controls and
procedures that would permit us to make accurate and timely disclosures of any material event, including any cyber security
event, 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. There can be no assurance that we will not
experience a cyber security incident that may materially impact our consolidated financial statements. 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. In addition, regulatory authorities have increased their focus on how companies collect, process, use, store, share,
and transmit personal data. New privacy security laws and regulations, including the European Union General Data Protection
Regulation 2016, the California Consumer Protection Act, and other similar state privacy laws, pose increasingly complex
compliance challenges, which may increase compliance costs, and any failure to comply with data privacy laws and regulations
could result in significant penalties.
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 within North America and abroad. In
recent years, we have increased the resources devoted to our growth drivers, including FMI, Onsites, national accounts, digital
15
solutions, and our international operations. While we have taken steps to build momentum in the growth drivers of our business,
we cannot assure you those steps will lead to sales growth and, due to the COVID-19 pandemic, our growth drivers did not
contribute meaningfully to higher sales in 2020. Failure to achieve any of our goals regarding FMI, Onsites, national accounts,
digital solutions, and international operations, or other growth drivers could negatively impact our long-term sales growth.
Further, failure to identify appropriate targets for our Onsite channel and FMI tools or failure to persuade the appropriate targets
to adopt these offerings once identified may adversely impact our goals regarding the number of new Onsite locations we are
able to open or the number of FMI installations we are able to deploy.
Changes in customer or product mix, downward pressure on sales prices, and changes in volume or timing of orders have
caused and could cause our gross profit percentage to fluctuate or decline in the future. Changes in our customer or product
mix have caused our gross profit percentage to decline and could cause our gross profit percentage to further fluctuate or
decline. For example, the portion of our sales attributable to fasteners has been decreasing for approximately twenty years. That
has adversely affected our gross profit percentage as our non-fastener products generally carry lower gross profit margins than
our fastener products. In addition, as a result of the COVID-19 pandemic, our sales were impacted by surge sales of pandemic-
related supplies, such as PPE and other safety-related products that have traditionally lower gross profit margins. Similarly, in
recent years, revenues from national accounts and/or Onsite customers, which typically have lower gross profit margins by
virtue of their scale, available business, and broader offering of products which typically have lower gross margins, have tended
to grow faster than revenues from smaller customers. Customer and product mix have contributed to the decline in our gross
profit percentage over time, including in 2020 and 2019, and will likely continue to affect our gross profit percentage in 2021
and beyond. However, whether and to what extent 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. Downward pressure on sales prices, changes in the volume or timing of our orders, and an inability to pass
higher product costs on to customers could also cause our gross profit percentage to fluctuate or decline. For example, in the
second quarter of 2020, we had to quickly purchase large volumes of pandemic-related products from non-traditional sources
and non-optimized supply chains, which had a negative impact on gross profit. 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. We may not be able to pass rising product
costs to customers if those customers have ready product or supplier alternatives in the marketplace.
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 or general market 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.
Our competitive advantage in industrial vending (FAST Vend) and bin stock (FAST Stock and FAST Bin) tools could be
eliminated and, in the case of FAST Vend, the loss of key suppliers of equipment and services could be impactful and result
in failure to deploy devices. We believe we have a competitive advantage in industrial vending and bin stock due to our
hardware and software, our local branch presence (allowing us to service devices and bins more rapidly), our depth of products
that lend themselves to being dispensed through industrial vending devices or bin stocks, and, in North America, our
distribution strength. These advantages have developed over time; however, other competitors could respond to our expanding
industrial vending and bin stock position with highly competitive platforms of their own. Such competition could negatively
impact our ability to expand our industrial vending and bin stock tools 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 our FAST Vend platform. 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. In addition, our ability to expand deployment of our industrial vending and bin stock tools could be limited by events
similar to the COVID-19 pandemic if customers shift their energy to short-term disruptions instead of long-term strategic
planning.
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, our ability to generate additional sales, and our 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
16
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, national account sales representatives, and support personnel, 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, particularly for less tenured
employees. 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 expansion of our various 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 gross and/or operating income profit and/or percentage. 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
could cause us to lose market share, reduce our prices, or increase our spending. Similarly, the emergence of on-line retailers,
whether as extensions of our traditional competition or in the form of major, non-traditional competitors, could result in easier
and quicker price discovery and the adoption of aggressive pricing strategies and sales methods. These pressures could have the
effect of eroding our gross and/or operating income profit and/or percentage over time.
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.
Legal, Regulatory, and Compliance Risks
Our business is subject to a wide array of operating 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, product compliance laws, environmental laws,
foreign exchange controls and cash repatriation restrictions, advertising regulations, data privacy (including in the U.S., the
California Consumer Privacy Act, and in the European Union, the General Data Protection Regulation 2016, with
interpretations varying from state to state and country to country) and cyber security requirements (including protection of
information and incident responses), regulations on suppliers regarding the sources of supplies or products, labor and
employment laws, and anti-competition regulations. 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
17
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.
Tax laws and regulations require compliance efforts that can increase our cost of doing business and changes to these laws
and regulations could impact financial results. We are subject to a variety of tax laws and regulations in the jurisdictions in
which we operate. Maintaining compliance with these laws can increase our cost of doing business and failure to comply could
result in audits or the imposition of fines or penalties. Further, our future effective tax rates in any of these jurisdictions could
be affected, positively or negatively, by changing tax priorities, changes in statutory rates, and/or changes in tax laws or the
interpretation thereof. The most significant recent example of this is the comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act (the 'Tax Act'), which was enacted in the United States in December 2017. There is a longer-term
risk that the beneficial aspects of the Tax Act on our business could be reversed depending on changes in future fiscal or
political priorities.
Industry and General Economic Risks
Operational 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 and actions, including around trade policy,
energy and fuel prices and electrical power rates,
unemployment trends,
terrorist attacks and acts of war,
acts of God, which may include, but are not limited to, weather events, earthquakes, pandemics, etc., 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 2019 and 2020. We experienced strong demand in 2017 and 2018 that produced double-digit
sales growth for Fastenal. Our growth slowed into the mid-single digits beginning in the second quarter of 2019 as many of our
customers involved in the manufacture of components, capital goods, and heavy equipment were impacted by higher costs and
reduced confidence stemming from global trade uncertainty. When this happens, these customers tend to cut back on spending,
which yields a slowdown in our business with these customers. In the second and third quarters of 2020, the reaction to the
COVID-19 pandemic resulted in sharply reduced spending by our traditional customers as they implemented shutdowns, social
distancing, and safety policies. However, the weakness that was experienced by many of our business units in the second and
third quarters of 2020 was more than offset by sales of pandemic-related supplies, such as PPE and sanitation products, to
traditional and less traditional (e.g., government and healthcare) customers. While we intend to retain some of these less
traditional customers as regular buyers of safety and other products once the pandemic subsides, it is uncertain whether they
will continue to purchase products from us.
The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse
effect on our operations and business. The COVID-19 pandemic began to impact our operations late in the first quarter of
2020 and may continue to affect our business, particularly should government authorities impose mandatory closures, work-
from-home orders and/or social distancing protocols, seek voluntary facility closures and/or impose other restrictions. Should
such actions be taken, it could materially adversely affect our ability to adequately staff and maintain our operations, impair our
ability to sustain sufficient financial liquidity, and impact our financial results. The COVID-19 pandemic has had some
favorable impacts on our financial results through much of 2020. However, as supply chains adapt to the environment, it is not
certain that those favorable impacts will recur in the future to offset any resumption of public access restrictions we might
impose on our branches or reductions in capacity by our customers, including facility closures. The COVID-19 pandemic has
also produced shifts in the mix of our business resulting from a decrease in sales of our fasteners and increases in sales through
our safety business. Based on the traditionally lower gross profit margin percentage of our safety business, these shifts have
contributed to a lower gross profit margin percentage for us. This impact on our gross profit margin percentage may persist in
the short term until the impacts of COVID-19 start to moderate. It is also possible that the impact on our gross profit margin
percentage will be long term in the event that COVID-19 alters customer purchasing patterns to include a sustainably higher
18
mix of safety and sanitation products. As we cannot predict the duration or scope of the COVID-19 pandemic, the net financial
impact to our operating results cannot be reasonably estimated, but it could be material and last for an extended period of time.
Trade policies could make sourcing product from overseas more difficult and/or more costly, and could adversely impact our
gross and/or operating profit percentage. We source a significant amount of the products we sell from outside of North
America, primarily Asia. We have made significant structural investments over time to be able to source both directly from
Asia through our wholly-owned, Asia-based subsidiary, FASTCO Trading Co., Ltd. and indirectly from suppliers that procure
product from international sources. This was initially necessary due to the absence of significant domestic fastener production,
but over time we have expanded our non-fastener sourcing as well, and at this time it may be difficult to adjust our sourcing in
the short term. In light of this, changes in trade policies could affect our sourcing operations, our ability to secure sufficient
product to serve our customers and/or impact the cost or price of our products, with potentially adverse impacts on our gross
and operating profit percentages and financial results. These risks most recently manifested in an increase in tariffs, primarily in
2018 and 2019, either directly on products we trade in or indirectly on industries we sell into, between the United States and its
trading partners, as well as greater uncertainty around regional and global trade agreements generally. China represents a
significant source of product for North America. In addition, we move and source products within North America. Any trading
disruption (tariffs, product restrictions, etc.) between Canada, the United States, and Mexico, or disruption in their respective
trading relationships with other nations can adversely impact our business. There can be no assurances that these disruptions
will not continue or increase in the future, with the previously mentioned countries or additional countries with which we do
business. The degree to which these changes in the global marketplace affect our financial results will be influenced by the
specific details of the changes in trade policies, their timing and duration, and our effectiveness in deploying tools to address
these issues. In particular, the United States' tariffs levied on most of our products originating in China have caused us to review
and implement potential solutions to the increase in our product costs with our customers. The effectiveness of these strategies
in response to any future tariffs is unknown.
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 85% 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. Such changes could adversely affect our financial results. This dynamic would apply to every country in which we
operate, but no other country represents more than 10% of our net sales.
Products manufactured in foreign countries may cease to be available for reasons unrelated to trade policy, 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, 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, disease, disruption or
delays in shipments, or changes in local economic conditions. 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.
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 can fluctuate significantly over time. 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
higher 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 to decline, or
by negatively impacting customers in certain industries, which could cause our sales to those customers to decline.
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.
19
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 effective advantage 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.
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. Within North America, we believe
the potential market opportunity for industrial vending is approximately 1.7 million devices and we have identified over 19,000
customer locations with the potential to implement our Onsite service model within our traditional manufacturing and
construction customer base. We have identified additional markets, such as government, healthcare, and academia, and
geographies into which we can sell our FMI solutions, which would increase the number of identified potential industrial
vending or customer locations. However, our presence in emerging markets and geographies is not as established as is the case
in our traditional markets and geographies, which could extend the sales cycle. 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 as
we anticipate to reach the full market opportunity.
We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase the cost of
purchasing products and impact our foreign sales. Because our company was started in the United States and because we are
publicly-traded in the United States, we report our results based on the United States dollar. Because the functional currency
related to most of our non-United States 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 impact our ability to procure products at competitive prices and our
foreign sales. Historically, our primary exchange rate exposure has been with the Canadian dollar. There can be no assurance
that currency exchange rate fluctuations with the Canadian dollar and other foreign currencies will not adversely affect our
results of operations, financial condition, and cash flows. While the use of currency hedging instruments may provide us with
protection from adverse fluctuations in currency exchange rates, we are not currently using these instruments and we have not
historically hedged this exposure. If we decide to do so in the future, we could potentially forego the benefits that might result
from favorable fluctuations in currency exchange rates.
Credit and Liquidity Risks
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, 2020, we had $405.0
of outstanding debt obligations, consisting entirely of senior unsecured promissory notes issued under our master note
agreement (the 'Master Note Agreement') in the aggregate principal amount of $405.0. We did not have loans outstanding under
our revolving credit facility (the 'Credit Facility') as of December 31, 2020. Loans under the Credit Facility bear interest at a
rate per annum based on the London Interbank Offered Rate (LIBOR) and mature on November 30, 2023. The notes issued
under our Master Note Agreement consist of eight series and are described in further detail in Note 10 of the Notes to
Consolidated Financial Statements included later in this Form 10-K.
20
During periods of volatility and disruption in the United States credit markets, financing may become more costly and more
difficult to obtain. Although the market turmoil of 2020 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. We currently have the capacity under our Credit Facility and Master Note Agreement to increase borrowings in the
future. If credit market volatility were to return, the cost of servicing any existing balances on our Credit Facility at that time
could increase due to the LIBOR-based interest rate provided for under our Credit Facility. In July 2017, the Financial Conduct
Authority in the United Kingdom, the governing body responsible for regulating LIBOR, announced that it no longer will
compel or persuade financial institutions and panel banks to make LIBOR submissions after 2021. The cessation date for
submission and publication of rates for certain tenors of LIBOR has since been extended until mid-2023, but it is uncertain
when applicable tenors of LIBOR will cease to exist and whether additional reforms to LIBOR may be enacted, but LIBOR is
still expected to cease to be the reference rate for commercial loans and other indebtedness. Our Credit Facility currently uses
LIBOR as a reference rate, and, while there are customary LIBOR replacement provisions in our Credit Facility, the transition
to alternatives to LIBOR could be modestly disruptive to the credit markets. While we do not believe that the impact would be
material to us given the usage of our Credit Facility, we do not yet have insight into what the impacts might be. 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.
General Risk Factors
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 compounded by a multiple. This is often referred to
as a price-to-earnings (or P/E) ratio. 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 2020, 2018, 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.
21
ITEM 2.
PROPERTIES
Note – Information in this section is as of December 31, 2020, unless otherwise noted.
We own, and in some cases, lease, the following facilities, excluding selling locations:
Leased
Distribution center
Distribution center and manufacturing facility
Purpose
Distribution center and home office (2)
Distribution center
Distribution center
Distribution center
Distribution center
Distribution center
Location
Winona, Minnesota
Indianapolis, Indiana
Akron, Ohio
Scranton, Pennsylvania
Denton, Texas
Atlanta, Georgia
Seattle, Washington
Modesto, California
Salt Lake City, Utah
High Point, North Carolina Distribution center (two buildings) (5)
Kansas City, Kansas
Jackson, Mississippi
Distribution center
Kitchener, Ontario, Canada Distribution center
Edmonton, Alberta, Canada Distribution center
Distribution center
Apodaca, Nuevo Leon,
Mexico
Dordrecht, Netherlands
Shanghai, China
(1) Total number of tote locations for small parts storage included in facilities with an ASRS.
