fast-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2022, or


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission file number 0-16125

FASTENAL COMPANY

(Exact name of registrant as specified in its charter)


Minnesota						41-0948415
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


2001 Theurer Boulevard, Winona, Minnesota						55987-1500
(Address of principal executive offices)						(Zip Code)


			(507) 454-5374
			(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $.01 per share	FAST	The Nasdaq Stock Market LLC

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 ý No ☐

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 ý No ☐

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

Accelerated Filer

☐

Non-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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of April 12, 2022, there were approximately 575,606,032 shares of the registrant's common stock outstanding.

Table of Contents

FASTENAL COMPANY

INDEX


		Page
PART I	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Earnings	2

	Condensed Consolidated Statements of Comprehensive Income	3

	Condensed Consolidated Statements of Stockholders' Equity	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20

ITEM 4.	CONTROLS AND PROCEDURES	20

PART II	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	21

ITEM 1A.	RISK FACTORS	21

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21

ITEM 6.	EXHIBITS	21

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PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in millions except share information)


	(Unaudited)
Assets	March 31, 2022		December 31, 2021
Current assets:
Cash and cash equivalents	$	234.2	236.2
Trade accounts receivable, net of allowance for credit losses of $10.9 and $12.0, respectively	1,071.6		900.2
Inventories	1,600.8		1,523.6
Prepaid income taxes	—		8.5
Other current assets	127.4		188.1
Total current assets	3,034.0		2,856.6

Property and equipment, net	1,008.4		1,019.2
Operating lease right-of-use assets	246.0		242.3
Other assets	178.3		180.9

Total assets	$	4,466.7	4,299.0

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt	$	35.0	60.0
Accounts payable	289.9		233.1
Accrued expenses	268.2		298.3
Current portion of operating lease liabilities	91.3		90.8
Income taxes payable	61.1		—
Total current liabilities	745.5		682.2

Long-term debt	330.0		330.0
Operating lease liabilities	159.6		156.0
Deferred income taxes	89.6		88.6

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, 575,601,845 and 575,464,682 shares issued and outstanding, respectively	5.8		5.8
Additional paid-in capital	101.6		96.2
Retained earnings	3,063.0		2,970.9
Accumulated other comprehensive loss	(28.4)		(30.7)
Total stockholders' equity	3,142.0		3,042.2
Total liabilities and stockholders' equity	$	4,466.7	4,299.0

See accompanying Notes to Condensed Consolidated Financial Statements.

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FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(Amounts in millions except earnings per share)


	(Unaudited)
	Three Months Ended March 31,
		2022		2021
Net sales		$	1,704.1	1,417.0

Cost of sales		910.8		773.6
Gross profit		793.3		643.4

Operating and administrative expenses		435.3		363.1
Operating income		358.0		280.3

Interest income		0.1		0.0
Interest expense		(2.4)		(2.4)

Earnings before income taxes		355.7		277.9

Income tax expense		86.1		67.3

Net earnings		$	269.6	210.6

Basic net earnings per share		$	0.47	0.37

Diluted net earnings per share		$	0.47	0.37

Basic weighted average shares outstanding		575.6		574.3

Diluted weighted average shares outstanding		577.6		576.5

See accompanying Notes to Condensed Consolidated Financial Statements.

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FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Amounts in millions)


	(Unaudited)
	Three Months Ended March 31,
		2022		2021
Net earnings		$	269.6	210.6
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (net of tax of $0.0 in 2022 and 2021)		2.3		(4.4)
Comprehensive income		$	271.9	206.2

See accompanying Notes to Condensed Consolidated Financial Statements.

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FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity

(Amounts in millions except per share information)


	(Unaudited)
	Three Months Ended March 31,
		2022		2021
Common stock
Balance at beginning of period		$	5.8	5.7
Balance at end of period		5.8		5.7
Additional paid-in capital
Balance at beginning of period		96.2		59.1
Stock options exercised		3.9		6.6
Stock-based compensation		1.5		1.5
Balance at end of period		101.6		67.2
Retained earnings
Balance at beginning of period		2,970.9		2,689.6
Net earnings		269.6		210.6
Dividends paid in cash		(178.4)		(160.8)
Translation adjustment upon merger of foreign subsidiary		0.9		—
Balance at end of period		3,063.0		2,739.4
Accumulated other comprehensive income (loss)
Balance at beginning of period		(30.7)		(21.2)
Other comprehensive income (loss)		2.3		(4.4)
Balance at end of period		(28.4)		(25.6)
Total stockholders' equity		$	3,142.0	2,786.7

Cash dividends paid per share of common stock		$	0.31	$	0.28

See accompanying Notes to Condensed Consolidated Financial Statements.

