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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 2002, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _____________________ to
______________________
Commission file number 0-16125
FASTENAL COMPANY
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-0948415
- ------------------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Theurer Boulevard
Winona, Minnesota 55987-1500
- ------------------------------------------ -------------------------
(Address of principal executive offices) (Zip Code)
(507) 454-5374
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Class Outstanding at October 15, 2002
- -------------------------------- -------------------------------
Common Stock, $.01 par value 75,877,376
FASTENAL COMPANY
INDEX
Page No.
Part I Financial Information:
Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001 1
Consolidated Statements of Earnings for the nine months and
three months ended September 30, 2002 and 2001 2
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001 3
Notes to Consolidated Financial Statements 4-5
Management's discussion and analysis of financial condition and
results of operations 6-10
Quantitative and qualitative disclosures about market risk 11
Controls and procedures 11
Part II Other Information:
Exhibits and reports on Form 8-K 12
Note - All information contained in this report reflects the 2-for-1
stock split which occurred in May 2002.
- 1 -
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except share information)
(Unaudited)
September 30, December 31,
Assets 2002 2001
- -------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 25,485 47,264
Marketable securities 30,721 21,258
Trade accounts receivable, net of allowance for doubtful
accounts of $3,811 and $3,474, respectively 121,802 101,356
Inventories 184,904 152,706
Deferred income tax asset 4,696 4,696
Other current assets 14,297 13,961
- ----------------------------------------------------------------------------------------------------------
Total current assets 381,905 341,241
Marketable securities 18,844 9,374
Property and equipment, less accumulated depreciation 135,991 121,607
Other assets, less accumulated amortization 2,904 3,022
- ----------------------------------------------------------------------------------------------------------
Total assets $ 539,644 475,244
==========================================================================================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 26,422 20,100
Accrued expenses 20,380 17,973
Income taxes payable 3,505 2,488
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 50,307 40,561
- ----------------------------------------------------------------------------------------------------------
Deferred income tax liability 9,795 9,795
- ----------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock 0 0
Common stock, 100,000,000 shares authorized
75,877,376 shares issued and outstanding 759 759
Additional paid-in capital 4,044 4,044
Retained earnings 476,804 421,945
Accumulated other comprehensive loss (2,065) (1,860)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' equity 479,542 424,888
- ----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 539,644 475,244
==========================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
- 2 -
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Amounts in thousands except earnings and extraordinary gain per share)
(Unaudited) (Unaudited)
Nine months ended Three months ended
September 30, September 30,
-------------------------- ---------------------------
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Net sales $ 686,152 620,213 238,086 209,397
Cost of sales 347,021 306,253 121,017 104,623
- -------------------------------------------------------------------------------------------------------------
Gross profit 339,131 313,960 117,069 104,774
Operating and administrative
expenses 246,551 223,454 86,460 77,764
- -------------------------------------------------------------------------------------------------------------
Operating income 92,580 90,506 30,609 27,010
Other income (expense):
Interest income 1,578 1,783 467 626
Loss on disposal of
property and equipment (295) (298) (91) (81)
- -------------------------------------------------------------------------------------------------------------
Total other income 1,283 1,485 376 545
- -------------------------------------------------------------------------------------------------------------
Earnings before income taxes
and extraordinary gain 93,863 91,991 30,985 27,555
Income tax expense 35,926 35,233 11,868 10,554
- -------------------------------------------------------------------------------------------------------------
Net earnings before extraordinary gain 57,937 56,758 19,117 17,001
- -------------------------------------------------------------------------------------------------------------
Extraordinary gain on acquisition, net of tax 716 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net earnings $ 58,653 56,758 19,117 17,001
=============================================================================================================
Basic and diluted earnings per share
before extraordinary gain $ .76 .75 .25 .22
Basic and diluted extraordinary gain per share, net
of tax .01 .00 .00 .00
- -------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share $ .77 .75 .25 .22
=============================================================================================================
Weighted average shares
outstanding 75,877 75,877 75,877 75,877
=============================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