(2) During 2018, we acquired land for future expansion of our home office, and, as of December 2020, we have additional office
Approximate
Square Feet
259,000
1,039,000
182,000
189,000
176,000
198,000
246,000
328,000
156,000
680,000
468,000
269,000
242,000
38,000
Tote
Locations
(ASRS)(1)
246,000
547,000 (3)
103,000
104,000
41,000 (4)
77,000
140,000
69,000
—
132,000
170,000
—
128,000
—
Distribution center
Local re-distribution center
Distribution center and packaging facility (three buildings)
46,000
35,000
16,000
Distribution center
—
—
—
X
X
X
X
X
space under construction.
(3) This property contains an ASRS with capacity of 52,000 pallet locations, in addition to the 547,000 tote locations for small
parts.
(4) This facility contains an ASRS with capacity of 14,000 pallet locations, in addition to the 41,000 tote locations for small
parts.
(5) In late December 2018, we purchased an additional distribution center in High Point, North Carolina with approximately
750,000 total square feet. Approximately 371,000 square feet will be leased by the building's previous owner until December
2022. We currently utilize approximately 379,000 square feet for distribution activities.
We also own, and in some cases, lease, the following support facilities, excluding selling locations:
Location
Winona, Minnesota
Indianapolis, Indiana
Houston, Texas
Wallingford, Connecticut
Rockford, Illinois
Johor, Malaysia
Modrice, Czech Republic
Leeds, United Kingdom
Winona, Minnesota
Bangalore, India
Purpose
Manufacturing facility
Manufacturing facility
Manufacturing facility
Manufacturing facility
Manufacturing facility
Manufacturing facility
Leased
Manufacturing facility
Manufacturing facility
Multiple facilities for office space, storage, and packaging operations
International information technology office
X
X
X
Approximate
Square Feet
100,000
220,000
120,000
187,000
100,000
30,000
17,000
28,000
240,000
15,000
In addition, we own 167 buildings that house our in-market locations in various cities throughout North America.
All other buildings we occupy are leased. Leased branches range from approximately 3,000 to 15,000 square feet, with lease
terms of up to 60 months (most initial lease terms are for 36 to 60 months).
22
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.
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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 22, 2021, there were approximately
1,000 record holders of our common stock, which includes nominees or broker dealers holding stock on behalf of an estimated
348,000 beneficial owners.
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 2020:
Period
October 1-31, 2020
November 1-30, 2020
December 1-31, 2020
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
0
0
0
3,200,000
3,200,000
3,200,000
3,200,000
(1) On July 11, 2017, our board of directors established a new authorization for us to repurchase up to 10,000,000 shares of our
common stock. The repurchase program has no expiration date. As of December 31, 2020, we had remaining authority to
repurchase 3,200,000 shares under this authorization.
Purchases of shares of our common stock throughout 2020 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'.
24
Fastenal Company Common Stock Comparative Performance Graph
Set forth below is a graph comparing, for the five years ended December 31, 2020, 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, 2015 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
2015
$ 100.00
100.00
100.00
2016
118.51
111.96
122.84
2017
141.82
136.40
128.08
2018
139.60
130.42
124.99
2019
202.47
171.49
165.27
2020
276.51
203.04
208.95
Note - The graph and index table above were obtained from Zacks 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 2020 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.
25
Fastenal CompanyS&P 500 IndexDow Jones US Industrial Suppliers Index20152016201720182019202050100150200250300 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 and should be read in
conjunction with those consolidated financial statements. This section of this 10-K generally discusses 2020 and 2019 items and
year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-date comparisons between 2019 and
2018 that are not included in this Form 10-K, can be found in 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended December 31, 2019.
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 over 3,200 in-market locations. Most of our customers are in the manufacturing and non-
residential construction markets. The manufacturing market includes sales of products for both original equipment
manufacturing (OEM), where our products are consumed in the final products of our customers, and manufacturing, repair and
operations (MRO), where are products are consumed to support the facilities and ongoing operations of our customers. 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 companies, oil production and refinement companies, mining
companies, federal, state, and local governmental entities, schools, and certain retail trades. Geographically, our branches,
Onsite locations, and customers are primarily located in North America.
It is helpful to appreciate several aspects of our marketplace: (1) It's big. We estimate the North American marketplace for
industrial supplies is 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 stock keeping unit (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 many cases, we have moved the branch inside the
customers' facility. We also are frequently positioned right at the point of consumption within customers' facilities through our
suite of FMI devices and 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.
Impact of COVID-19 on Our Business
In the second quarter of 2020, the impacts of the COVID-19 pandemic on our business were dramatic in two respects. First,
local and national actions taken, such as stay-at-home mandates, reduced business activity sharply as many customers either
closed their locations or operated at significantly diminished capacity. This effect was illustrated in a significant decline in sales
for our fastener products. Second, social actions taken to mitigate the effects of the pandemic produced significant demand for
personal protection equipment (PPE) and sanitation products, generating significant sales of such products not only to certain
traditional customers but also to state and local government entities as well as front line responders. This effect was illustrated
by a significant increase in sales for our safety products. During that period, improved sales of PPE and sanitation products
more than offset the general economic weakness. These dynamics affected our business throughout the second quarter of 2020,
but the effects were greatest in April, with sequential improvements in May and June as business restrictions gradually eased.
The pandemic continued to have a significant impact on our business in the third and fourth quarters of 2020. The marketplace
broadly, and Fastenal specifically, continued to operate with certain modifications to balance re-opening with employee and
customer safety. However, most of the markets in which we operate began to normalize in the second half of 2020. This
improved the outlook of the manufacturing and construction customers that support our traditional branch and Onsite business
and moderated the level of demand for PPE and sanitation products that we experienced at the onset of the pandemic. We
26
believe that the sequential gains in economic activity that we experienced in the latter part of the second quarter of 2020
continued through the third and fourth quarters of 2020, although the rate of improvement remains gradual.
Consistent with broader social trends, we have taken steps to safeguard the health of our employees. This includes closing
branch and corporate facilities to outside personnel, adjusting work schedules to maximize social distance, creating space
between work areas, providing ample PPE and cleaning supplies, having formal policies for mitigation in the event of cases of
illness, utilizing technologies where work duties allow to enable work from home capabilities, and utilizing technologies such
as vending and mobility to create social distancing. Due to these precautions, our operations have continued to function
effectively, including our internal controls over financial reporting.
While there are exceptions, our customers have largely continued to operate their businesses despite a continued high rate of
viral infections that exist as of this date, in contrast to the second quarter of 2020 when many temporarily suspended operations.
Still, there remains significant uncertainty concerning the magnitude of the impact and duration of the COVID-19 pandemic.
Factors deriving from the COVID-19 response that have or may negatively impact sales and gross margin in the future include,
but are not limited to: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the products we
sell, or to meet delivery requirements and commitments; limitations on the ability of our employees to perform their work due
to illness caused by the pandemic or local, state, or federal orders requiring employees to remain at home; limitations on the
ability of carriers to deliver our products to customers; limitations on the ability of our customers to conduct their business and
purchase our products and services; and limitations on the ability of our customers to pay us on a timely basis. With respect to
liquidity, as of the end of 2020, we have substantially all of our $700.0 bank revolver available for use in the event that the need
arises.
We will continue to actively monitor the situation and may take further actions that alter our business operations as may be
required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers,
suppliers, and shareholders. While we are unable to determine or predict the nature, duration, or scope of the overall impact the
COVID-19 pandemic will have on our business, results of operations, liquidity, or capital resources, we believe that it is
important to share where our company stands today, how our response to COVID-19 is progressing, and how our operations
and financial condition may change as the fight against COVID-19 progresses.
Executive Overview
Net sales increased $313.7, or 5.9%, in 2020 relative to 2019. Our gross profit increased $52.3, or 2.1%, in 2020 relative to
2019, and as a percentage of net sales declined to 45.5% in 2020 from 47.2% in 2019. Our operating income increased $84.5, or
8.0%, in 2020 relative to 2019, and as a percentage of net sales increased to 20.2% in 2020 from 19.8% in 2019.
Our net earnings in 2020 were $859.1, an increase of 8.6% when compared to 2019. Our diluted net earnings per share were
$1.49 in 2020 compared to $1.38 in 2019, an increase of 8.4%.
Although we continued to market our growth drivers in 2020, COVID-19 created an environment that was not conducive to the
level of signings we would have expected under normal business conditions. At the same time, significant resources shifted to
focus on rapidly and efficiently securing, transporting, and providing PPE to new and existing customers that found themselves
managing short-term crisis conditions brought on by the pandemic. These dynamics produced signings of just 223 new Onsite
customer locations and 16,417 new industrial vending devices in 2020. Those same dynamics also produced very strong daily
sales growth of 51.0% in our safety product line and 129.7% from government and healthcare customers in the period, which
more than offset the low growth driver signings and weak activity in our traditional manufacturing and construction customer
base.
27
The table below summarizes our absolute and full-time equivalent (FTE; based on 40 hours per week) employee headcount, our
investments in in-market locations (defined as the sum of the total number of public branch locations and the total number of
active Onsite locations), and industrial vending devices at the end of the periods presented and the percentage change compared
to the end of the prior period.
In-market locations - absolute employee headcount
In-market locations - FTE employee headcount
Total absolute employee headcount
Total FTE employee headcount
Number of public branch locations
Number of active Onsite locations
Number of in-market locations
Ratio of in-market location FTE headcount to in-market locations
Industrial vending devices (installed count) (1)
Ratio of industrial vending devices to in-market locations
Q4
2020
Q4
2019
Twelve-month
% Change
12,680
11,260
20,365
17,836
2,003
1,265
3,268
3:1
95,733
29:1
13,977
12,236
21,948
18,968
2,114
1,114
3,228
4:1
89,937
28:1
-9.3 %
-8.0 %
-7.2 %
-6.0 %
-5.3 %
13.6 %
1.2 %
6.4 %
(1) This number primarily represents devices which principally dispense product and produce product revenues, and excludes
approximately 15,000 devices that are part of a locker lease program where the devices are principally used for the check-in/
check-out of equipment.
During the last twelve months, we reduced our total FTE employee headcount by 1,132. This reflects a decline in our in-market
FTE employee headcount of 976, as well as declines in headcount at our distribution centers and manufacturing operations.
These reductions are primarily related to efforts to manage expenses in response to weaker demand from traditional
manufacturing and construction customers resulting from the COVID-19 pandemic. This was only partly offset by additions in
non-branch selling and support roles. The latter most significantly reflects an increase in personnel in Information Technology,
which includes the addition of employees from our acquisition of certain assets of Apex, as well as roles to support customer
acquisition and implementation, particularly as it relates to our growth drivers and to support general corporate functions.
We opened twelve branches and closed 123 branches, net of conversions, in 2020. We activated 257 Onsite locations and
closed 106, net of conversions, in 2020. The number of closings reflects both normal churn in our business, whether due to
redefining or exiting customer relationships, the shutting or relocation of a customer facility, or a customer decision, as well as
our ongoing review of underperforming locations. Our in-market network forms the foundation of our business strategy, and we
will continue to open or close locations as is deemed necessary to sustain and improve our network, support our growth drivers,
and manage our operating expenses.
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.
2020
100.0 %
45.5 %
25.3 %
0.0 %
20.2 %
-0.2 %
20.1 %
2019
100.0 %
47.2 %
27.4 %
0.0 %
19.8 %
-0.3 %
19.6 %
2018
100.0 %
48.3 %
28.2 %
0.0 %
20.1 %
-0.3 %
19.9 %
28
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 currency fluctuations
Daily sales impact of acquisitions
$
$
2020
5,647.3
2019
5,333.7
2018
4,965.1
5.9%
255
22.1
5.5%
-0.1%
0.0%
7.4%
254
21.0
7.4%
-0.3%
0.1%
13.1%
254
19.5
13.1%
0.1%
0.4%
The increase in net sales noted above for 2020 was a function primarily of higher unit sales for safety products, specifically
pandemic-related sales of PPE. The effect of higher prices during the period were not material. The increase in net sales noted
above for 2019 was a result of higher unit sales and, to a lesser degree, higher prices. Higher product prices in 2019 were a
result of actions taken to offset increases in product costs, and we believe these increases contributed 0.9% to 1.0% to sales
growth during 2019.
Higher unit sales in 2020 were heavily influenced by actions taken by governments and businesses around the world to address
COVID-19, which influenced the period in a couple of ways. First, by virtue of our ability to source and transport PPE, we were
able to supply the needs of governments, first responders, and businesses as they worked to mitigate the effects of the pandemic
on our communities and normalize business activity under more stringent safety protocols. This generated significant PPE sales
through the year. We believe the best proxies for this trend was daily sales growth of our safety products of 51.0% and daily
sales growth to our government and healthcare customers of 129.7%. Second, we managed the effects of business closures,
disruption in labor forces and supply chains, and a reduction in general business activity that was a by-product of the responses
of governments and businesses to the pandemic. The impact of this is best illustrated by several metrics. For instance, United
States Industrial Production, which is published by the Federal Reserve, decreased 7.1% in 2020. Based on the large proportion
of our sales that are derived from the United States, we believe United States Industrial Production is a good proxy for the state
of our marketplace and that the significant decline in this metric is consistent with the weakness we experienced in our
traditional manufacturing and construction markets. This was also reflected in the daily sales of fasteners, which is our most
cyclical product line. Daily sales of fasteners declined 7.2% in 2020. Although traditional manufacturing and construction
business activity has gradually, but steadily, improved from depressed second quarter of 2020 levels, it did remain negative
through the year. Taking these two variables together, higher unit sales of PPE more than offset the decline in unit sales in our
traditional manufacturing and construction business, resulting in higher net unit sales in 2020.
Our growth drivers did not contribute meaningfully to higher unit sales in 2020, which we believe is largely a function of
difficulties gaining access to customers and facilities due to social distancing and safety guidelines in response to COVID-19.
We signed 16,417 industrial vending devices during 2020, a decrease of 24.9% from 2019. This did increase our installed base
to 95,733 devices at the end of 2020, an increase of 6.4% over 2019, but this increase was not sufficient to offset reduced
throughput per device. As a result, sales through our vending devices declined at a low single-digit rate during 2020. We
activated 257 new Onsite locations in 2020, a decrease of 17.6% over 2019. This allowed us to increase our active sites to 1,265
at the end of 2020, an increase of 13.6% over 2019, but this increase was not sufficient to offset significant sales declines in our
older, more established Onsite locations. As a result, sales through our Onsite locations declined at a low single-digit rate
during 2020. We did experience growth in our National Account customers of 6.7% in 2020 compared to 2019, though this was
due to the sale of PPE to customers navigating the challenges of operating during a pandemic.
