Fastenal Earnings 2020-06-30

Fastenal Earnings 2020-06-30

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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 June 30, 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		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.

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 July 13, 2020, there were approximately 573,626,327 shares of the registrants common stock outstanding.

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FASTENAL COMPANY

INDEX

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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	June 30, 2020			December 31, 2019
Current assets:
Cash and cash equivalents	$	201.5		174.9
Trade accounts receivable, net of allowance for doubtful accounts of $11.8 and $10.9, respectively	881.5			741.8
Inventories	1,401.5			1,366.4
Prepaid income taxes	—			16.7
Other current assets	121.8			157.4
Total current assets	2,606.3			2,457.2

Property and equipment, net	1,029.7			1,023.2
Operating lease right-of-use assets	252.8			243.2
Other assets	196.4			76.3

Total assets	$	4,085.2		3,799.9

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt	$	—		3.0
Accounts payable	194.1			192.8
Accrued expenses	238.2			251.5
Current portion of operating lease liabilities	96.7			97.4
Income taxes payable	102.3			—
Total current liabilities	631.3			544.7

Long-term debt	405.0			342.0
Operating lease liabilities	158.0			148.2
Deferred income taxes	100.3			99.4
Other long-term liabilities	7.6			—

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, 573,570,647 and 574,128,911 shares issued and outstanding, respectively	2.9			2.9
Additional paid-in capital	44.4			67.2
Retained earnings	2,788.6			2,633.9
Accumulated other comprehensive loss	(52.9		)	(38.4	)
Total stockholders' equity	2,783.0			2,665.6
Total liabilities and stockholders' equity	$	4,085.2		3,799.9

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)					(Unaudited)
	Six Months Ended June 30,					Three Months Ended June 30,
	2020			2019		2020			2019
Net sales	$	2,876.0		2,677.7		$	1,509.0		1,368.4

Cost of sales	1,567.6			1,411.8		837.4			727.2
Gross profit	1,308.4			1,265.9		671.6			641.2

Operating and administrative expenses	721.2			730.3		355.3			366.7
(Gain) loss on sale of property and equipment	(0.1		)	(0.8	)	0.3			(0.5	)
Operating income	587.3			536.4		316.0			275.0

Interest income	0.2			0.2		0.1			0.1
Interest expense	(4.6		)	(7.7	)	(2.4		)	(3.7	)

Earnings before income taxes	582.9			528.9		313.7			271.4

Income tax expense	141.4			130.2		74.8			66.8

Net earnings	$	441.5		398.7		$	238.9		204.6

Basic net earnings per share	$	0.77		0.70		$	0.42		0.36

Diluted net earnings per share	$	0.77		0.69		$	0.42		0.36

Basic weighted average shares outstanding	573.6			572.7		573.2			573.2

Diluted weighted average shares outstanding	575.1			573.8		575.0			574.6

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)				(Unaudited)
	Six Months Ended June 30,				Three Months Ended June 30,
	2020			2019	2020		2019
Net earnings	$	441.5		398.7	$	238.9	204.6
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments (net of tax of $0.0 in 2020 and 2019)	(14.5		)	5.4	10.5		1.7
Comprehensive income	$	427.0		404.1	$	249.4	206.3

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)						(Unaudited)
	Six Months Ended June 30,						Three Months Ended June 30,
	2020			2019			2020			2019
Common stock
Balance at beginning of period	$	2.9		2.9			$	2.9		2.9
Balance at end of period	2.9			2.9			2.9			2.9
Additional paid-in capital
Balance at beginning of period	67.2			3.0			24.2			22.7
Stock options exercised	26.3			40.1			18.9			22.0
Purchases of common stock	(52.0		)	—			—			—
Stock-based compensation	2.9			2.9			1.3			1.3
Balance at end of period	44.4			46.0			44.4			46.0
Retained earnings
Balance at beginning of period	2,633.9			2,341.6			2,692.9			2,412.7
Net earnings	441.5			398.7			238.9			204.6
Dividends paid in cash	(286.8		)	(246.1		)	(143.2		)	(123.1		)
Balance at end of period	2,788.6			2,494.2			2,788.6			2,494.2
Accumulated other comprehensive (loss) income
Balance at beginning of period	(38.4		)	(44.8		)	(63.4		)	(41.1		)
Other comprehensive (loss) income	(14.5		)	5.4			10.5			1.7
Balance at end of period	(52.9		)	(39.4		)	(52.9		)	(39.4		)
Total stockholders' equity	$	2,783.0		2,503.7			$	2,783.0		2,503.7