- 3 -
FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Nine months ended
September 30,
------------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 58,653 56,758
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property and equipment 12,513 10,847
Loss on disposal of property and equipment 295 298
Bad debt expense 4,273 3,765
Amortization of goodwill and non-compete 50 165
Changes in operating assets and liabilities,
net of impact of acquisition
Trade accounts receivable (24,719) (12,477)
Inventories (32,198) (1,896)
Other current assets (336) (3,883)
Accounts payable 6,322 6,649
Accrued expenses 2,407 2,755
Income taxes payable 1,017 8,808
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 28,277 71,789
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (29,243) (36,786)
Proceeds from sale of property and equipment 2,051 2,844
Translation adjustment (212) (804)
Net (increase) decrease in marketable securities (18,933) 3,025
Decrease (increase) in other assets 68 (36)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (46,269) (31,757)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payment of dividends (3,794) (3,415)
- -------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (3,794) (3,415)
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 7 (110)
- -------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (21,779) 36,507
Cash and cash equivalents at beginning of period 47,264 19,710
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 25,485 56,217
=============================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during each period for:
Income taxes $ 35,353 26,425
=============================================================================================================
Interest $ 0 0
=============================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
FASTENAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
September 30, 2002 and 2001
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Fastenal Company
and subsidiaries (collectively referred to as the Company) have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information. They do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements. However, there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in the Company's consolidated financial statements as of and for the year ended
December 31, 2001. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included.
(2) Accounting Policies
On January 2, 2002 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, and SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. In
accordance with SFAS No. 142, the Company no longer amortizes goodwill and
intangible assets with indefinite useful lives, but instead tests for impairment
at least annually. The change resulted in $114 and $38 less amortization for the
first nine months and for the third quarter of 2002, respectively, as compared
to the same periods in 2001. SFAS No. 144 did not impact the results of the
Company.
(3) Comprehensive Income
Comprehensive income and the components of other comprehensive income (loss)
were as follows:
Nine months ended Three months ended
September 30, September 30,
-------------------- --------------------
2002 2001 2002 2001
- ----------------------------------------------------- --------------------
Net earnings $ 58,653 56,758 19,117 17,001
Translation adjustment (205) (914) (1,078) (829)
- ----------------------------------------------------- --------------------
Total comprehensive income $ 58,448 55,844 18,039 16,172
- ----------------------------------------------------- --------------------
(Continued)
- 5 -
FASTENAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
September 30, 2002 and 2001
(Unaudited)
(4) Acquisition of Business and Disposition of Business
On August 31, 2001, the Company acquired certain assets of two subsidiaries of
Textron, Inc. These assets were used in their business of selling packaged
fasteners to the retail market (Do-It-Yourself or DIY Business). The purchase
price consisted of a cash payment and the assumption of certain liabilities at
closing. The acquisition was not material to the financial statements of the
Company.
On July 1, 2001, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations. SFAS 141 requires the use of the purchase
method of accounting and, accordingly, the operating results of the DIY Business
have been included in the Company's consolidated financial statements since the
date of acquisition. The total purchase price was allocated to tangible assets
and liabilities based upon the estimate of their fair value on the acquisition
date. The purchase price was finalized during the second quarter of 2002. The
final purchase price resulted in tangible assets in excess of the cash paid and
liabilities assumed, or negative goodwill. The negative goodwill, net of tax, of
$716 was recognized in earnings during the second quarter as an extraordinary
gain.
The DIY Business was purchased after a prolonged period of contraction;
therefore, the historical sales and earnings of the DIY Business are not
reflective of the DIY Business's current operations. If the business combination
had occurred at the beginning of 2001, net income of the Company would not have
been materially different from the amounts reported. The net sales from the DIY
Business totaled $16,819 and $2,351 in the first nine months of 2002 and 2001,
respectively, and $5,689 and $2,351 in the third quarter of 2002 and 2001,
respectively. The DIY Business has operated at approximately a break even level
since August 31, 2001.
On October 3, 2002, the Company sold the DIY Business to The Hillman Group, Inc.