The higher unit sales in 2019 resulted primarily from two sources. First was higher underlying market demand, as illustrated by
U.S. Industrial Production, which increased 0.8% in 2019, and daily sales of fasteners, which grew 5.5% in 2019. It is notable,
however, that underlying demand in 2019 began strong but weakened throughout the year. Referring again to U.S. Industrial
Production, it increased 2.9% in the first quarter of 2019 but decreased 0.9% in the fourth quarter of 2019. The slowing in these
metrics from the start to the end of 2019 mirrored the slowing growth we experienced in our unit sales over the same period.
A relatively greater contributor to our growth in 2019 was the success of our growth initiatives. We signed 21,857 industrial
vending devices during 2019. While this represented a slight decrease in signings of 1.0% from 2018, it also contributed to
growth in our installed base to 89,937 vending devices at the end of 2019, an increase of 10.8% over 2018. Growth in our
installed base was primarily responsible for sales growth through our vending devices in the mid-teens during 2019. We signed
362 new Onsite locations in 2019, an increase of 7.7% over 2018, and had 1,114 active sites on December 31, 2019, an increase
29
of 24.6% over December 31, 2018. Growth in our number of active sites was primarily responsible for sales growth through our
Onsites in the mid-teens during 2019. The contribution of new national account contracts and strong penetration of existing
national account customers resulted in daily sales from our national account customers growing 11.9% in 2019 compared to
2018.
Sales by Product Line
The approximate mix of sales from fasteners, safety supplies, and all other product lines was as follows:
Fasteners
Safety supplies
Other product lines
2020
29.9%
25.5%
44.6%
2019
34.2%
17.9%
47.9%
2018
34.9%
17.2%
47.9%
Shifts in product mix in 2020 largely reflects the factors that impacted our sales growth in the period. Specifically, strong
demand for PPE generated strong sales growth in our safety products, while weak trends in underlying conditions affected our
traditional manufacturing and construction customers resulting in a sales decline in our fastener products. The effect on other
products was relatively muted, as certain lines benefited from pandemic-related demand (such as janitorial products), while
others were negatively impacted by underlying demand (such as metalcutting and material handling). Shifts in product mix in
2019 were based on more traditional factors. 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 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 2019 and will continue to promote a lower mix of fasteners in our total sales over time. Second, the weakening
industrial production environment had a disproportionately negative effect on fastener sales, particularly OEM fasteners 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 2020 (albeit overwhelmed by pandemic-related effects) and 2019.
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):
2020
2019
2018
Feb.
Mar.
Jan.
3.6 % 4.7 % 0.2 % 6.7 % 14.8 % 9.5 % 2.6 % 2.5 % 2.2 % 4.1 % 6.8 % 9.3 %
13.3 % 10.5 % 12.7 %
1.0 %
12.0 % 14.8 % 13.1 % 13.4 % 12.5 % 13.5 % 12.0 % 13.7 % 13.5 % 12.4 % 12.3 % 14.5 %
9.5 % 7.0 %
6.3 % 5.8 %
6.1 %
4.3 %
5.7 %
7.4 %
Sept.
Nov.
Aug.
Dec.
June
May
Apr.
Oct.
July
Sequential Trends
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
in 2020 and 2019, occurred in March during 2018, and will fall in April in 2021), 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.
30
The table below shows the pattern to the sequential change in our daily sales. The line labeled 'Benchmark' is a historical
average of our sequential daily sales change for the trailing five year average (2015-2019). We believe this time frame serves to
show the historical pattern and could serve as a benchmark for current performance. The '2020', '2019', and '2018' lines
represent our actual sequential daily sales changes. The '20Delta', '19Delta', and '18Delta' lines indicate the difference between
the 'Benchmark' and the actual results in the respective year. Under normal circumstances, the sequential trends shown below
are directly linked to fluctuations in our end markets. Further, in any given month it is possible to get significant deviation from
the benchmark. However, we do not believe that fully explains the exaggerated delta between the sequential rates of change and
the benchmark from March 2020 to July 2020. We believe deviation of this duration and order of magnitude is uncharacteristic
in our business and is related to the dramatic impacts of the pandemic in that period.
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
2020
20Delta
2019
19Delta
2018
18Delta
July
Feb.
Apr.
May
June
Mar.
Aug.
Jan.(1)
-1.0 % 1.2 % 3.1 % 0.1 % 1.7 % 1.8 % -3.4 % 3.3 % 2.2 % -2.5 %
-1.3 % 2.5 % -0.3 % 3.9 % 10.4 % -3.3 % -10.5 % 3.8 % 2.9 % -2.6 %
-0.3 % 1.3 % -3.4 % 3.8 % 8.7 % -5.1 % -7.0 % 0.5 % 0.6 % -0.1 %
-0.5 % 1.4 % 4.2 % -2.4 % 2.5 % 1.4 % -4.4 % 3.9 % 3.1 % -4.4 %
0.4 % 0.2 % 1.1 % -2.5 % 0.8 % -0.4 % -1.0 % 0.6 % 0.9 % -1.9 %
-1.3 % 4.0 % 2.1 % 2.4 % 0.6 % 3.7 % -3.6 % 3.8 % 3.6 % -3.0 %
-0.3 % 2.8 % -1.0 % 2.3 % -1.1 % 2.0 % -0.2 % 0.5 % 1.3 % -0.5 %
Sept.
Oct.
Cumulative
Change from
Jan. to Oct.
7.5 %
5.5 %
-2.0 %
4.9 %
-2.6 %
13.9 %
6.4 %
(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:
31
Benchmark202020192018PreviousOct.Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.90100110120 End Market Performance
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 (contraction) rates to these
manufacturing customers, when compared to the same period in the prior year, were as follows:
2020
2019
2018
Q2
Q3
Q1
Q4
Annual
3.0 % -9.4 % -4.7 %
1.7 % -2.5 %
8.8 %
7.7 %
13.4 %
9.1 %
5.1 %
14.3 % 13.3 % 13.0 % 13.3 % 13.5 %
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 (which, under normal business conditions, represents 30% to 35% of our business) which is heavily influenced by changes
in our business with heavy equipment manufacturers. From a company perspective, daily sales growth (contraction) rates of
fasteners, when compared to the same period in the prior year, were as follows (note: this information includes all end markets):
2020
2019
2018
Q2
Q3
Q1
Annual
-2.6 % -16.4 % -6.9 % -2.3 % -7.2 %
5.5 %
3.0 %
11.8 %
11.8 % 11.1 % 10.8 % 11.3 % 11.2 %
1.8 %
5.5 %
Q4
The daily sales growth (contraction) rates of fasteners noted in the table above for first quarter of 2018, include 3.7 percentage
points 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):
2020
2019
2018
Q1
6.0%
12.7%
14.5%
Q2
25.6%
9.5%
14.8%
Q3
7.8%
8.0%
14.9%
Q4
11.2%
5.1%
14.6%
Annual
12.7%
8.8%
14.7%
Two product lines, safety and janitorial, accounted for approximately half of total non-fastener sales and saw a meaningful
increase in sales in 2020 due to demand generated in response to the COVID-19 pandemic. As a result, the change in our non-
fastener lines in 2020 did not provide as much insight into the trends of our traditional manufacturing and construction
customers as is typically the case. Still, we have sold non-fastener products through multiple cycles that do not include a
pandemic and believe we can make several observations. Generally speaking, our non-fastener business is not immune to the
impact of industrial cycles. However, we would typically expect it to outperform our fastener business in any cycle. This
reflects three things: the non-fastener market is larger than the fastener market, we are underpenetrated in the non-fastener
market relative to the fastener market, and industrial vending lends itself to sales of non-fastener products. This is what we
experienced in 2019. The outperformance of our non-fastener business was far more dramatic in 2020 than can be explained by
our traditional drivers of outperformance, and reflects the impact of COVID-19 on our sales of safety products, specifically
PPE, and janitorial products, such as sanitizer and wipes.
Our non-residential construction and reseller customers have historically represented 20% to 25% of our business, though in
2020 it was slightly below the bottom of this range. The daily sales growth (contraction) rates to these customers, when
compared to the same period in the prior year, were as follows:
2020
2019
2018
32
Q2
Q3
Q1
Annual
-1.2 % -10.0 % -11.5 % -8.3 % -7.8 %
12.1 %
4.7 %
0.6 %
11.7 % 17.6 % 19.2 % 16.4 % 16.3 %
0.7 %
6.0 %
Q4
Our non-residential construction and reseller business is heavily influenced by manufacturing, oil and gas, and infrastructure
spending. In 2020 and 2019, the poor and slowing production environment, respectively and as described above, and the
accompanying worsening trends for commodities such as metals and energy, caused the growth in our non-residential
construction and reseller customers to slow. In 2020, this was exacerbated by project suspensions as many states and regions
shut down activity in an effort to control the pandemic.
Gross Profit
The gross profit percentage during each period was as follows:
2020
2019
2018
Q1
46.6%
47.7%
48.7%
Q2
44.5%
46.9%
48.7%
Q3
45.3%
47.2%
48.1%
Q4
45.6%
46.9%
47.7%
Annual
45.5%
47.2%
48.3%
Our gross profit, as a percentage of net sales, was 45.5% in 2020 and 47.2% in 2019. The gross profit percentage for 2020
decreased by 170 basis points based on three items. (1) A decline in product margin for safety and other products, which itself
reflects several trends. First, in the second quarter of 2020 in order to procure supplies we utilized unfamiliar supply chains and
prioritized speed of acquisition over efficiency, resulting in lower margins. Second, in the third and fourth quarters of 2020
certain pandemic related products became oversupplied, and profits on our inventory fell (masks) while other products were in
such short supply that cost rose (gloves). We mitigated these effects as the year progressed, but did not eliminate them. Third,
mix within these categories was negative to margin, as in general COVID-related products had lower margins and increased in
the mix. (2) A change in product mix. Fasteners are our largest and highest gross profit margin product line due to the high
transaction cost surrounding the sourcing and supply of the product for customers. Our fastener product line declined to 29.9%
of sales in 2020 from 34.2% of sales in 2019. (3) Overhead and organizational expenses. This includes the negative impact that
reduced sales for certain product lines has on vendor rebates, clearance efforts to remove older and slower moving inventory,
and the deleverage of certain fixed and period costs related to cyclical weakness in our traditional manufacturing and
construction markets. These three adverse variables were partly offset by a better cost profile for our captive fleet. We operate
our own fleet of trucks for moving product between suppliers, our distribution centers, and our in-market locations. We believe
this provides us a competitive advantage in terms of our ability to move product efficiently and quickly, but there is a cost to
supporting and maintaining these assets. During periods of economic weakness, it can become more difficult to charge freight
to offset these costs and/or the relatively stable cost profile of these assets could result in deleverage. We successfully mitigated
these challenges in 2020 by reducing movement and labor costs.
During 2019, our gross profit as a percentage of net sales decreased when compared to the prior year. The decrease was
primarily caused by three variables. (1) A change in product and customer mix, as we experienced the combination of relatively
slow net sales growth in our fastener product line and relatively faster net sales growth to our largest customers, for which
National Accounts is a good proxy and which tend to have lower margins. (2) We experienced rising freight expense as a result
of costs related to transporting products, particularly shipping fees, driver wages, and fuel. (3) We experienced an increase in
the cost of our products due to generalized inflation and tariffs resulting from disputes between the United States and its trade
partners. We implemented several actions to mitigate the impact of these cost increases in 2019, including price increases. For
the full year, the net impact of these actions was minor. However, the impact through the year differed, with a larger negative
impact on the gross profit percentage in the first half of 2019 and a relatively modest impact in the second half of 2019.
Operating and Administrative Expenses
Our operating and administrative expenses (including the gain on sales of property and equipment), as a percentage of net sales,
improved to 25.3% in 2020 from 27.3% in 2019. This improvement was a function of the growth in employee-related,
occupancy-related, and all other operating and administrative expenses being more modest than the growth in sales. Employee-
related expenses improved the ratio of operating and administrative expenses as a percentage of sales by 140 to 145 basis points
in 2020 from 2019. Occupancy-related expenses improved the ratio of operating and administrative expenses as a percentage of
sales by 25 to 30 basis points in 2020 from 2019. All other operating and administrative expenses improved the ratio of
operating and administrative expenses as a percentage of sales by 40 to 45 basis points in 2020 from 2019.
Our operating and administrative expenses (including the gain on sales of property and equipment), as a percentage of net sales,
improved to 27.3% in 2019 from 28.2% in 2018. This improvement was a function of the growth in employee-related,
occupancy-related, and all other operating and administrative expenses being more modest than the growth in sales. Employee-
related expenses improved the ratio of operating and administrative expenses as a percentage of sales by 40 to 45 basis points in
2019 from 2018. Occupancy-related expenses improved the ratio of operating and administrative expenses as a percentage of
sales by 20 to 25 basis points in 2019 from 2018. All other operating and administrative expenses improved the ratio of
operating and administrative expenses as a percentage of sales by 20 to 25 basis points in 2019 from 2018.
33
The growth (contraction) in employee-related, occupancy-related, and all other operating and administrative expenses
(including the gain on sales of property and equipment) compared to the same periods in the preceding year, is outlined in the
table below.
Employee-related expenses
Occupancy-related expenses
All other operating and administrative expenses
Approximate Percentage
of Total Operating and
Administrative Expenses
68% to 73%(1)
15% to 20%
10% to 15%
Twelve-month Period
2020
2019
2018
-2.0 %
0.3 %
-7.2 %
5.1 %
2.8 %
1.5 %
11.1 %
5.0 %
5.2 %
(1) Employee-related expenses fell within a range of 68-73% of our total operating and administrative expenses during 2020.
During 2019, employee-related expenses fell within a range of 65-70% of our total operating and administrative expenses.
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 decreased in 2020 from 2019. This was related to: a decrease in full-time equivalent (FTE)
headcount and related base wages and employment taxes related to efforts to reduce costs given weak demand in our traditional
manufacturing and construction markets; lower bonuses and commissions given weak demand in our traditional manufacturing
and construction markets; and reduced costs associated with the Fastenal School of Business as training shifted from in-person
to online. This was only partly offset by an increase in our profit sharing contribution and health care costs. Our employee-
related expenses increased in 2019 from 2018. This was related to: (1) an increase in 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,
(3) an increase in our profit sharing contribution and options awards, (4) increases in hourly base wages, and (5) increased
health care costs.
