Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________________ 
FORM 10-K
(Mark One)
x☒Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
orFor the fiscal year ended December 31, 2021
or
o☐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)
Minnesota41-0948415
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2001 Theurer Boulevard,
Winona, Minnesota
55987-097855987-1500
(Address of principal executive offices)(Zip Code)
(507) 454-5374
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Classeach classTrading Symbol(s)Name of Each Exchangeeach exchange on Which Registeredwhich registered
Common Stock,stock, par value $.01 per shareFASTThe Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:
None
____________________________________________________________  
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes  x    No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act Yes  o    No  x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitionthe definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerxAccelerated Filer☐
Non-accelerated Filer☐Smaller Reporting Company☐
Large Accelerated FilerxAccelerated Filero
Non-accelerated Filer
o  (Do not check if a smaller reporting company)
Smaller Reporting Companyo
Emerging Growth Companyo☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o ☐   No  x
The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2017,2021, the last business day of the registrant's most recently completed second fiscal quarter, was $12,488,792,738,$29,835,146,952, based on the closing sale price of the registrant's Common Stock on that date. For purposes of determining this number, all executive officers and directors of the registrant as of June 30, 20172021 are considered to be affiliates of the registrant. This number is provided only for the purposes of this report on Form 10-K and does not represent an admission by either the registrant or any such person as to the status of such person.
As of January 19, 2018,21, 2022, the registrant had 287,603,912575,550,072 shares of Common Stock issued and outstanding.




Table of Contents



FASTENAL COMPANY
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
Page
Page
PART I
Item 1.
3
Item 1A.
1116
Item 1B.
1623
Item 2.
1724
Item 3.
1825
Item 4.
1825
PART II
Item 5.
1926
Item 6.
2027
Item 7.
2128
Item 7A.
3445
Item 8.
3546
Item 9.
5666
Item 9A.
5666
Item 9B.
5767
Item 9C.
67
PART III
Item 10.
5867
Item 11.
6069
Item 12.
6069
Item 13.
6069
Item 14.
6069
PART IV
Item 15.
6170
Item 16.
6271
6473


Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the annual meeting of shareholders to be held Tuesday, Saturday, April 24, 2018 ('Proxy Statement')23, 2022 (Proxy Statement) are incorporated by reference in Part III. Portions of our 2017 Annual Report to Shareholders are incorporated by reference in Part II.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-K, or in other reports of the company and other written and oral statements made from time to time by the company, do not relate strictly to historical or current facts. As such, they are considered 'forward-looking statements' that provide current expectations or forecasts of future events. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of terminology such as anticipate, believe, should, estimate, expect, intend, may, will, plan, goal, project, hope, trend, target, opportunity, and similar words or expressions, or by references to typical outcomes. Any statement that is not a purely historical fact, including estimates, projections, trends, and the outcome of events that have not yet occurred, is a forward-looking statement. Our forward-looking statements generally relate to our expectations regarding the business environment in which we operate, our projections of future performance, our perceived marketplace opportunities, our strategies, goals, mission and vision, and our expectations relatedabout capital expenditures, tax rates, inventory levels, in-market locations and signings of Onsite locations and new machine equivalent units for Fastenal Managed Inventory (FMI) (including bin stock and industrial vending), our digital solutions and other product offerings, national accounts as a percentage of overall sales, the advantages of our integrated physical and virtual model, growth in safety products as a percentage of product sales and the amount of FMI revenue that we may be able to the impact of tax reform.service through local inventory fulfillment terminals. You should understand that forward-looking statements involve a variety of risks and uncertainties, known and unknown, and may be affected by inaccurate assumptions. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially. Factors that could cause our actual results to differ from those discussed in the forward-looking statements include, but are not limited to, economic downturns (including economic downturns as a result of global pandemics, including the ongoing COVID-19 pandemic), weakness in the manufacturing or commercial construction industries, competitive pressure on selling prices, changes in trade policies or tariffs, changes in our current mix of products, customers, or geographic locations, changes in our average branch size, changes in our purchasing patterns, changes in customer needs, changes in fuel or commodity prices, product and transportation inflation, inclement weather, changes in foreign currency exchange rates, difficulty in adapting our business model to different foreign business environments, failure to accurately predict the market potential of our business strategies, the introduction or expansion of new business strategies, weak acceptance or adoption of our vending or Onsite business models, increased competition in industrial vendingFMI or Onsite, difficulty in maintaining installation quality as our industrial vending business expands, the leasing to customers of a significant number of additional industrial vending devices, the failure to meet our goals and expectations regarding branch openings, branch closings, or expansion of our industrial vendingFMI or Onsite operations, changes in the implementation objectives of our business strategies, difficulty in hiring, relocating, training, or retaining qualified personnel, difficulty in controlling operating expenses, difficulty in collecting receivables or accurately predicting future inventory needs, dramatic changes in sales trends, changes in supplier production lead times, changes in our cash position or our need to make capital expenditures, credit market volatility, changes in tax law or the impact of any such changesdiscrete items on future tax rates, changes in the availability or price of commercial real estate, changes in the nature, price, or availability of distribution, supply chain, or other technology (including software licensed from third parties) and services related to that technology, difficulty in obtaining continued business from new safety product customers, cyber-security incidents, potential liability and reputational damage that can arise if our products are defective, and other risks and uncertainties detailed in this Form 10-K under the heading 'Item 1A. Risk Factors'. Each forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any such statement to reflect events or circumstances arising after such date.



1

Table of Contents


PRESENTATION OF DOLLAR AMOUNTS
All dollar amounts in this Form 10-K are presented in millions, except for share and per share amounts or where otherwise noted. Throughout this document, percentage and dollar change calculations, which are based on non-rounded dollar values, may not be able to be recalculated using the dollar values in this document due to the rounding of those dollar values.
STOCK SPLIT
All information contained in this Form 10-K reflects the two-for-one stock split in 2011.2019.


2
Table of Contents


PART I


ITEM 1.BUSINESS
ITEM 1.BUSINESS
Note – Information in this section is as of year end unless otherwise noted. The year end is December 31, 20172021 unless additional years are included or noted.
Overview
Fastenal Company (together with our subsidiaries, hereinafter referred to as 'Fastenal' or the company or by terms such as we, our, or us) began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968. We opened our first branch in 1967 in Winona, Minnesota, a city with a population today of approximately 27,000.26,000. We began with a marketing strategy of supplying threaded fasteners to customers through a branch network in small, medium-sized, and, in subsequent years, large cities. Over time, that mandate has expanded to a broader range of industrial and construction supplies thatspanning more than nine major product lines. How we break into twelveengage with our customers has similarly evolved to include Onsites, Fastenal Managed Inventory and eCommerce. We provide additional descriptions of our product lines (describedand market channels later in this document).document. The large majority of our transactions are business-to-business, though we also have some walk-in retail business. At the end of 2017,2021, we had 2,9883,209 in-market locations (defined in the table below) in 2425 countries supported by 1415 distribution centers in North America (11(12 in the United States, two in Canada, and one in Mexico), and one in Europe, and we employed 20,56520,507 people. We believe our success can be attributed to the high quality of our employees and their convenient proximity to our customers, and our ability to offer customers a full range of products and services to reduce their total cost of procurement.
Our Channels to Market
We engage our customers primarily through branch and Onsite locations. Branches and Onsites exist very close to our customers, usually within miles in the case of the former and most often within or immediately proximate to our customers' physical locations in the case of the latter, and together constitute our 'in-market' network. Many of our customers engage with us through eCommerce, but most of our sales through this channel are with customers that use eCommerce to supplement our service through our other channels.
The following table shows our consolidated net sales for each of the last ten fiscal year as well asyears; the number of public branches,branch, Onsite, locations, and total in-market locations at the end of each of the last ten years:fiscal years; their respective sales, as well as the average monthly sales per location that were generated from our branch and Onsite locations; and our revenue generated from non-traditional sources:
2021202020192018201720162015201420132012
Net sales$6,010.9 5,647.3 5,333.7 4,965.1 4,390.5 3,962.0 3,869.2 3,733.5 3,326.1 3,133.6 
Branch locations1,793 2,003 2,114 2,227 2,383 2,503 2,622 2,637 2,687 2,652 
    Branch revenue(1)
$3,726.2 3,587.1 3,660.1 3,625.8 3,399.6 3,198.1 3,281.8 3,225.3 
    Average sales per
    branch location(2)
$163.6 145.2 140.5 131.1 116.0 104.0 104.0 101.0
Onsite locations(3)
1,416 1,265 1,114 894 605 401 264 214
    Onsite revenue(1)
$1,898.0 1,485.6 1,391.7 1,081.7 770.2 569.2 454.3 387.7 
    Average sales per
    Onsite location(2)
$118.0 104.1 115.5 120.3 127.6 142.7 158.4 157.6 
Other revenue(4)
$386.7 574.6 281.9 257.6 220.7 194.7 133.1 120.5 
Total in-market locations(5)
3,209 3,268 3,228 3,121 2,988 2,904 2,886 2,851 2,687 2,652 
 2017201620152014201320122011201020092008
Net sales$4,390.5
3,962.0
3,869.2
3,733.5
3,326.1
3,133.6
2,766.9
2,269.5
1,930.3
2,340.4
Public branches2,383
2,503
2,622
2,637
2,687
2,652
2,585
2,490
2,369
2,311
Onsite locations(1)
605
401
264
214
      
Total in-market locations(2)
2,988
2,904
2,886
2,851
2,687
2,652
2,585
2,490
2,369
2,311
(1) Revenues attributable to our traditional and international branch locations, and our Onsite locations, respectively.
(1) (2) Average sales per month considers the average active base of branches and Onsites, respectively, in the given year, factoring in the beginning and ending location count, divided by total revenues attributable to our branch and Onsite locationlocations, further divided by twelve months, respectively. This information is presented in thousands.
(3) Onsite information prior to 2014 is intentionally omitted. While such locations have existed since 1992, we did not specifically track their number until we identified our Onsite program as a growth driver in 2014.
(2) (4) This portion of revenue is generated outside of our traditional in-market location presence, examples of which include revenues arising from our custom in-house manufacturing, industrial services, leased locker arrangements, and other non-traditional sources of revenue. The significant increase in other revenue in 2020 largely reflects the onset of the COVID-19 pandemic in that period and the substantial sales of pandemic-related products that we direct-shipped (versus selling through our in-market locations) as a means of delivering critical supplies more quickly. The decline in other revenue in 2021 largely reflects the absence of such direct-shipped revenue as the supply chain for such products stabilized.
(5) 'In-market locations'locations' is defined as the sum of the total number of public branchesbranch locations and the total number of Onsite locations.
One
3
Table of Contents


This structure has evolved over time as a result of one of Fastenal's guiding principles since inception isinception: that we can improve our service by getting closer to the customer. Through much of our history, this wasThis has been achieved by opening branches,branch locations and, todaymore recently, Onsite locations. Today we believe there are few companies that offer our North American branchin-market location coverage. In 2021, roughly 52% of our sales and 50% of our in-market locations were in major Metropolitan Statistical Areas (MSAs) (populations in the United States and Canada greater than 500,000 people), while 21% of our sales and 19% of our in-market locations were in small MSAs (populations under 500,000 people), and 27% of our sales and 31% of our in-market locations were not in an MSA. In our view, this has provedproven to be an efficient means of providing customers with a broad range of products and services on a timely basis. These branchesMaintaining operations that are physically proximate to our customers' operations have represented, and continue to represent, the foundation of our service approach. However, we are constantly evaluating the efficacy
We have two primary versions of our branch network, and in recent years, we have developed additional models that get us still closer to the customer, including vending, bin stocks, and Onsite locations.locations:
We currently have several versions of selling locations: (1) a1.) A 'traditional (or public) branch' typically services a wide variety of customers, including our larger national and stocks a wide selection of products we offer, (2) an 'overseas branch' focuses on manufacturing customers and our fastener product line and is the format we typically deploy outside the United States and Canada, (3) a 'strategic account branch' is a unique location that sells to multiple largeregional accounts in a market, (4) a 'strategic account site' is similar to a strategic account branch, but typically operates out of an existing branch rather than from a unique location, and (5) an 'Onsite location' (defined as dedicated sales and service provided from within, or in close proximity to the customer's facility).
Traditional, overseas, and strategic account branches sell to multiple customers, and together comprise our total branch count. Our strategic account sites are considered an extension of the branch from which it operates, and are not included separately in our total branch counts. Onsite locations, which serve a single customer, are similarly not included in our total branch counts. However, outside of the fact that they serve a single customer, we believe the function and operation of an Onsite location is similar to that of a branch. This model is also beginning to represent a meaningful portion of the company's total revenue, and we expect that share to grow materially over time. As a result, we have begun to refer to our network in terms of in-market locations, which includes our total branches and Onsite locations, and we began to refer to strategic account siteswell as non-in-market locations.
Branch locationsretail customers. Locations are selected primarily based on their proximity to our distribution network, population statistics, and employment data for manufacturing and non-residential construction companies. We stock all new branches with inventory drawn from all of our product lines, and over time, where appropriate, our district and branch personnel may tailor the inventory offering to the needs of the local customer base. Since Fastenal's founding and through 2013, traditional branch openings were a primary growth driver for the company, and we experienced net openings each year over that time span. We have long

maintained that marketplace demographics could support a North American network of 3,500 traditional branches. However, since establishing this figure, new growth drivers, business models (Onsites), and business models (Onsite, vending, e-commerce)tools (digital solutions) have emerged and diminished the direct role of traditional branch openings in our growth. ItTraditional branches were entirely U.S.-based until 1994, when we opened our first location in Canada. At the end of 2021, we had 1,649 traditional branches in the United States and Canada, and they represented 56.8% of total sales.
Traditional branches are also differentiated by their operating styles. Certain locations are Customer Service Branches (CSBs), which tend to feature a showroom, regular hours during which it is now unlikely thatopen to the public, and our standard stocking model of products designed for contractors. CSBs are similar in function to a hardware store and they often conduct some business with non-account or retail-like customers. However, this customer set typically represents less than 10% of sales at this type of location. Other locations operate as Customer Fulfillment Centers (CFCs), which tend to feature a limited showroom, reduced hours of access to the public, greater usage of will-call, and stock customer-specific inventory. These tend to appear and function more like an industrial supply house and stocking location and tend not to have transactions with non-account or retail-like customers unless it is a will call arrangement related to an online transaction. The choice of operating style is made by local leadership and is based on local market considerations. At the end of 2021, 35% of our traditional branches operated as a CSB and 65% operated as a CFC.
2.) An 'international branch' is the format we willtypically deploy outside the United States and Canada. We first expanded outside of the United States and Canada when we opened a branch in Mexico in 2001. Since then, we have continued to expand our global footprint and at the end of 2021, we operated in 23 countries outside of the United States and Canada. Mexico is the largest of these, and we also operate in Europe, Asia, and Central and South America. Our go-to-market strategy in countries outside of the total traditional branchUnited States and Canada focuses primarily on servicing large, national account customers disproportionately concentrated in manufacturing. From a product perspective, these customers are more heavily oriented toward planned fastener spend, though non-fastener manufacturing, repair, and operations (MRO) spend is becoming more common in these markets. Despite strong growth in our international business in recent years, we are not as well recognized in many of our locations outside of the U.S. and Canada as we previously believed would beare in the potentialU.S. and Canada. However, our ability to provide a consistent service model, including vending, bin stocks, and Onsites, on a global basis is attractive to our customer base, much of which are the foreign operations of North America.American-based companies. At the end of 2021, we had 144 international branches operating outside the U.S. and Canada, and they represented 5.2% of total sales.
Traditional and international branches sell to multiple customers. We will continue to open traditional branches as the company sees fit. However, in each year since 2013, the company has experienced a net decline in its total branch count including net declines of 15210 branches in 2015, 119 branches in 2016, and 120 branches in 2017.2021. Our total decline since 2013 is 894 branches.
There is one branch subset, overseas, that we anticipate expanding in the future. Selling locations outside of the United States and Canada contributed approximately 7% of our consolidated net sales in 2017, with approximately 4% and 3% of this amount attributable to our Mexican and 'rest-of-world' operations, respectively.
The following table provides a summary of the traditional, overseas, and strategic account branch locations we operated at the end of each year, as well as the openings, closings, and conversions during each year:
 North America Outside North America 
 United StatesCanadaMexicoPuerto Rico and Dominican RepublicSubtotal Central & South America
(1)		Asia
(2)		Southeast Asia
(3)		Europe
(4)		Africa
(5)		Total
Total as of
December 31, 2015		2,320
200
47
8
2,575
 9
10
7
20
1
2,622
Opened branches27
3
5
—
35
 —
—
—
4
1
40
Closed branches(140)(3)—
—
(143) (1)—
—
—
—
(144)
Converted branches(6)
(13)(2)—
—
(15) —
—
—
—
—
(15)
Total as of
December 31, 2016		2,194
198
52
8
2,452
 8
10
7
24
2
2,503
Opened branches5
3
2
—
10
 1
—
—
7
—
18
Closed branches(118)(6)(1)—
(125) (2)(2)—
(1)—
(130)
Converted branches(6)
(5)—
—
—
(5) (1)(1)—
(1)—
(8)
Total as of
December 31, 2017		2,076
195
53
8
2,332
 6
7
7
29
2
2,383
(1) Panama, Brazil, Colombia, and Chile
(2) China
(3) Singapore, Malaysia, and Thailand
(4) The Netherlands, Hungary, United Kingdom, Germany, Czech Republic, Italy, Romania, Poland, Sweden, Ireland, and Switzerland
(5) South Africa
(6) Converted locations are sites converted from traditional branches to Onsite locations or non-in-market locations, net of sites converted from non-in-market locations or Onsite locations to traditional branches.
Onsitelocations may influence the trend in totalour traditional branch count over time.time, but have not been the primary reason for our traditional branch closings. The Onsite concept is not new, in that we entered into the first such arrangement in 1992. However, it was largely a local option that grew slowly before we identified it as a growth driver in 2014. We have made substantial investments toward accelerating its traction in the marketplace since 2015. In this model, the company serviceswe provide dedicated sales and service to a single customer from a location that is physically within the customer'scustomers' facility (or, in some cases, at a strategically placed off-site location), with inventory that is specific to the customer'scustomers' needs. In many cases, we are shifting revenue with the customer from an existing branch location, though we are beginning to see more new customer opportunities arise as a result of our Onsite capabilities. The model is best suited to larger companies, though we believe we can provide a higher degree of service at a lower level of revenue than most of our competitors. In most cases, we are shifting revenue with the customer from an existing branch. It has been our experience however, that whilesales mix at our Onsite locations produces a lower gross profit margins at Onsite locations tend to be lowerpercentage than at branches,our branch locations, but we gain significant revenue with the customer and our cost to serve is materially lower. The Onsite concept is not new, in that we entered into the first such arrangement in 1992. However, the company identified it as a growth driver in 2014 and made substantial investments toward accelerating its traction in the marketplace beginning in 2015. As a result, weWe have identified over 15,000 manufacturing and construction customer locations in the United States with potential to implement the Onsite service model. These include customers include those wherewith which we have aan existing national account relationship today, as well as newand potential customers we knoware aware of due to our local market presence.presence with which we do not have a meaningful relationship today. However, as awareness of our capabilities has grown, we have identified additional Onsite
4
Table of Contents


potential with certain agencies of state, provincial and local government customers and academia. We also believe as we follow our existing national account customers outside the United States our market potential for Onsite solutions will continue to expand. The international opportunity is substantial, but our speed is limited by the relatively underdeveloped infrastructure in comparison to the United States. We expect revenues from Onsite arrangements to increase meaningfully over time. We experienced net increases of 50, 137, and 204had 1,416 Onsite locations as of December 31, 2021, and they represented 31.6% of total sales, and signed 274, 223, and 362 new Onsite locations in 2015, 2016,2021, 2020, and 2017,2019, respectively. We currently have over 600believe the marketplace can support 375 to 400 new Onsite locationssignings annually. We did not achieve that level of signings in 2021, 2020, or 2019 as certain market variables, including the ongoing COVID-19 pandemic, supply chain constraints, and we believe we will have 1,000 Onsite locationslabor shortages created challenges in our ability to engage with key decision makers and caused many of our customers to focus on short-term crisis management rather than long-term strategic planning. These conditions remain in force at the beginning of 2022. It is our intention to sign 375 to 400 new Onsites in 2022, though achieving this may require some relief in the next 12 to 18 months.factors described above.