The Company will recognize the resulting gain of approximately $6,000 to $7,000
in the fourth quarter of 2002.
- 6 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial position and operating
results during the periods included in the accompanying consolidated financial
statements. (Dollar amounts are in thousands.)
The following discussion refers to the term daily sales. Daily sales are defined
as sales for a period of time divided by the number of days in that period of
time.
Nine months ended September 30, 2002 vs. 2001
- ---------------------------------------------
Net sales for the nine months ended September 30, 2002 were $686,152, an
increase of 10.6% over net sales of $620,213 for the comparable period in 2001.
The increase came primarily from higher unit sales rather than increases in
prices, as the Company experienced some deflationary impact to pricing. Higher
unit sales resulted from the opening of new store sites in 2001 and 2002, and,
to a lesser degree, increases in sales at older store sites. Sites opened in
2000 or earlier had average sales increases of 2.2% (on a daily sales basis,
this amount was also a 2.2% increase as both 2002 and 2001 had 191 business days
in the first nine months).
The mix of sales during the first nine months of 2002 and 2001, from the
original Fastenal(R) product line (which consists primarily of threaded
fasteners) and from the newer product lines, was as follows:
Product line 2002 2001
-----------------------------------------------------------
Fastener product line 57.0%* 59.9%*
-----------------------------------------------------------
Newer product lines 43.0%* 40.1%*
-----------------------------------------------------------
* This percentage is calculated before the impact of the August 2001
acquisition discussed below. This acquired business was disposed of in
October 2002.
The product lines consist of and were introduced as follows:
Product line Introduced
------------------------------------------------------
Fasteners 1967
------------------------------------------------------
Tools 1993
------------------------------------------------------
Cutting tools 1996
------------------------------------------------------
Hydraulics & pneumatics 1996
------------------------------------------------------
Material handling 1996
------------------------------------------------------
Janitorial supplies 1996
------------------------------------------------------
Electrical supplies 1997
------------------------------------------------------
Welding supplies 1997
------------------------------------------------------
Safety supplies 1999
------------------------------------------------------
Raw materials 2001
------------------------------------------------------
Retail packaged products** 2001
------------------------------------------------------
** This product line was added as a result of the August 2001 acquisition
discussed below. This acquired business was disposed of in October
2002.
(Continued)
- 7 -
ITEM 2. (Continued)
Net earnings in the first nine months of 2002 include an extraordinary gain, net
of tax, of $716 recognized during the second quarter. The gain represents the
recognition of negative goodwill resulting from the finalization of the purchase
price relating to the Company's August 31, 2001 acquisition described in note 4
to the consolidated financial statements.
Net earnings for the nine months ended September 30, 2002 were $58,653, an
increase of 3.3% from net earnings of $56,758 for the comparable period in 2001.
Operating income increased $2,074 (or 2.3%) from 2001 to 2002. The increase in
operating income occurred primarily because the decrease in gross margins from
50.6% to 49.4% was offset by operating expenses increasing only by 10.3%, a rate
less than the net sales growth rate. The factors behind these two changes are
included in the general discussion below.
Three months ended September 30, 2002 vs. 2001
- ----------------------------------------------
Net sales for the three months ended September 30, 2002 were $238,086, an
increase of 13.7% over net sales of $209,397 for the comparable period in 2001.
The increase came primarily from higher unit sales rather than increases in
prices, as the Company experienced some deflationary impact to pricing. Higher
unit sales resulted from the opening of new store sites in 2001 and 2002, and,
to a lesser degree, increases in sales at older store sites. Sites opened in
2000 or earlier had average sales increases of 5.6% (on a daily sales basis,
this amount would have been a 4.0% increase as the third quarter of 2002 had 64
business days versus the 63 business days in 2001).
The mix of sales during the third quarter of 2002 and 2001, from the original
Fastenal(R) product line (which consists primarily of threaded fasteners) and
from the newer product lines, was as follows:
Product line 2002 2001
-------------------------------------------------------------
Fastener product line 56.1%* 58.2%*
-------------------------------------------------------------
Newer product lines 43.9%* 41.8%*
-------------------------------------------------------------
* This percentage is calculated before the impact of the August 2001
acquisition discussed below. This acquired business was disposed of in
October 2002.