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 (branches & Onsites)
Non-in-market selling (1)
Selling subtotal
Distribution/Transportation
Manufacturing
Administration (2)
Non-selling subtotal
Total
Twelve-month Period
2020
2019
2018
-8.0 % 0.2 %
5.4 % 5.3 %
-6.2 % 0.8 %
5.7 %
3.3 %
5.4 %
-10.5 % 2.2 % 12.2 %
-9.9 % -2.7 % 12.0 %
8.7 % 8.5 %
7.3 %
-5.2 % 3.1 % 10.9 %
-6.0 % 1.4 %
6.8 %
(1) Our non-in-market selling employee count has grown in recent years due to an increased focus on resources to support our
growth drivers, particularly Onsite and national account growth
(2) Administration primarily includes our Sales Support, Information Technology, Finance and Accounting, Human Resources,
and senior leadership roles and functions. Our administrative employee count has grown in recent years due to an increased
focus on technology capabilities. For example, 66.7% of the increase in administrative employees in 2020 over 2019 related
to our additions to our information technology teams.
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 in-market operations and classify the depreciation and repair costs as
occupancy expenses).
Our occupancy-related expenses increased slightly in 2020 from 2019. This was primarily due to higher depreciation related to
facility expansions completed in 2019, partly offset by lower utility costs in our branches. Our occupancy-related expenses
increased in 2019 from 2018. This was related primarily to: higher depreciation as a result of facility expansions completed
during the year; and increases to industrial vending equipment.
34
All other operating and administrative expenses include: (1) selling-related transportation, (2) information technology (IT)
expenses, (3) general corporate expenses, which consists of legal expenses, general insurance expenses, travel and marketing
expenses, etc., and (4) the gain on sales of property and equipment.
Combined, all other operating and administrative expenses decreased in 2020 from 2019. This was related to: lower selling-
related freight expenses due to reduced travel as a result of COVID-related restrictions, the rationalization of our branch fleet,
and significantly reduced travel and meal expenses due to reduced travel as a result of COVID-related restrictions. This was
partly offset by higher spending on information technology. Combined, all other operating and administrative expenses
increased in 2019 from 2018. This was related to: higher spending on information technology; and higher selling-related freight
expense.
Net Interest Expense
Our net interest expense was $9.1 in 2020 compared to $13.6 in 2019, and $12.3 in 2018. The decrease in 2020, when
compared to 2019, was due to a slightly lower average debt balance paired with substantially lower interest rates. During the
year, we increased the debt held under our Master Note Agreement to $405.0 as a means of fixing a portion of our debt and
freeing up borrowing capacity under our revolver. This debt has various maturities and interest rates, which collectively are at
attractive levels. The increase in 2019, when compared to 2018, was mainly caused by higher average interest rates and a higher
average debt balance during the period.
Income Taxes
We recorded income tax expense of $273.6 in 2020, or 24.2% of earnings before income taxes. Our income tax expense was
reduced by $5.3 due to discrete items mainly relating to benefits associated with the exercise of stock options and changes in
the reserve for uncertain tax positions.
We recorded income tax expense of $252.8 in 2019, or 24.2% of earnings before income taxes. Our income tax expense was
reduced by $2.6 as a result of applying guideline clarifications issued by the IRS on certain aspects of tax reform, as well as tax
benefits associated with the exercise of stock options. This reduced our tax rate in the period by 30 basis points.
Net Earnings
Net earnings, net earnings per share (EPS), the 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
Tax Rate
2020
2019
$
859.1
1.50
1.49
790.9
1.38
1.38
2020
2019
8.6 %
8.5 %
8.4 %
5.2 %
5.3 %
5.2 %
2018 (1)
751.9
1.31
1.31
2018 (1)
29.9 %
30.5 %
30.5 %
2020
2019
2018
24.2 %
24.2 %
23.8 %
(1) As a result of the Tax Act, discrete tax items benefited our net earnings by $7.1 during 2018.
During 2020 and 2019, net earnings increased, primarily due to stronger sales and higher operating profits, and were only partly
offset by an increase in income tax expense. The increase in basic and diluted earnings per share also reflected the purchase of
our shares of common stock in 2020.
35
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
2020
2019
$ 1,101.8
128.3%
842.7
106.5%
2018
674.2
89.7%
In 2020, the increase in our operating cash flow as a percentage of net earnings is due to working capital assets and liabilities
being a modest source of cash in 2020, as opposed to a significant use of cash in 2019. This includes the deferral of $30.0 in
payroll taxes resulting from the CARES Act and a timing-related higher accounts payable balance. In 2019, the increase in our
operating cash flow as a percentage of net earnings reflects a reduced drag from working capital investment than what was
experienced in 2018 and, to a lesser degree, higher net income.
Trade Working Capital Assets
Trade working capital assets are highlighted below. The annual dollar change and the annual percentage change were as
follows:
Dollar change
Accounts receivable, net
Inventories
Trade working capital
Accounts payable
Trade working capital, net
Annual percentage change
Accounts receivable, net
Inventories
Trade working capital
Accounts payable
Trade working capital, net
2020
27.6
(28.9)
(1.2)
$
$
2019
27.5
87.7
115.2
14.2
(0.7)
(15.4)
115.9
2020
2019
3.7 %
(2.1) %
(0.1) %
7.3 %
(0.8) %
3.9 %
6.9 %
5.8 %
(0.4) %
6.4 %
Note – Amounts may not foot due to rounding difference.
In 2020, the annual growth in net accounts receivable reflects growth in sales, mitigated by the substantial increase in sales to
government customers, which tended to have shorter payment terms in 2020, and strong collections at year end. In 2019, the
annual growth in net accounts receivable reflects not only our growth in sales, but also the fact that our growth is being driven
disproportionately by our national accounts program where our customers tend to have longer payment terms than our customer
base as a whole. Growth was also relatively stronger with customers outside the U.S., which similarly tend to have longer
payment terms than our customer base as a whole. The rate of growth in receivables did slow throughout 2019, largely
reflecting the impact on receivables of softer business activity.
Our inventory balances over time will respond to business activity, though various factors produce a looser relationship to our
monthly sales patterns than we tend to experience in accounts receivable. One reason for this is cyclical. We source significant
quantities of product from overseas, and the lead time involved in procuring these products is typically longer than the visibility
we have into future monthly sales patterns. As a result, trends in our inventory will often lag trends in economic conditions. A
second reason is our growth drivers, including our FMI offerings, Onsite channel, and international expansion, all of which tend
to require significant investments in inventory. In 2020, our inventories decreased, reflecting a number of factors, including
reduced stocking needs on the part of our traditional manufacturing and construction customers due to weak business activity,
reduced vending and Onsite signings, and good execution on initiatives aimed at improving our inventory balances. This was
partly offset by COVID-related PPE balances that we added in the second quarter of 2020 and have been declining over the
second half of 2020, but we had no such PPE inventory in the preceding year. In 2019, our inventories increased to support
higher sales, reflecting large increases in the number of installed vending devices and active Onsite locations, and from inflation
and tariffs.
36
In 2020, the annual growth in accounts payable reflected primarily the timing of certain payments that slipped out of the fourth
quarter of 2020 and into the first quarter of 2021. In 2019, the slight decrease in accounts payable came as a result of softer year
end business activity.
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
Net Cash Used in Investing Activities
2020
2019
2018
59%
41%
100%
60%
40%
100%
61%
39%
100%
Net cash used in investing activities in dollars and as a percentage of net earnings were as follows:
Net cash used
% of net earnings
2020
$
281.7
2019
239.7
2018
173.9
32.8%
30.3%
23.1%
The changes in net cash used in investing activities in 2020 were primarily related to an increase of $125.0 for the purchase of
certain assets of Apex Industrial Technologies LLC, which was partly offset by changes in our net capital expenditures. The
changes in net cash used in investing activities in 2019 was primarily related to changes in our net capital expenditures.
Property and equipment expenditures typically consist primarily of: (1) purchases related to industrial vending, (2) purchases of
property and equipment related to expansion of and enhancements to distribution centers, (3) spending on software and
hardware for our information processing systems, (4) the addition of fleet vehicles, (5) expansion, improvement or investment
in certain owned or leased branch properties, and (6) the addition of manufacturing and warehouse 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.
Set forth below is a recap of our 2020, 2019, and 2018 net capital expenditures in dollars and as a percentage of net sales and
net earnings:
Manufacturing, warehouse and packaging equipment, industrial vending
equipment, and facilities
Shelving and related supplies for in-market location openings and for product
expansion at existing in-market locations
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
% of net sales
% of net earnings
2020
2019
2018
$
91.5
172.7
110.7
15.7
31.4
16.1
13.4
168.1
(10.6)
157.5
2.8%
18.3%
12.3
31.1
8.9
21.4
246.4
(6.6)
239.8
4.5%
30.3%
9.6
30.9
12.9
12.2
176.3
(9.5)
166.8
3.4%
22.2%
Our net capital expenditures decreased in 2020, when compared to 2019. We reduced capital spending expectations early in
2020 across most tracked categories as financial uncertainty related to the pandemic response emerged. The decline relates to
lower spending on facility capacity and equipment following our investments in 2019, lower spending for vending devices as a
result of our acquisition of certain assets of Apex and lower signings, lower spending on our captive fleet, and lower spending
for manufacturing equipment. Our net capital expenditures increased in 2019, when compared to 2018, primarily due to
increased spending on hub property and equipment, both to expand current capacity and for potential future expansion, higher
spending on vending devices to support the growth of our industrial vending program, and investment in our trucking assets.
37
We expect our net capital expenditures in 2021 to be within a range of $170.0 to $200.0. This increase from 2020 relates to
increased spending for a non-hub construction project in Winona to support growth, higher maintenance spending across most
tracked categories following tighter spending control in 2020, and lower anticipated proceeds from asset sales. These factors
will be slightly offset by lower spending on vending devices due to a full year of lower unit cost following our acquisition of
certain assets of Apex. We anticipate funding our capital expenditure needs with cash generated from operations, from available
cash and cash equivalents, and, if necessary, from our borrowing capacity.
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
2020
$
754.4
2019
595.1
2018
446.5
87.8%
75.2%
59.4%
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 payments (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 payments (proceeds), net
% of net earnings
Net cash used
% of net earnings
Stock Purchases
$
$
$
$
$
2020
803.4
93.5%
52.0
6.1%
855.4
99.6%
(41.0)
-4.8%
(60.0)
-7.0%
754.4
87.8%
2019
498.6
63.0%
—
—
498.6
63.0%
(58.5)
-7.4%
155.0
19.6%
595.1
75.2%
2018
441.9
58.8%
103.0
13.7%
544.9
72.5%
(13.4)
-1.8%
(85.0)
-11.3%
446.5
59.4%
In 2020, we purchased 1,600,000 shares of our common stock at an average price of approximately $32.54. In 2019, we did not
purchase any shares of our common stock. In 2018, we purchased 4,000,000 shares of our common stock at an average price of
approximately $25.75 per share.
Dividends
We declared a quarterly dividend of $0.28 per share on January 19, 2021. In 2020, we paid aggregate annual dividends per
share of $1.40. This included $1.00 in regular quarterly dividends and a $0.40 special dividend paid in December 2020 as a
result of our high cash balances and favorable financial outlook. In 2019, we paid aggregate annual dividends per share of
$0.87.
38
Debt
In order to fund the considerable cash needed to expand our industrial vending business, expand capacity and increase the use
of automation in our distribution centers, pay dividends, and, in 2020, to purchase our common stock, pre-pay vendors to secure
access to critical products during the pandemic, and acquire certain assets of Apex Industrial Technologies LLC, we have
borrowed under our Credit Facility and our Master Note Agreement in recent periods.
Our borrowings under the Credit Facility and Master Note Agreement peaked during each quarter of 2020 and 2019 as follows:
Peak borrowings
First quarter
Second quarter
Third quarter
Fourth quarter
2020
2019
$
470.0
640.0
445.0
495.0
585.0
535.0
530.0
445.0
As of December 31, 2020, we had no loans outstanding under the Credit Facility and had contingent obligations from letters of
credit outstanding under the Credit Facility in an aggregate face amount of $36.3. As of December 31, 2020, we had loans
outstanding under the Master Note Agreement of $405.0. 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 $186.8 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 8
of the Notes to Consolidated Financial Statements.
Effects of Inflation
In 2020, we experienced changing price levels for COVID-related supplies, with inflation for certain products that were in short
supply (e.g., nitrile gloves) and deflation for certain products that became oversupplied (e.g., disposable masks). These were
event-specific circumstances related to the pandemic. As it related to the non-COVID environment, we experienced stable
product costs through 2020 relative to 2019. We experienced higher product costs through 2019 relative to 2018 as a result of
generalized inflation and tariffs, though the impact of these items did moderate later in the year as economic activity slowed and
conditions around trade stabilized. We took actions during the year to mitigate the effects of higher product costs, including
increasing product prices. These actions were not able to offset the pressure we experienced on our gross profit percentage in
the first half of 2019, but were more effective at doing so in the second half of 2019.
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 most significant accounting policies, including Revenue Recognition and Inventories, 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 most critical accounting estimates include the following:
Allowance for Credit Losses – This reserve is for accounts receivable balances that are potentially uncollectible. The allowance
for credit losses is based on an income statement approach which adjusts the ending balance sheet to take into consideration
expected losses over the contractual lives of the receivables, considering factors such as historical data as a basis for future
expected losses. 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.
39
Inventory valuation – The valuation of inventory is 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 whether adjustments are necessary is continually evaluated for factors 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 adjustments 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.
Geographic Information
Information regarding our revenues and long-lived assets by geographic area is contained in Note 3 and Note 4 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, 2020, 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(2)
Total
Total
2021
2022 and 2023
2024 and 2025
After 2025
$
$
405.0
47.8
256.4
709.2
40.0
10.8
98.0
148.8
105.0
18.8
115.7
239.5
135.0
10.5
37.2
182.7
125.0
7.7
5.5
138.2
(1) Interest on the long-term debt outstanding under our Credit Facility was calculated using the interest rates and balances at
December 31, 2020.
(2) Amounts include lease liabilities for pick-up truck leases, which typically have a non-cancelable lease term of less than one
year and are not included on the consolidated balance sheets as an operating lease right-of-use asset.
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, which we believe will be immaterial. A discussion of income taxes is contained in
Note 8 of the Notes to Consolidated Financial Statements.
40
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, our operations in countries
other than the U.S., 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. We have not historically hedged our foreign currency risk given that exposure to date has not
been material. In 2020, changes in foreign currency exchange rates reduced our reported net sales by $5.7 with the estimated
effect on our net earnings being immaterial.