Cash dividends paid per share of common stock	$	0.500		$	0.430		$	0.250		$	0.215

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)
	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net earnings	$	441.5		398.7
Adjustments to reconcile net earnings to net cash provided by operating activities, net of acquisition:
Depreciation of property and equipment	75.6			71.5
Gain on sale of property and equipment	(0.1		)	(0.8	)
Bad debt expense	4.0			3.1
Deferred income taxes	0.9			2.3
Stock-based compensation	2.9			2.9
Amortization of intangible assets	3.7			2.0
Changes in operating assets and liabilities, net of acquisition:
Trade accounts receivable	(147.2		)	(106.4	)
Inventories	(40.8		)	(64.3	)
Other current assets	35.6			23.2
Accounts payable	1.3			10.2
Accrued expenses	(13.3		)	(14.8	)
Income taxes	119.0			5.0
Other	8.7			0.4
Net cash provided by operating activities	491.8			333.0

Cash flows from investing activities:
Purchases of property and equipment	(90.0		)	(123.1	)
Proceeds from sale of property and equipment	5.1			3.5
Cash paid for acquisition	(125.0		)	—
Other	1.2			—
Net cash used in investing activities	(208.7		)	(119.6	)

Cash flows from financing activities:
Proceeds from debt obligations	870.0			525.0
Payments against debt obligations	(810.0		)	(525.0	)
Proceeds from exercise of stock options	26.3			40.1
Purchases of common stock	(52.0		)	—
Payments of dividends	(286.8		)	(246.1	)
Net cash used in financing activities	(252.5		)	(206.0	)

Effect of exchange rate changes on cash and cash equivalents	(4.0		)	0.4

Net increase in cash and cash equivalents	26.6			7.8

Cash and cash equivalents at beginning of period	174.9			167.2
Cash and cash equivalents at end of period	$	201.5		175.0

Supplemental information:
Cash paid for interest	$	4.1		7.8
Net cash paid for income taxes	$	21.3		122.3
Leased assets obtained in exchange for new operating lease liabilities	$	33.7		57.4

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)

June 30, 2020 and 2019

(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, 2019. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Impact of COVID-19

The COVID-19 pandemic has impacted and could further impact our operations and the operations of our suppliers and vendors as a result of quarantines, facility closures, illnesses, and travel and logistics restrictions. 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, suppliers, and vendors and the remedial actions and stimulus measures adopted by federal, state, and local governments, and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future. Therefore, the Company 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 condensed 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 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 condensed 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 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'.

(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 paid in cash at closing. 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

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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)

June 30, 2020 and 2019

(Unaudited)

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.

(3) 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.

Disaggregation of Revenue

Our revenues related to the following geographic areas were as follows for the periods ended June 30:



	Six-month Period			Three-month Period
	2020		2019	2020		2019
United States	$	2,475.7	2,297.7	$	1,309.0	1,172.9
Canada and Mexico	301.8		301.2	143.5		155.3
North America	2,777.5		2,598.9	1,452.5		1,328.2
All other foreign countries	98.5		78.8	56.5		40.2
Total revenues	$	2,876.0	2,677.7	$	1,509.0	1,368.4

The percentages of our sales by end market were as follows for the periods ended June 30:



	Six-month Period				Three-month Period
	2020		2019		2020		2019
Manufacturing	61.2	%	67.5	%	55.2	%	67.3	%
Non-residential construction	11.4	%	12.9	%	10.7	%	13.2	%
Other	27.4	%	19.6	%	34.1	%	19.5	%
	100.0	%	100.0	%	100.0	%	100.0	%

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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)

June 30, 2020 and 2019

(Unaudited)

The percentages of our sales by product line were as follows for the periods ended June 30:



		Six-month Period				Three-month Period
Type	Introduced	2020		2019		2020		2019
Fasteners⁽¹⁾	1967	29.3	%	34.7	%	26.0	%	34.5	%
Tools	1993	7.9	%	9.9	%	6.6	%	9.8	%
Cutting tools	1996	4.6	%	5.8	%	3.9	%	5.8	%
Hydraulics & pneumatics	1996	5.8	%	6.9	%	5.0	%	6.8	%
Material handling	1996	5.0	%	5.9	%	4.4	%	5.9	%
Janitorial supplies	1996	9.5	%	7.6	%	10.6	%	7.7	%
Electrical supplies	1997	4.3	%	4.7	%	4.0	%	4.7	%
Welding supplies	1997	3.4	%	4.2	%	2.9	%	4.2	%
Safety supplies	1999	27.3	%	17.4	%	34.0	%	17.5	%
Other		2.9	%	2.9	%	2.6	%	3.1	%
		100.0	%	100.0	%	100.0	%	100.0	%

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

(4) Stockholders' Equity

Dividends

On July 13, 2020, our board of directors declared a dividend of $0.25 per share of common stock to be paid in cash on August 25, 2020 to shareholders of record at the close of business on July 28, 2020. Since 2011, we have paid quarterly dividends. Our board of directors currently intends to continue paying quarterly 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.

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



	2020		2019
First quarter	$	0.250	0.215
Second quarter	0.250		0.215
Third quarter	0.250		0.220
Fourth quarter			0.220
Total	$	0.750	0.870

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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)

June 30, 2020 and 2019

(Unaudited)

Stock Options

The following tables summarize the details of options granted under our stock option plans that were outstanding as of June 30, 2020, 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		June 30, 2020
Date of Grant	Options Granted	Option Exercise (Strike) Price		Closing Stock Price on Date of Grant		Options Outstanding	Options Exercisable
January 2, 2020	902,263	$	38.00	$	37.230	891,871	24,964
January 2, 2019	1,316,924	$	26.00	$	25.705	1,242,736	29,010
January 2, 2018	1,087,936	$	27.50	$	27.270	923,634	297,568
January 3, 2017	1,529,578	$	23.50	$	23.475	1,086,892	472,572
April 19, 2016	1,690,880	$	23.00	$	22.870	1,036,809	537,431
April 21, 2015	1,786,440	$	21.00	$	20.630	689,259	439,859
April 22, 2014	1,910,000	$	28.00	$	25.265	452,323	291,073
April 16, 2013	410,000	$	27.00	$	24.625	63,844	45,106
April 17, 2012	2,470,000	$	27.00	$	24.505	181,440	181,440
Total	13,104,021					6,568,808	2,319,023



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 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
April 17, 2012	0.9	%	5.00	1.4	%	39.25	%	$	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.

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 six-month periods ended June 30, 2020 and 2019 was $2.9 and $2.9, respectively. Unrecognized stock-based compensation expense related to outstanding unvested stock options as of June 30, 2020 was $15.1 and is expected to be recognized over a weighted average period of 4.17 years. Any future changes in estimated forfeitures will impact this amount.

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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)

June 30, 2020 and 2019

(Unaudited)

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:



	Six-month Period		Three-month Period
Reconciliation	2020	2019	2020	2019
Basic weighted average shares outstanding	573,550,730	572,669,693	573,197,303	573,159,138
Weighted shares assumed upon exercise of stock options	1,577,540	1,105,366	1,754,697	1,392,211
Diluted weighted average shares outstanding	575,128,270	573,775,059	574,952,000	574,551,349



	Six-month Period			Three-month Period
Summary of Anti-dilutive Options Excluded	2020		2019	2020		2019
Options to purchase shares of common stock	893,428		450,960	895,566		—
Weighted average exercise prices of options	$	38.00	27.53	$	38.00	—

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.