Net earnings for the three months ended September 30, 2002 were $19,117, an
increase of 12.4% from net earnings of $17,001 for the comparable period in
2001. Operating income increased $3,599 (or 13.3%) from 2001 to 2002. The
increase in operating income occurred primarily because the decrease in gross
margins from 50.0% to 49.2% was offset by operating expenses increasing only by
11.2%, a rate less than the net sales growth rate. The factors behind these two
changes are included in the general discussion below.
(Continued)
- 8 -
ITEM 2. (Continued)
General Discussion
- ------------------
The Company branch (store site) personnel totaled 4,966 on September 30, 2002,
an increase of 16.5% over the 4,263 on December 31, 2001 and an increase of 2.2%
over the 4,858 on June 30, 2002.
In 2001, the Company adopted the provisions of Emerging Issues Task Force (EITF)
No. 00-10, Accounting for Shipping and Handling Fees and Costs, and EITF No.
00-22, Accounting for "Points" and Certain Other Time-Based or Volume-Based
Sales and Incentive Offers, and Offers for Free Products to Be Delivered in the
Future. As required by EITF 00-10 and EITF 00-22, the Company reclassified
shipping and handling costs billed to customers as an increase in net sales and
incentives paid to customers as a reduction of net sales. The Company also
reclassified outbound shipping costs to cost of sales. These amounts had
previously been included in operating and administrative expenses. The net
result of the reclassification was a reduction of the gross margin percentage of
1.0% and 0.9%, in the first nine months of 2002 and 2001, respectively, and a
reduction of 1.2% and 1.0% in the third quarter of 2002 and 2001, respectively.
On August 31, 2001 the Company completed the acquisition of certain assets and
liabilities of the retail fastener and related hardware business of two
subsidiaries of Textron, Inc. The net sales for the first nine months of 2002
and for the third quarter of 2002 disclosed above include $16,819 and $5,689,
respectively, of sales from the acquired operation. The acquired operation
lowered the Company's gross margin from 49.9% to 49.4% for the first nine months
of 2002 and lowered the Company's gross margin from 49.6% to 49.2% for the third
quarter of 2002. For the first nine months and for the third quarter, the
ongoing activities of the acquired operation did not contribute materially to
the earnings of the Company. The acquired operation was disposed of on October
3, 2002.
The twelve months of 2001 and the first nine months of 2002 had daily sales
growth rates (as compared to the comparable month in the preceding year, and
excluding the impact of the August 2001 acquisition) of:
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
---- ---- ---- ---- --- ---- ---- ---- ----- ---- ---- ----
2001 20.0% 16.2% 11.4% 9.0% 9.4% 7.6% 7.4% 5.9% 4.8% 1.0% -0.5% 1.4%
2002 2.7% 4.8% 6.0% 9.3% 9.4% 11.0% 8.7% 10.4% 12.5%
The daily sales growth rates above represent several trends. The first being a
downward trend in the first eleven months of 2001, which reflected the overall
weakening of the industrial economy we service in North America. This trend
reversed itself from December 2001 to June 2002; this was partly due to changing
comparisons in the prior year and partly due to stronger month-to-month (i.e.
April to May and May to June) growth rates compared to 2001. During July 2002,
the daily sales growth rate decreased and began to improve again in August 2002
and September 2002.
(Continued)
- 9 -
ITEM 2. (Continued)
For the first nine months of 2002, the Company experienced negative earnings
leverage (growth in earnings versus growth in sales). This was due to (1) the
decrease in gross margin percentage, caused primarily by changes in product mix,
(2) the decrease in gross margin dollars from older stores due to decreases in
net sales, (3) the additional expenses of store site openings (see comments
below), (4) the additional payroll expenses associated with employee additions
in the first half of the year in anticipation of continued improvements in the
daily sales growth rate trends mentioned earlier, (5) the added impact of
increases in insurance costs when compared to the same period in 2001, and (6)
the increase in depreciation expense associated with additions of property and
equipment, most notably software and hardware for the Company's management
information system.