Commodity steel pricing – We buy and sell various types of steel products; these products consist primarily of different types
of threaded fasteners and related hardware. We are exposed to the impacts of commodity steel pricing and our related ability to
pass through the impacts to our end customers. During 2020, the price of commodity steel as reflected in many market indexes
fell sharply early in the year as business activity declined in response to actions to address the COVID-19 pandemic, recovered
sharply as business activity rebounded, and finished 2020 above the preceding year end levels. During 2019, the price of
commodity steel as reflected in many market indexes declined.
Commodity energy prices – We have market risk for changes in prices of oil, gasoline, diesel fuel, natural gas, and electricity.
Prices for gasoline and diesel were mostly lower over the course of 2020 as business activity declined in response to actions to
address the COVID-19 pandemic. As a result, we experienced lower fuel costs through most of 2020. In 2019, prices for
gasoline and diesel were stable in the early part of the year, but began to decline in the latter part of the year with slowing
economic activity. As a result, we experienced stable fuel costs through 2019. Fossil fuels are also often a key feedstock for
chemicals and plastics that comprise a key raw material for many products that we sell. Although fuel prices were lower
through much of 2020, we experienced stable, not lower, prices for products with high chemical or plastic content. Stable fuel
costs in 2019 resulted in stable product costs. We believe that over time these risks are mitigated in part by our ability to pass
freight and product 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. In 2020, our estimated
net earnings exposure for commodity energy prices was immaterial.
Interest rates - Loans under our Credit Facility bear interest at floating rates tied to LIBOR (or, if LIBOR is no longer
available, at a replacement rate to be determined by the administrative agent for the Credit Facility and consented to by us). 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 2020 would have resulted in approximately $1.3 of
additional interest expense. A description of our Credit Facility is contained in Note 10 of the Notes to Consolidated Financial
Statements.
41
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
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, 2020 and 2019, 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, 2020 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2020, 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, 2020 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
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 Annual 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.
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.
42
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Sufficiency of audit evidence over inventory quantities
As disclosed in the consolidated balance sheet, the Company held $1,337.5 million of inventory, the majority of which
was held at 3,268 in-market locations, as of December 31, 2020. The Company’s processes to track and determine
consolidated inventory relies on a perpetual inventory system which involves the interaction of multiple information
technology (IT) systems.
We identified the evaluation of the sufficiency of audit evidence obtained related to the quantities of inventory as a
critical audit matter. Evaluating the sufficiency of audit evidence over quantities of inventory required challenging
auditor judgment to assess the number of in-market locations visited, and included the involvement of IT professionals
with specialized skills and knowledge due to the interaction of multiple IT systems that track physical inventory
quantities by location.
The following are the primary procedures we performed to address this critical audit matter: We evaluated the design
and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included IT
application controls, as well as certain controls related to access to programs and data, program changes, program
development, and computer operations. It also included certain controls related to the Company's physical inventory
cycle counts. We involved IT professionals with specialized skills and knowledge, who assisted in testing certain IT
controls, inclusive of the interface of multiple IT systems, which support the Company’s perpetual inventory system.
We applied auditor judgment in the determination of the locations to test the Company’s inventory quantities by
evaluating:
•
•
•
Historical inventory locations we have visited and results of prior physical counts;
Inventory dollars by location; and
The Company's inventory cycle count results, including the results of monitoring and compliance with cycle
count program by in-market location.
We tested the existence and completeness of inventory by counting inventory quantities on a sample basis through
location visits during the year to evaluate the Company’s perpetual inventory records. In addition, we evaluated the
overall sufficiency of audit evidence obtained over the quantities of inventory.
/s/ KPMG LLP
We have served as the Company’s auditor since 1987.
Minneapolis, Minnesota
February 8, 2021
43
December 31
2020
2019
$
245.7
174.9
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions except share information)
Current assets:
Cash and cash equivalents
Assets
Trade accounts receivable, net of allowance for credit losses of $12.3 and $10.9,
respectively
Inventories
Prepaid income taxes
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt
Accounts payable
Accrued expenses
Current portion of operating lease liabilities
Total current liabilities
Long-term debt
Operating lease liabilities
Deferred income taxes
Commitments and contingencies (Notes 6, 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, 800,000,000 shares authorized, 574,159,575 and
574,128,911 shares issued and outstanding, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
769.4
1,337.5
6.7
140.3
2,499.6
1,030.7
243.0
191.4
$
3,964.7
$
40.0
207.0
272.1
93.6
612.7
365.0
151.5
102.3
—
2.9
61.9
2,689.6
(21.2)
2,733.2
Total liabilities and stockholders’ equity
$
3,964.7
See accompanying Notes to Consolidated Financial Statements.
44
741.8
1,366.4
16.7
157.4
2,457.2
1,023.2
243.2
76.3
3,799.9
3.0
192.8
251.5
97.4
544.7
342.0
148.2
99.4
—
2.9
67.2
2,633.9
(38.4)
2,665.6
3,799.9
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
2020
2019
2018
$
5,647.3
3,079.5
2,567.8
1,427.4
(1.4)
1,141.8
0.6
(9.7)
1,132.7
273.6
859.1
1.50
1.49
573.8
575.7
$
$
$
5,333.7
2,818.3
2,515.4
1,459.4
(1.2)
1,057.2
0.4
(13.9)
1,043.7
252.8
790.9
1.38
1.38
573.2
574.4
4,965.1
2,566.2
2,398.9
1,400.2
(0.5)
999.2
0.4
(12.6)
987.0
235.1
751.9
1.31
1.31
573.9
574.3
See accompanying Notes to Consolidated Financial Statements.
45
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:
2020
2019
2018
$
859.1
790.9
751.9
Foreign currency translation adjustments (net of tax of $0.0 in 2020, 2019,
and 2018)
Comprehensive income
17.2
876.3
$
6.4
797.3
(19.7)
732.2
See accompanying Notes to Consolidated Financial Statements.
46
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Amounts in millions)
Common stock
Balance at beginning of year
Balance at end of year
Additional paid-in capital
Balance at beginning of year
Stock options exercised
Purchases of common stock
Stock-based compensation
Balance at end of year
Retained earnings
Balance at beginning of year
Net earnings
Dividends paid in cash
Purchases of common stock
Balance at end of year
Accumulated other comprehensive income (loss)
Balance at beginning of year
Other comprehensive income (loss)
Balance at end of year
Total stockholders' equity
Cash dividends paid per share of common stock
2020
2019
2018
2.9
2.9
67.2
41.0
(52.0)
5.7
61.9
2,633.9
859.1
(803.4)
—
2,689.6
(38.4)
17.2
(21.2)
2.9
2.9
3.0
58.5
—
5.7
67.2
2,341.6
790.9
(498.6)
—
2,633.9
(44.8)
6.4
(38.4)
2.9
2.9
8.5
13.4
(24.0)
5.1
3.0
2,110.6
751.9
(441.9)
(79.0)
2,341.6
(25.1)
(19.7)
(44.8)
2,733.2
2,665.6
2,302.7
1.40
0.87
0.77
$
$
$
See accompanying Notes to Consolidated Financial Statements.
47
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 in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information:
Cash paid for interest
Net cash paid for income taxes
2020
2019
2018
$
859.1
790.9
751.9
153.3
(1.4)
7.5
2.9
5.7
9.1
(29.7)
36.0
17.1
14.2
20.6
10.0
(2.6)
1,101.8
(168.1)
10.6
(125.0)
0.8
(281.7)
1,000.0
(940.0)
41.0
(52.0)
(803.4)
(754.4)
5.1
70.8
174.9
245.7
8.4
260.1
$
$
$
144.6
(1.2)
5.5
15.0
5.7
4.1
(30.4)
(84.4)
(10.4)
(0.8)
10.7
(7.7)
1.1
842.7
(246.4)
6.6
—
0.1
(239.7)
910.0
(1,065.0)
58.5
—
(498.6)
(595.1)
(0.2)
7.7
167.2
174.9
13.9
242.7
134.1
(0.5)
8.1
33.8
5.1
4.1
(120.3)
(193.3)
(28.9)
46.1
46.8
(15.5)
2.7
674.2
(176.3)
9.5
(3.7)
(3.4)
(173.9)
980.0
(895.0)
13.4
(103.0)
(441.9)
(446.5)
(3.5)
50.3
116.9
167.2
12.6
215.3
See accompanying Notes to Consolidated Financial Statements.
48
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 over 3,200 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
Net sales include products and shipping and handling charges, net of estimates for product returns and any related sales
incentives. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. All
revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring
the promised products to the customer, with the majority of revenue recognized at the point in time the customer obtains control
of the products. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up
by the customer. We estimate product returns based on historical return rates. Using probability assessments, which are based
on known inputs at year-end, we estimate sales incentives expected to be paid over the term of the contract. The majority of our
contracts have a single performance obligation and are short term in nature. Sales taxes and value added taxes in foreign
jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and
therefore are excluded from net sales.
Accounts Receivable
Credit is extended based upon an evaluation of the customers' financial condition. Accounts receivable are stated at their
estimated net realizable value. The allowance for credit losses is based on an income statement approach which adjusts the
ending balance sheet to take into consideration expected losses over the contractual lives of the receivables, considering factors
such as historical data as a basis for future expected losses.
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 applicable 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
net realizable value. We record valuation adjustments for excess, slow-moving, and obsolete inventory that are equal to the
difference between the cost and estimated net realizable value for that inventory. These estimates are based on a review and
comparison of the current inventory levels to projected and historical sales of inventory.
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
49
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
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.
Leases
We determine if an arrangement contains a lease at inception. Operating leases are included in our operating lease right-of-use
('ROU') assets, the current portion of operating lease liabilities, and the operating lease liabilities in our Consolidated Balance
Sheets.
The ROU assets represent our right to control the use of an underlying asset for the lease term, and lease liabilities represent our
obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at
commencement date based on the present value of lease payments over the lease term. The operating lease ROU assets also
include any prepaid lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis
over the lease term.
Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and nonlease components
(e.g., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected the
practical expedient to group lease and nonlease components for all leases. Our pick-up truck leases typically have a non-
cancelable lease term of less than one year and therefore, we have elected the practical expedient to exclude these short-term
leases from our ROU assets and lease liabilities.
Most leases include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion;
therefore, the majority of renewals to extend the lease terms are not included in our ROU assets and lease liabilities as they are
not reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably certain of exercise,
we include the renewal period in our lease term.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available
at the lease commencement date in determining the present value of the lease payments. We have a centrally managed treasury
function; therefore, based on the applicable lease terms and the current economic environment, we apply a portfolio approach
for determining the incremental borrowing rate.
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.
50
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
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).
Segment Reporting
We have determined that for our North American regions we meet the aggregation criteria outlined in the accounting standards
as these regions 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.
Impact of COVID-19
The COVID-19 pandemic has impacted and could further impact our operations and the operations of our suppliers and
customers as a result of quarantines, facility closures, and travel and logistics restrictions. We recently experienced an increase
in sales volume of safety related products. However, we may realize lower product margins as well as inventory write-downs as
a result of the improved supply and the potential inability to sell excess safety related products ordered from suppliers. The
extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on
future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread,
severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on our customers and suppliers, and
the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and
operating conditions can resume. Therefore, we cannot reasonably estimate the impact at this time.
Stock Split
On April 17, 2019, the board of directors approved a two-for-one stock split of the company's outstanding common stock.
Holders of the company's common stock, par value $0.01 per share, at the close of business on May 2, 2019, received one
additional share of common stock for every share of common stock they owned. The stock split took effect at the close of
business on May 22, 2019. All historical common stock share and per share information for all periods presented in the
accompanying consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split.
Recently Adopted Accounting Pronouncements
Effective January 1, 2020, we adopted Financial Accounting Standard Board ('FASB') Accounting Standards Update ('ASU')
2016-13, Measurement of Credit Losses on Financial Instruments, which changed the way entities recognize impairment of
most financial assets. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate
51
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. The
adoption of this standard had an immaterial impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business,
which provides guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or
disposals) of assets or businesses. ASU 2017-01 requires that, to be a business, an acquired set of assets and activities must
include, at a minimum, an input and a substantive process that together significantly contributes to the ability to create outputs.
The company adopted this guidance during the first quarter of 2020 when evaluating the transaction discussed further in Note 2,
'Asset Acquisition'.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to U.S. GAAP on contract
modifications, hedging relationships, and other transactions affected by reference rate reform to ease entities financial reporting
burdens as the market transitions from the London Interbank Offered Rate ('LIBOR') and other interbank offered rates to
alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract
modifications made, hedging relationships entered into, and other transactions affected by reference rate reform, evaluated on or
before December 31, 2022, beginning during the reporting period in which the guidance has been elected. We are currently
evaluating the impact of the new guidance on our consolidated financial statements.
Note 2. Asset Acquisition
On March 30, 2020, we purchased certain assets of Apex Industrial Technologies LLC ('Apex') that have contributed to the
development, design, and scalability of the vending delivery platform utilized since 2008 within our industrial vending business
to dispense product and lease devices to our customers. In connection with this transaction, we purchased a perpetual and
unfettered use of key patents, designs, software and licenses, as well as direct access to the vending equipment supply chain.
The total purchase price of the assets acquired consisted of $125.0. The majority of this was paid in cash at closing, though a
small portion of the purchase price is held in escrow with final payment dependent on certain performance obligations of the
seller. We funded the purchase price with available cash and proceeds from borrowings on our unsecured revolving credit
facility. We accounted for the purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired is
concentrated in the identifiable intangible assets used in the vending delivery platform for our industrial vending business. On a
relative fair value basis, the allocated identifiable intangible assets total $123.8 and tangible property and equipment total $1.2.
The weighted average amortization period of the identifiable intangible assets is approximately 19.4 years.
Note 3. Revenue
Disaggregation of Revenue
The accounting policies of the operations in the various geographic areas are the same as those described in the summary of
significant accounting policies. Revenues are attributed to countries based on the selling location from which the sale occurred.
During 2020, we had a single customer that represented 5% of our consolidated net sales, whereas all remaining customers fell
below that threshold. During both 2019 and 2018, no single customer represented 5% or more of our consolidated net sales.