The following table provides a summary of the new Onsite customer locations signedbranches and the total Onsite locations we operated at the end of each year, as well as the Onsite openings, closings, and closingsconversions during each year:
North AmericaOutside North America
United StatesCanada
Mexico & Caribbean(1)
Subtotal
Central & South America(2)
Asia(3)
Europe(4)
SubtotalTotal
In-Market Locations - 12/31/192,731 254 146 3,131 15 25 57 97 3,228 
Starting Branches1,806 183 64 2,053 6 14 41 61 2,114 
Opened Branches— — 3 3 — 5 4 9 12 
Closed/Converted Branches(5)
(117)(4)(1)(122)(1)— — (1)(123)
Ending Branches1,689 179 66 1,934 5 19 45 69 2,003 
Starting Onsites925 71 82 1,078 9 11 16 36 1,114 
Opened Onsites211 16 18 245 6 1 5 12 257 
Closed/Converted Onsites(5)
(92)(6)(7)(105)— — (1)(1)(106)
Ending Onsites1,044 81 93 1,218 15 12 20 47 1,265 
In-Market Locations - 12/31/202,733 260 159 3,152 20 31 65 116 3,268 
Starting Branches1,689 179 66 1,934 5 19 45 69 2,003 
Opened Branches3 — 5 8 — 1 1 2 10 
Closed/Converted Branches(5)
(216)(6)— (222)— — 2 2 (220)
Ending Branches1,476 173 71 1,720 5 20 48 73 1,793 
Starting Onsites1,044 81 93 1,218 15 12 20 47 1,265 
Opened Onsites204 15 12 231 — 7 4 11 242 
Closed/Converted Onsites(5)
(75)(7)(5)(87)— (2)(2)(4)(91)
Ending Onsites1,173 89 100 1,362 15 17 22 54 1,416 
In-Market Locations - 12/31/212,649 262 171 3,082 20 37 70 127 3,209 
(1) Mexico, Puerto Rico, and Dominican Republic
(2) Panama, Brazil, and Chile
(3) Singapore, China, Malaysia, and Thailand
(4) The Netherlands, Hungary, United Kingdom, Germany, Czech Republic, Italy, Romania, Sweden, Poland, Austria, Switzerland, Ireland, Spain, France, and Belgium
(5) The net impact of non-in-market locations or Onsite locations converted to branches, branches converted to Onsite locations or non-in-market locations, and closures of branches or Onsite locations.
We believe the profitability of our in-market locations is affected by the average revenue produced by each site. In any in-market location, certain costs related to growth are at least partly variable, such as employee-related expenses, while others, like rent and utility costs, tend to be fixed. As a result, it has been shown that as an in-market location increases its sales base over time it typically will achieve a higher operating profit margin. This ability to increase our operating profit margin is influenced by: (1) general growth based on end market expansion and/or market share gains, (2) the age of the in-market location (new locations tend to be less profitable due to start-up costs and, in the case of a traditional branch, the time necessary to generate a customer base), and/or (3) rationalization actions, as in the past several years we have seen a net decline in our traditional
5
Table of Contents


 New Onsite Customer Locations SignedTotal Active Onsite Locations
Total as of December 31, 201580
264
Opened Onsite locations 161
Closed Onsite locations (24)
Total as of December 31, 2016176
401
Opened Onsite locations 218
Closed Onsite locations (14)
Total as of December 31, 2017270
605
In 1997, we developedbranch base. There are many reasons why local or regional management might decide to close a national accounts program aimedlocation. Key customers may have migrated to a different part of the market, factories may have closed, our own supply chain capabilities in a market may have evolved to allow us to service some areas with fewer traditional branches, and/or our customers may have transitioned to our Onsite model. An Onsite may also close because local or regional management determines that the business at makingthe location is unlikely to scale sufficiently to justify our products and services more competitive with customers that operate multiple facilities. These customersbeing on premise, in which case the relationship often reverts to being managed in a local traditional branch. The paths to higher operating profit margins are slightly different in a traditional branch versus an Onsite location, as the former will tend to have more complexfixed costs to leverage while the latter will tend to have a smaller fixed cost burden but have greater leverage of its employee-related expenses. In the short term, the Onsite program can hurt the profitability of our existing branch network as it can pull established revenue away from an existing branch even as its fixed expenses are largely unchanged.
We utilize additional types of selling locations within our network, but these tend to be more specialized in nature and relatively few in number, comprising less than five percent of our total selling locations. We remain committed to a large, robust service network, including traditional branches; it remains the indispensable foundation of our business. In any given year, it is difficult to predict whether our total branch count will rise or fall. However, with the growth we anticipate in Onsite locations, we believe our total in-market locations will increase over time.
Our Business Tools
Fastenal Managed Inventory (FMI®)
Over time, we have invested in and developed various technologies that allow us to put physical product closer to the point of use in a customer location, increase the visibility of a customer's supply chainschain (to the customer as well our personnel), and/or improve the ability to monitor or control usage. While there are isolated exceptions, these technologies are not themselves channels to the market but rather are utilized by our branch and structures for managing the MRO and OEM products we provide while at the same time, by virtue of their size and opportunity, have more negotiating power.Onsite channels to enhance service to our customers. Collectively, these tools comprise our Fastenal Managed Inventory (FMI) Technology suite. We believe our local presence asfully integrated distribution network allows us to manage the supply chain for all sizes of customers. FMI programs tend to generate a higher frequency of business transactions and, coupled with our fully integrated distribution network, foster a strong relationship with customers.
Bin stock (FASTStock℠ and FASTBin℠) programs, where product is held in bins in a customer facility, is similar to our vending business in that it involves moving product closer to the point of customer use within their facilities. Such programs have existed in the industrial supply industry for a considerable time, with open bins being clustered in a racking system, each of which holds original equipment manufacturing (OEM) fasteners, MRO fasteners, and/or non-fastener products that are consumed in the customers' operations. Historically, these bins were simply plastic and metal containers that held product and were visually inspected by our customers or Fastenal personnel to determine replenishment need. These bins in some cases are organized and labeled into customer plan-o-grams, which we call FASTStock and allow for the scanning of product when product is at a minimum desired level. However, in 2019 we introduced our FASTBin technology. FASTBin is the evolution of FASTStock into a set of electronic inventory management solutions that automate process controls by providing 24/7 continuous inventory monitoring, real-time inventory visibility, and more efficient replenishment of bin stock parts. These technologies come in three forms: (1) Scales utilize a high-precision weight sensor system to measure the exact quantity on hand in real time, automatically sending an order to Fastenal when inventory hits an established minimum. (2) Infrared uses infrared sensors lining individual bins to provide real-time visibility of approximate quantity and inventory values, automatically sending an order to Fastenal when inventory hits an established minimum threshold. (3) RFID is a Kanban system that utilizes RFID tags so that when an empty bin is removed from the rack and placed in a replenishment zone (also part of the same racking system) an automatic refill order is generated. These technologies provide superior monitoring capabilities and immediate visibility to consumption changes, allowing for a national,lean supply chain, reducing risk of stock-outs, and increasingly international, footprint, our abilityproviding a more efficient labor model for both the customer and the supplier.
Industrial vending (FASTVend℠) was introduced in 2008 to provide a consistent level of high-touch service and broad product availability, and our ancillary capabilities around manufacturing, quality control, and product knowledge, are attractive to these larger customers. We believe our advantage with these customers has only been strengthened as we have added other channels, such as industrial vending, Onsite, and Fastenal Managed Inventory ('FMI®'), and resources to serve these customers' unique demands. As a result, in 2017, national accounts represented 48.7% of our net sales, compared to 47.4% and 46.4% in 2016 and 2015, respectively. We believe we will continue to perform well with these customers.
We introduced industrial vending in 2008. Vending provides our customers the benefits ofwith improved product monitoring and control. Benefits include reduced consumption, reduced purchase orders, reduced product handling, and 24-hour product availability, and we believe our company has a market advantage by virtue of our extensive in-market network.network of inventory and local personnel. For these reasons, the initiative began to gain significant traction in 2011 and we finished 20172021 with over 86,000approximately 101,600 FASTVend non-weighted devices in the field, (71,000 generating product revenue and 15,000 inwhich excludes approximately 12,000 non-weighted vending devices that are part of a leased locker lease program). Our discussion generally focuses on the 71,000 product revenue devices.program with a specific retail customer. We believe industrial vending has proven its effectiveness in strengthening our relationships with customers and helped to streamline the supply chain where it has been utilized. We also believe there remains considerable room to grow our current installed base before it begins to approach the number of units we believe the market can support. We estimate the market could support as many as 1.7 million industrial vending devices,units and, as a result, we anticipate continued growth in installed devices over time. We believe we will have 100,000 total devices deployed in the next 12 to 18 months.
Our expanded industrial vending portfolio consists of 2324 different vending devices, with 17 of these being in either a helix or locker format. Our most utilized models include the helix-based FAST 5000 and our 12- and 18-door lockers; combined, these comprise approximately 68% of our installed base of devices. These are either configurable or are available in multiple
6
Table of Contents


configurations to accommodate the various sizes and forms of products that will be dispensed to match the unique needs of our customers. Target monthly revenues per device our helix-based machine, representing approximately 40% of the installed product revenue devices. We have learned much about these devices over the last several years and currently the target monthly revenue rangestypically range from under $1,000 per device to in excess of $3,000, per device. The following two tables provide two views ofwith our data: (1) actual device count regardless of the type of device and (2) 'machine equivalent' count based on the weighted target monthly revenue of each device (compared to theflagship FAST 5000 device having a targeted monthly throughput of $2,000.
Beginning in 2020, we began to report 'Weighted FMI Device' signings and installations, which hasis the combined activity of FASTBin and FASTVend converted into a comparable unit of measure, or 'machine equivalent unit' (MEU). This conversion takes the targeted monthly throughput of each FMI device signed or installed and compares it to the $2,000 target monthly revenue target).throughput of our FAST 5000 vending device. For example, the 12-door locker,an RFID enclosure, with target monthly revenue of $750,$2,000 would be counted as '0.375'1.00' machine equivalent' (0.375equivalent ($2,000/$2,000 = $750/1.00). An infrared bin, with target monthly revenue of $40, would be counted as '0.02' machine equivalent ($40/$2,000)2,000 = 0.02).
In 2022, we anticipate weighted FMI device signings to be in a range of 23,000 to 25,000 MEUs. Similar to Onsite, we believe the marketplace can support at least this level of signings annually, though we did not achieve it in 2021 as variables including the ongoing COVID-19 pandemic, supply chain constraints, and labor shortages created challenges in our ability to engage with key decision makers and caused many of our customers to focus on short-term crisis management rather than long-term strategic planning. These conditions remain in force at the beginning of 2022. We acknowledge that achieving this may require some relief in the factors that negatively impacted our efforts in the preceding two years.
The industrial vending (product revenue devices) information relatedtable below summarizes the signings and installations of, and sales through, our FMI devices.
Twelve-month Period
20212020Change
Weighted FASTBin/FASTVend signings (MEUs)19,311 16,503 17.0 %
Signings per day76 65 
Weighted FASTBin/FASTVend installations (MEUs; end of period)92,874 83,951 10.6 %
FASTStock sales$587.6 $323.0 81.9 %
% of sales9.7 %5.7 %
FASTBin/FASTVend sales$1,353.7 $1,064.4 27.2 %
% of sales22.3 %18.6 %
FMI sales$1,941.3 $1,387.4 39.9 %
FMI daily sales$7.7 $5.4 41.0 %
% of sales32.0 %24.3 %
Digital Solutions
We also invest in digital solutions that aim to contracts signed during each period was as follows:
   Q1 Q2 Q3 Q4 Annual
Device count signed during the period2017 5,437
 4,881
 4,771
 4,266
 19,355
 2016 4,647
 4,869
 4,783
 3,760
 18,059
 2015 3,962
 5,144
 4,689
 4,016
 17,811
            
'Machine equivalent' count signed during the period2017 4,476
 4,032
 4,010
 3,640
 16,158
 2016 3,696
 3,941
 3,520
 2,951
 14,108
 2015 2,916
 3,931
 3,769
 3,319
 13,935

The industrial vending (product revenue devices) information related to installed devices at the end of each period was as follows:
   Q1 Q2 Q3 Q4  
Device count installed at the end of the period2017 64,430
 66,577
 69,058
 71,421
  
 2016 56,889
 58,346
 60,400
 62,822
  
 2015 48,545
 50,620
 53,547
 55,510
  
            
'Machine equivalent' count installed at the end of the2017 49,921
 51,950
 54,215
 56,436
  
    period2016 43,329
 44,707
 46,399
 48,399
  
 2015 35,997
 37,714
 40,067
 41,905
  
In addition to industrial vending noted above, which primarily relatesdeliver strategic value for our customers, leverage local inventory for same-day solutions, and provide efficient service. While there is a transactional element to our non-fastener business,digital services, many of the solutions we alsoinvest in are intended to add value to customers by illuminating various elements of their supply chain. These solutions take many forms:
1.) Transactional. Our transactional, or eCommerce, platforms (web verticals or integrated catalogs) provides a means for our customers to effectively and efficiently procure MRO and unplanned spend. One of our eCommerce solutions, Fastenal EXPRESS, guides our customers to products which are locally stocked, capitalizing on our existing location footprint, in order to provide Fastenal Managed Inventory ('FMI') programs, (also knownsame-day or early next-day service for online orders. This positions us to outperform what is most typically a 24- to 48-hour fulfillment expectation. While there is a retail component to our transactional digital services, most of the revenue attributable to this is with our traditional customer base, nearly all of which purchase digitally as 'keep fill' or bin stock programs in the industry)a supplement to numerous customers. This business relates to both our maintenance customers (MRO fastenersother channels and non-fasteners) and original equipment manufacturers (OEM fasteners). FMI is like our industrial vending business intools that it involves moving product closerutilizes with Fastenal. We attribute the revenue generated from a customer location through our transactional platforms to the pointin-market location that traditionally services that customer location.
2.) Digital Visibility. Certain of our digital capabilities are intended to produce operational efficiencies for our customers and ourselves and/or to deliver strategic value by illuminating customer usesupply chains. For instance, we have developed, and continue to develop, 'Mobility' applications, one example of which is our Vending App, which provides a number of benefits. It provides easy, real-time information pertaining to a customer's local inventory position within their facilities. However,point-of-use devices. It incorporates customer usage data to recommend optimized parts and quantity for specific devices, improving customer inventories while reducing the devicerisk of stock-outs. Moving our fulfillment process from a vending device-based keypad function to a tablet or scanning interaction improves the restock process (reduced risk of product outages), reducing time consumed (greater efficiency) while improving accuracy (improved quality assurance). We will continue to build out our suite of Mobility applications. We also have 'eProcurement Solutions'. Electronic Data Interchange (EDI), is typically an open bin which is clustered with other bins in a rackingthe connectivity between our system each of which holds OEM fasteners, MRO fasteners, and/or non-fastener products that are consumed in the customers' operations. These bins utilize a variety of technologies. For instance, some bins are set up with the latest scanning technologies to determine when product is at a minimum desired level and requires refill, while others utilize scales to measure the volume of a bin's content by its weight, and our fullycustomers' procurement systems – whether a direct integration into their Enterprise Resource Planning (ERP) system or through a third-party procurement network or marketplace. These solutions provide system-to-system exchange of electronic
7
Table of Contents


procurement documents (such as purchase orders, advanced shipping notices, and invoices for direct and indirect spend). Our eProcurement Solutions provide a bridge between our FMI replenishment activity and our customers' procurement systems – creating an efficient, accurate and streamlined procure-to-pay (P2P) process. 'FAST 360°' acts as the bridge between our FMI footprint and a customer's view into our managed service model. FAST 360° surfaces data around these managed services as one central source of information as we manage our customers' OEM and MRO product lines. This is achieved through our FMI technologies providing locational data around our FASTStock, FASTBin, and FASTVend footprint, and FAST 360° being the means of surfacing that data and activities to our customers.
3.) Analytics. We provide solution-based digital platforms (e.g., web verticals or integrated distribution network allows us to manage thecatalogs) which leverages our existing strategic environment by creating a means of migrating online spend offline, which illuminates our supply chain for all sizescapabilities. This is marketed under the 'FAST 360° Analytics' label, as it is an enterprise-centric extension of customers. FMI programs foster a strong relationship withthe digital visibility capabilities of FAST 360°. We bring value to our customers, as well as ourselves, by using these digital platforms and analytics to shift product from a 'non-sticky' transactional environment (which is online) to a 'sticky' strategic environment (which is our FMI programs). We create customer cost savings opportunities through this directive by lowering the total cost of ownership (TCO) as the objective is to 'shrink' the unplanned (and traditionally high cost), purely transactional spend bucket.
Digital Footprint
We view our collective Digital Footprint as comprised of sales through FMI (FASTStock, FASTBin, and FASTVend) plus that proportion of our eCommerce sales that do not represent billings of FMI services. We believe the data that is created through our digital capabilities enhances product visibility, traceability, and control that reduces risk in operations and creates ordering and fulfillment efficiencies for both ourselves and our customers. As a result, we are often their preferred supplier,believe our opportunity to grow our business will be enhanced through the continued development and a higher frequencyexpansion of business transactions.our digital capabilities. Our Digital Footprint represented 42.7% of sales in 2021, the first year in which we explicitly measured it.
We believe our currentintegrated physical and virtual model, when paired with our national (and increasingly international) scope, represents a unique capability in industrial distribution when compared to eCommerce as an independent sales channel. We expect to continue to build out and develop our digital solutions over time.
We believe our global channels to market and business tools, including those that we consider to be growth drivers – Onsite locations, national accounts, industrial vending,(Onsites, international expansion, FMI, and FMI –digital solutions), represent alternative means to address the requirements of certain customer groups. They get us closer to the customer and to where the product is actually consumed. This is consistent with our strategy and offers significant value by providing differentiated and 'sticky' service. Combined with ongoing strategic investments in end market initiatives (such as our Customer Service Project ('CSP') initiatives which expand inventory placement at our branches to enhance same-day capabilities) as well as selling (in-market and otherwise) and non-selling (engineering, product specialists, manufacturing, etc.) employees, we offer a range of capabilities that is difficult for large and small competitors to replicate.
We remain committed to a large, robust service network, including traditional branches; it remains the indispensable foundation of our business. In any given year, it is difficult to predict whether our total branch count will rise or fall. However, with the growth we anticipate in Onsite locations, we believe our total in-market locations will increase over time.
It has been our experience that our profitability is affected by the average revenue produced by each branch. While certain costs related to growth at a branch are at least partly variable, such as employee-related expenses, others, like rent and utility expenses, tend to be fixed. As a result, it has been shown that as a branch increases its sales base over time it typically will achieve a higher operating profit margin. This ability to increase our average revenue per branch is influenced by: (1) general growth based on end market expansion and/or market share gains, (2) the age of the branch base (new branches tend to be less profitable due to start-up costs and the time necessary to generate a customer base; however, when these new branches mature and increase their sales base, their profitability similarly increases), and (3) rationalization actions – in the past several years the company has seen a net decline in its branch base. There are many reasons why local or regional management might decide to close a branch. Key customers may have migrated to a different part of the market or transitioned to our Onsite model, plants may have closed, or our own supply chain capabilities in a market may have evolved to allow us to service some areas with fewer traditional branches. In the short term, the Onsite program can hurt the profitability of our existing branch network as it can pull established revenue away from an existing branch.Distribution Network
We operate 11fifteen regional distribution centers in North America. Twelve are in the United States – Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, Utah, North Carolina, Kansas, and KansasMississippi – and three are outside the United States – Ontario, Canada; Alberta, Canada; and Nuevo Leon, Mexico. We also operate one distribution center in Europe, located in Dordrecht, Netherlands. These 14 distribution centers give us approximately 3.54.9 million square feet of distribution capacity. These distribution centers are located so as to permit deliveries of two to five times per week to our in-market locations using our trucks and overnight delivery by surface common carrier, with approximately 83%81% of our North American in-market locations receiving service four to five times per week. We would expect to add newThe distribution centers over time as our scale and the number of our in-market locations increases. The distribution center in Indiana and Kansas also servesserve as a 'master' hub,hubs, with those in California and North Carolina and Kansas serving as 'secondary' hubs to support the needs of the in-market locations in their geographic regions as well as provide a broader selection of products for the in-market locations serviced by the other distribution centers.