The Company expects to open approximately 140 to 170 new stores in 2002 (or an
increase of approximately 14% to 17% over December 31, 2001). The Company opened
114 new store sites in the first nine months of 2002 (or an increase of 11.1%
over December 31, 2001) and opened 128 new store sites during 2001 (or an
increase of 14.3% over December 31, 2000). While the new stores continue to
build the infrastructure for future growth, the first year sales are low, and
the added expenses related to payroll, occupancy, and transportation costs
impact the Company's ability to leverage earnings in a weakened industrial
economy. As disclosed in the past, it has been the Company's experience that new
stores take approximately ten to twelve months to achieve profitability. The
planned openings can be altered in a short time span, usually less than 60 to 90
days. The Company will continue to reevaluate the level of planned openings
through the balance of the year.
Critical Accounting Policies
- ----------------------------
A discussion of the critical accounting policies related to accounting estimates
is contained in the Company's 2001 Annual Report.
Liquidity and Capital Resources
- -------------------------------
The higher level of sales during the nine-month period resulted in the growth of
trade accounts receivable and inventory. Property and equipment increased
because of: (1) the purchase of software and hardware for the Company's
information processing systems, (2) the addition of certain pickup trucks, (3)
the purchase of buildings to house the Atlanta distribution center (relocating
from an existing location in Atlanta) and to house the Toronto distribution
center (a new distribution center opening early in 2003), and (4) the addition
of manufacturing and warehouse equipment. In addition to the property and
equipment expansion just noted, the Company is actively increasing the number of
owned locations to lower its occupancy costs. Disposals of property and
equipment related to the planned disposition of certain pickup trucks and
semi-tractors and trailers in the normal course.
Cash requirements for these asset changes were satisfied from net earnings, cash
on hand, and the proceeds of asset disposals. As of September 30, 2002, the
Company had no material outstanding commitments for capital expenditures.
(Continued)
- 10 -
ITEM 2. (Continued)
Management anticipates funding its current expansion plans with cash generated
from operations, from available cash and cash equivalents, and, to a lesser
degree, from its borrowing capacity.
A discussion of the nature and amount of future cash commitments is contained in
the Company's 2001 Annual Report.
Certain Risks and Uncertainties
- -------------------------------
This report contains statements that are not historical in nature and that are
intended to be, and are hereby identified as, "forward-looking statements" under
the Private Securities Litigation Reform Act of 1995, including statements
regarding planned store and distribution center openings, the timeline for
altering planned openings, the gain to be realized from the disposed business
unit, the time before new stores typically achieve profitability, expected
increases in the number of owned stores, and the funding of expansion plans. The
following factors are among those that could impact the Company's plans and
performance, and cause the Company's actual results to differ materially from
those predicted in such forward-looking statements: (i) an upturn or downturn in
the economy could impact sales at stores and the rates of new store openings and
additions of new employees, (ii) an upturn or downturn in the economy, or a
change in product mix, could impact gross margins, (iii) a change, from that
projected, in the number of smaller and larger communities able to support
future store sites could impact the rate of new store openings and additions of
new employees, (iv) the ability of the Company to develop product expertise at
the store level, to identify future product lines that complement existing
product lines, to transport and store certain hazardous products and to
otherwise integrate new product lines into the Company's existing stores and
distribution network could impact sales and margins, (v) increases or decreases
in fuel and utility costs could impact distribution and occupancy expenses of
the Company, (vi) the ability of the Company to successfully attract and retain
qualified personnel to staff the Company's smaller community stores could impact
sales at stores and the rate of new store openings, (vii) changes in
governmental regulations related to product quality or product source
traceability could impact the cost to the Company of regulatory compliance,
(viii) inclement weather could impact the Company's distribution network, (ix)
foreign currency fluctuations, changes in trade relations, or fluctuations in
the relative strength of foreign economies could impact the ability of the
Company to procure products overseas at competitive prices and the Company's
foreign sales, (x) disruptions caused by the implementation of the Company's new
management information systems infrastructure could impact sales, (xi) changes
in the rate of new store openings could impact expenditures for computers and
other capital equipment, (xii) changes in the availability of suitable land and
buildings could impact expenditures for additional owned locations which house
our store sites, and (xiii) finalization of the estimates used could cause the
gain on the disposed business to change.