Our revenues related to the following geographic areas were as follows for the periods ended December 31:
United States
Canada and Mexico
North America
All other foreign countries
Total revenues
Twelve-month period
2020
2019
2018
$
4,825.3
625.0
5,450.3
197.0
$
5,647.3
4,568.9
606.8
5,175.7
158.0
5,333.7
4,285.5
530.8
4,816.3
148.8
4,965.1
52
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
The percentages of our sales by end market were as follows for the periods ended December 31:
Manufacturing
Non-residential construction
Other
Twelve-month period
2020
2019
2018
62.4%
11.3%
26.3%
67.5%
12.9%
19.6%
66.7%
13.1%
20.2%
100.0%
100.0%
100.0%
The percentages of our sales by product line were as follows for the periods ended December 31:
Type
Fasteners(1)
Tools
Cutting tools
Hydraulics & pneumatics
Material handling
Janitorial supplies
Electrical supplies
Welding supplies
Safety supplies
Other
Introduced
2020
2019
2018
Twelve-month Period
1967
1993
1996
1996
1996
1996
1997
1997
1999
29.9%
34.2%
8.2%
4.7%
5.9%
5.1%
9.8%
4.1%
3.5%
25.5%
3.3%
100.0%
9.9%
5.7%
6.8%
5.9%
7.8%
4.7%
4.2%
17.9%
2.9%
100.0%
34.9%
10.0%
5.7%
6.8%
5.8%
7.6%
4.7%
4.1%
17.2%
3.2%
100.0%
(1) The fastener product line represents fasteners and miscellaneous supplies.
53
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Note 4. Long-Lived Assets
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, operating lease right-of-use assets,
deposits, goodwill, and other net intangibles.
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
Our long-lived assets related to the following geographic areas at year end:
United States
Canada and Mexico
North America
All other foreign countries
Total long-lived assets
Note 5. Accrued Expenses
Accrued expenses at year end consisted of the following:
Employee payroll and related taxes
Employee bonuses and commissions
Profit sharing contribution
Insurance reserves
Indirect taxes
Customer promotions and marketing
Other
Depreciable Life
in Years
— $
15 to 40
5 to 30
3 to 10
3 to 5
—
2020
2019
51.9
450.4
254.7
41.8
423.7
244.5
1,141.3
1,036.2
87.3
99.0
2,084.6
(1,053.9)
$
1,030.7
88.7
132.0
1,966.9
(943.7)
1,023.2
2020
2019
2018
$
1,344.9
85.1
1,430.0
35.1
$
1,465.1
1,238.4
72.2
1,310.6
32.1
1,342.7
947.7
43.0
990.7
14.6
1,005.3
2020
2019
$
60.3 (1)
22.3
16.2
41.0
54.3
57.9
20.1
28.7
17.9
13.8
41.1
67.4
52.2
30.4
Accrued expenses
(1) Includes the deferral of $30.0 in payroll taxes resulting from the CARES Act in 2020.
$
272.1
251.5
Note 6. Stockholders' Equity
Dividends
On January 19, 2021, our board of directors declared a quarterly dividend of $0.28 per share of common stock to be paid in
cash on March 3, 2021 to shareholders of record at the close of business on February 3, 2021. We paid aggregate annual cash
dividends per share of $1.40, $0.87, and $0.77 in 2020, 2019, and 2018, respectively.
54
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Stock Options
Effective January 4, 2021, the compensation committee of our board of directors granted to our employees options to purchase
a total of 714,867 shares of our common stock at an exercise strike price of $48.00 per share. The closing stock price on the
effective date of the grant was $47.65 per share. On the same date, certain of our non-employee directors elected to forgo all or
a portion of the 2021 annual cash retainer in exchange for options to acquire a total of 26,643 shares of our common stock at an
exercise price of $48.00 per share.
The following tables summarize the details of options granted under our stock option plans that were still outstanding as of
December 31, 2020, 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 2, 2020
January 2, 2019
January 2, 2018
January 3, 2017
April 19, 2016
April 21, 2015
April 22, 2014
April 16, 2013
April 17, 2012
Total
Date of Grant
January 2, 2020
January 2, 2019
January 2, 2018
January 3, 2017
April 19, 2016
April 21, 2015
April 22, 2014
April 16, 2013
April 17, 2012
Options
Granted
Option Exercise
(Strike) Price
Closing Stock
Price on Date
of Grant
December 31, 2020
Options
Outstanding
Options
Exercisable
902,263
1,316,924
1,087,936
1,529,578
1,690,880
1,786,440
1,910,000
410,000
2,470,000
13,104,021
$38.00
$26.00
$27.50
$23.50
$23.00
$21.00
$28.00
$27.00
$27.00
$37.230
$25.705
$27.270
$23.475
$22.870
$20.630
$25.265
$24.625
$24.505
874,112
1,221,248
886,679
988,415
930,043
596,622
337,550
32,340
47,748
24,964
25,010
270,457
378,747
589,137
350,526
185,050
13,602
47,748
5,914,757
1,885,241
Risk-free
Interest Rate
Expected Life
of Option in
Years
Expected
Dividend
Yield
Expected
Stock
Volatility
Estimated Fair
Value of Stock
Option
1.7%
2.5%
2.2%
1.9%
1.3%
1.3%
1.8%
0.7%
0.9%
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
2.4%
2.9%
2.3%
2.6%
2.6%
2.7%
2.0%
1.6%
1.4%
25.70%
23.96%
23.45%
24.49%
26.34%
26.84%
28.55%
37.42%
39.25%
$6.81
$4.40
$5.02
$4.20
$4.09
$3.68
$4.79
$6.33
$6.85
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 ten 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.
55
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
A summary of activities under our stock option plans consisted of the following:
Outstanding as of January 1, 2020
Granted
Exercised
Cancelled/forfeited
Outstanding as of December 31, 2020
Exercisable as of December 31, 2020
Outstanding as of January 1, 2019
Granted
Exercised
Cancelled/forfeited
Outstanding as of December 31, 2019
Exercisable as of December 31, 2019
(1) Weighted average exercise price.
(2) Weighted average remaining contractual life in years.
Options
Outstanding
Exercise
Price(1)
Remaining
Life(2)
6,807,217 $
902,263 $
(1,630,664) $
(164,059) $
5,914,757 $
1,885,241 $
24.890
38.000
25.180
27.640
26.730
24.230
6.09
9.00
6.22
4.71
Options
Outstanding
Exercise
Price(1)
Remaining
Life(2)
7,999,264 $
1,316,924 $
(2,325,073) $
(183,898) $
6,807,217 $
2,164,067 $
24.765
26.000
25.150
24.630
24.890
24.510
5.61
9.00
6.09
4.30
The total intrinsic value of stock options exercised during the years ended December 31, 2020, 2019, and 2018 was $26.7,
$20.2, and $4.2, 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, 2020, there was $12.6 of total unrecognized stock-based compensation expense related to outstanding
unvested stock options granted under the employee stock option plan. This expense is expected to be recognized over a
weighted average period of 3.87 years. Any future change in estimated forfeitures will impact this amount. The total grant date
fair value of stock options vested under our employee stock option plan during 2020, 2019, and 2018 was $6.1, $5.9, and $5.3,
respectively.
Total stock-based compensation expense related to our employee stock option plan was $5.7, $5.7, and $5.1 for 2020, 2019, and
2018, respectively.
Shares Outstanding
Shares of common stock outstanding were as follows:
Balance at beginning of year
Stock options exercised
Purchases of common stock
Balance at end of year
2020
2019
2018
574,128,911
571,803,838
575,183,072
1,630,664
2,325,073
620,766
(1,600,000)
—
(4,000,000)
574,159,575
574,128,911
571,803,838
56
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
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
2020
573,778,761
1,893,193
575,671,954
2019
573,202,152
1,239,476
574,441,628
2018
573,933,834
391,694
574,325,528
2020
846,041
38.00
$
2019
2018
—
—
3,159,514
27.51
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 7. 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 $16.2, $13.8, and $13.0 for
2020, 2019, and 2018, respectively.
Note 8. Income Taxes
Earnings before income taxes were derived from the following sources:
Domestic
Foreign
Earnings before income taxes
2020
2019
2018
$
$
1,046.7
86.0
1,132.7
977.6
66.1
1,043.7
905.0
82.0
987.0
57
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Components of income tax expense (benefit) were as follows:
2020:
Federal
State
Foreign
Income tax expense
2019:
Federal
State
Foreign
Income tax expense
2018:
Federal
State
Foreign
Income tax expense
Current
Deferred
Total
$
195.4
47.5
28.1
$
271.0
1.8
(0.5)
1.3
2.6
197.2
47.0
29.4
273.6
Current
Deferred
Total
$
177.4
41.6
22.1
$
241.1
11.3
0.2
0.2
11.7
188.7
41.8
22.3
252.8
Current
Deferred
Total
$
143.8
38.8
24.1
$
206.7
27.4
0.2
0.8
28.4
171.2
39.0
24.9
235.1
Income tax expense in the accompanying consolidated financial statements differed from the expected expense as follows:
U.S. federal statutory income tax rate
U.S. federal income tax expense at statutory rate
Increase (decrease) attributed to:
State income taxes, net of federal benefit
Transition tax
Remeasurement of deferred taxes for Tax Act
Other, net
Total income tax expense
Effective income tax rate
2020
2019
2018
21.0%
$
237.9
21.0%
219.2
36.3
—
—
(0.6)
32.8
—
—
0.8
$
273.6
24.2%
252.8
24.2%
21.0%
207.3
30.2
1.2
(11.5)
7.9
235.1
23.8%
58
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 credit losses
Insurance reserves
Customer promotions
Stock-based compensation
Operating lease liabilities
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
Operating lease ROU assets
Total deferred income tax liabilities
Deferred income tax liabilities
2020
2019
$
$
5.3
3.1
9.1
2.4
3.3
62.1
0.8
1.9
(2.2)
(0.3)
85.5
(117.6)
(61.4)
(179.0)
(93.5)
4.3
2.7
9.1
1.9
3.9
62.5
0.8
3.2
(2.8)
(0.0)
85.6
(114.7)
(61.7)
(176.4)
(90.8)
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:
2020
2019
$
$
8.6
0.2
(0.1)
0.8
(0.7)
—
8.8
5.3
0.2
(0.2)
4.7
(1.4)
—
8.6
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. The 2020 and 2019 liability is included in deferred income taxes in the Consolidated Balance
Sheets.
We file income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. We are
no longer subject to income tax examinations by taxing authorities for taxable years before 2017 in the case of United States
federal examinations, and with limited exception, before 2015 in the case of foreign, state, and local examinations. During
2020, there were no material changes in unrecognized tax benefits.
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. Accordingly, no deferred taxes have been provided for withholding
taxes or other taxes that would result upon repatriation of our approximately $365.2 of undistributed earnings from foreign
subsidiaries to the U.S. as those earnings continue to be permanently reinvested.
On December 22, 2017, the Tax Act was signed into law. The Tax Act made broad and complex changes to the U.S. tax code
which include: a lowering of the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, accelerated
expensing of qualified capital investments for a specific period, and a transition from a worldwide to a territorial tax system
which requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries.
ASC 740 requires a company to record the effects of a tax law change in the period of enactment which, for us, was fiscal 2017.
59
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
ASU 2018-05 provides guidance on the application of the Tax Act which includes allowing a company to record a provisional
amount during the measurement period for the impacts when the necessary information is not 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.
The accounting for the income tax effects of the Tax Act was complete in 2018 when the final impact of the transition tax and
impacts of accelerating depreciation for certain physical assets were recorded.
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. Further, the leases do not contain contingent rent provisions. We also lease certain semi-
tractors, pick-up trucks, and computer equipment under operating leases.
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 $83.1. We believe the likelihood of funding
the guarantee obligation under any provision of the operating lease agreements is remote.
The cost components of our operating leases were as follows for the periods ended December 31:
Operating lease cost
Variable lease cost
Short-term lease cost
Total
Leased
Facilities and
Equipment
$
102.5
7.2
—
$
109.7
2020
Leased
Vehicles
15.1
1.5
23.6
40.2
Leased
Facilities and
Equipment
2019
Leased
Vehicles
104.0
10.0
—
114.0
14.1
1.9
27.4
43.4
Total
117.6
8.7
23.6
149.9
Total
118.1
11.9
27.4
157.4
Variable lease costs are excluded from ROU assets and lease liabilities and consist primarily of taxes, insurance, and common
area or other maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred by the
lessor as well as variable mileage costs related to our leased vehicles.
Maturities of our lease liabilities for all operating leases are as follows as of December 31, 2020:
2021
2022
2023
2024
2025
2026 and thereafter
Total lease payments
Less: Imputed interest
Present value of lease liabilities
Leased
Facilities and
Equipment
Leased
Vehicles
Total
$
$
$
86.5
62.8
42.3
24.6
12.2
5.5
233.9
(8.6)
225.3
9.3
6.9
3.7
0.3
0.1
—
20.3
(0.5)
19.8
95.8
69.7
46.0
24.9
12.3
5.5
254.2
(9.1)
245.1
60
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
The weighted average remaining lease terms and discount rates for all of our operating leases were as follows for the periods
ended December 31:
Remaining lease term and discount rate:
Weighted average remaining lease term (years)
Leased facilities and equipment
Leased vehicles
Weighted average discount rate
Lease facilities and equipment
Leased vehicles
2020
3.47
2.44
2019
3.26
2.89
2.37%
2.39%
3.18%
2.70%
Supplemental cash flow information related to our operating leases was as follows for the periods ended December 31:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases
Leased assets obtained in exchange for new operating lease liabilities
Note 10. Debt Commitments
Credit Facility, Notes Payable, and Commitments
Debt obligations and letters of credit outstanding at year end consisted of the following:
2020
2019
$
115.8
99.2
117.2
116.1
Average
Interest Rate at
December 31,
2020
Maturity
Date
Debt Outstanding
2020
2019
Unsecured revolving credit facility
1.09 % November 30, 2023 $
Senior unsecured promissory notes payable, Series A
Senior unsecured promissory notes payable, Series B
Senior unsecured promissory notes payable, Series C
Senior unsecured promissory notes payable, Series D
Senior unsecured promissory notes payable, Series E
Senior unsecured promissory notes payable, Series F
Senior unsecured promissory notes payable, Series G
Senior unsecured promissory notes payable, Series H
Total
Less: Current portion of debt
Long-term debt
2.00 %
2.45 %
3.22 %
2.66 %
2.72 %
1.69 %
2.13 %
2.50 %
July 20, 2021
July 20, 2022
March 1, 2024
May 15, 2025
May 15, 2027
June 24, 2023
June 24, 2026
June 24, 2030
—
40.0
35.0
60.0
75.0
50.0
70.0
25.0
50.0
405.0
(40.0)
$
365.0
210.0
40.0
35.0
60.0
—
—
—
—
—
345.0
(3.0)
342.0
Outstanding letters of credit under unsecured revolving credit
facility - contingent obligation
Unsecured Revolving Credit Facility
$
36.3
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. Any borrowings outstanding under the Credit Facility for which we have the ability and
intent to pay using cash within the next twelve months, will be classified 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%. 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.