We currently operate our Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, North Carolina, Kansas, and Ontario, Canada distribution centers with automated storage and retrieval systems (ASRS). These nineeleven distribution centers operate with greater speed and efficiency, and currently handle approximately 85%95% of our picking activity. The Indiana facility also containsWe expect to invest in additional automation technologies, expand existing distribution facilities, and/or add new distribution centers over time as our centralized replenishment facility for a portionscale and the number of our industrialin-market locations increases.
In 2018, we began to deploy Local Inventory Fulfillment Terminals (LIFTs). These are small distribution facilities situated where we have a dense population of FMI devices. Traditionally, responsibility for product fulfillment to vending business. This operationdevices and bin stocks have centered on individual branches, which were responsible for stocking and packaging inventory, delivering to a customer's location, and refilling the customer's devices. As our sales from FMI devices have grown, this approach has resulted in redundant inventory in a territory and a greater proportion of our sales personnel's time being spent on non-sales activities. By centralizing inventory and packaging into a LIFT and relying on dedicated LIFT fulfillment personnel for delivery and device replenishment, which we refer to as 'drop-and-scatter', we can reduce FMI-dedicated inventory, provide more consistent and predictable service to our customer's FMI devices, and free up time for our sales personnel to focus on customer penetration
8
Table of Contents


and acquisition. Our transportation network allows us to expand the geographic reach of our LIFTs by deploying a 'drop-and-deliver' model. In this case, a LIFT is also highly automated. Construction of an ASRS began in 2017 at our Kansas distribution center,responsible for stocking and we expect this projectpackaging, with the inventory and accuracy benefits that come with that focus, but the delivery and replenishment continues to be completed inperformed by local branch personnel. As the first quarter of 2018. Constructioneconomics of a new distribution centerLIFT depend on device and sales density, there will be geographic areas, particularly in Washington, whichnon-MSAs, where supporting an FMI platform will include ASRS technology, is scheduled to begin in 2018.remain the responsibility of local branch personnel. In 2021, less than 5% of our FMI revenue was serviced through a LIFT, but over time we believe this figure can approximate 40% of our FMI revenue.
Information Systems
Our information systems department develops, implements,Information Systems teams develop, implement, secure, and maintainsmaintain the computer basedcomputer-based technology used to support business functions within Fastenal. Corporate, e-business,digital, distribution center, and vending systems are primarily supported from central locations, while each selling location uses a locally installed Point-Of-Sale (POS) system. The systems consist of both customized,custom in-house developed, purchased, and subscription licensed software. A dedicated Wide Area Network (WAN) is used to provide connectivity between systems and authorized users.
Trademarks and Service Marks
We conduct business under various trademarks and service marks, and we utilize a variety of designs and tag lines in connection with each of these marks, including Growth Through Customer Service®Where Industry Meets Innovation™. Although we do not believe our operations are substantially dependent upon any of our trademarks or service marks, we consider the 'Fastenal' name and our other trademarks and service marks to be valuable to our business. We have registered, or applied for the registration of, various trademarks and service marks. Our registered trademarks and service marks are presumed valid in the United States as long as they are in use, their registrations are properly maintained, and they have not been found to have become generic. Registrations of trademarks and service marks can also generally be renewed indefinitely as long as the trademarks and service marks are in use.
Products
Fastenal was founded as a distributor of fasteners and related industrial and construction supplies. This includes threaded fasteners, which represent approximately 85% of total fastener sales and includes bolts, nuts, screws, studs, and related washers, as well as miscellaneous supplies and hardware, such as pins, machinery keys, concrete anchors, metal framing systems, wire rope, strut, rivets, and related accessories. Our fastener product line, which is primarily sold under the Fastenal product name, represented 35.6%, 36.6%, and 38.3%33.3% of our consolidated net sales in 2017, 2016, and 2015, respectively. Of this, threaded fasteners represented approximately 30%, 33%, and 34% of our consolidated net sales in 2017, 2016, and 2015, respectively.2021.
Fastener distribution is complex. In most cases, the product has low per unit value but high per unit weight. This presents challenges in moving product from suppliers, most of whom are outside of North America, to our distribution centers, as well as from our distribution centers to our branch, Onsite, and customer locations. At the same time, fasteners are ubiquitous in manufactured products, construction projects, and maintenance and repair while at the same timealso exhibiting great geometric variability based on use and application. In many cases, a fastener is a critical part in machine uptime and/or effective use. These features have greatly influenced our logistical development, training and educational programs, support capabilities, and inventory decisions, which we believe would be difficult for competitors to replicate.
In 1993, we began to aggressively add additional product lines, and these represented 64.4%, 63.4%, and 61.7%66.7% of our consolidated sales in 2017, 2016, and 2015, respectively.2021. These products, which we refer to as non-fastener product lines, tend to move through the same distribution channel, get used by the same customers, and utilize the same logistical capabilities as the original fastener product line. This logic is as true today as it was when we first began to diversify our product offering. However, over time, the supply chain for these product lines has evolved in ways independent of the fastener line. For instance, non-fastener product lines benefit disproportionately from our development of industrial vending.
The most significant category of non-fastener products is our safety supplies product line, which accounted for 15.2%, 14.9%, and 13.9%21.2% of our consolidated sales in 2017, 2016, and 2015, respectively.2021. This product line has enjoyed dramatic sales growth in the last ten years (roughly doubling as a percentage of sales over that ten year time frame). Thiswhich we believe is directly relatedattributable to our success in industrial vending. Our toolsvending over that period. The COVID-19 pandemic uniquely impacted our safety supplies product line now accountsline. In 2020, we saw substantial growth based on our ability to quickly source and deliver supplies, such as disposable masks, gloves, and gowns that were critical for governments, health care providers, and businesses to increase employee safety while maintaining operations. In 2021, we experienced a decline as better industrial growth was more than 10%offset by a decline in demand for pandemic-related supplies that reflected the stabilization of consolidatedthe supply chain for critical products. Going forward, we expect traditional variables such as market performance, cross-selling, and vending adoption to be the primary drivers of performance for our safety supplies product line. However, we also believe the net effect of the pandemic has been to increase safety products as a percentage of product sales representing 10.1%, 9.9%, and 9.5% in 2017, 2016, and 2015, respectively. Also, inas safety protocols at many of our customers are likely to be sustained into the future.
In the last several yearsdecades we have added 'private label' brands (often referred to as 'Fastenal brands')'Exclusive Brands', or brands sold exclusively through Fastenal) to our offering, and thesenon-fastener offering. These private label brands represented approximately 12%13% of our consolidated net sales in 2017, 2016,2021.We believe it is also appropriate to think about our private label sales as a percentage of our non-fastener sales for two reasons: (1) there is not a well-defined branded vs. private label dynamic in fasteners as there is in non-
9
Table of Contents


fasteners; and 2015.(2) non-fastener data is more comparable to information reported by our peers, who do not generally have our significant mix of fastener business. Private label brands represented approximately 20% of our total non-fastener sales in 2021. Our private label brand sales as a percentage of our total non-fastener sales declined in 2020, reflecting strong growth of COVID-related supplies, which were not sold under a private label brand, and recession-related weak safety demand from traditional manufacturing and construction customers, many of which are marketed under a private label brand. The performance of our private label brands in 2021 more closely resembled trends that preceded 2020, where we have typically experienced an increase in sales of private label products as a percentage of total non-fastener sales through specific sales channels such as Onsite locations, branches, and vending. Often, these increases through specific channels are masked by the relative sales growth we experience with Onsite locations, which typically have a lower percentage of total sales being private label than is the case in branches or sales through vending devices.
We plan to continue to add other product lines in the future.
Detailed information about our sales by product line is provided in Note 122 of the NotesNotes to ConsolidatedConsolidated Financial Statements included later in this Form 10-K. Each product line may contain multiple product categories.
Inventory Control
Our inventory stocking levels are determined using our computer systems, by our sales personnel at in-market locations, by our district and regional leadership, and by our product managers.development team. The data used for this determination is derived from sales activity from all of our selling locations, from individual selling locations, and from different geographic areas. It is also derived from supplier information and from customer demographic information. The computer system monitors the inventory

level for all stock items and triggers replenishment, or prompts a buyer to purchase, as necessary, based on an established minimum-maximum stocking level. All branches stock a base inventory and may expand beyond preset inventory levels as deemed appropriate by the district and branch personnel. Non-branch selling locations (primarily Onsites) stock inventory based on customer-specific arrangements. Inventories in distribution centers are established from computerized data for the selling locations served by the respective distribution center. Inventory quantities are continuously re-balanced utilizing an automated transfer mechanism we call 'inventory re-distribution'.
Inventory held at our selling locations, close to customers and available on a same-day basis, accounted for approximately 65%, 64%, and 61%57% of our total inventory at the end of 2017, 2016, and 2015, respectively.2021. Inventory held at our distribution centers and manufacturing locations accounted for approximately 35%, 36%, and 39%43% of our total inventory at the end of 2017, 2016, and 2015, respectively.2021. The distribution center and manufacturing location inventory, when combined with our trucking network, allows for incredibly fast, next-day service at a very competitive cost.
Manufacturing and Support Services Operations
In 2017, approximately2021, approximately 96% of our consolidated net sales were attributable to products manufactured by other companies to industry standards or to customer specific requirements. The remaining 4% relatedrelated to products manufactured, modified, or repaired by our manufacturing businesses or our support services. The manufactured products consist primarily of non-standard sizes of threaded fasteners and hardware made to customers' specifications at one of our nine manufacturing locations, or standard sizes manufactured under our Holo-Krome®, Cardinal Fasteners®, and Cardinal FastenersSpensall® product lines. The services provided by the support services group include, but are not limited to, the repair of tools and hoists, the fabrication of chain sling and hose, band saw blade welding, and other light manufacturing and fabrication. We may add additional services in the future. However, we engage in these activities primarily as a service to our customers and expect them to continue to contribute in the range of 4% to 6% of our consolidated net sales in the future.
Sources of Supply
We use a large number of suppliers for the standard stock items we distribute. Most items distributed by our network can be purchased from several sources, although preferred sourcing is used for some stock items to facilitate quality control. No single supplier accounted for more than 5% of our inventory purchases in 2017.2021.
In the case of fasteners and our private label non-fastener products, we have a large number of suppliers but these suppliers are heavily concentrated in a single geographic area, Asia. Within Asia, suppliers in China represent a significant source of product. Further, in many cases where we source directly from a North American supplier, the original country of origin of the acquired parts is the supplier's Asian facilities. As a result, the cost and effectiveness of our supply chain is dependent on relatively unfettered trade across geographic regions.
Beyond inventory, we have some concentration of purchasing activity. For example, we utilize a limited number of suppliers for our distribution equipment two main suppliers forand our vehicle fleet, and primarily one supplier for our industrial vending equipment. However, we believe there are viable alternatives to each of these, if necessary.
Geographic Information
10
Table of Contents
Information regarding our revenues and long-lived assets by geographic location is set forth in Note 8 of the Notes to Consolidated Financial Statements included later in this Form 10-K. Our ability to procure products overseas at competitive prices, as well as net sales at our foreign locations, could be impacted by foreign currency fluctuations, changes in trade relations, or fluctuations in the relative strength of foreign economies.

Customers and Marketing
We believe our success can be attributed to our ability to offer customers a full line of quality products, our convenient locations and diverse methods of providing those products, and the superior service orientation and expertise of our employees. Most of our customers are in the manufacturing and non-residential construction markets. The manufacturing market includes both original equipment manufacturers (OEM)OEM and maintenance, repair,MRO customers and operations (MRO).historically has represented approximately 65% of our business. The non-residential construction market includes general, electrical, plumbing, sheet metal, and road contractors.contractors and historically has represented approximately 10-15% of our business. Other users of our products include farmers, truckers, railroads, oil exploration companies, oil production and refinement companies, mining companies, federal, state, and local governmental entities, schools, and certain retail trades. During the fourth quarter of 2017, our total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 400,000, while our total 'core accounts' (defined as the average number of accounts each month with purchase activity of at least $250 per month) was approximately 111,000. In 2017, no one customer accounted for more than 5% of our sales.
Based on our customer profile being oriented toward manufacturing and non-residential construction, our business has historically been cyclical. However, we believe our model has certain protectionsfeatures that moderate the volatility of our results around cyclical changes. First, we have a large number of customers that serve a wide range of segments within the broader manufacturing and non-residential construction market, althoughmarket. While slumps in one industry served by us can rapidly spread to other, interrelated industries, locally or globally. However,globally, we still believe this customer and market segment diversity provides some insulation from economic changes that are not across multiple industries and geographic regions. In addition,Second, while a meaningful part of our revenue is derived from products that are incorporated into final products. However,products, we also have a significant portion of revenue that is derived from products used to maintain sites, and while thisfacilities. This latter source of revenue tends to be directly influenced by cyclical changes, but its rate of change tends to be less dramatic.

In 1995, we developed a national accounts program aimed at making our products and services more competitive with customers that operate multiple facilities. These customers tend to have more complex supply chains and structures for managing the OEM and MRO products we provide while at the same time, by virtue of their size and opportunity, have more negotiating power. We believe our local presence as part of a national, and increasingly international, footprint, our ability to provide a consistent level of high-touch service and broad product availability, and our ancillary capabilities around manufacturing, quality control, and product knowledge, are attractive to these larger customers. We believe our advantage with these customers has only been strengthened as we have added other channels, such as Onsite, FMI, digital solutions, and resources to serve these customers' unique demands. As a result, in 2021, national accounts represented 56.6% of our sales, compared to 55.0% and 53.6% in 2020 and 2019, respectively. We believe sales to national accounts customers will continue to increase as a percent of our total sales over time.
In an in-market location, our customers' business activity is tracked through 'active accounts'. Customers often have more than one active account at a single in-market location, reflecting their utilization of different Fastenal services, and frequently have active accounts at many in-market locations across our global network. During 2021, our total number of active customer accounts (defined as the average number of accounts per month with purchase activity of at least $100) was approximately 132,000, while our total 'core accounts' (defined as the average number of accounts per month with purchase activity of at least $500) was approximately 77,000. During 2021, no single customer represented 5% or more of our consolidated net sales.
Direct marketing continues to be the backbone of our business through our local in-market selling personnel, as well as our non-branch selling personnel. We support our branchessales team with multi-channel marketing including emaildirect mail and onlinedigital marketing, print and radio advertising, catalogs,targeted campaigns, promotional flyers, events, and branch signage.events. In recent years, our national advertising has been focused on a NASCAR® sponsorship through our partnership with Roush Fenway Keselowski Racing® as the primary sponsor of Ricky Stenhouse Jr.'sthe No. 17 car in the Monster EnergyNASCAR® NASCAR® Cup Series.Series, driven by Chris Buescher. In 2020, our sports marketing efforts were extended when the National Hockey League (NHL®) awarded us as the preferred MRO supplier of the sport.
Seasonality
Seasonality has some impact on our sales. The first and fourth quarters are typically our lowest volume periods, given their overlap with winter months in North America during which our direct and indirect sales to customers in the non-residential construction market typically slow due to inclement weather. The fourth quarter also tends to be more greatly affected by the Thanksgiving (October in Canada and November in the United States), Christmas, and New Year holiday periods, due to plant shut downs. In contrast, the second and third quarters typically have higher revenues due to stronger non-residential construction activity and relatively fewer holidays (although Good Friday will sometimes fall in the second quarter and the 4th of July will always fall in the secondthird quarter).
Competition
Our business is highly competitive, and includes large competitors located primarilynational distributors whose strongest presence tends to be in large citiesmore densely populated areas, and smaller regional or local distributors, locatedwhich compete in many of the same smaller markets in which we have branches. We believe the principal competitive factors affecting the markets for our products, in no particular order, are customer service, price, convenience, product availability, and cost saving solutions.
11
Table of Contents


Market strategies in industrial distribution are varied. WhereWith respect to products, are concerned, while many of the larger distributors have trended toward a broad-line offering over time,time; however, they are often still closely associated with a specific product that can influence their ability to capture market share. This association with a specific product line is often even more pronounced among smaller competitors, though many smaller competitors do deploy a broad-line model. Means of serving the customer are even more diverse. For instance, many competitors maintain a local, branch-based presence in their markets, while others use vans to sell products in markets away from their main warehouses, while still others rely on catalogs or telemarketing sales. Recent years have seen the emergence of digitaleCommerce solutions, such as websites, and while this channel has been embraced by many traditional distributors it also has introduced non-traditional, e-commerce-basedweb-based competitors into the marketplace. The diversity of product and service models supported in the marketplace is a reflection of the equally diverse product and service needs of the customer base. The large majority of our customers utilize multiple channels, from a single distributor where they are offered or from a range of distributors, to procure the products they need in their operations.
We believe that better service, and a competitive selling advantage, can be provided by maintaining a physical selling and stocking presence closer to the customer'scustomers' location(s). As a result, we maintain branches in small, medium, and large markets, each offering a wide variety of products. The convenience of a large number of branches in a given area, combined with our ability to provide frequent deliveries to such branches from centrally located distribution centers, facilitates the prompt and efficient distribution of products. We also believe our industrial vending and bin stockFMI solutions, supported fromby an in-market (branch or Onsite) location, provides a unique way to provide our customers convenient access to products and cost saving solutions using a business model not easily replicated by our competitors. Having trained personnel at each in-market location also enhances our ability to compete (see 'Employees' below).
Our Onsite service model provides us with a strategic advantage with our larger customers. Building on our core business strategy of the local branch, the Onsite model provides value to our customers through customized service while giving us a competitive advantage through stronger relationships with those customers, all with a relatively low incremental investment given the existing branch and distribution structure.