(5) Income Taxes

Fastenal files income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. With limited exceptions, we are no longer subject to income tax examinations by taxing authorities for taxable years before 2016 in the case of United States federal examinations, and 2014 in the case of foreign, state, and local examinations. During the first six months of 2020, there were no material changes in unrecognized tax benefits.

During the second quarter of 2020, we deferred $111.5 in federal and state income and payroll tax payments as allowed under the Coronavirus Aid, Relief, and Economic Security Act (the 'CARES' Act), which was signed into law in March 2020 to help businesses navigate COVID-19 related challenges. The deferred federal and state income tax payments, which constitute $103.9 of the deferred value, will be made in the third quarter of 2020, while the deferred payroll taxes will be paid in the third quarter of 2021.

(6) 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 $93.0. 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)

June 30, 2020 and 2019

(Unaudited)

(7) 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 June 30, 2020			Debt Outstanding
	Average Interest Rate at June 30, 2020		Maturity Date	June 30, 2020		December 31, 2019
Unsecured revolving credit facility	1.10	%	November 30, 2023	$	—	210.0
Senior unsecured promissory notes payable, Series A	2.00	%	July 20, 2021	40.0		40.0
Senior unsecured promissory notes payable, Series B	2.45	%	July 20, 2022	35.0		35.0
Senior unsecured promissory notes payable, Series C	3.22	%	March 1, 2024	60.0		60.0
Senior unsecured promissory notes payable, Series D	2.66	%	May 15, 2025	75.0		—
Senior unsecured promissory notes payable, Series E	2.72	%	May 15, 2027	50.0		—
Senior unsecured promissory notes payable, Series F	1.69	%	June 24, 2023	70.0		—
Senior unsecured promissory notes payable, Series G	2.13	%	June 24, 2026	25.0		—
Senior unsecured promissory notes payable, Series H	2.50	%	June 24, 2030	50.0		—
Total				405.0		345.0
Less: Current portion of debt				—		(3.0	)
Long-term debt				$	405.0	342.0

Outstanding letters of credit under unsecured revolving credit facility - contingent obligation				$	36.3	36.3

Unsecured Revolving Credit Facility

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.

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.

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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)

June 30, 2020 and 2019

(Unaudited)

(8) Legal Contingencies

The nature of our potential exposure to legal contingencies is described in our 2019 annual report on Form 10-K in Note 10 of the Notes to Consolidated Financial Statements. As of June 30, 2020, there were no litigation matters that we consider to be probable or reasonably possible to have a material adverse outcome.

(9) Subsequent Events

We evaluated all subsequent event activity and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the Notes to Condensed Consolidated Financial Statements, with the exception of the dividend declaration disclosed in Note 4 'Stockholders' Equity'.

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

The following is management's discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying condensed consolidated financial statements. Dollar amounts are stated in millions except for share and per share amounts and where otherwise noted. Share and per share information in this 10-Q has been adjusted to reflect the two-for-one stock split effective at the close of business on May 22, 2019. 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.

Business

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 producers who incorporate our products into final goods, called original equipment manufacturing (OEM), and/or utilize our supplies in the maintenance, repair, and operation (MRO) of their facilities and equipment. The non-residential construction market includes general, electrical, plumbing, sheet metal, and road contractors. Other users of our products include farmers, truckers, railroads, oil exploration, production, and refinement companies, mining companies, federal, state, and local governmental entities, schools, and certain retail trades. Geographically, our branches, Onsite locations, and customers are primarily located in North America (the United States, Canada, and Mexico), though our presence outside of North America continues to grow as well.