61
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Senior Unsecured Promissory Notes Payable
We have issued senior unsecured promissory notes under our master note agreement (the 'Master Note Agreement') in the
aggregate principal amount of $405.0. Our aggregate borrowing capacity under the Master Note Agreement is $600.0; however,
none of the institutional investors party to that agreement are committed to purchase notes thereunder. There is no amortization
of these notes prior to their maturity date and interest is payable quarterly. The notes currently issued under our Master Note
Agreement, including the maturity date and fixed interest rate per annum of each series of note, are contained in the table
above. The Master Note Agreement contains certain financial and other covenants and we are in compliance with these
covenants.
Principal payments required on our outstanding indebtedness, based on the maturity dates defined within our debt
arrangements, for the succeeding five years, are displayed in the table below, as of December 31, 2020:
2021
2022
2023
2024
2025
2026 and thereafter
Total
Note 11. Legal Contingencies
Principal Payments
40.0
35.0
70.0
60.0
75.0
125.0
405.0
$
$
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, 2020, there were no litigation matters that we consider to be probable or reasonably possible to have a material
adverse outcome.
Note 12. 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 6.
Note 13. Selected Quarterly Financial Data (Unaudited)
(Amounts in millions except per share information)
2020:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
Gross
Profit
Pre-tax
Earnings
Net
Earnings
Basic Net
Earnings
per Share
Diluted Net
Earnings
per Share
(1)
Cash Dividends
Paid per Share of
Common Stock
(1)
202.6
238.9
221.5
196.1
859.1
0.35
0.42
0.39
0.34
1.50
0.35
0.42
0.38
0.34
1.49
0.250
0.250
0.250
0.650
1.400
Net Sales
$ 1,367.0
1,509.0
1,413.3
1,358.0
636.8
671.6
640.6
618.8
269.2
313.7
287.6
262.2
$ 5,647.3
2,567.8
1,132.7
62
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Gross
Profit
Pre-tax
Earnings
Net
Earnings
Basic Net
Earnings
per Share
Diluted Net
Earnings
per Share
(1)
Cash Dividends
Paid per Share of
Common Stock
(1)
Net Sales
$ 1,309.3
1,368.4
1,379.1
1,276.9
624.7
641.2
651.1
598.4
257.5
271.4
278.4
236.4
$ 5,333.7
2,515.4
1,043.7
194.1
204.6
213.5
178.7
790.9
0.34
0.36
0.37
0.31
1.38
0.34
0.36
0.37
0.31
1.38
0.215
0.215
0.220
0.220
0.870
2019:
First quarter
Second quarter
Third quarter
Fourth quarter
Total
(1) Amounts may not foot due to rounding difference.
***End of Notes to Consolidated Financial Statements***
63
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.
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. Based on our
assessment and those criteria, management believes that the company maintained effective internal control over financial
reporting as of December 31, 2020. 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
Winona, Minnesota
February 8, 2021
/s/ Holden Lewis
Holden Lewis
Executive Vice President and Chief Financial Officer
64
ITEM 9B. OTHER INFORMATION
None.
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—
Delinquent Section 16(a) Reports' 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 at www.fastenal.com, 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.
Information about our Executive Officers
As of the date of filing this Form 10-K, the following individuals were executive officers of the Company:
Name
Daniel L. Florness
William J. Drazkowski
James C. Jansen
Holden Lewis
Sheryl A. Lisowski
Charles S. Miller
Terry M. Owen
John L. Soderberg
Jeffery M. Watts
Reyne K. Wisecup
Employee of
Fastenal
Since
1996
1995
1992
2016
1994
1999
1999
1993
1996
1988
Age
57
49
50
51
53
46
52
49
49
57
Position
President, Chief Executive Officer, and Director
Executive Vice President – Sales
Executive Vice President – Manufacturing
Executive Vice President and Chief Financial Officer
Executive Vice President – Chief Accounting Officer and Treasurer
Senior Executive Vice President – Sales
Senior Executive Vice President – Sales Operations
Senior 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 of our directors since January 2016.
Mr. Drazkowski has been our executive vice president - sales since October 2019. Mr. Drazkowski's responsibilities include
sales and operational oversight of our Western United States business. From December 2016 to September 2019, Mr.
Drazkowski was executive vice president – national accounts sales. 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. Jansen has been our executive vice president – manufacturing since January 2016. Mr. Jansen's responsibilities include
oversight of our industrial services, quality assurance, aerospace, manufacturing operations, and EHS management. From
December 2010 to December 2015, Mr. Jansen was our executive vice president - operations. From November 2007 to
65
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 regional vice president 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 executive vice president - chief accounting officer and treasurer since December 2020. From August
2016 to November 2020, Ms. Lisowski was our controller, chief accounting officer, and treasurer. 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. Miller has been our senior executive vice president – sales since January 2020. Mr. Miller's responsibilities include sales
and operational oversight of our Eastern United States business. From November 2015 to December 2019, Mr. Miller was one
of our executive vice presidents – sales. 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 e-commerce, marketing, national accounts sales, government sales, FAST Solutions® (Onsite and FMI),
our Mansco division, manufacturing, distribution, transportation, product development, supplier development, procurement, and
supply chain. 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. Soderberg has been our senior executive vice president – information technology since December 2020. From May 2016 to
November 2020, Mr. Soderberg was our executive vice president – information technology. 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.
66
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
Plan Category
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders
Total
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights
Weighted-
Average Exercise
Price of Outstanding
Options, Warrants,
and Rights
(a)
(b)
5,914,757 $
—
5,914,757
26.73
—
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
12,756,896
—
12,756,896
(1) Reflects stock option awards issued and issuable in the future under our Fastenal Company Stock Option Plan and our
Fastenal Company Non-Employee Director Stock Option Plan.
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.
67
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a) 1. Financial Statements:
PART IV
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Earnings for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
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
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
10.1
10.2
10.3
10.4
10.5
10.6
Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit
3.1 to Fastenal Company's Form 8-K dated as of April 23, 2019)
Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Fastenal Company's
Form 8-K dated as of January 17, 2019)
Form of Senior Notes due July 20, 2021 (incorporated by reference to Exhibit 4.1 to Fastenal Company’s
Form 8‑K dated as of July 20, 2016)
Form of Senior Notes due July 20, 2022 (incorporated by reference to Exhibit 4.2 to Fastenal Company’s
Form 8‑K dated as of July 20, 2016)
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)
Description of Capital Stock
Form of Senior Notes due May 15, 2025 (incorporated by reference to Exhibit 4.1 to Fastenal Company's
Form 10-Q for the quarter ended June 30, 2020)
Form of Senior Notes due May 15, 2027 (incorporated by reference to Exhibit 4.2 to Fastenal Company's
Form 10-Q for the quarter ended June 30, 2020)
Form of Senior Notes due June 24, 2023 (incorporated by reference to Exhibit 4.3 to Fastenal Company's
Form 10-Q for the quarter ended June 30, 2020)
Form of Senior Notes due June 24, 2026 (incorporated by reference to Exhibit 4.4 to Fastenal Company's
Form 10-Q for the quarter ended June 30, 2020)
Form of Senior Notes due June 24, 2030 (incorporated by reference to Exhibit 4.5 to Fastenal Company's
Form 10-Q for the quarter ended June 30, 2020)
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)*
Fastenal Company Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 99 to
Fastenal Company's Registration Statement on Form S-8 filed on April 25, 2018).*
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).
First Amendment to Credit Agreement, dated as of November 23, 2015, among Fastenal Company, the
Lenders from time to time 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 November 25,
2015).
68
Exhibit
Number Description of Document
10.7
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).
10.8
10.9
10.10
10.11
13
21
23
31
32
101
104
Third Amendment to Credit Agreement dated as of November 30, 2018 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 December 3, 2018).
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
such Master Note Agreement (incorporated by reference to Exhibit 10.1 to Fastenal Company’s Form 8-K
dated as of July 20, 2016).
Omnibus First Amendment to Master Note Agreement and Subsidiary Guaranty Agreement dated as of
November 30, 2018 by and among Fastenal Company, Fastenal Company Purchasing, and Fastenal IP
Company, on one hand, and Metropolitan Life Insurance Company, NYL Investors LLC, PGIM, Inc., and
each holder of Notes that are signatory thereto, on the other hand (incorporated by reference to Exhibit 10.2
to Fastenal Company's Form 8-K dated December 3, 2018).
Consent, Waiver and Agreement to Master Note Agreement dated as of June 10, 2020 by and among
Fastenal Company, Fastenal Company Purchasing, and Fastenal IP Company, on the one hand, and
Metropolitan Life Insurance Company, MetLife Investment Management, LLC, NYL Investors LLC,
PGIM, Inc. and each holder of Notes that are signatory thereto, on the other hand (incorporated by reference
to Exhibit 10.1 to Fastenal Company's Form 10-Q for the quarter ended June 30, 2020).
Portions of 2020 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
The following financial statements from the Annual Report on Form 10-K for the year ended December 31,
2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings,
(iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’
Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
The cover page from the Annual Report on Form 10-K for the year ended December 31, 2020, formatted in
Inline XBRL.
* 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.
69
FASTENAL COMPANY
Schedule II—Valuation and Qualifying Accounts
Years ended December 31, 2020, 2019, and 2018
(Amounts in millions)
Balance at
Beginning
of Year
"Additions"
Charged to
Costs and
Expenses
"Other"
Additions
(Deductions)
"Less"
Deductions
Balance
at End
of Year
$
$
$
10.9
41.1
12.8
7.5
72.1 (1)
5.5
69.7 (1)
—
—
—
6.1
72.2 (2)
7.4
66.2 (2)
7.2
68.3 (2)
12.3
41.0
10.9
41.1
12.8
37.6
Description
Year ended December 31, 2020
Allowance for credit losses
Insurance reserves
Year ended December 31, 2019
Allowance for credit losses
Insurance reserves
Year ended December 31, 2018
Allowance for credit losses
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.
8.1
66.9 (1)
39.0
37.6
11.9
—
—
—
$
$
$
See accompanying Report of Independent Registered Public Accounting Firm incorporated herein by reference.
70
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 8, 2021
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 8, 2021
/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, Executive Vice President - 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/ Hsenghung Sam Hsu
Hsenghung Sam Hsu, Director
/s/ Daniel L. Johnson
Daniel L. Johnson, Director
/s/ Nicholas J. Lundquist
Nicholas J. Lundquist, Director
/s/ Scott A. Satterlee
Scott A. Satterlee, Director
/s/ Reyne K. Wisecup
Reyne K. Wisecup, Director
71
DESCRIPTION OF CAPITAL STOCK
The summary of the general terms and provisions of the capital stock of Fastenal Company (the "Company") set forth below
does not purport to be complete and is subject to and qualified by reference to the Company's Restated Articles of
Incorporation, as amended (the "Articles") and Restated By-Laws ("By-Laws," and together with the Articles, the "Charter
Documents"), each of which is incorporated herein by reference and attached as an exhibit to the Company's most recent
Annual Report on Form 10-K filed with the Securities and Exchange Commission. For additional information, please read the
Company's Charter Documents and the applicable provisions of the Minnesota Business Corporation Act (the "MBCA").
Exhibit 4.4
Capital Stock
The Company is authorized to issue up to 805,000,000 shares, of which 5,000,000 have been designated preferred stock, par
value of $0.01 per share ("Preferred Stock") and 800,000,000 have been designated common stock, par value $0.01 per share
("Common Stock").
Voting Rights
The holders of shares of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote
of shareholders, including the election of directors. The Articles do not permit cumulative voting in the election of directors.
Subject to the rights, if any, of the holders of one or more classes or series of Preferred Stock issued by the Company, each
director of the Company shall be elected at a meeting of shareholders by the vote of the majority of votes cast with respect to
that director, provided that directors of the Company shall be elected by a plurality of the votes present and entitled to vote on
the election of directors at any such meeting for which the number of nominees (other than nominees withdrawn on or prior to
the day preceding the date the Company first mails its notice for such meeting to the shareholders) exceeds the number of
directors to be elected. Voting rights with respect to certain significant corporate transactions may require more than a majority
vote in certain circumstances as described below under "Business Combinations and Other Transactions with 15%
Shareholders."
Dividend Rights
Subject to any prior rights of any Preferred Stock then outstanding, the holders of shares of Common Stock are entitled to
receive ratably such dividends as may be declared by the Company's board of directors out of funds legally available therefor.
Liquidation Rights
Upon any liquidation or dissolution of the Company, the holders of shares of Common Stock share ratably, in proportion to the
number of shares held, in the assets available for distribution after payment of all prior claims, including all prior claims of any
Preferred Stock then outstanding.
No Preemptive Rights
Shareholders of the Company shall have no preemptive rights to acquire securities or rights to purchase securities of the
Company.
Listing
The Company's Common Stock is currently traded on the Nasdaq Stock Market LLC under the symbol "FAST."
Anti-Takeover Provisions
The Charter Documents and the MBCA contain certain provisions that may discourage an unsolicited takeover of the Company
or make an unsolicited takeover of the Company more difficult. The following are some of the more significant anti-takeover
provisions that are applicable to the Company:
Business Combinations and Other Transactions with 15% Shareholders
The Articles provide that, generally, (i) consolidations, mergers, statutory share exchanges and sales or other dispositions of
10% or more of the book value of the Company's assets involving a beneficial holder of at least 15% of the stock of the
Company entitled to vote generally in the election of directors ("Voting Stock"), (ii) the acquisition of assets from a beneficial
holder of at least 15% of the Company's Voting Stock equal to or greater than 10% of the book value of the Company's assets,
(iii) certain issuances of stock involving a beneficial holder of at least 15% of the Company's Voting Stock, (iv) liquidations or
dissolutions of the Company proposed by or on behalf of a 15% or more beneficial shareholder, and (v) certain other specified
transactions involving a 15% or more beneficial shareholder, whether or not they otherwise require a shareholder vote, require
the affirmative vote of the holders of at least 75% of the outstanding shares of the Company's Voting Stock, unless (a) the
proposed transaction is first approved by a majority of the continuing directors (generally meaning any director whose election
or nomination was approved by a majority of the currently sitting directors) whose election or nomination was approved by a
majority of the continuing directors), or (b) the consideration to be received by the shareholders of the Company in the
proposed transaction meets certain conditions generally designed to insure that shareholders receive a fair price for their shares,
and certain other procedural requirements in connection with the proposed transaction are followed. A 75% vote of the
outstanding shares of the Company's Voting Stock is required to amend this special voting provision.