Human Capital Resources
Employees
At the end of 2017,2021, we employed 20,56520,507 full and part-time employees. Of these, approximately 74%71% held an in-market or non-branch selling role. We characterize these personnel as follows:
2021% of Total2020% of Total
In-market locations (branches & Onsites)12,464 60.8 %12,680 62.3 %
Non-in-market selling (1)
2,106 10.3 %1,952 9.6 %
  Selling subtotal14,570 71.0 %14,632 71.8 %
Distribution/Transportation3,675 17.9 %3,583 17.6 %
Manufacturing649 3.2 %639 3.1 %
Administrative (2)
1,613 7.9 %1,511 7.4 %
  Non-selling subtotal5,937 29.0 %5,733 28.2 %
Total20,507 100.0 %20,365 100.0 %
(1) Our non-in-market selling employee count has grown in recent years due to an increased focus on resources to support our growth drivers, particularly Onsite and national account growth.
(2) Administrative primarily includes our Sales Support, Information Technology, Finance and Accounting, Human Resources, and senior leadership roles and functions. Our administrative employee count has also grown in recent years due to increased personnel investments in information technology and operational support, such as purchasing and product development.
Employee Profile
As of December 31, 2021, we had 20,507 employees worldwide, with 16,548 of those employees located within the United States (U.S.), 2,568 employees located in Canada and Mexico, and 1,391 employees located overseas in 22 other countries throughout the world.
Based on our EEO-1 data for 2020, which is the most recent period for which data is available and our most recently filed information, in the United States females and minorities constitute 24.4% and 20.5% of our workforce, respectively. Based on U.S. Bureau of Labor Statistics data, we believe Fastenal's mix of female and minority employees is generally consistent with the proportion of females and minorities working in manufacturing and construction, which is representative of the pool of employees from which we might draw candidates. The proportion of females and minorities in our workforce declined slightly in 2020. It is difficult to know what the impact was from the severe social disruption in the period caused by COVID-19.
12
Table of Contents


 20172016
In-market locations13,424
12,966
Non-branch selling1,711
1,575
  Selling subtotal15,135
14,541
Distribution3,575
3,403
Manufacturing652
594
Administrative1,203
1,086
  Non-selling subtotal5,430
5,083
Total20,565
19,624
Generally, though, we believe this data is best viewed over time rather than year-to-year. On this basis, there is a clear trend toward greater diversity in our business. In the eight years since 2012, our female and minority workforces have grown 2.7x and 3.8x faster, respectively, than our overall U.S. workforce. This trend reflects multiple dynamics in our business evolution, including the natural progression of our geographic expansion, the cycle of our promote-from-within philosophy, and efforts to improve hiring processes over time.
Health and Safety
Employee health and safety continues to be a priority in every aspect of our business. We've taken a multi-faceted approach to safety that helps us understand and reduce hazards in our business. Trainings, audits, inspections, risk assessments, safety coaching, and employee engagement are all programs that help us consistently manage our facility and employee safety. Our internal scorecard system and safety management system ensures we maintain focus on a variety of risks while we sustain an inclusive safety environment that contributes to innovation and improved performance. We continue to expand and evolve our safety programs to better meet our employee needs and workplace conditions as our business grows.
This commitment to, and continuous improvement towards, a safer work environment for our employees has generated excellent results. A widely accepted measure of organizational health and safety is the Experience Modification Rate (EMR). An organization's EMR is established through the comparison of a company's past and expected losses incurred through workplace injury against industry averages, which are compiled by the National Council on Compensation Insurance and consider unique variables such as the size and characteristics of an organization. Industry averages are benchmarked at a 1.00 EMR, with a reduction in the rate being reflective of an organization's ability to implement superior safety procedures and protocols, resulting in a safer environment and reducing both personnel and financial risk. In 2021, the most recent year for which this figure has been calculated, Fastenal had an EMR of 0.45, which is 55% better than the average performance rate for our industry.
In 2021, EHS Today, a health and safety trade organization, recognized Fastenal as one of 'America's Safest Companies', an award received by just over 250 companies since 2002. According to EHS, this honor reflects: support from leadership for health and safety efforts; employee involvement in health and safety processes; innovative solutions to safety challenges; comprehensive training programs; evidence that incident prevention is the cornerstone of the safety process; good communication about the value of safety; a way to substantiate the benefits of the safety process; and injury and illness rates below the industry average. This recognition reflects the priority that members of our organization place on health and safety.
Employment and Compensation Philosophy
Fastenal's success is defined by our people. Our cultural values – Ambition, Integrity, Innovation, and Teamwork – are woven into the fabric of our human resources processes and protocols, and inform our employment and compensation philosophies.
Several principles underpin our employment philosophy. One is decentralization: placing employees close to our customers' operations and trusting these employees to independently make local decisions to provide differentiated local service. A second is that we are a passionately promote-from-within company, guided by a belief that if you work hard, make great decisions, learn from mistakes, and exemplify our cultural values, you should receive greater opportunity and responsibility. We believe these principles cultivate an entrepreneurial mindset and foster an environment of trust and empowerment.
As it relates to our compensation philosophy, we believe our combination and mix of base and bonus pay motivates our people to high levels of individual and company success, as the goals and objectives have been repeatedly demonstrated to be achievable with superior effort. We are guided by simple principles. (1) Programs should be easy to understand, with goals and objectives that are clearly communicated and resources for success that are provided. They should be calculable by the employee and numbers-driven (e.g., not subjective). (2) Total compensation should have a significant component that is based on how well the employee has grown their piece of the business and served our customers. (3) Employees should receive incentives as soon as practical upon attainment of the goal.
Approximately 71% of our employees interface directly with customers on a daily or frequent basis, with the remainder supporting the selling efforts of our customer-facing employees. Typical pay arrangements provide a base amount paid periodically during the month, along with a major opportunity to earn bonus amounts, paid monthly, based on growth in sales, gross or pre-tax profit achieved, and prudent management of working capital. In certain roles, there may also be a portion of compensation based on contribution to attaining predetermined departmental or project and cost containment goals, most focused on either customer service or better execution of company-wide activities.
Because we believe the growth in the company's stock value should be the reward for achieving long-term success consistent with being an owner, we have a stock option plan. In the case of certain foreign employees, we have a stock appreciation rights plan. All of our employees are eligible to receive stock option grants or stock appreciation rights.
We believe our combination of short and long-term rewards and incentives has proven successful as reflected in our historic performance and acceptable levels of employee retention and turnover.
13
Table of Contents


Our employees are not subject to any collective bargaining agreements and we have experienced no work stoppages. We believe our employee relations are good.
Talent Acquisition and Development
Fastenal's values are integral to our employment process and serve as guideposts for leadership. The ultimate goal is straightforward: find great people, ask them to join, and give them a reason to stay. Reasons to stay include training, opportunity, and a welcoming environment. From a practical standpoint, this means that we attract a broad group of candidates and then hire the qualitycandidate who is the best match for the position based on their skills and abilities. In accordance with our decentralized leadership structure, we believe the person best suited to make this decision is the local leader trying to fill the opening. In light of our employeespromote-from-within philosophy, we know we are hiring a potential future leader with every new hire.
Our Human Resources department develops efficient processes to expand our reach and pool of diverse talent while balancing the needs and requirements of data collection and storage. We have created a standardized framework for posting jobs and interviewing for positions, supplemented with training through the Fastenal School of Business. We have a Diversity and Compliance team that is critical to our ability to compete successfullyheavily involved in developing this standardized framework, which ensures its integrity. Not only is this process followed for all new hires, we replicate the markets we currently servesame procedures for any internal transfers and to our ability to develop new markets and customer relationships. We foster the growth and education of skilled employees throughout the organization by operating training programs and by decentralizing decision-making. Wherever possible, our goal is to 'promote from within'. For example, most new branch and Onsite managers are promoted from an outside sales position and district managers (who supervise a number of in-market locations) are usually former branch managers.promotions.
The Fastenal School of Business (our internal corporate university program, known as FSB) develops and delivers a comprehensive array of industry and company-specific educationtraining and trainingdevelopment programs that are offered to our employees. The programs are offered through a combination of classroom instructor-led training, virtual instructor-led training, and online learning. FSB provides core curricula focused on key competencies determined to be critical to the success of our employees' performance. In addition, we provide specialized educational tracks within various institutes of learning. These institutes of learning are advanced levels that provide specific concentrations of education and development and have been designed to focus on critical aspects of our business, such as leadership, effective branch best practices, sales and marketing, product education,products, supply chain, and distribution.
Our selling personnelProduct Sourcing Endeavors
Sourcing from suppliers with good standing is the foundation of an ethical supply chain. We expect our suppliers to comply with all regulations and standards, and we conduct risk analysis for suppliers who want to do business with us to obtain additional supporting documentation affirming their ethics, quality, and reliability, so we can be certain they meet our standards in these areas, and to ensure that they are complying with Fastenal's Supplier Terms & Code of Conduct, and Global Supplier Purchase Order Terms & Conditions, as we are subject to the conflict minerals rules. With the help of third-party resources and global databases scanning over 100 lists of agencies, known risk, adverse media, and financial status, Fastenal monitors key areas of trade-related risk, including dual-use goods and utilization of sanctioned countries (or entities), as these are common ways that international trade might provide capital and restricted goods to sanctioned parties, launder funds of drug traffickers, and otherwise support criminals. We also evaluate our suppliers' approach to labor to ensure that they are using appropriate, and appropriately compensated, employees.
With a local and global supplier base, continuous monitoring and local representation is a necessity to ensure protocols are triggered when risk may be evident, ensuring a safeguard against poor and/or impaired quality and regulatory violations that may otherwise impact our reputation in the marketplace. This is performed not only at the time of supplier vetting and onboarding, but for the life of the relationship with the supplier. This process promotes a base salarysupply chain that is supportive of Fastenal's Supplier Terms & Code of Conduct and an incentive bonus arrangementGlobal Supplier Purchase Order Terms & Conditions. In the event of non-compliance or potential risk, we work with the supplier to correct the situation. If remediation efforts are not undertaken to ensure the supplier remains in compliance with Fastenal's standards and code of conduct, alternative sources for supply may be considered to ensure the integrity of our supply chain. Supply chain compliance representatives are placed in international corporate offices to ensure global coverage and governance, ensuring that places emphasis on achieving increased sales onno matter where a branch, Onsite, district, regional,customers' operations may take them, Fastenal has the infrastructure, resources, and national account basis, while still attaining targeted levels of, among other things, gross profit and trade accounts receivable collections. As a result, a significant portioninternal processes established to perform its supply chain governance obligations.
In 2021, approximately 33% of our total employment cost variescompany-wide inventory spend was with sales volume. We also pay incentive bonusessmall and/or diverse businesses. This flows from our Supplier Diversity program, as part of which we are committed to our leadership personnel based on one or morebuilding supply chain relationships with small businesses and businesses with diverse ownership including women, minorities, veterans, and lesbian, gay, bisexual, and transgender (LGBT) owned Certified LGBT Business Enterprise®Suppliers.
14
Table of the following factors: sales growth, earnings growth (before and after taxes), profitability, and return on assets, and to our other personnel for achieving predetermined departmental, project, and cost containment goals.Contents
Our employees are not subject to any collective bargaining agreements and we have experienced no work stoppages. We believe our employee relations are good.

Available Information
Our Internet address for corporate and investor information is www.fastenal.com. The information contained on our website or connected to our website is not incorporated by reference into this annual report on Form 10-K and should not be considered part of this report.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge on or through our website at www.fastenal.com as soon as reasonably practicable after such reports have been filed with or furnished to the SEC.

15
Table of Contents


ITEM 1A.RISK FACTORS
ITEM 1A.RISK FACTORS
In addition to the other information in this Form 10-K, the following factors should be considered in evaluating our business. Our operating results depend upon many factors and are subject to various risks and uncertainties. The most significantmaterial risks and uncertainties known to us which may cause our operating results to vary from anticipated results or which may negatively affect our operating results and profitability are as follows:
Company Specific Risks
Operational Risks
Products that we sell may expose us to potential material liability for property damage, environmental damage, personal injury, or death linked to the use of those products by our customers. Some of our customers operate in challenging industries where there is a material risk of catastrophic events. We are actively seeking to expand our sales to certain categories of customers, some of whose businesses may entail heightened levels of such risk. If any of these events are linked to the use by our customers of any of our products, claims could be brought against us by those customers, by governmental authorities, and by third parties who are injured or damaged as a result of such events. In addition, our reputation could be adversely affected by negative publicity surrounding such events regardless of whether or not claims against us are successful. While we maintain insurance coverage to mitigate a portion of this risk and may have recourse against our suppliers for losses arising out of defects in products procured from them, we could experience significant losses as a result of claims made against us to the extent adequate insurance is not in place, the products are manufactured by us or legal recourse against our suppliers is otherwise not available, or our insurers or suppliers are unwilling or unable to satisfy their obligations to us.
We may be unableOur ability to meetsuccessfully attract and retain qualified personnel to staff our goals regardingselling locations could impact labor costs, sales at existing selling locations, and the growth driverssuccessful execution of our business.growth drivers. Our sales growth is dependent primarilysuccess depends in part on our ability to attract, new customersmotivate, and increaseretain a sufficient number of qualified employees, including inside and outside branch associates, Onsite managers, national account sales representatives, and support personnel, who understand and appreciate our activity with existingculture and are able to adequately represent this culture to our customers. Historically,Qualified individuals of the most effective wayrequisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the industry is high, particularly for less tenured employees. If we are unable to hire and retain personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and product knowledge, our sales could be materially adversely affected. Additionally, competition for qualified employees could require us to pay higher wages to attract newa sufficient number of employees. An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned expansion of our various selling channels.
Cyber security incidents, or violations of data privacy laws and regulations, could cause us to experience certain operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings, or suffer damage to our reputation in the marketplace. The nature of our business requires us to receive, retain, and transmit certain personally identifying information that our customers has been opening new branches. In recent years, however, we have devoted increased resourcesprovide to other growth drivers, includingpurchase products or services, register on our industrial vending business, our Onsite business,websites, or otherwise communicate and our national accounts team.interact with us. While we have taken and continue to undertake significant steps to build momentumprotect our customer and confidential information, a compromise of our data security systems or those of businesses we interact with could result in information related to our customers or business being obtained by unauthorized persons. We develop and update processes and maintain systems in an effort to try to prevent such unauthorized access, and have established and maintained disclosure controls and procedures that would permit us to make accurate and timely disclosures of any material event, including any cyber security event. The development and maintenance of these processes and systems are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated. Consequently, despite our efforts, the possibility of cyber security incidents cannot be eliminated entirely. There can be no assurance that we will not experience a cyber security incident that may materially impact our consolidated financial statements. While we also seek to obtain assurances that third parties we interact with will protect confidential information, there is a risk the confidentiality of data held or accessed by third parties may be compromised. If a compromise of our data security were to occur, it could interrupt our operations, subject us to additional legal, regulatory, and operating costs, and damage our reputation in the growth driversmarketplace. In addition, regulatory authorities have increased their focus on how companies collect, process, use, store, share, and transmit personal data. New privacy security laws and regulations, including the European Union General Data Protection Regulation 2016, the California Consumer Protection Act, and other similar state privacy laws, pose increasingly complex compliance challenges, which may increase compliance costs, and any failure to comply with data privacy laws and regulations could result in significant penalties.
Interruptions in the proper functioning of information systems or the inability to maintain or upgrade our information systems, or convert to alternate systems in a timely and efficient manner, could disrupt operations, cause unanticipated increases in costs and/or decreases in revenues, and result in less efficient operations. The proper functioning of our information systems is critical to many aspects of our business and we cannot assure you those steps will leadcould be adversely affected if we experience a disruption or data loss relating to additional sales growth. Failureour information systems and are unable to achieve anyrecover in a timely manner. Our information systems are protected with robust backup systems and processes, including physical and software safeguards and remote processing capabilities. Still, information systems are vulnerable to natural disasters, power losses, unauthorized access,
16
Table of Contents


telecommunication failures, and other problems. In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their products or services or their relationship with us. It is also possible that we are unable to improve, upgrade, maintain, and expand our information systems. Our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and maintain the security of company and customer data, as well as the success of our goals regarding industrial vending, Onsite locations, national accounts signings, or other growth drivers, is dependent in varying degrees on the effective and timely operation and support of our information technology systems. If critical information systems fail or these systems or related software or services are otherwise unavailable, or if we experience extended delays or unexpected expenses in securing, developing, and otherwise implementing technology solutions to support our growth and operations, it could negativelyadversely affect our profitability and/or ability to grow.
The ability to adequately protect our intellectual property or successfully defend against infringement claims by others may have an adverse impact on operations. Our business relies on the use, validity and continued protection of certain proprietary information and intellectual property, which includes current and future patents, trade secrets, trademarks, service marks, copyrights, and confidentiality agreements as well as license and sublicense agreements to use intellectual property owned by affiliated entities or third parties. Unauthorized use of our long-term sales growth. Further, failureintellectual property by others could result in harm to identify appropriate customer sites forvarious aspects of the business and may result in costly and protracted litigation in order to protect our Onsite businessesrights. In addition, we may be subject to claims that we have infringed on the intellectual property rights of others, which could subject us to liability, require us to obtain licenses to use those rights at significant cost or failureotherwise cause us to find suitable locations formodify our Onsite businesses once appropriate customer sites are identified may adversely impact our goals regarding the number of new Onsite locations we are able to open.operations.
Changes in customer or product mix, downward pressure on sales prices, and changes in volume or timing of orders have caused and could cause our gross profit percentage to fluctuate or decline in the future. Changes in our customer or product mix have caused our gross profit percentage to decline and could cause our gross profit percentage to further fluctuate or decline. For example, the portion of our sales attributable to fasteners has been decreasing in recentfor approximately twenty-five years. That has adversely affected our gross profit percentage as our non-fastener products generally carry lower gross profit margins than our fastener products. Similarly, in recent years, revenues from national accounts and/or Onsite customers, which typically have lower gross profit margins by virtue of their scale, and available business, and broader offering of products which typically have lower gross margins, have tended to grow faster than revenues from smaller customers. This factor has become more significant as revenues from Onsite locations has grown in the mix. If our customer or product mix continuesHowever, whether and to change, our gross profit percentage may decline further. Downward pressure on sales prices and changes in the volume of our orders could also cause our gross profit percentage to fluctuate or decline. We can experience downward pressure on sales prices as a result of deflation, pressure from customers to reduce costs, or increased competition. Reductions in our volume of purchases can adversely impact gross profit by reducing supplier volume allowances. Customer and product mix have contributed to the decline in our gross profit percentage over time, including in 2017 and 2016, and will likely continue to affect our gross profit percentage in 2018 and beyond. However, whetherwhat extent this adverse mix impact will result in a decline of our gross profit percentage in any given year will depend on the extent to which they are, or are not, offset by positive impacts to gross profit margin during such year.For instance, in 2020, our gross profit margin declined significantly as the pandemic generated significant sales of certain products, such as PPE and sanitizer, that have traditionally lower gross profit margins. Conversely, as business conditions normalized in 2021, sales of these products declined versus the prior year, which more than offset our traditional mix-related margin pressure and resulted in improvement of our gross profit margin. Setting aside these or other unusual circumstances, however, customer and product mix have contributed to the decline in our gross profit percentage over time and will likely continue to affect our gross profit percentage into the foreseeable future. Other variables that could cause our gross margin to decline include downward pressure on sales prices, changes in the volume or timing of our orders, and/or an inability to pass higher product costs on to customers. We can experience downward pressure on sales prices as a result of deflation, pressure from customers to reduce costs, or increased competition. Reductions in our volume of purchases can adversely impact gross profit by reducing supplier volume allowances. We may not be able to pass rising product costs to customers if those customers have ready product or supplier alternatives in the marketplace.
Our operating and administrative expenses could grow more rapidly than net sales which could result in failure to achieve our goals related to leveraging revenue growth into higher net earnings. Over time, we have generally experienced an increase in our operating and administrative expenses, including costs related to payroll, occupancy, freight, and information technology, among others, as our net sales have grown. However, historically, a portion of these expenses has not increased at the same rates as net sales, allowing us to leverage our growth and sustain or expand our operating profit margins. There are various scenarios where we may not be able to continue to achieve this leverage as we have been able to do in the past. For instance, it is typical that when demand declines, most commonly from cyclical or general market factors (though it could be due to customer losses or some other company-specific event), our operating and administrative expenses do not fall as quickly as net sales. It is also possible that in the future we will elect to make investments in operating and administrative expenses that would result in costs growing faster than net sales. In addition, market variables, such as labor rates, energy costs, and legal costs, could move in such a way as to cause us to not be able to manage our operating and administrative expenses in a way that would enable us to leverage our revenue growth into higher net earnings. Should any of these scenarios, or a combination of them, occur in the future, it is possible that our operating and pre-tax profit margins could decline even if we are able to grow revenue.