Our motto is Growth through Customer Service^®.We are a growth-centric organization focused on identifying 'drivers' that allow us to get closer to our customers and gain market share in what we believe remains a fragmented industrial distribution market. Our growth drivers have evolved and changed, and can be expected to continue to evolve and change, over time.

Impact of COVID-19 on Our Business

Through the second quarter of 2020, the COVID-19 pandemic has had significant impacts on our business. We continued to operate with some modifications because, based on the various published standards to date, the work our employees are performing, particularly with respect to supplying products required by our safety business, is critical, essential, and life-sustaining. We took actions intended to protect our employees and our customers that adversely affected our results. First, we restricted public access to our branches, which has resulted in lower retail sales at those locations through the second quarter of 2020. Many of our locations have re-opened to the public, but a meaningful number remain restricted. Second, many of our customers either closed their locations or operated at significantly diminished capacity as a result of local and national actions taken, such as stay-at-home mandates, that reduced business activity and negatively impacted sales through the second quarter of 2020. Third, 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. The favorable impact of this third variable on our results for the first six months of 2020 more than offset the adverse impact of the first two variables, which resulted in weaker sales through our branch and Onsite network to our traditional manufacturing and construction customers.

At the end of the second quarter of 2020, many of the markets in which we operate had begun to ease restrictions that were in place earlier in the period. This is having two effects. The first is to improve the outlook of the manufacturing and construction customers that support our traditional branch and Onsite business. The second is to moderate the level of demand for PPE and sanitation products that we experienced at the onset of the pandemic. However, as of the date of this filing, viral infections have begun to increase again resulting in resumption of restrictions in certain markets in which we operate. As a result, 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, we continue to evaluate and limit costs and spending across our organization. This includes reduced headcount, a reduction in discretionary spending, and lower anticipated spending on capital investment projects. As of the end of the second quarter of 2020, we have substantially all of our $700M 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

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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 $140.6, or 10.3%, in the second quarter of 2020 relative to the second quarter of 2019. Our gross profit as a percentage of net sales declined to 44.5% in the second quarter of 2020 from 46.9% in the second quarter of 2019. Our operating income, as a percentage of net sales, increased to 20.9% in the second quarter of 2020 from 20.1% in the second quarter of 2019. Our net earnings during the second quarter of 2020 were $238.9, an increase of 16.7% when compared to the second quarter of 2019. Our diluted net earnings per share were $0.42 during the second quarter of 2020 compared to $0.36 during the second quarter of 2019, an increase of 16.7%.

Our results in the second quarter of 2020 were significantly affected by the impacts of the COVID-19 pandemic throughout the period. This had the effect of both drastically increasing our sales of PPE and sanitation products to help governments, health care providers, and critical infrastructure entities manage the pandemic, while also causing significant declines in demand among our traditional manufacturing and construction customers as the economy sharply slowed. In this period, we continued to focus on our growth drivers, though signings of Onsite customer locations (defined as dedicated sales and service provided from within, or in close proximity to, the customer's facility) and industrial vending devices slowed as our customer's energy shifted to short-term management over long-term planning. However, this had to be balanced against some additional priorities that are always important, but never more so than in the environment that existed in the second quarter of 2020. These included a focus on employee and customer safety, supporting customers that were most directly involved in pandemic mitigation, and using our liquidity to sustain a supply chain of critical products for our business, our customers, and society.

The table below summarizes our total 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 periods.