- 11 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks from changes in interest rates
and foreign currency exchange rates. Changes in these factors cause fluctuations
in the Company's earnings and cash flows. The Company evaluates and manages
exposure to these market risks as follows:
Interest Rates - The Company has a $15 million line of credit of which $0 was
outstanding at September 30, 2002. The line bears interest at 0.9% over the
LIBOR rate. The Company pays no fee for the unused portion of the line of
credit.
Foreign Currency Exchange Rates - Foreign currency fluctuations can affect the
Company's net investments and earnings denominated in foreign currencies. The
Company's primary exchange rate exposure is with the Canadian dollar against the
U.S. dollar. The Company's estimated net earnings exposure for foreign currency
exchange rates was not material at September 30, 2002.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures - Based on their evaluation, as
of a date within 90 days prior to the date of the filing of this Form 10-Q, of
the effectiveness of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), the principal executive officer and the
principal financial officer of the Company have each concluded that such
disclosure controls and procedures are effective and sufficient to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the Securities and Exchange
Commission's rules and forms.
Changes in Internal Controls - Subsequent to the date of their evaluation, there
have not been any significant changes in the Company's internal controls or in
other factors that could significantly affect these controls, including any
corrective action with regard to significant deficiencies and material
weaknesses.
- 12 -
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Restated Articles of Incorporation of Fastenal
Company, as amended prior to May 10, 2002
(incorporated by reference to Exhibit 3.1 to Fastenal
Company's Form 10-Q for the quarter ended September
30, 1993)
3.2 Articles of Amendment to Restated Articles of
Incorporation of Fastenal Company effective May 10,
2002 (incorporated by reference to Exhibit 4.2 to
Registration Statement No. 333-88170)
3.3 Restated By-Laws of Fastenal Company (incorporated by
reference to Exhibit 3.2 to Registration Statement
No. 33-14923)
99.1 Certification under Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K:
No report on Form 8-K was filed by Fastenal Company during the
quarter ended September 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FASTENAL COMPANY
/s/ Willard D. Oberton
----------------------------------
(Willard D. Oberton, President)
(Duly Authorized Officer)
Date October 29, 2002 /s/ Daniel L. Florness
-------------------- ----------------------------------
(Daniel L. Florness, Treasurer)
(Principal Financial Officer)
CERTIFICATIONS
- --------------
I, Robert A. Kierlin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fastenal Company;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date October 29, 2002 /s/ Robert A. Kierlin
-------------------- ----------------------------------------
(Robert A. Kierlin, CEO)
(Principal Executive Officer)
CERTIFICATIONS
- --------------
I, Daniel L. Florness, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Fastenal Company;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date October 29, 2002 /s/ Daniel L. Florness
-------------------- --------------------------------------
(Daniel L. Florness, Treasurer)
(Principal Financial Officer)
INDEX TO EXHIBITS
3.1 Restated Articles of Incorporation of (Incorporated by reference to
Fastenal Company, as amended prior to Exhibit 3.1 to Fastenal
May 10, 2002 Company's Form 10-Q for the
quarter ended September 30,
1993)
3.2 Articles of Amendment to Restated (Incorporated by reference to
Articles of Incorporation of Exhibit 4.2 to Registration
Fastenal Company effective May 10, 2002 Statement No. 333-88170)
3.3 Restated By-Laws of Fastenal Company (Incorporated by reference to
Exhibit 3.2 to Registration
Statement No. 33-14923)
99.1 Certification under Section 906 of the Electronically Filed
Sarbanes-Oxley Act of 2002