Failure to implement an effective Environmental, Social, and Governance (ESG) strategy could result in financial losses or a tarnished corporate reputation. Customers, suppliers, employees, community partners, shareholders, and regulatory agencies are increasingly requesting disclosure and action relating to ESG performance and objectives. For instance, over the last five years we have included shareholder proposals in our proxy statement seeking specific actions around social and governance policy and reporting. We have also seen an increase in customer requests for information pertaining to diversity and environmental policy, including that our scores with various third-party ESG rating organizations achieve a certain threshold.
17
Table of Contents


An inability to satisfactorily address the concerns of our stakeholders could adversely affect our corporate reputation, image, identity, brand equity, and status, which in turn could hurt our ability to retain and acquire customers and employees or negatively impact the price performance of our common stock. Increasing reporting and operational regulations around ESG matters may result in higher operating expenses and/or capital expenditures that could reduce our profitability and/or cash flow.
Failure to maintain an effective system of internal controls over business processes and/or financial reporting could materially impact our business and results. Company management is responsible for establishing and maintaining effective internal controls designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. Any internal control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, internal control over business processes and financial reporting may not prevent or detect fraud or misstatements. Any failure to maintain an effective system of internal control over business processes and financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud, and could expose us to litigation, economic loss or adversely affect the market price of our common stock.
We may be unable to meet our goals regarding the growth drivers of our business. Our sales growth is dependent primarily on our ability to attract new customers and increase our activity with existing customers within North America and abroad. In recent years, we have increased the resources devoted to our growth drivers, including FMI, Onsites, national accounts, digital solutions, and our international operations. While we have taken steps to build momentum in the growth drivers of our business, we cannot assure you those steps will lead to sales growth. Failure to achieve any of our goals regarding FMI, Onsites, national accounts, digital solutions, and international operations, or other growth drivers could negatively impact our long-term sales growth. In fact, the COVID-19 pandemic has made gaining access to customers more challenging due to both alternative work arrangements to manage risk of infection in workplaces and due to shifts in priorities to short-term crisis management and away from long-term strategic planning. This has resulted in our signings of Onsites and FMI installations, both important indicators of future sales growth, to be below target levels in 2020 and 2021. Further, failure to identify appropriate targets for our Onsite channel and FMI tools or failure to persuade the appropriate targets to adopt these offerings once identified may adversely impact our goals regarding the number of new Onsite locations we are able to open or the number of FMI installations we are able to deploy.
Our competitive advantage in ourFMI Solutions, which includes industrial vending business(FASTVend) and bin stock (FASTStock and FASTBin) tools could be eliminated and, in the case of FASTVend, the loss of key suppliers of equipment and services for that business could be disruptiveimpactful and could result in failure to deploy devices. We believe we have a competitive advantage in industrial vending and bin stock due to our vending hardware and software, our local branch presence (allowing us to service devices and bins more rapidly)rapidly and with less burden on our customers), our 'vendible' product depth of products that lend themselves to being dispensed through industrial vending devices or bin stocks, and, in North America, our distribution strength. These advantages have developed over time; however, other competitors could respond to our expanding industrial vending businessand bin stock position with highly competitive platforms of their own. Such competition could negatively impact our ability to expand our industrial vending businessand bin stock tools or negatively impact the economics of that business. In addition, we currently rely on a limited number of suppliers for the vending devices used in and certain software and services needed to operate, our industrial vending business.FASTVend platform. While these devices, software, and services can be obtained from other sources, loss of our current suppliers could be disruptive and could result in us failing to meet our goals related to the number of devices we are able to deploy in the next twelve to eighteen months. In addition, as we experienced in 2020 and 2021, our ability to deploy our FMI solutions at targeted levels could be limited by events similar to the COVID-19 pandemic if customers shift their energy to addressing short-term disruptions instead of long-term strategic planning.
The ability to identify new products and product lines, and integrate them into our selling locations and distribution network, may impact our ability to compete, our ability to generate additional sales, and our sales and profit margins. Our success depends in part on our ability to develop product expertise at the selling location level and identify future products and product lines that complement existing products and product lines and that respond to our customers' needs. We may not be able to compete effectively unless our product selection keeps up with trends in the markets in which we compete or trends in new products. In addition, our ability to integrate new products and product lines into our branches and distribution network could impact sales and profit margins.
We may not be able to compete effectively against traditional or non-traditional competitors, which could cause us to lose market share or erode our gross and/or operating income profit and/or percentage. The industrial, construction, and maintenance supply industry, although slowly consolidating, still remains a large, fragmented, and highly competitive industry. Our abilitycurrent or future competitors may include companies with similar or greater market presence, name recognition, and financial, marketing, technological, and other resources, and we believe they will continue to successfully attractchallenge us with their product selection, financial resources, technological advancements, and retain qualified personnelservices. Increased competition from brick-and-mortar retailers could cause us to stafflose market share, reduce our selling locationsprices, or increase our spending. Similarly, the emergence of on-line retailers, whether as extensions of our traditional competition or in the form of major, non-traditional competitors, could impact labor costs, sales at existing selling locations,result in easier
18
Table of Contents


and quicker price discovery and the successful executionadoption of aggressive pricing strategies and sales methods. These pressures could have the effect of eroding our growth drivers. Our success depends in part on our ability to attract, motivate, and retain a sufficient number of qualified employees, including inside and outside branch associates, Onsite managers, and national account sales representatives, who understand and appreciate our culture and are able to adequately represent this culture to our customers. Qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the industry is high. If we are unable to hire and retain personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and product knowledge, our sales could be materially adversely affected. Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees. An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned openings of new branches and planned expansion of our other selling channels.gross and/or operating income profit and/or percentage over time.
Our inability to attract or transition key executive officers may divert the attention of other members of our senior leadership and adversely impact our existing operations. Our success depends on the efforts and abilities of our key executive officers and senior leadership. In the event of voluntary or involuntary vacancies in our executive team in the future, the extent to which there is disruption in the oversight and/or leadership of our business will depend on our ability to either transition internal, talented individuals or recruit suitable replacements to serve in these roles. In addition, difficulties in smoothly implementing any transition to new members of our executive team, or recruiting suitable replacements, could divert the attention of other members of our senior leadership team from our existing operations.
We may not be successful in integrating acquisitions and achieving intended benefits and synergies. We have completed several acquisitions of businesses in recent years. We expect to continue to pursue strategic acquisitions that we believe will either expand or complement our business in new or existing markets or further enhance the value and offerings we are able to compete effectively against traditionalprovide to our existing or non-traditional competitors, whichfuture potential customers. Acquisitions involve numerous risks and challenges, including, among others, a risk of potential loss of key employees of an acquired business, inability to achieve identified operating and financial synergies anticipated to result from an acquisition, diversion of our capital and our management's attention from other business issues, and risks related to the integration of the acquired business including unanticipated changes in our business, our industry, or general economic conditions that affect the assumptions underlying the acquisition. Any one or more of these factors could cause us to losenot realize the benefits anticipated to result from the acquisitions.
Equity Risks
There can be no assurance that our stock price will continue to reflect the current multiple of earnings over time. Stock prices, including ours, are commonly thought to be a function of earnings compounded by a multiple. This is often referred to as a price-to-earnings (or P/E) ratio. Historically, investors have given our earnings a higher multiple, or premium, than is typical of the broader industrial sector of which we are typically associated. We believe we have earned this premium by virtue of a long history of superior growth, profitability, and returns. However, to the extent that we fail to successfully execute our growth strategies and/or poorly navigate the risks that surround our business, including those described throughout this section, or to the extent our industry (industrial distribution, or industrial stocks in general) loses favor in the marketplace, there can be no assurance that investors will continue to afford a premium multiple to our earnings which could adversely affect our stock price.
We cannot provide any guaranty of future dividend payments or that we will continue to purchase shares of our common stock pursuant to our share purchase program. Although our board of directors has historically authorized the payment of quarterly cash dividends on our common stock and indicated an intention to do so in the future, there are no assurances that we will continue to pay dividends in the future or continue to increase dividends at historic rates. In addition, although our board of directors has authorized share purchase programs and we purchased shares in 2020, 2018, and prior years through these programs, we may discontinue doing so at any time. Any decision to continue to pay quarterly dividends on our common stock, to increase those dividends, or to purchase our common stock in the future will be based upon our financial condition and results of operations, the price of our common stock, credit conditions, and such other factors as are deemed relevant by our board of directors.
General Economic and Operating Risks
Operational Risks
A downturn in the economy or in the principal markets served by us and other factors may affect customer spending, which could harm our operating results. In general, our sales represent spending on discretionary items or consumption needs by our customers. This spending is affected by many factors, including, among others:
•general business conditions,
•business conditions in our principal markets,
•interest rates,
•inflation,
•liquidity in credit markets,
•taxation,
•government regulations and actions,
•energy and fuel prices and electrical power rates,
•unemployment trends,
•terrorist attacks and acts of war,
•impact of higher sustained global temperatures (global warming)
•acts of God, which may include, but are not limited to, weather events, earthquakes, pandemics, etc., and
•other matters that influence customer confidence and spending.
19
Table of Contents


A downturn in either the national or local economy where we operate, or in the principal markets served by us, or changes in any of the other factors described above, could negatively impact sales at our in-market locations, sales through our other selling channels, and the level of profitability of those in-market locations and other selling channels.
This risk was demonstrated in 2021. As economic confidence and general business conditions recovered from the COVID-related downturn in 2020, spending for industrial supplies to companies engaged in construction and the manufacture of components, capital goods, and heavy equipment expanded sharply. This produced a resumption of growth in key cyclical product lines, such as fasteners, that had declined the preceding year (only partly offset by reduced sales of COVID-related supplies to government, healthcare, and warehousing customers). At the same time, we believe our growth was restrained by other economic factors. These include: (1) difficulty adding labor resources, potentially due to low unemployment, concerns about the pandemic, and government stimulus support; (2) supply chain disruption due to constraints for certain raw material and component availability, production capacity, shipping capacity, and labor availability; and (3) the impact of inflation for raw materials, manufactured components, transportation services, and labor. These trends were evident throughout 2021.
Products manufactured in foreign countries may cease to be available, which could adversely affect our inventory levels and operating results. We obtain certain of our products, and our suppliers obtain certain of their products, from China, Taiwan, South Korea, and other foreign countries. Our suppliers could discontinue selling products manufactured in foreign countries at any time for reasons that may or may not be in our control or our suppliers' control, including foreign government regulations, domestic government regulations, disruption in trade relationships and agreements, political unrest, war, disease, or changes in local economic conditions. Additionally, the shipment of goods from foreign countries could be delayed by container shipping companies encountering financial, capacity, or other difficulties. We experienced this in 2021 as a lack of shipping and labor capacity, caused primarily by the strong recovery in global product demand but exacerbated by continued pandemic-related workforce disruption, constrained our ability to efficiently import supplies and increased shipping costs significantly. Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier or shipper who is unwilling or unable to satisfy our requirements with another supplier or shipper providing products and services of comparable quality and utility.
Trade policies could make sourcing product from overseas more difficult and/or more costly, and could adversely impact our gross and/or operating profit percentage. We source a significant amount of the products we sell from outside of North America, primarily Asia. We have made significant structural investments over time to be able to source both directly from Asia through our wholly-owned, Asia-based subsidiary, FASTCO Trading Co., Ltd. and indirectly from suppliers that procure product from international sources. This was initially necessary due to the absence of significant domestic fastener production, but over time we have expanded our non-fastener sourcing as well, and at this time it may be difficult to adjust our sourcing in the short term. In light of this, changes in trade policies could affect our sourcing operations, our ability to secure sufficient product to serve our customers and/or impact the cost or price of our products, with potentially adverse impacts on our gross and operating profit percentages and financial results. China represents a significant source of product for North America. In addition, we move and source products within North America. Any trading disruption (tariffs, product restrictions, etc.) between Canada, the United States, and Mexico, or disruption in their respective trading relationships with other nations can adversely impact our business. There can be no assurances that these disruptions will not continue or increase in the future, with the previously mentioned countries or additional countries with which we do business. The degree to which these changes in the global marketplace affect our financial results will be influenced by the specific details of the changes in trade policies, their timing and duration, and our effectiveness in deploying tools to address these issues.
Changes in energy costs and the cost of raw materials used in our products could impact our net sales, cost of sales, gross profit percentage, distribution expenses, and occupancy expenses, which may result in lower operating income. Costs of raw materials used in our products (e.g., steel, plastic) and energy costs can fluctuate significantly over time. Increases in these costs result in increased production costs for our suppliers. These suppliers typically look to pass their increased costs along to us through price increases. The fuel costs of our distribution and branch operations have fluctuated as well. This was a meaningful issue in 2021, when costs for metals, particularly steel, fuels, and overseas shipping services increased sharply to reflect strong demand, and labor constraints. While we typically try to pass higher supplier prices and fuel costs through to our customers or to modify our activities to mitigate the impact, including in 2021, we may not be successful, particularly if supplier prices or fuel costs rise rapidly. Failure to fully pass any such increased prices and costs through to our customers or to modify our activities to mitigate the impact would have an adverse effect on our operating income. While increases in the cost of fuel or raw materials could be damaging to us, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit to decline, or by negatively impacting customers in certain industries, which could cause our sales to those customers to decline.
Our current estimates of total market potential as well as the market potential of our business strategies could be incorrect. We believe we have a significant opportunity for growth based on our belief that North American market demand for the products we sell is estimated to exceed $140 billion. This figure is not derived from an independent organization or data source that aggregates and publishes widely agreed-upon demand and market share statistics. Instead, we have identified this figure based on our own experience in the marketplace for our products and by evaluating estimates from other sources. If we have
20
Table of Contents


overestimated the size of our market, and in doing so, underestimated our current share of it, the size of our opportunity for growth may not be as significant as we currently believe. Similarly, we have provided estimates of the opportunities we have with some of our specific growth strategies, such as FMI solutions and Onsite locations. Within North America, we believe the potential market opportunity for industrial vending is approximately 1.7 million devices and we have identified over 15,000 customer locations with the potential to implement our Onsite service model within our traditional manufacturing and construction customer base. We have identified additional markets, such as government, healthcare, and academia, and geographies into which we can sell our FMI solutions, which would increase the number of identified potential FMI solutions or erodecustomer locations. However, our presence in emerging markets and geographies is not as established as is the case in our traditional markets and geographies, which could extend the sales cycle. Similar to the case for total market size, we use our own experience and data to arrive at the size of these potential opportunities and not independent sources. These estimates are based on our business model today, and the introduction or expansion of other business strategies, such as on-line retailing, could cause them to change. In addition, the market potential of a particular business strategy may vary from expectations due to a change in the marketplace (such as changes in customer concentration or needs), a change in the nature of that business strategy, or weaker than anticipated acceptance by customers of that business strategy. We cannot guarantee that our market potential estimates are accurate or that we will ultimately decide to expand our industrial vending or Onsite service models as we anticipate to reach the full market opportunity.
The ongoing occurrence of the COVID-19 pandemic, or any other such widespread public health crisis, could have a material adverse effect on our business, results of operations, and financial condition.The onset of the COVID-19 pandemic in early 2020 impacted our business due to government authorities and customers imposing facility closures, work-from-home orders, social distancing protocols, and/or other restrictions. These actions had both positive (strong sales of safety and sanitation supplies to government, healthcare and warehousing customers) and negative (weak sales to industrial and construction customers as well as disruption in signings of Onsites and FMI devices) effects. In 2021, though the pandemic continued to impact United States and world populations in the form of high infection and hospitalization rates, including from new variants of COVID-19, this effect on our business and financial condition was secondary to the re-opening and recovery of the global economy. Even so, the continued public health concerns resulting from the COVID-19 pandemic continue to create significant uncertainty, economic disruption, and volatility, all of which have impacted and may continue to impact our business. We may be required to take significant actions to mitigate future outbreaks, including, but not limited to, facility closures and work-from-home policies, and/or customer activity may be affected by their own mitigation actions. This could adversely affect our business, results of operations, and financial condition. However, as we cannot predict the severity and duration of the pandemic, including additional outbreaks, new variants of the virus, and the future availability of effective medical treatments and vaccines, the net financial impact to our operating income.results cannot be reasonably estimated.
Inclement weather and other disruptions to the transportation network could adversely impact our distribution system and demand for our products. Our ability to provide efficient distribution of core business products to our branch network is an integral component of our overall business strategy. Disruptions at distribution centers or shipping ports may affect our ability to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of operations. In addition, severe weather conditions could adversely affect demand for our products in particularly hard hit regions.
The industrial, construction, and maintenance supply industry although slowlyis consolidating, still remains a large, fragmented, and highly competitive industry. Our current or future competitors may include companies with similar or greater market presence, name recognition, and financial, marketing, technological, and other resources, and we believe they will continue to challenge us with their product selection, financial resources, technological advancements, and services. Increased competition from brick and mortar retailers in markets in which we have in-market locations or from on-line retailers (particularly those major internet providers who can offer a wide range of products and rapid delivery), and the adoption by competitors of aggressive pricing strategies and sales methods, could cause usit to losebecome more competitive and could negatively impact our market share, or reduce our prices or increase our spending, thus eroding ourgross profit, and operating income.
Interruptions The industrial, construction, and maintenance supply industry in North America is consolidating. This consolidation is being driven by customer needs and supplier capabilities, which could cause the proper functioningindustry to become more competitive as greater economies of information systems could disrupt operationsscale are achieved by suppliers, or as competitors with new business models are willing and cause unanticipated increases inable to operate with lower gross profit on select products. Customers are increasingly aware of the total costs and/or decreases in revenues. The proper functioning of our information systems is criticalfulfillment and of the need to the successful operationhave consistent sources of our business. Although our information systems are protected with robust backup systems, including physical and software safeguards and remote processing capabilities, information systems are still vulnerable to natural disasters, power losses, unauthorized access, telecommunication failures, and other problems. In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their relationship with us. If critical information systems fail orsupply at multiple locations. We believe these systems or related software or services are otherwise unavailable, our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and maintain the security of company and customer data could be adversely affected.
In the event of a cyber security incident, we could experience certain operational interruptions, incur substantial additional costs, become subject to legal or regulatory proceedings, or suffer damage to our reputation in the marketplace. The nature of our business requires us to receive, retain, and transmit certain personally identifying information that our customers provide