			Change Since:			Change Since:			Change Since:
	Q2 2020	Q1 2020	Q1 2020		Q4 2019	Q4 2019		Q2 2019	Q2 2019
In-market locations- absolute employee headcount	12,982	14,001	-7.3	%	13,977	-7.1	%	14,372	-9.7	%
Total absolute employee headcount	20,667	22,131	-6.6	%	21,948	-5.8	%	22,232	-7.0	%

Number of public branch locations	2,060	2,091	-1.5	%

Price	31.99	EPS	1
Shares	574	P/E	24
MCap	18,374	P/FCF	31
Net Debt	254	EBIT	1,031
TEV	18,628	TEV/EBIT	18
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-07-17
10-Q	2020-03-31	Filed 2020-04-17
10-K	2019-12-31	Filed 2020-02-06
10-Q	2019-09-30	Filed 2019-10-16
10-Q	2019-06-30	Filed 2019-07-16
10-Q	2019-03-31	Filed 2019-04-16
10-K	2018-12-31	Filed 2019-02-06
10-Q	2018-09-30	Filed 2018-10-16
10-Q	2018-06-30	Filed 2018-07-16
10-Q	2018-03-31	Filed 2018-04-16
10-K	2017-12-31	Filed 2018-02-05
10-Q	2017-09-30	Filed 2017-10-16
10-Q	2017-06-30	Filed 2017-07-17
10-Q	2017-03-31	Filed 2017-04-17
10-K	2016-12-31	Filed 2017-02-06
10-Q	2016-09-30	Filed 2016-10-14
10-Q	2016-06-30	Filed 2016-07-15
10-Q	2016-03-31	Filed 2016-04-15
10-K	2015-12-31	Filed 2016-02-05
10-Q	2015-09-30	Filed 2015-10-16
10-Q	2015-06-30	Filed 2015-07-17
10-Q	2015-03-31	Filed 2015-04-17
10-K	2014-12-31	Filed 2015-02-05
10-Q	2014-09-30	Filed 2014-10-15
10-Q	2014-06-30	Filed 2014-07-16
10-Q	2014-03-31	Filed 2014-04-16
10-K	2013-12-31	Filed 2014-02-06
10-Q	2013-09-30	Filed 2013-10-15
10-Q	2013-06-30	Filed 2013-07-15
10-Q	2013-03-31	Filed 2013-04-15
10-K	2012-12-31	Filed 2013-02-07
10-Q	2012-09-30	Filed 2012-10-18
10-Q	2012-06-30	Filed 2012-07-20
10-Q	2012-03-31	Filed 2012-04-20
10-K	2011-12-31	Filed 2012-02-09
10-Q	2011-09-30	Filed 2011-10-26
10-Q	2011-06-30	Filed 2011-07-21
10-Q	2011-03-31	Filed 2011-04-21
10-K	2010-12-31	Filed 2011-02-09
10-Q	2010-09-30	Filed 2010-10-21
10-Q	2010-06-30	Filed 2010-07-23
10-Q	2010-03-31	Filed 2010-04-27
10-K	2009-12-31	Filed 2010-02-09

8-K	2020-07-14	Earnings, Exhibits
8-K	2020-06-09
8-K	2020-05-05
8-K	2020-04-25
8-K	2020-04-24
8-K	2020-04-14
8-K	2020-03-30
8-K	2020-01-17
8-K	2020-01-16
8-K	2019-10-11
8-K	2019-08-29
8-K	2019-07-11
8-K	2019-04-24
8-K	2019-04-23
8-K	2019-04-18
8-K	2019-04-11
8-K	2019-01-17
8-K	2019-01-17
8-K	2018-12-03
8-K	2018-10-10
8-K	2018-07-11
8-K	2018-05-01
8-K	2018-04-25
8-K	2018-04-19
8-K	2018-04-11
8-K	2018-01-17

EX-4.1	fast6302020ex41.htm
EX-4.2	fast6302020ex42.htm
EX-4.3	fast6302020ex43.htm
EX-4.4	fast6302020ex44.htm
EX-4.5	fast6302020ex45.htm
EX-10.1	fast6302020ex101.htm
EX-31	fast6302020ex31.htm
EX-32	fast6302020ex32.htm



		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	13

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	22

ITEM 4.	CONTROLS AND PROCEDURES	22

PART II	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	23

ITEM 1A.	RISK FACTORS	23

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23

ITEM 6.	EXHIBITS	24

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company