Special Meetings of Shareholders; Shareholder Action by Unanimous Written Consent; and Advance Notice of Shareholder
Business Proposals and Nominations
Section 302A.433 of the MBCA provides that special meetings of the Company's shareholders may be called by the Company's
chief executive officer, chief financial officer, two or more directors, or shareholders holding 10% or more of the voting power
of all shares entitled to vote, except that a special meeting demanded by shareholders for the purpose of considering any action
to directly or indirectly facilitate or effect a business combination, including any action to change or otherwise affect the
composition of the board of directors for that purpose, must be called by 25% or more of the voting power of all shares entitled
to vote. Section 302A.441 of the MBCA also provides that action may be taken by shareholders without a meeting only by
unanimous written consent. The By-Laws provide an advance written notice procedure with respect to shareholder proposals of
business and shareholder nominations of candidates for election as directors. Shareholders at an annual meeting are able to
consider only the proposals and nominations specified in the notice of meeting or otherwise brought before the meeting by or at
the direction of the board of directors or by a shareholder that has delivered timely written notice in proper form to the
Company's general counsel of the business to be brought before the meeting.
Control Share Provision
Section 302A.671 of the MBCA applies, with certain exceptions, to any acquisition of the Company's Voting Stock (from a
person other than the Company and other than in connection with certain mergers and exchanges to which the Company is a
party) resulting in the acquiring person owning 20% or more of the Company's Voting Stock then outstanding. Section
302A.671 requires approval of any such acquisitions by both (i) the affirmative vote of the holders of a majority of the shares
entitled to vote, including shares held by the acquiring person, and (ii) the affirmative vote of the holders of a majority of the
shares entitled to vote, excluding all interested shares. In general, shares acquired in the absence of such approval are denied
voting rights and are redeemable at their then fair market value by the Company within 30 days after the acquiring person has
failed to give a timely information statement to the Company or the date the shareholders voted not to grant voting rights to the
acquiring person's shares. The control share provision applies to any corporation that has not expressly provided to the contrary
in its articles or in its bylaws approved by its shareholders. The Articles provide that this provision shall apply.
Business Combination Provision
Section 302A.673 of the MBCA generally prohibits the Company or any of its subsidiaries from entering into any merger, share
exchange, sale of material assets or similar transaction with a 10% shareholder within four years following the date the person
became a 10% shareholder, unless either the transaction or the person's acquisition of shares is approved prior to the person
becoming a 10% shareholder by a committee of all of the disinterested members of the board of directors. The business
combination provision applies to any corporation that has not expressly provided to the contrary in its articles or its bylaws. The
Articles provide that this provision shall apply.
Takeover Offer; Fair Price
Under Section 302A.675 of the MBCA, an offeror may not acquire shares of a publicly held corporation within two years
following the last purchase of shares pursuant to a takeover offer with respect to that class, including acquisitions made by
purchase, exchange, merger, consolidation, partial or complete liquidation, redemption, reverse stock split, recapitalization,
reorganization, or any other similar transaction, unless (i) the acquisition is approved by a committee of the board's disinterested
directors before the purchase of any shares by the offeror pursuant to the earlier takeover offer, or (ii) shareholders are afforded,
at the time of the proposed acquisition, a reasonable opportunity to dispose of the shares to the offeror upon substantially
equivalent terms as those provided in the earlier takeover offer.
Greenmail Restrictions
Under Section 302A.553 of the MBCA, a corporation is prohibited from buying shares at an above-market price from a greater
than 5% shareholder who has held the shares for less than two years unless (i) the purchase is approved by holders of a majority
of the outstanding shares entitled to vote or (ii) the corporation makes an equal or better offer to all shareholders for all other
shares of that class or series and any other class or series into which they may be converted.
Authority of the Board of Directors
The Company's board of directors has the power to issue any or all of the shares of the Company's capital stock, including the
authority to establish one or more series of Preferred Stock, setting forth the designation of each such series and fixing the
relative rights and preferences for each such series, without seeking shareholder approval in most instances. In addition, under
the By-Laws, the Company's board of directors has the right to fill vacancies of the board of directors (including a vacancy
created by an increase in the size of the board of directors).
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 primary cash bonuses for all of our named executive officers 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 primary
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 under this program 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 primary quarterly cash bonus reflects the
officer's track record in his or her 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 primary 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.
Beginning in 2019, the compensation committee approved a supplemental bonus program for each named executive officer
other than Mr. Florness. The supplemental bonus program, known as the ROA (Return on Assets) Plan, is intended to
encourage better management of accounts receivable, inventory, and vehicles and provides cash incentive amounts on a
quarterly basis for asset management improvement over the same quarter in the prior fiscal year and is described in more detail
below. Beginning in 2021, the compensation committee included Mr. Florness in the ROA Plan.
2020 Incentive Program
The bonus arrangements for our named executive officers for 2020 were approved by our compensation committee at its last
meeting in 2019. Consistent with prior years, the bonuses for 2020 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 2019. The compensation committee determined that the bonus formulas for each of the named executive
officers for 2020 would remain unchanged from those in effect at the end of 2019, except that Mr. Florness' and Mr. Owen's
bonus percentages increased in recognition of their continued growth, performance, and experience in their roles. The
compensation committee otherwise maintained the bonus formulas for each other named executive officer consistent with 2019.
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 2020 was determined by applying the payout percentage listed opposite his or her
name below to the amount by which pre-tax earnings or adjusted 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 2019 (the 'minimum target').
Name
Earnings Type
Mr. Florness
Company-wide pre-tax earnings
Mr. Lewis
Company-wide net earnings
Mr. Owen
Mr. Watts (1)
Company-wide pre-tax earnings
Pre-tax earnings
Ms. Wisecup
Company-wide pre-tax earnings
Payout Percentage
1.50%
0.90%
1.00%
2.40% / 0.35%
0.65%
(1)
The bonuses for Mr. Watts were based on growth in 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%.
The following table sets out, for each quarter in 2020, our actual and minimum target pre-tax earnings and net earnings on a
company-wide basis for that quarter, in each case rounded to the nearest thousand. (As indicated above, the 'minimum target'
amount in 2020 was 100% of such earnings in the same quarter of 2019.)
2020
First quarter
Second quarter
Third quarter
Fourth quarter
Actual
Pre-tax Earnings
Minimum Target
Pre-tax Earnings
Actual
Net Earnings
Minimum Target
Net Earnings
$
269,227,000 $
257,467,000 $
202,614,000 $
313,651,000
287,610,000
262,198,000
271,378,000
278,351,000
236,465,000
238,854,000
221,483,000
196,113,000
194,103,000
204,593,000
213,488,000
178,708,000
During 2020, the approximate percentage of the actual and minimum pre-tax earnings of the company attributable to our
operations in the geographic area under Mr. Watts' leadership was 12%.
As noted above, the ROA Plan, which is designed to encourage careful management of assets, namely accounts receivable,
inventories, and pick-up trucks, for 2020 was approved by the compensation committee for our named executives officers, other
than Mr. Florness. Quarterly bonuses would be payable pursuant to the ROA Plan if a specified level of improvement in asset
management relative to the comparable prior year quarter was achieved. Improvement in asset management was assessed using
a two-quarter average of total assets divided by the trailing 12-month net sales, which we refer to as the 'performance
percentage.' If the performance percentage when compared to the prior year benchmark showed improvement at a level
specified in the table below, the named executive officer would receive the corresponding bonus amount.
Improvement Amount Exceeded
150 basis points
100 basis points (but less than 150 basis points)
50 basis points (but less than 100 basis points)
Bonus Payout
$
$
$
15,000
10,000
5,000
In addition, for each whole percentage improvement (e.g., 41.0%, 40.0%, 39.0%, etc.) a $10,000 bonus would be payable for
the quarter when the new whole percentage threshold was first achieved. We achieved improvement and paid bonus amounts to
our named executive officers, other than Mr. Florness, pursuant to the ROA Plan for each quarter in fiscal 2020 as follows:
2020
First quarter
Second quarter
Third quarter
Fourth quarter
Fourth quarter
Total
Improvement Amount Exceeded
Bonus Payout
50 basis points (but less than 100 basis points)
$
50 basis points (but less than 100 basis points)
100 basis points (but less than 150 basis points)
150 basis points
Whole percentage improvement (41.0% and 40.0%)
$
5,000
5,000
10,000
15,000
20,000
55,000
2021 Incentive Program
The bonus arrangements for our named executive officers for 2021 were approved by our compensation committee at its last
meeting in 2020. The bonus plans for our named executive officers for 2021 are unchanged from our 2020 bonus plans, except
that Mr. Watts' bonus percentage paid on company-wide pre-tax earnings growth decreased due to a planned modification
related to continued growth in our international business. Mr. Watt's bonus percentage on pre-tax earnings growth for his
geographic area of responsibilities remained unchanged from 2020.
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
Innova Holdings, LLC
Innova Supply Chain Solutions, 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
Chile
Asia
Singapore
China
Malaysia
Thailand
India
Fastenal Panama S.A.
Fastenal Latin America, S.A.
Fastenal Brasil Importação, Exportação e Distribuição Ltda.
Fastenal Brasil Participacoes Ltda.
Fastenal Chile SpA
Fastenal Singapore PTE Ltd.
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 Malaysia SDN BHD
Fastenal (Thailand) Ltd.
Fastenal India Sourcing, IT and Procurement Private Ltd.
Fastenal India Wholesale Private Ltd.
Europe
The Netherlands Fastenal Europe, B.V.
Fastenal Netherlands Holdings, B.V.
Hungary
Fastenal Europe, Kft.
United Kingdom Fastenal Europe, Ltd.
Germany
Fastenal Europe GmbH
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
Fastenal Europe IE Limited
Ireland
Fastenal Europe, S.L.
Spain
Fastenal Europe FR Sàrl
France
Fastenal Europe BE BV
Belgium
Exhibit 21
Year
Incorporated
Jurisdiction of
Incorporation
1994
1997
1997
2005
2006
2014
2016
2020
2020
2008
1999
1999
2009
2011
2011
2011
2013
2001
2003
2003
2012
2012
2012
2009
2012
2013
2013
2003
2015
2009
2010
2011
2011
2011
2012
2013
2013
2016
2017
2017
2018
2018
2019
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Minnesota
Canada
Mexico
Mexico
Panama
Panama
Brazil
Brazil
Chile
Singapore
Hong Kong, China
Shanghai, China
Shanghai, China
Tianjin, China
Shenzhen, China
Malaysia
Thailand
India
India
The Netherlands
The Netherlands
Hungary
United Kingdom
Germany
Czech Republic
Italy
Romania
Sweden
Poland
Austria
Switzerland
Ireland
Spain
France
Belgium
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
The Board of Directors and Stockholders
Fastenal Company:
We consent to the incorporation by reference in the registration statements (No. 333-52765, No. 333-134211, No. 333-162619,
No. 333-176401, and No. 333-224441) on Form S-8 of Fastenal Company of our report dated February 8, 2021, with respect to
the consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, 2020 and 2019, 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, 2020, 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, 2020,
which report appears in the December 31, 2020 annual report on Form 10-K, of Fastenal Company.
/s/ KPMG LLP
Minneapolis, Minnesota
February 8, 2021
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 8, 2021
/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 8, 2021
/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 8, 2021
/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)
DIRECTORS
WILLARD D. OBERTON
MICHAEL J. ANCIUS
MICHAEL J. DOLAN
STEPHEN L. EASTMAN
Chair of the Board;
Retired President and
Chief Executive Officer,
Fastenal Company
Vice President and
Chief Financial
Officer, A.L.M.
Holding Company
(construction and
energy company)
Self-Employed Business
Consultant; Retired
Executive Vice President
and Chief Operating
Officer, The Smead
Manufacturing Company
President of the
Aftermarket, Parts,
Garments, and
Accessories Division of
Polaris Inc. (recreational
vehicle manufacturer)
Director since 1999
Director since 2009
Director since 2000
Director since 2015
DANIEL L. FLORNESS
RITA J. HEISE
HSENGHUNG S. HSU
DANIEL L. JOHNSON
President and Chief
Executive Officer,
Fastenal Company
Self-Employed
Business Consultant;
Retired Corporate Vice
President and Chief
Information Officer of
Cargill, Incorporated
Executive Vice
President, Strategic
Planning, Ecolab Inc.
President and Chief
Executive Officer
of M.A. Mortenson
Company (family
owned construction
company)
Director since 2016
Director since 2012
Director since 2020
Director since 2016
NICHOLAS J. LUNDQUIST
SCOTT A. SATTERLEE
REYNE K. WISECUP
Retired Senior
Executive Vice
President -
Operations,
Fastenal Company
Retired President
of North America
Surface Transportation
Division, C.H. Robinson
Worldwide, Inc.
Senior Executive
Vice President -
Human Resources,
Fastenal Company
Director since 2019
Director since 2009
Director since 2000
EXECUTIVE OFFICERS
DANIEL L. FLORNESS
WILLIAM J. DRAZKOWSKI
JAMES C. JANSEN
President and Chief
Executive Officer
Executive
Vice President -
Sales
Executive Vice
President -
Manufacturing
Employee since 1996
Employee since 1995
Employee since 1992
HOLDEN LEWIS
SHERYL A. LISOWSKI
CHARLES S. MILLER
TERRY M. OWEN
Executive Vice
President and Chief
Financial Officer
Executive Vice
President -
Chief Accounting
Officer and Treasurer
Senior Executive
Vice President -
Sales
Senior Executive
Vice President -
Sales Operations
Employee since 2016
Employee since 1994
Employee since 1999
Employee since 1999
JOHN L. SODERBERG
JEFFERY M. WATTS
REYNE K. WISECUP
Senior Executive
Vice President -
Information
Technology
Executive Vice
President -
International Sales
Senior Executive
Vice President -
Human Resources
Employee since 1993
Employee since 1996
Employee since 1988
CORPORATE INFORMATION
ANNUAL
MEETING
LEGAL
COUNSEL
The annual meeting of shareholders will be held
as an online-only event, commencing at 10:00
a.m., central time, on Saturday, April 24, 2021.
Additional details regarding accessing the event
can be found in our 2021 Proxy Statement.
Faegre Drinker Biddle & Reath LLP
Minneapolis, Minnesota
INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP
Minneapolis, Minnesota
HOME
OFFICE
Fastenal Company
2001 Theurer Boulevard
Winona, Minnesota 55987-0978
Phone: 507-454-5374 I Fax: 507-453-8049
FORM
10-K
A copy of our 2020 Annual Report on Form 10-K filed
with the Securities and Exchange Commission is available
without charge to shareholders upon written request to
Investor Relations 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: https://investor.fastenal.com.
TRANSFER
AGENT
Equiniti Trust Company
Mendota Heights, Minnesota
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A N N U A L R E P O R T
9706786 | SC | 2.21 | Printed in the USA