to purchase products or services, register on our websites, or otherwise communicate and interact with us. While we have taken and continue to undertake significant steps to protect our customer and confidential information, a compromise of our data security systems or those of businesses we interact withneeds could result in information relatedfewer suppliers as the remaining suppliers become larger and capable of being a consistent source of supply.
There can be no assurance we will be able in the future to take effective advantage of the trend toward consolidation. The trend in our industry toward consolidation could make it more difficult for us to maintain our current gross profit and operating income. Furthermore, as our industrial customers face increased foreign competition, and potentially lose business to foreign competitors or business being obtained by unauthorized persons. We develop and update processes and maintain systemsshift their operations overseas in an effort to tryreduce expenses, we may face increased difficulty in growing and maintaining our market share.
We are exposed to prevent this from occurring, butforeign currency exchange rate risk, and changes in foreign exchange rates could increase the developmentcost of purchasing products and maintenance of these processesimpact our foreign sales. Given that we were founded and systemsremain based in the United States and that we are costly and require ongoing monitoring and updating as technologies change and effortspublicly-traded in the United States, we report our results based on the United States dollar. Because the functional currency related to overcome security measures become more sophisticated. Consequently, despite our efforts, the possibility of cyber security incidents cannot be eliminated entirely. While we also seek to obtain assurances that third parties we interact with will protect confidential information, there is a risk the confidentiality of data held or accessed by third parties may be compromised. If a compromisemost of our data security werenon-United States operations is the applicable local currency, we are exposed to occur, it could interrupt our operations, subject us to additional legal, regulatory, and operating costs, and damage our reputationforeign currency exchange rate risk arising from transactions in the marketplace.normal course of business. Fluctuations in the relative strength of foreign economies and their related currencies could adversely impact our ability to procure products at competitive prices and our foreign sales. Historically, our primary exchange rate exposure has been with the Canadian dollar. There can be no
21
Table of Contents


assurance that currency exchange rate fluctuations with the Canadian dollar and other foreign currencies will not adversely affect our results of operations, financial condition, and cash flows. While the use of currency hedging instruments may provide us with protection from adverse fluctuations in currency exchange rates, we are not currently using these instruments and we have not historically hedged this exposure. If we experience a loss relateddecide to our information systems or are unable to maintain or upgrade our information systems, or convert to alternate systems,do so in a timely and efficient manner, our operations may be disrupted or become less efficient. We depend on information systems for many aspects of our business andthe future, we could be adversely affected if we experience a disruption or data loss relating to our information systemspotentially forego the benefits that might result from favorable fluctuations in currency exchange rates.
Legal, Regulatory, and are unable to recover in a timely manner. We could also be adversely impacted if we are unable to improve, upgrade, maintain, and expand our information systems. Difficulties resulting from the transition of our industrial vending hosting services could also be disruptive to the success of our efforts to grow our industrial vending presence. The success of our growth drivers is dependent in varying degrees on the timely delivery and the functionality of information technology systems to support them. Extended delays or unexpected expenses in securing, developing, and otherwise implementing technology solutions to support our growth drivers could delay the achievement of our goals regarding these growth drivers.Compliance Risks
Our business is subject to a wide array of operating laws and regulations in every jurisdiction where we operate. Compliance with these laws and regulations increases the cost of doing business and failure to comply could result in the imposition of fines or penalties and the termination of contracts. We are subject to a variety of laws and regulations including without limitation; import and export requirements, anti-bribery and corruption laws, tax laws (including U.S. taxes on foreign subsidiaries), product compliance laws, environmental laws, foreign exchange controls and cash repatriation restrictions, advertising regulations, data privacy (including in the U.S., the California Consumer Privacy Act, and in the European Union, the General Data Protection Regulation 2016, with interpretations varying from state to state and country to country) and cyber security requirements (including protection of information and incident responses), regulations on suppliers regarding the sources of supplies or products, labor and employment laws, and anti-competition regulations. In particular, our future effective tax rates could be affected by legislative tax reform, changes in statutory rates, or changes in tax laws or the interpretation thereof. In addition, notwithstanding the reduction in the corporate income tax rate included in the recently enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the 'Tax Act'), the overall impact of the Tax Act on our future financial results is subject to uncertainties and our financial results could be adversely impacted by certain other aspects of the Tax Act, including one-time taxes on accumulated offshore earnings, requiring a current inclusion in U.S. federal income of certain earnings of controlled foreign corporations, allowing a domestic corporation an immediate deduction in U.S. taxable income for a portion of its foreign-derived intangible income, and the base erosion anti-abuse tax. These factors could result in our 2018 provisional income tax expense booking rate to differ from our expectations. In addition, as a supplier to federal, state, and local government agencies, we must comply with certain laws and regulations relating specifically to the formation, administration, and performance of our governmental contracts. We are also subject to governmental audits and inquiries in the normal course of business. Ongoing audit activity and changes to the legal and regulatory environments could increase the cost of doing business, and such costs may increase in the future as a result of changes in these laws and regulations or in their interpretation. While we have implemented policies and procedures designed to facilitate compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations, or our policies. Any such violations could result in the imposition of fines and penalties, damage to our reputation, and, in the case of laws and regulations relating specifically to governmental contracts, the loss of those contracts.
Tax laws and regulations require compliance efforts that can increase our cost of doing business and changes to these laws and regulations could impact financial results. We may notare subject to a variety of tax laws and regulations in the jurisdictions in which we operate. Maintaining compliance with these laws can increase our cost of doing business and failure to comply could result in audits or the imposition of fines or penalties. Further, our future effective tax rates in any of these jurisdictions could be successful in integrating acquisitions and achieving intended benefits and synergies. We have completed several acquisitions of businesses in recent years. We expect to continue to pursue strategic acquisitions that we believe will either expandaffected, positively or complement our business in new or existing markets or further enhance the value and offerings we are able to provide to our existing or future potential customers. Acquisitions involve numerous risks and challenges, including, among others, a risk of potential loss of key employees of an acquired business, inability to achieve identified operating and financial synergies anticipated to result from an acquisition, diversion of our capital and our management's attention from other business issues, and risks related to the integration of the acquired business including unanticipatednegatively, by changing tax priorities, changes in our business, our industry, or general economic conditions that affect the assumptions underlying the acquisition. Any one or more of these factors could cause us to not realize the benefits anticipated to result from the acquisitions.

Industry and General Economic Risks
A downturn in the economy or in the principal markets served by us and other factors may affect customer spending, which could harm our operating results. In general, our sales represent spending on discretionary items or consumption needs by our customers. This spending is affected by many factors, including, among others:
general business conditions,
business conditions in our principal markets,
intereststatutory rates,
inflation,
liquidity in credit markets,
taxation,
government regulations,
energy and fuel prices and electrical power rates,
unemployment trends,
terrorist attacks and acts of war,
weather conditions, and
other matters that influence customer confidence and spending.
A downturn in either the national or local economy where we operate, or in the principal markets served by us, and/or changes in anytax laws or the interpretation thereof. The most significant recent example of this is the other factors described above, could negatively impact sales at our in-market locations, sales through our other selling channels,comprehensive tax legislation commonly referred to as the Tax Cuts and the level of profitability of those in-market locations and other selling channels.
This riskJobs Act (the Tax Act), which was demonstrated in 2015 and 2016. We have significant exposure to companies involvedenacted in the manufacture of capital goodsUnited States in December 2017. However, in September 2021, the Ways and heavy equipment. In 2015, our business was impacted by lower commodity prices, including oil, lower corporate capital spending, and a strong U.S. dollar. These variables resulted in some of our customers exhibiting a reduced level of business activity and confidence. When this happens, these customers tend to cut back on spending which yields a slowdown in our business with these customers. These same dynamics carried into 2016. In 2017, these conditions mostly reversed. Certain commodity prices recovered and corporate investment improved, leading to better capital spending trends among our customers. This improvement in customer spending helped to improve our net sales and sales growth.
Products manufactured in foreign countries may cease to be available, which could adversely affect our inventory levels and operating results. We obtain certain of our products, and our suppliers obtain certain of their products, from China, Taiwan, South Korea, Mexico, and other foreign countries. Our suppliers could discontinue selling products manufactured in foreign countries at any time for reasons that may or may not be in our control or our suppliers' control, including foreign government regulations, domestic government regulations, political unrest, war, disruption or delays in shipments, changes in local economic conditions, or trade issues. Additionally, the shipment of goods from foreign countries could be delayed by container shipping companies encountering financial or other difficulties. Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier or shipper who is unwilling or unable to satisfy our requirements with another supplier or shipper providing equally appealing products and services.
New trade policies could make sourcing product from overseas more difficult and/or more costly. We source a significant amount of the products we sell from outsideMeans Committee of the United States primarily Asia. This sourcing is both direct (through our wholly-owned, Asia-based subsidiary, FASTCO Trading Co., Ltd.) and indirect (from suppliersHouse of Representatives published tax proposals that, themselves procure product from international sources). Considerable political uncertainty in the United States mayif ultimately enacted as proposed, could result in changes to trade policies that may affect our sourcing operations. Should this occur, it may be difficult in lighthigher tax payments as a result of the significant structural investments made over timehigher corporate tax rates and the absence of significant domestic fastener production for us to adjust our capabilities to any new policies in the short term, which could increase the difficulty and/or cost of sourcing products. Such changes could adversely affect our ability to secure sufficient product to service our customers and/or adversely affect our cost of operating in a way that hurts our financial results.higher taxes on earnings from foreign jurisdictions.
Changes in energy costsaccounting standards and the cost of raw materials used in our productssubjective assumptions, estimates, and judgements by management related to complex accounting matters could impact our net sales, cost of sales, gross profit percentage, distribution expenses, and occupancy expenses, which may result in lower operating income. Costs of raw materials used in our products (e.g., steel) and energy costs have fluctuated during the last several years. Increases in these costs result in increased production costs for our suppliers. These suppliers typically look to pass their increased costs along to us through price increases. The fuel costs of our distribution and branch operations have fluctuated as well. While we typically try to pass increased supplier prices and fuel costs through to our customers or to modify our activities to mitigate the impact, we may not be successful, particularly if supplier prices or fuel costs rise rapidly. Failure to fully pass any such increased prices and costs through to our customers or to modify our activities to mitigate the impact would have an adverse effect on our operating income. While increases in the cost of fuel or raw materials could be damaging to us, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit

to deteriorate, or by negatively impacting customers in certain industries, which could cause our sales to those customers to decline.
New trade policies could have an adverse impact on industries we sell into, negatively affecting our net sales and profits. Considerable political uncertainty in the United States may result in changes to trade policies that could create disruption in geographic demand trends. To the extent that the United States government enacts tariffs or taxes that penalize imports to benefit domestic manufacturing, we may improve our domestic sales which may have an overall positive impact on us given that 88% of our total revenue is derived from the United States. However, any such action may adversely impact our foreign sales, which may, in turn, adversely impact our ability to expand our overseas branches in the future. In addition, should a foreign government engage in its own trade protection, independent of or in response to another nation's action, it could have a negative direct or, more likely, indirect effect on our net sales and profits by reducing demand for exports by United States companies. It is difficult to know in advance what the net effect of such actions will be on companies such as ours, but it is possible that such changes could adverselysignificantly affect our financial results.
results or financial condition. U.S. generally accepted accounting principles (GAAP) and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as asset impairment, inventories, lease obligations, self-insurance, vendor allowances, tax matters, business combinations, and legal matters, are complex and involve many subjective assumptions, estimates, and judgments. Changes in accounting standards or their interpretation or changes in underlying assumptions, estimates or judgments, could significantly change our reported or expected financial performance or financial condition. The industrial, construction, and maintenance supply industry is consolidating, whichimplementation of new accounting standards could cause it to become more competitive and could negatively impact our market share, gross profit, and operating income. The industrial, construction, and maintenance supply industry in North America is consolidating. This consolidation is being driven by customer needs and supplier capabilities, which could cause the industry to become more competitive as greater economies of scale are achieved by suppliers, or as competitors with new business models are willing and able to operate with lower gross profit on select products. Customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations. We believe these customer needs could result in fewer suppliers as the remaining suppliers become larger and capable of being a consistent source of supply.
There can be no assurance we will be able in the future to take advantage effectively of the trend toward consolidation. The trend in our industry toward consolidation could make it more difficult for us to maintain our current gross profit and operating income. Furthermore, as our industrial customers face increased foreign competition, and potentially lose business to foreign competitors or shift their operations overseas in an effort to reduce expenses, we may face increased difficulty in growing and maintaining our market share.
Inclement weatheralso require certain systems, internal process, internal control, and other disruptions to the transportation network could adversely impact our distribution system and demand for our products. Our ability to provide efficient distribution of core business products to our branch network is an integral component of our overall business strategy. Disruptions at distribution centers or shipping ports may affect our ability to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of operations. In addition, severe weather conditions could adversely affect demand for our products in particularly hard hit regions. In August and September 2017, we experienced temporary disruptions in our distribution network in our Gulf Coast, Florida, Georgia, and Puerto Rico regions due to hurricanes Harvey, Irma, and Maria. These storms adversely impacted our product demand and revenues, as well as our gross and operating profit percentages, due to an increase in demand for storm-related products which have a lower gross profit margin, and inefficiencies in delivery services in the immediate aftermath of the storms.
Our current estimates of total market potential as well as the market potential of our business strategies could be incorrect. We believe we have a significant opportunity for growth based on our beliefchanges that North American market demand for the products we sell is estimated to exceed $140 billion. This figure is not derived from an independent organization or data source that aggregates and publishes widely agreed-upon demand and market share statistics. Instead, we have identified this figure based on our own experience in the marketplace for our products and by evaluating estimates from other sources. If we have overestimated the size of our market, and in doing so, underestimated our current share of it, the size of our opportunity for growth may not be as significant as we currently believe. Similarly, we have provided estimates of the opportunities we have with some of our specific growth strategies, such as industrial vending and Onsite locations. We believe the potential market opportunity for industrial vending is approximately 1.7 million devices and we have identified over 15,000 customer locations with the potential to implement our Onsite service model. Similar to the case for total market size, we use our own experience and data to arrive at the size of these potential opportunities and not independent sources. These estimates are based on our business model today, and the introduction or expansion of other business strategies, such as on-line retailing, could cause them to change. In addition, the market potential of a particular business strategy may vary from expectations due to a change in the marketplace (such as changes in customer concentration or needs), a change in the nature of that business strategy, or weaker than anticipated acceptance by customers of that business strategy. We cannot guarantee that our market potential estimates are accurate or that we will ultimately decide to expand our industrial vending or Onsite service models to reach the full market opportunity.
We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase our costs to procure productsoperating costs.
Credit and impact our foreign sales. Because the functional currency related to most of our foreign operations is the applicable local currency, we are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. Fluctuations in the relative strength of foreign economies and their related currencies could adverselyLiquidity Risks

impact our ability to procure products overseas at competitive prices and our foreign sales. Historically, our primary exchange rate exposure has been with the Canadian dollar.
Tight credit markets could impact our ability to obtain financing on reasonable terms or increase the cost of existing or future financing and interest rate fluctuations could adversely impact our results. As of December 31, 2017,2021, we had $415.0$390.0 of outstanding debt obligations, including loans outstanding under our revolving credit facility (the 'Credit Facility') of $280.0 andwhich $365.0 is senior unsecured promissory notes issued under our master note agreement (the 'MasterMaster Note Agreement') in the aggregate principal amount of $135.0.Agreement), while $25.0 is loans outstanding under our revolving credit facility (the Credit Facility). Loans under the Credit Facility bear interest at a rate per annum based on the London Interbank Offered Rate ('LIBOR')(LIBOR) and mature on March 10, 2020.November 30, 2023. The notes issued under our Master Note Agreement consist of three series. The first isof seven series and are described in an aggregate principal amount of $40.0, bears interest at a fixed rate of 2.00% per annum, and is due and payable on July 20, 2021. The second isfurther detail in an aggregate principal amount of $35.0, bears interest at a fixed rate of 2.45% per annum, and is due and payable on July 20, 2022. The third is in an aggregate principal amount of $60.0, bears interest at a fixed rate of 3.22% per annum, and is due and payable on March 1, 2024. Our aggregate borrowing capacity under the Credit Facility is $700.0. Our aggregate borrowing capacity under the Master Note Agreement is $200.0; however, none9 of the institutional investors partyNotes to that agreement are committed to purchase notes thereunder.Consolidated Financial Statements included later in this Form 10-K.
During periods of volatility and disruption in the United States credit markets, financing may become more costly and more difficult to obtain. AlthoughThis was a factor most recently in 2020. The turmoil that came with the credit market turmoilonset of 2008 and 2009the COVID-19 pandemic did not have a significant adverse impact on our liquidity or borrowing costs given our low level of indebtedness at that time,time. However, the availability of funds tightened and credit spreads on corporate debt increased. Our indebtedness has increased since 2009 and weWe currently have the capacity under our Credit Facility and Master Note Agreement to increase borrowings in the future. If credit market volatility were to return, or if interest rates rise, the cost of servicing any existing balances on our existing debtCredit Facility at that time could increase due to the LIBOR-based interest rate provided for under our Credit Facility. On March 5, 2021, the U.K. Financial Conduct Authority announced that
22
Table of Contents


immediately after December 31, 2021, publication of certain LIBOR settings would permanently cease, with most other LIBOR settings, including 1 month, 3 month, and 6 month LIBOR settings ceasing on June 30, 2023. Our Credit Facility currently uses LIBOR as a reference rate, and, while there are customary LIBOR replacement provisions in our Credit Facility, the transition to alternatives to LIBOR could be modestly disruptive to the credit markets. We are currently evaluating the impact of the new guidance on our consolidated financial statements. In addition, borrowing additional amounts to finance stock purchases, dividends, capital expenditures, and other liquidity needs or to refinance our existing indebtedness could be difficult and the cost of doing so could be high.
For more information relating to borrowing and interest rates, see the following sections below: Liquidity and Capital Resources – Debt under the heading 'Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations', 'Item 7A. Quantitative and Qualitative Disclosures about Market Risks', and Note 10 of the Notes to Consolidated Financial Statements.
Investment Risk
There can be no assurance that our stock price will continue to reflect the current multiple of earnings over time. Stock prices, including ours, are commonly thought to be a function of earnings multiplied by a multiple. Historically, investors have given our earnings a higher multiple, or premium, than is typical of the broader industrial sector of which we are typically associated. We believe we have earned this premium by virtue of a long history of superior growth, profitability, and returns. However, to the extent that we fail to successfully execute our growth strategies and/or poorly navigate the risks that surround our business, including those described throughout this section, or to the extent our industry (industrial distribution, or industrial stocks in general) loses favor in the marketplace, there can be no assurance that investors will continue to afford a premium multiple to our earnings which could adversely affect our stock price.
We cannot provide any guaranty of future dividend payments or that we will continue to purchase shares of our common stock pursuant to our share purchase program. Although our board of directors has historically authorized the payment of quarterly cash dividends on our common stock and indicated an intention to do so in the future, there are no assurances that we will continue to pay dividends in the future or continue to increase dividends at historic rates. In addition, although our board of directors has authorized share purchase programs and we purchased shares in 2017, 2016, and prior years through these programs, we may discontinue doing so at any time. Any decision to continue to pay quarterly dividends on our common stock, to increase those dividends, or to purchase our common stock in the future will be based upon our financial condition and results of operations, the price of our common stock, credit conditions, and such other factors as are deemed relevant by our board of directors.

ITEM 1B.UNRESOLVED STAFF COMMENTS
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.