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FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Amounts in millions)


	(Unaudited)
	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net earnings	$	269.6	210.6
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of property and equipment	41.2		39.3
Loss (gain) on sale of property and equipment	3.5		(0.6)
Bad debt expense	(0.3)		(0.1)
Deferred income taxes	1.0		0.3
Stock-based compensation	1.5		1.5
Amortization of intangible assets	2.7		2.7
Changes in operating assets and liabilities:
Trade accounts receivable	(169.9)		(82.1)
Inventories	(76.4)		31.1
Other current assets	60.7		16.3
Accounts payable	56.8		8.1
Accrued expenses	(30.1)		(6.3)
Income taxes	69.6		53.9
Other	0.1		0.1
Net cash provided by operating activities	230.0		274.8

Cash flows from investing activities:
Purchases of property and equipment	(35.5)		(32.7)
Proceeds from sale of property and equipment	2.4		2.7
Other	(0.1)		0.1
Net cash used in investing activities	(33.2)		(29.9)

Cash flows from financing activities:
Proceeds from debt obligations	235.0		110.0
Payments against debt obligations	(260.0)		(110.0)
Proceeds from exercise of stock options	3.9		6.6
Payments of dividends	(178.4)		(160.8)
Net cash used in financing activities	(199.5)		(154.2)

Effect of exchange rate changes on cash and cash equivalents	0.7		(2.5)

Net (decrease) increase in cash and cash equivalents	(2.0)		88.2

Cash and cash equivalents at beginning of period	236.2		245.7
Cash and cash equivalents at end of period	$	234.2	333.9

Supplemental information:
Cash paid for interest	$	2.3	2.4
Net cash paid for income taxes	$	15.2	12.4
Leased assets obtained in exchange for new operating lease liabilities	$	23.9	30.9

See accompanying Notes to Condensed Consolidated Financial Statements.

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FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

March 31, 2022 and 2021

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Fastenal Company and subsidiaries (collectively referred to as the company, Fastenal, or by terms such as we, our, or us) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in our consolidated financial statements as of and for the year ended December 31, 2021. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Immaterial Revision

The prior period balances for additional paid-in capital and common stock have been updated in the Condensed Consolidated Statements of Stockholders' Equity to reflect the impact of an immaterial correction which reclassified $2.9 from additional paid-in capital to common stock in connection with the 2019 stock split.

Recently Issued Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 do not have any receivables, hedging relationships, or lease agreements that reference LIBOR or another reference rate expected to be discontinued. We are currently evaluating the impact of the new guidance on our condensed consolidated financial statements; however, we have determined that, of our current debt commitments as outlined in detail in Note 6 'Debt Commitments', only the obligations described under Unsecured Revolving Credit Facility in Note 6 would be impacted by ASU 2020-04. Our Senior Unsecured Promissory Notes Payable described in Note 6 each have fixed interest rates.

(2) Revenue

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, 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. Revenues are attributable to countries based on the selling location from which the sale occurred.

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FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

March 31, 2022 and 2021

(Unaudited)

Disaggregation of Revenue

Our revenues related to the following geographic areas were as follows for the periods ended March 31:


	Three-month Period
		2022		2021
United States		$	1,431.7	1,187.8
Canada and Mexico		213.4		176.8
North America		1,645.1		1,364.6
All other foreign countries		59.0		52.4
Total revenues		$	1,704.1	1,417.0

The percentages of our sales by end market were as follows for the periods ended March 31:


	Three-month Period
		2022		2021
Manufacturing		71.2	%	68.0	%
Non-residential construction		10.4	%	10.8	%
Other		18.4	%	21.2	%
		100.0	%	100.0	%

The percentages of our sales by product line were as follows for the periods ended March 31:


		Three-month Period
Type	Introduced		2022		2021
Fasteners (1)	1967		34.3	%	32.5	%
Tools	1993		8.2	%	8.6	%
Cutting tools	1996		5.0	%	5.0	%
Hydraulics & pneumatics	1996		6.5	%	6.3	%
Material handling	1996		5.6	%	5.5	%
Janitorial supplies	1996		7.9	%	8.5	%
Electrical supplies	1997		4.4	%	4.3	%
Welding supplies	1997		3.7	%	3.8	%
Safety supplies	1999		21.0	%	21.5	%
Other			3.4	%	4.0	%
			100.0	%	100.0	%

(1) The fasteners product line represents fasteners and miscellaneous supplies.

(3) Stockholders' Equity

Dividends

On April 12, 2022, our board of directors declared a quarterly dividend of $0.31 per share of common stock to be paid in cash on May 25, 2022 to shareholders of record at the close of business on April 27, 2022. Since 2011, we have paid quarterly cash dividends, and in 2020, we paid a special cash dividend late in the year. Our board of directors currently intends to continue paying quarterly cash dividends, provided that any future determination as to payment of dividends will depend on the financial condition and results of operations of the company and such other factors as are deemed relevant by the board of directors.