23
Table of Contents


ITEM 2.PROPERTIES
ITEM 2. PROPERTIES
Note – Information in this section is as of December 31, 2017,2021, unless otherwise noted.
We own, and in some cases, lease, the following facilities, in Winona, Minnesota:excluding selling locations:
LocationPurposeLeased
Tote Locations (ASRS) (1)
Approximate
Square Feet
Winona, MinnesotaDistribution center and home office246,000 331,000 
Indianapolis, IndianaDistribution center547,000 (2)1,078,000 
Akron, OhioDistribution center103,000 188,000 
Scranton, Pennsylvania
Distribution center (3)
104,000 222,000 
Denton, Texas
Distribution center (4)
41,000 (5)206,000 
Atlanta, GeorgiaDistribution center77,000 252,000 
Seattle, WashingtonDistribution center140,000 238,000 
Modesto, CaliforniaDistribution center and manufacturing facility69,000 328,000 
Salt Lake City, UtahDistribution center and packaging facility (three buildings)X— 153,000 
High Point, North Carolina
Distribution center (two buildings) (6)
132,000 829,000 
Kansas City, KansasDistribution center170,000 462,000 
Jackson, MississippiDistribution center— 271,000 
Kitchener, Ontario, CanadaDistribution center128,000 242,000 
Edmonton, Alberta, CanadaDistribution centerX— 38,000 
Apodaca, Nuevo Leon, MexicoDistribution centerX— 46,000 
Dordrecht, NetherlandsDistribution centerX— 44,000 
Shanghai, ChinaLocal re-distribution centerX— 17,000 
Purpose 
Tote Locations (ASRS)(1)
 
Approximate
Square Feet
Distribution center and home office 246,000
 259,000
Manufacturing facility   100,000
Computer support center   13,000
Winona branch   15,000
Winona product support facility   55,000
Rack and shelving storage   42,000
Multi-building complex which houses certain operations of the distribution group, the support services group, and the home office support group   30,000
Supplemental warehouse, office, and potential branch space   100,000
(1) Total number of tote locations for small parts storage included in facilities with an ASRS.
We own the following facilities, excluding selling locations, outside of Winona, Minnesota:
PurposeLocation
Tote Locations (ASRS)(1)
 
Approximate
Square Feet
Distribution centerIndianapolis, Indiana561,000
(2) 
1,039,000
Manufacturing facilityIndianapolis, Indiana  220,000
Distribution centerAtlanta, Georgia77,000
 198,000
Distribution centerDenton, Texas41,000
(3) 
176,000
Distribution centerScranton, Pennsylvania104,000
 189,000
Distribution centerAkron, Ohio103,000
 182,000
Distribution centerKansas City, Kansas—
(4) 
300,000
Distribution centerKitchener, Ontario, Canada128,000
 142,000
Distribution centerHigh Point, North Carolina132,000
 301,000
Distribution center and manufacturing facilityModesto, California69,000
 328,000
Manufacturing facilityRockford, Illinois  100,000
Local re-distribution center and manufacturing facilityJohor, Malaysia  27,000
Manufacturing facilityWallingford, Connecticut  187,000
(1) Total number of tote locations for small parts storage included in facilities with an ASRS.
(2) This property contains an ASRS with capacity of 52,000 pallet locations, in addition to the 561,000547,000 tote locations for small parts noted above; 105,000 of these small part tote locations are located in the industrial vending automated replenishment facility, whichparts.
(3) Approximately 36,000 square feet is also located on this property.leased space for distribution related activities.
(3)(4) Approximately 30,000 square feet is leased space for distribution related activities.
(5) This facility contains an ASRS with capacity of 14,000 pallet locations, in addition to the 41,000 tote locations for small parts noted above.parts.
(4) Construction of(6) In late December 2018, we purchased an ASRS began in 2017 at our Kansasadditional distribution center in High Point, North Carolina with approximately 750,000 total square feet. Approximately 395,000 square feet will be leased by the building's previous owner until December 2022. We currently utilize approximately 355,000 square feet for distribution activities.

We also own, and we expect this project to be completed in some cases, lease, the first quarter of 2018. This facility will contain approximately 170,000 tote locations.following support facilities, excluding selling locations:
LocationPurposeLeasedApproximate
Square Feet
Winona, MinnesotaManufacturing facility100,000 
Indianapolis, IndianaManufacturing facility198,000 
Houston, TexasManufacturing facility122,000 
Wallingford, ConnecticutManufacturing facility187,000 
Rockford, IllinoisManufacturing facility101,000 
Johor, MalaysiaManufacturing facility30,000 
Modrice, Czech RepublicManufacturing facilityX18,000 
Leeds, United KingdomManufacturing facilityX28,000
Winona, MinnesotaMultiple facilities for office space, storage, and packaging operations262,000
Bangalore, IndiaInternational information technology officeX15,000

In addition, we own 179165 buildings that house our in-market locations in various cities throughout North America.

24
Table of Contents


All other buildings we occupy are leased. Leased branches range from approximately 3,000 to 10,000 square20,000 square feet, with lease terms of up to 60to 120 months (most initialinitial lease terms areare for 36 to 4860 months). In addition to our leased branch locations, we also lease the following facilities:
PurposeLocation
Approximate
Square Feet
Lease Expiration
Date
Remaining
Lease
Renewal
Options
Distribution center
Seattle, Washington (1)
100,000
April 2022None
Distribution centerSalt Lake City, Utah74,000
July 2019One
Distribution center and packaging facilitySalt Lake City, Utah26,000
July 2019One
Distribution centerApodaca, Nuevo Leon, Mexico46,000
March 2020Three
Distribution center and manufacturing facilityEdmonton, Alberta, Canada45,000
July 2020None
Manufacturing facilityHouston, Texas21,000
July 2019None
Local re-distribution center and manufacturing facilityModrice, Czech Republic15,000
April 2022None
(1) We currently own land in the Seattle, Washington area for the construction of a new distribution center, which is scheduled to begin in 2018, and when completed, will replace the current leased facility.
We currently own land for future distribution center expansion and development. If economic conditions are suitable in the future, we will consider purchasing branch locations to house our older branches. It is anticipated the majority of new branch locations will continue to be leased. It is our policy to negotiate relatively short lease terms to facilitate relocation of particular branch operations, when desirable. Our experience has been that there is sufficient space suitable for our needs and available for leasing.


ITEM 3.LEGAL PROCEEDINGS
ITEM 3.LEGAL PROCEEDINGS
A description of our legal proceedings, if any, is contained in Note 1110 of the Notes to Consolidated Financial Statements.


ITEM 4.MINE SAFETY DISCLOSURES
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.



25
Table of Contents


PART II


ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock Data
Dollar amounts in this section are stated in whole numbers.
Our shares are traded on The Nasdaq Stock Market under the symbol 'FAST'. As of January 19, 2018,21, 2022, there were approximately 1,1001,000 record holders of our common stock, which includes nominees or broker dealers holding stock on behalf of an estimated 220,000411,000 beneficial owners.
The following table sets forth, by quarter, the high and low closing sale price(1) of our shares on The Nasdaq Stock Market for 2017 and 2016.
2017High Low 2016 High Low
First quarter$52.22
 $46.17
 First quarter $49.87
 $36.53
Second quarter51.76
 42.10
 Second quarter 48.93
 42.70
Third quarter45.73
 39.97
 Third quarter 45.36
 39.92
Fourth quarter55.14
 44.51
 Fourth quarter 49.17
 38.16
(1) The closing sale price was obtained from Shareholder.com, a division of Nasdaq OMX.
The following table sets forth our dividend payout (on a per share basis) in each of the last two years:
 2017 2016
First quarter$0.32
 $0.30
Second quarter0.32
 0.30
Third quarter0.32
 0.30
Fourth quarter0.32
 0.30
Total$1.28
 $1.20
On January 16, 2018, we announced a quarterly dividend of $0.37 per share to be paid on February 27, 2018 to shareholders of record at the close of business on January 31, 2018. Our board of directors intends to continue paying quarterly dividends, provided that any future determination as to payment of dividends will depend upon the financial condition and results of operations of the company and such other factors as are deemed relevant by the board of directors.
Issuer Purchases of Equity Securities
The table below sets forth information regarding purchases of our common stock during each of the last three months of 2017:2021:
(a)(b)(c)(d)
PeriodTotal Number of Shares
Purchased		Average Price
Paid per Share		Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)		Maximum Number (or
Approximate Dollar
Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 1-31, 20210— 03,200,000
November 1-30, 20210— 03,200,000
December 1-31, 20210— 03,200,000
Total0— 03,200,000
 (a) (b) (c) (d)
Period
Total Number of Shares
Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
 
Maximum Number (or
Approximate Dollar
Value) of Shares that May Yet Be Purchased Under the Plans or Programs (1)
October 1-31, 20170 $0.00  0 4,400,000
November 1-30, 20170 $0.00  0 4,400,000
December 1-31, 20170 $0.00  0 4,400,000
Total0 $0.00  0 4,400,000
(1) On July 11, 2017, our board of directors established a new authorization for us to repurchase up to 5,000,00010,000,000 shares of our common stock. The repurchase program has no expiration date. As of December 31, 2017,2021, we had remaining authority to repurchase 4,400,0003,200,000 shares under this authorization.
Purchases of shares of our common stock, throughout 2017if applicable, are described later in this Form 10-K under the heading 'Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations'.


26
Table of Contents


Fastenal Company Common Stock Comparative Performance Graph
Set forth below is a graph comparing, for the five years ended December 31, 2017,2021, the yearly cumulative total shareholder return on our common stock with the yearly cumulative total shareholder return of the S&P 500 Index and the Dow Jones US Industrial Suppliers Index.
The comparison of total shareholder returns in the performance graph assumes that $100 was invested on December 31, 20122016 in Fastenal Company, the S&P 500 Index, and the Dow Jones US Industrial Suppliers Index, and that dividends were reinvested when and as paid.
Comparison of Five-Year Cumulative Total Return Among Fastenal Company, the S&P 500 Index, and the Dow Jones US Industrial Suppliers Index
fast-20211231_g1.jpg
 2012 2013 2014 2015 2016 2017201620172018201920202021
Fastenal Company$100.00 103.56 106.00 93.47 110.78 132.57Fastenal Company$100.00119.67117.79170.84233.32312.73
S&P 500 Index 100.00 132.39 150.51 152.59 170.84 208.14S&P 500 Index100.00121.83116.49153.17181.35233.41
Dow Jones US Industrial Suppliers Index 100.00 115.76 115.70 94.31 115.86 120.80Dow Jones US Industrial Suppliers Index100.00104.26101.75134.53170.10227.27
Note - The graph and index table above were obtained from ZachsZacks SEC Compliance Services Group.


ITEM 6.REMOVED AND RESERVED

27
ITEM 6.SELECTED FINANCIAL DATA
Incorporated herein by reference is Ten-Year Selected Financial Data on pages 4 and 5Table of Fastenal's 2017 Annual Report to Shareholders of which this Form 10-K forms a part, a portion of which is filed as Exhibit 13 to this annual report onContents
Form 10-K.



ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant factors which have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements and should be read in conjunction with those consolidated financial statements. This section of this 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-date comparisons between 2020 and 2019 that are not included in this Form 10-K, can be found in 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in Part II, Item 7 of our annual report on Form 10-K for the fiscal year ended December 31, 2020. Italicized discussions throughout Item 7 of this Form 10-K indicate discussions of financial condition and results of operations in 2020.
Business and Operational Overview
Fastenal is a North American leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies through a network of approximately 3,000over 3,200 in-market locations. Most of our customers are in the manufacturing and non-residential construction markets. The manufacturing market includes sales of products for both original equipment manufacturersmanufacturing (OEM), where our products are consumed in the final products of our customers, and maintenance,manufacturing, repair and operations (MRO)., where are products are consumed to support the facilities and ongoing operations of our customers. The non-residential construction market includes general, electrical, plumbing, sheet metal, and road contractors. Other users of our productproducts include farmers, truckers, railroads, oil exploration companies, oil production and refinement companies, mining companies, federal, state, and local governmental entities, schools, and certain retail trades. Geographically, our branches, Onsite locations, and customers are primarily located in North America.
It is helpful to appreciate several aspects of our marketplace: (1) It's big,big. We estimate the North American marketplace for industrial supplies is estimated to be in excess of $140 billion per year (and we have expanded beyond North America) and no company has a significant portion of this market. (2) Many of the products we sell are individually inexpensive, but the cost and time to manage, procure, and transport these products can be quite meaningful. (3) Purchasing professionals often expend disproportionate effort managing the high SKUstock keeping unit (SKU) count of low-volume, low value MRO supplies which is better allocated to their higher volume, higher value OEM supplies. (4) Many customers prefer to reduce their number of suppliers to simplify their business, while also utilizing various technologies and models (including our local branches when they need something quickly or unexpectedly) to improve availability and reduce waste. (5) We believe the markets are efficient. To us,In our view, this means we canthat companies that grow our market share if weare those that develop differentiated capabilities that provide the greatest value to ourthe customer.
Our approach to addressing these aspects of our marketplace is captured in our motto Growth through Customer ServiceWhere Industry Meets Innovation™. The concept of growth is simple: find more customers every day and increase our activity with them. However, execution is hard work. First, we recruit service-minded individuals to support our customers and their business. Second, weempower them to operate in a decentralized fashion to help identify the greatest value for our customers. Third, we have a great team behind ourmaximize their flexibility to solve customer problems. We support these customer-facing resources with a supply chain capability that is speedy, efficient, and cost-effective. This has formed the foundation of our high-touch model since inception. Second, we invest in, develop, and deploy capabilities that allow us to operateilluminate and provide greater control over a customer's supply chain. These capabilities range from service models that take advantage of our local presence and/or our ability to more efficiently manage complex procurement needs, to hardware and to help identify new business solutions. Fourth,software technologies that promote actionable data capture, improve operating efficiencies and reduce supply chain risk. Third, we strive to generate strong profits, which produce the cash flow necessary to fundsupport our growth, our product and to supporttechnology development, and the needs of our customers. Lastly, we identify drivers that
The ultimate aim of this 'high-tech, high-touch' approach to gaining market share is to allow us to get closer to our customers, and gain market share.
We believe our abilitygoing so far as to grow is amplified if we can serve our customers at the closest economic point of contact. At one point, the closest economic point of contact was the local branch. Today, in some cases, we have moved the branch inside the customer's facility. We also are frequently positionedbe right atto the point of consumption within customers' facilities throughfacilities. Marrying our industrial vending or FMI capabilities. Therefore,presence, capabilities and technologies deepens our focus centers onrelationships and our understanding of our customers' day, theirday-to-day opportunities and their obstacles. This, in turn, enhances our ability to provide innovative and comprehensive solutions to our customers' challenges. By doing these things every day, Fastenal remains a growth-centric organization.
Impact of COVID-19 on Our Business
In the second quarter of 2020, the impacts of the COVID-19 pandemic on our business were dramatic in two respects. First, local and national actions taken, such as stay-at-home mandates, reduced business activity sharply as many customers either closed their locations or operated at significantly diminished capacity. This effect was illustrated in a significant decline in sales for our fastener products. Second, social actions taken to mitigate the effects of the pandemic produced significant demand for personal protection equipment (PPE) and sanitation products, generating significant sales of such products not only to certain traditional customers but also to state and local government entities as well as front line responders. This effect was illustrated by a significant increase in sales for our safety products. During that period, improved sales of PPE and sanitation products
28
Table of Contents


more than offset the general economic weakness. These dynamics affected our business throughout the second quarter of 2020, but the effects were greatest in April, with sequential improvements in May and June as business restrictions gradually eased.
The pandemic continued to have a significant impact on our business in the third and fourth quarters of 2020. The marketplace broadly, and Fastenal specifically, continued to operate with certain modifications to balance re-opening with employee and customer safety. However, most of the markets in which we operate began to normalize in the second half of 2020. This improved the outlook of the manufacturing and construction customers that support our traditional branch and Onsite business and moderated the level of demand for PPE and sanitation products that we experienced at the onset of the pandemic. The sequential gains in economic activity that we experienced in the latter part of the second quarter of 2020 continued through the third and fourth quarters of 2020.
In 2021, we saw several distinct business patterns, which mostly persisted throughout the period. First, economic normalization continued, resulting in strong demand from our traditional manufacturing and non-residential construction customers. Second, the pandemic continued, with ebbs and flows in infections during the year. This resulted in businesses, including Fastenal, continuing to take steps to promote workforce and customer health and safety. However, in contrast to the early part of 2020, the pandemic was not primarily responsible for plant shutdowns or production cuts; companies navigated the pandemic mostly without curtailing operations. Third, this combination of strong demand coupled with ongoing adaptations to the pandemic resulted in a number of stresses accompanying economic growth: supply chain disruption, labor force constraints, and product and shipping inflation. As a result, while the economic backdrop was solid throughout 2021, satisfying customer demand was challenged by difficulty in procuring materials, retaining sufficient part- and full-time labor to service existing customers and acquire new ones, and offsetting inflation. We exited 2021 with each of those dynamics still largely intact.
At the height of the pandemic, and consistent with broader social trends, we took steps to safeguard the health of our employees and customers. This included closing facilities to outside personnel, adjusting work schedules, spaces and technologies to allow for social distancing, providing ample PPE and cleaning supplies, and having formal mitigation policies in the event of infection. These precautions allowed our operations to continue to function effectively. At the end of 2021, our operations were operating mostly normally, although we continue to practice social distancing within our facilities, make PPE and cleaning supplies available, and follow our mitigation policies when an infection is identified. The pandemic has not precipitated any issues with our internal controls, financial health, or liquidity, with substantially all of our $700.0 bank revolver available for use.
There remains significant uncertainty concerning the duration of the COVID-19 pandemic as well as the severity of any future infection surges. As a result, future events deriving from COVID-19 may negatively impact sales and gross margin due to, among other things: limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the products we sell; an inability 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. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, and shareholders. While we are unable to determine or predict the nature, duration, or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity, or capital resources, we believe that it is important to share where our company stands today, how our response to COVID-19 is progressing, and how our operations and financial condition may change as the fight against COVID-19 progresses.
Executive Overview
Net sales increased $428.5,sales increased $363.4, or 10.8%6.4%, in 20172021 relative to 2016.2020. Our gross profit increased $209.5, or 8.2%, in 2021 relative to 2020, and as a percentage of net sales declinedsales increased to 49.3%46.2% in 20172021 from 49.6%45.5% in 2016.2020. Our operating income increased $75.6, or 6.6%, in 2021 relative to 2020, and as a percentage of net salessales increased to 20.3% in 2017 was comparable to 2016 at 20.1%2021 from 20.2% in both years.2020.
We recorded a provisional income tax expense of $294.5 in 2017, or 33.7% of earnings before income taxes. This amount reflects an estimated reduction in our deferred income tax liabilities of $30.8 as a result of the income tax rate decrease included in the Tax Act, offset by an estimated increase in income tax payable in the amount of $6.5 as a result of the transition tax on cash and cash equivalent balances related to accumulated earnings associated with our international operations, also included in the Tax Act. Absent the impact of the Tax Act, our income tax expense for 2017 would have been approximately $318.8, or 36.5% of earnings before income taxes. Income tax expense was $290.3 in 2016, or 36.8% of earnings before income taxes.
Our net earnings in 20172021 were $578.6,$925.0, an increase of 15.8%7.7% when compared to 2016.2020. Our diluted net earnings per share were $2.01$1.60 in 20172021 compared to $1.73$1.49 in 2016. If2020, an increase of 7.4%.
The year 2021 was marked by a number of trends. Favorably, we excluded the discrete items that benefitedexperienced strong demand from our income tax ratetraditional manufacturing and non-residential construction customers. Unfavorably, we experienced disruption in the fourth quartersupply chains and labor markets, exacerbated by periodic surges in COVID-19 infections, as well as significant inflation in product and transportation costs. While these variables do present challenges with respect to having sufficient product availability, and cost of 2017 (primarily related toservice, at this point the impact of the Tax Act),COVID-19 is primarily indirect through its influence on cyclical factors. The primary exception is in our net earnings in the period would have been approximately $554.2, an increase of 11.0% when comparedability to 2016, and our diluted net earnings per share would have been $1.92.
We continued to focus onmarket our growth drivers, in 2017. We signed 168as many of our customers were focused on short-term crisis management over long-term strategic planning. As a result, the environment was not conducive to achieving the level of signings we would have
29
Table of Contents


expected under normal business conditions. These dynamics produced signings of 274 new national account contracts (defined as new customer accounts with a multi-site contract). Additionally, we signed 270 new Onsite customer locations (defined as dedicated sales and service provided from within, or19,311 weighted FASTBin/FASTVend signings in close proximity to, the customer's facility) and 19,355 new industrial vending devices.