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FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

March 31, 2022 and 2021

(Unaudited)

The following table presents the cash dividends either paid previously or declared by our board of directors for future payment on a per share basis:


	2022		2021
First quarter	$	0.31	$	0.28
Second quarter	$	0.31	$	0.28
Third quarter			$	0.28
Fourth quarter			$	0.28
Total	$	0.62	$	1.12

Stock Options

The following tables summarize the details of options granted under our stock option plans that were outstanding as of March 31, 2022, and the assumptions used to value these grants. All such grants were effective at the close of business on the date of grant.


	Options Granted	Option Exercise (Strike) Price		Closing Stock Price on Date of Grant		March 31, 2022
Date of Grant						Options Outstanding	Options Exercisable
January 3, 2022	713,438	$	62.00	$	61.980	701,829	53,355
January 4, 2021	741,510	$	48.00	$	47.650	691,096	26,643
January 2, 2020	902,263	$	38.00	$	37.230	796,263	272,843
January 2, 2019	1,316,924	$	26.00	$	25.705	958,946	421,462
January 2, 2018	1,087,936	$	27.50	$	27.270	712,852	435,272
January 3, 2017	1,529,578	$	23.50	$	23.475	706,446	542,046
April 19, 2016	1,690,880	$	23.00	$	22.870	520,571	330,717
April 21, 2015	1,786,440	$	21.00	$	20.630	394,072	232,732
April 22, 2014	1,910,000	$	28.00	$	25.265	182,839	107,855
April 16, 2013	410,000	$	27.00	$	24.625	5,672	5,672
Total	12,088,969					5,670,586	2,428,597


Date of Grant	Risk-free Interest Rate		Expected Life of Option in Years	Expected Dividend Yield		Expected Stock Volatility		Estimated Fair Value of Stock Option
January 3, 2022	1.3	%	5.00	1.7	%	28.52	%	$	13.68
January 4, 2021	0.4	%	5.00	2.0	%	29.17	%	$	9.57
January 2, 2020	1.7	%	5.00	2.4	%	25.70	%	$	6.81
January 2, 2019	2.5	%	5.00	2.9	%	23.96	%	$	4.40
January 2, 2018	2.2	%	5.00	2.3	%	23.45	%	$	5.02
January 3, 2017	1.9	%	5.00	2.6	%	24.49	%	$	4.20
April 19, 2016	1.3	%	5.00	2.6	%	26.34	%	$	4.09
April 21, 2015	1.3	%	5.00	2.7	%	26.84	%	$	3.68
April 22, 2014	1.8	%	5.00	2.0	%	28.55	%	$	4.79
April 16, 2013	0.7	%	5.00	1.6	%	37.42	%	$	6.33

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.

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FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

March 31, 2022 and 2021

(Unaudited)

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.

Compensation expense equal to the grant date fair value is recognized for all of these awards over the vesting period. The stock-based compensation expense for the three-month periods ended March 31, 2022 and 2021 was $1.5 and $1.5, respectively. Unrecognized stock-based compensation expense related to outstanding unvested stock options as of March 31, 2022 was $18.5 and is expected to be recognized over a weighted average period of 4.56 years. Any future changes in estimated forfeitures will impact this amount.

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 per share calculation because they were anti-dilutive:


	Three-month Period
Reconciliation		2022	2021
Basic weighted average shares outstanding		575,559,161	574,336,112
Weighted shares assumed upon exercise of stock options		2,059,645	2,210,857
Diluted weighted average shares outstanding		577,618,806	576,546,969


	Three-month Period
Summary of Anti-dilutive Options Excluded		2022		2021
Options to purchase shares of common stock		930,401		711,977
Weighted average exercise prices of options		$	58.40	48.00

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.

Translation Adjustment Upon Merger of Foreign Subsidiary

For the three months ended March 31, 2022, we recognized $0.9 of historical cumulative translation to retained earnings upon the merger of a foreign subsidiary.

(4) Income Taxes

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 2018 in the case of United States federal examinations, and with limited exceptions, before 2016 in the case of foreign, state, and local examinations. During the first quarter of 2022, there were no material changes in unrecognized tax benefits.

(5) 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 is approximately $79.3. We believe the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remote.

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FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

March 31, 2022 and 2021

(Unaudited)

(6) Debt Commitments

Credit Facility, Notes Payable, and Commitments

Debt obligations and letters of credit outstanding at the end of each period consisted of the following:


	Average Interest Rate at March 31, 2022			Debt Outstanding
			Maturity Date	March 31, 2022		December 31, 2021
Unsecured revolving credit facility	1.40	%	November 30, 2023	$	—	25.0

SEC Form 10-Q filed by Fastenal Company