2021.
The table below summarizes our in-market locationabsolute and full-time equivalent (FTE; based on 40 hours per week) employee count andheadcount, our total employee count at the end of the periods presented, and changes in that count from the end of the prior periods to the end of the most recent period. The final four items below summarize our cumulative investments in branch locations, Onsite locations, total in-market locations and industrial vending devices.
 
Q4
2017
 Q4
2016		 
Twelve-month
% Change
End of period total in-market locations (1) - employee count
13,424
 12,966
 3.5 %
End of period total employee count20,565
 19,624
 4.8 %
      
Number of public branch locations2,383
 2,503
 -4.8 %
Number of active Onsite locations605
 401
 50.9 %
Number of in-market locations (1)
2,988
 2,904
 2.9 %
Industrial vending devices (installed count) (2)
71,421
 62,822
 13.7 %
Ratio of industrial vending devices to in-market locations24:1
 22:1
  
(1) 'In-market locations' is defined(defined as the sum of the total number of public branch locations and the total number of active Onsite locations.locations), and weighted FMI at the end of the periods presented and the percentage change compared to the end of the prior period.
(2)
Q4
2021		Q4
2020		Twelve-month
% Change
In-market locations - absolute employee headcount
12,464 12,680-1.7 %
In-market locations - FTE employee headcount11,337 11,2600.7 %
Total absolute employee headcount20,507 20,365 0.7 %
Total FTE employee headcount18,370 17,8363.0 %
Number of branch locations1,793 2,003-10.5 %
Number of active Onsite locations1,416 1,26511.9 %
Number of in-market locations3,209 3,268-1.8 %
Weighted FMI devices (MEU installed count) (1)
92,874 83,95110.6 %
(1) This number represents devices which principally dispense product and produce product revenues, and excludes approximately 15,00012,000 non-weighted devices whichthat are principally used for the check-in/check-outpart of equipment.our locker lease program.
During the last twelve months, we increased our headcountour total FTE employee headcount by 458 people534. This reflects an increase in our in-market locations and 941 people in total. Our totalnon-in-market selling FTE employee headcount at the end of 2017 includes 127 people related to our Mansco acquisition. The remaining increase is mostly a function of additions we have made230 to support customer growth in the fieldmarketplace and sales initiatives targeting customer acquisition. We had an increase in our distribution center FTE employee headcount of 149 to support increasing product throughput at our facilities and to expand our local inventory fulfillment terminals (LIFTs). We had an increase in our remaining FTE employee headcount of 155 that relates primarily to personnel investments in information technology and operational support, such as purchasing and product development.
We opened two branches in the fourth quarter of 2021 and closed 68 branches, net of conversions. We activated 65 Onsite locations in the fourth quarter of 2021 and closed 16, net of conversions. In 2021, we opened ten branches and closed 220, net of conversions. In 2021, we activated 242 Onsite locations and closed 91, net of conversions. In any period, the number of closings tend to reflect both normal churn in our business, whether due to redefining or exiting customer relationships, the shutting or relocation of customer facilities that host our locations, or a customer decision, as well as investments in our growth drivers.
We opened 18 branches and closed 130 branches in 2017. Additionally, eight branches were converted from public branches to non-publicongoing review of underperforming locations. Our branch networkin-market network forms the foundation of our business strategy, and we will continue to open or close brancheslocations as is deemed necessary to sustain and improve our network, and support our growth drivers.drivers, and manage our operating expenses.
Results of Operations
The following sets forth consolidated statements of earnings information (as a percentage of net sales) for the periods ended December 31:
 202120202019
Net sales100.0 %100.0 %100.0 %
Gross profit46.2 %45.5 %47.2 %
Operating and administrative expenses26.0 %25.3 %27.3 %
Operating income20.3 %20.2 %19.8 %
Net interest expense-0.2 %-0.2 %-0.3 %
Earnings before income taxes20.1 %20.1 %19.6 %
Note – Amounts may not foot due to rounding difference.
30
  2017 2016 2015
Net sales 100.0 % 100.0 % 100.0 %
Gross profit 49.3 % 49.6 % 50.4 %
Operating and administrative expenses 29.2 % 29.5 % 29.0 %
Gain on sale of property and equipment 0.0 % 0.0 % 0.0 %
Operating income 20.1 % 20.1 % 21.4 %
Net interest expense -0.2 % -0.2 % -0.1 %
Earnings before income taxes 19.9 % 19.9 % 21.3 %
Note – Amounts may not foot due to rounding difference.      
Table of Contents



Net Sales
Note – Daily sales are defined as the total net sales for the period divided by the number of business days (in the United States) in the period.
The table below sets forth net sales and daily sales for the periods ended December 31, and changes in such sales from the prior period to the more recent period:
2017 2016 2015202120202019
Net sales4,390.5
 3,962.0
 3,869.2
Net sales$6,010.9 5,647.3 5,333.7 
Percentage change10.8% 2.4 % 3.6 %Percentage change6.4 %5.9 %7.4 %
Business days254
 255
 254
Business days253 255 254 
Daily sales17.3
 15.5
 15.2
Daily sales$23.8 22.1 21.0 
Percentage change11.3% 2.0 % 3.2 %Percentage change7.3 %5.5 %7.4 %
Daily sales impact of currency fluctuationsDaily sales impact of currency fluctuations0.6 %-0.1 %-0.3 %
Daily sales impact of acquisitions1.0% 0.6 % 0.2 %Daily sales impact of acquisitions0.0 %0.0 %0.1 %
Impact of currency fluctuations0.1% -0.4 % -1.2 %
The increasesincrease in net sales in the periods noted above for 2017, 2016, and 2015 were driven primarily by2021 was due to higher unit sales. Pricesales of industrial products to traditional manufacturing and construction customers and higher pricing, only partly offset by lower pandemic-related PPE sales as the prior year's demand surge did not recur.
Higher unit sales in 2021 were a result of strong economic activity which increased demand for our products to our traditional manufacturing and construction customers. Although economic strength was fairly consistent throughout the year, our growth patterns were not, a material factorprimarily due to comparisons related to the timing of pandemic-related PPE sales in the periods presented.previous year. For instance, our daily sales growth in the first half of 2021 was 2.5%. Our cyclical product categories substantially outperformed this, as exemplified by fastener daily sales growth of 15.4% in the first half of 2021. However, this was mostly offset by the absence of significant spending for PPE that occurred in the previous period, which is best illustrated by safety products' daily sales decline of 20.2% in first half of 2021. By contrast, our daily sales growth in the second half of 2021 was a much stronger 12.3%. Our cyclical product categories continued to outperform with fastener daily sales having grown 22.2% in the second half of 2021. While certain products and markets within our business continued to face difficult PPE comparisons, they were not as severe as what had been experienced in the first half of 2021, which allowed our safety products to post daily growth of 0.3% in the second half of 2021.
TheOur growth drivers also returned to contributing meaningfully to higher unit sales in 2017 resulted primarily from two sources.2021, due to strong business activity within our customer base and, to a lesser degree, a higher installed base of FMI devices. Our number of active Onsites increased 11.9%, for instance, while Onsite daily sales growth was 20.6%. Similarly, our installed base of FMI MEUs increased 10.6%, while FMI daily sales growth was 41.0%.
While demand was strong throughout 2021, the year experienced certain disruptions. The first is improvementwere supply chain constraints, as the rapid recovery in underlyingdemand resulted in shortages in production and shipping capacity. The second was labor shortages, which were particularly acute in the market demand.for part-time employees. The third was the ongoing COVID-19 pandemic, which continued to produce periodic surges in infection rates. While businesses largely managed through these events as opposed to stopping production, the instability it created in worker availability exacerbated the pre-existing supply chain and labor challenges. The fourth was inflation in material costs, overseas and domestic transportation expenses, and labor wage rates. We believe the improvementmost significant impact of these disruptions was on our growth driver signings. We signed 274 Onsites in 2021, above the prior year (223 signings) but well below our goal at the start of 2021 of 375 to 400 units. Similarly, we signed 19,311 FMI MEUs, above the prior year (16,503 MEUs), but well below our goal at the start of the year of 23,000 to 25,000 MEUs. We believe many of our customers were diverting significant energy to managing the effects of supply chain, labor, COVID-19, and inflation in the short term, and it lengthened the sales cycle for our supply chain solutions.
Price contributed 200 to 230 basis points to our net sales growth in 2021. We instituted a number of pricing events during 2021 as a means of mitigating rising product and transportation costs. As these events fell more heavily into the second half of the year, price contributed an increasing amount through the period, with price in the fourth quarter of 2021 contributing 440 to 470 basis points to net sales growth.
Higher unit sales in 2020 were heavily influenced by actions taken by governments and businesses around the world to address COVID-19, which influenced the period in a couple of ways. First, by virtue of our ability to source and transport PPE, we were able to supply the needs of governments, first responders, and businesses as they worked to mitigate the effects of the pandemic on our communities and normalize business activity under more stringent safety protocols. This generated significant PPE sales through the year. We believe the best proxies for this trend was daily sales growth of our safety products of 51.0% and daily sales growth to our government and healthcare customers of 129.7%. Second, we managed the effects of business closures, disruption in labor forces and supply chains, and a reduction in general business activity that was a by-product of the responses of governments and businesses to the pandemic. The impact of this is reflected in a number ofbest illustrated by several metrics. For
31
Table of Contents


instance, the Purchasing Managers Index,United States Industrial Production, which is published by the InstituteFederal Reserve, decreased 7.1% in 2020. Based on the large proportion of our sales that are derived from the United States, we believe United States Industrial Production is a good proxy for Supply Chain Management, averaged 57.0, 55.8, 58.6,the state of our marketplace and 58.9that the significant decline in this metric is consistent with the weakness we experienced in our traditional manufacturing and construction markets. This was also reflected in the first, second, third, and fourth quartersdaily sales of 2017, respectively, well above 49.8, 51.8, 51.2, and 53.3 in the first, second, third, and fourth quarters of 2016, respectively. Readings above 50 are indicative of growing demand, and we believe this favorably influencedfasteners, which is our unit sales.most cyclical product line. Daily sales of fasteners declined 7.2% in 2020. Although traditional manufacturing and construction business activity has gradually, but steadily, improved from depressed second quarter of 2020 levels, it did remain negative through the year. Taking these two variables together, higher unit sales of PPE more than offset the decline in unit sales in our most cyclical product line, grew 8.4%traditional manufacturing and construction business, resulting in 2017. We also experiencedhigher net unit sales in 2020.
Our growth drivers did not contribute meaningfully to higher unit sales in sales2020, which we believe is largely a function of difficulties gaining access to 79 of our top 100 customers and facilities due to social distancing and safety guidelines in 2017, which comparesresponse to growth in sales to 50 of our top 100 customers in 2016. As business conditions strengthen, they tend to lift our net sales growth rates as well.
The second source is success within our growth initiatives.COVID-19. We signed 19,35516,417 industrial vending devices during 2017,2020, a decrease of 24.9% from 2019. This did increase our installed base to 95,733 devices at the end of 2020, an increase of 7.2%6.4% over 2016. In addition2019, but this increase was not sufficient to an increase in our installed base, we were also more efficient with the existing base, resulting inoffset reduced throughput per device. As a modest increase in average sales per device, and we decreased our device removals by 3.8%. Combinedresult, sales through our vending devices accelerated throughout 2017, finishing with growth in the high teens.declined at a low single-digit rate during 2020. We signed 270activated 257 new Onsite locations in 2017 and had 6052020, a decrease of 17.6% over 2019. This allowed us to increase our active sites on December 31, 2017,to 1,265 at the end of 2020, an increase of 50.9%13.6% over December 31, 2016.2019, but this increase was not sufficient to offset significant sales declines in our older, more established Onsite locations. As a result, sales through our Onsite locations declined at a low single-digit rate during 2020. We signed 168 new national account contractsdid experience growth in 2017. The contributionour National Account customers of these new contracts and strong penetration of existing national account customers resulted6.7% in daily sales from our national account customers growing 14.5% in 20172020 compared to 2016.
In 2016, we saw relative weakness from non-residential construction and heavy manufacturing customers and in demand for our fastener products, speaking2019, though this was due to the sustained softness in heavy and general industrial markets. Business with our largestsale of PPE to customers was also relatively weak, with sales to our top 100 customers rising modestly innavigating the first halfchallenges of 2016 and falling modestly in the second half of 2016. While these trends were representative of conditions in the United States and Canada, total sales outside of these geographic areas were relatively strong and improved over the course of 2016.
During 2015, our business weakened compared to 2014. This initially involved customers tied to the oil and gas sector, but expandedoperating during the course of the year to include customers across additional industries and in geographic areas not typically associated with the oil and gas sector. November and especially December experienced a greater frequency and duration of customer plant shutdowns than is typical of these holiday-affected periods.
Net sales in 2016 and 2015 were also impacted by slight inflationary price changes in our non-fastener products and some price deflation in our fastener products, with the net impact being a slight drag on growth.pandemic.
Sales by Product Line
The approximate mix of sales from the fastener product linefasteners, safety supplies, and from theall other product lines was as follows:
202120202019
2017 2016 2015
Fastener product line35.6% 36.6% 38.3%
FastenersFasteners33.3%29.9%34.2%
Safety suppliesSafety supplies21.2%25.5%17.9%
Other product lines64.4% 63.4% 61.7%Other product lines45.5%44.6%47.9%
The decreaseshifts in product mix over the last two years reflect the impact of the pandemic. In 2020, actions taken by governments and businesses to address COVID-19 caused a significant decline in economic activity that produced sales declines in our cyclical products, such as fasteners, but increased demand for PPE and produced sales growth in our safety products. The effect was to reduce our mix of sales coming from fasteners and other product lines while increasing the mix of sales coming from safety products. In 2021, these dynamics reversed with economic recovery generating strong growth in our cyclical product lines while the absence of surge sales and stabilization in the supply chain for PPE restrained growth in safety products. The effect was to increase our mix of sales coming from fasteners and other product lines while reducing the mix of sales coming from safety products.
Our product categories did not fully revert to pre-pandemic levels in 2021, as our mix of safety products in 2021 of 21.2% remained meaningfully above our mix of safety products in 2019 of 17.9%. In the short term, the pandemic has created heightened safety and sanitation protocols relative to the pre-pandemic period, and the increased use of related products as a result has increased our mix of safety products sales.
Shifts in product mix in 2020 largely reflects the factors that impacted our sales growth in the period. Specifically, strong demand for PPE generated strong sales growth in our safety products, while weak trends in underlying conditions affected our traditional manufacturing and construction customers resulting in a sales decline in our fastener sales as a percentage of total sales arises from two factors. First, we believe non-fastener products represent a larger market opportunity than fasteners, and that we are relatively under-represented in this market. Over time, this

has led to faster growth in the non-fastener product lines, a trend amplified by the growth of our industrial vending program through which we sell primarily non-fastener products. We believe this factor impacted each year shown and will continue to promote a lower mix of fasteners in our total sales over time. Second, a weak industrial production environment, has a disproportionately negativeThe effect on fastener sales relative to non-fastener sales (which relates more to plant operations than production). This weakness is more of a cyclical factor than a structural one,other products was relatively muted, as certain lines benefited from pandemic-related demand (such as janitorial products), while others were negatively impacted by underlying demand (such as metal cutting and as such was relevant in 2015 and 2016, but not in 2017 when a better economic environment at least partially mitigated the first factor discussed.material handling).
Annual Sales Changes, Sequential Trends, and End Market Performance
This section focuses on three distinct views of our business – annual sales changes by month, sequential trends, and end market performance. The first discussion regarding sales changes by month provides a good mechanical view of our business. The second discussion provides a framework for understanding the sequential trends (that is, comparing a month to the immediately preceding month, and also looking at the cumulative change from an earlier benchmark month) in our business. Finally, we believe the third discussion regarding end market performance provides insight into activities with our various types of customers.
32
Table of Contents


Annual Sales Changes, by Month
During the months noted below, all of our selling locations, when combined, had daily sales growth (contraction) rates of (compared to the same month in the preceding year):
 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
20173.8% 6.1% 8.4% 8.9% 9.7% 13.0% 12.9% 12.8% 15.3 % 13.8 % 15.4 % 14.7 %
20163.3% 2.6% 0.0% 3.8% 1.1% 0.0% 2.1% 0.3% 2.8 % 3.9 % 1.2 % 3.2 %
201512.0% 8.6% 5.6% 6.1% 5.3% 3.7% 3.2% 1.6% -0.3 % -0.8 % -1.1 % -3.8 %
 Jan.Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Nov.Dec.
20216.5 %1.5 %7.5 %1.2 %-3.2 %1.7 %9.7 %9.0 %11.1 %14.1 %13.2 %16.5 %
20203.6 %4.7 %0.2 %6.7 %14.8 %9.5 %2.6 %2.5 %2.2 %4.1 %6.8 %9.3 %
201913.3 %10.5 %12.7 %7.4 %9.5 %7.0 %6.1 %6.3 %5.8 %4.3 %5.7 %1.0 %
Sequential Trends
We find it helpful to think about the monthly sequential changes in our business using the analogy of climbing a stairway – This stairway has several predictable landings where there is a pause in the sequential gain (i.e. April, July, and October to December), but generally speaking, climbs from January to October. The October landing then establishes the benchmark for the start of the next year.
History has identified these landings in our business cycle. They generally relate to months where certain holidays impair business days and/or seasons impact certain end markets, particularly non-residential construction. The first landing centers on Easter and the Good Friday holiday that precedes it, which alternates between March and April (Good Friday occurred in April 2017,any given year can fall in March 2016, inor April, 2015, and in 2018, will fall in March), the second landing centers on July 4th, and the third landing centers on the approach of winter with its seasonal impact on primarily our non-residential construction business and with the Christmas/New Year holidays. The holidays we noted impact the trends because they either move from month-to-month or because they move around during the week (the July 4th and Christmas/New Year holiday impacts are examples of the latter).week.
The table below shows the pattern to the sequential change in our daily sales. The line labeled 'Benchmark' is ana historical average of our sequential daily sales change for the trailing five year average (2012-2016)(2015-2019). We have excluded 2020 from the average as the effects of the pandemic created unusual sequential patterns that we do not consider representative of normal trends. We believe this time frame serves to show the historical pattern and could serve as a benchmark for current performance. The '2017''2021', '2016''2020', and '2015''2019' lines represent our actual sequential daily sales changes. The '17Delta''21Delta', '16Delta''20Delta', and '15Delta''19Delta' lines indicate the difference between the 'Benchmark' and the actual results in the respective year.

Under normal circumstances, the sequential trends shown below are directly linked to fluctuations in our end markets. Further, in any given month it is possible to get significant deviation from the benchmark. However, we do not believe that fully explains the exaggerated delta between the sequential rates of change and the benchmark from March 2020 to July 2020. We believe deviation of this duration and order of magnitude is uncharacteristic in our business and is related to the dramatic impacts of the pandemic in that period.
It is important to note that these benchmarks are historical averages. In a year where demand is strong, our daily sales growth rates will tend to have more months that exceed the benchmark than fall below it. In a year where demand is weak, we will tend to have more months that fall short of the benchmark than exceed it. In both cases, there is a random element that makes it difficult to know how any single month will perform.
 
Jan.(1)
Feb.Mar.Apr.MayJuneJulyAug.Sept.Oct.Cumulative Change from Jan. to Oct.
Benchmark (2)
-1.0 %1.2 %3.1 %0.1 %1.7 %1.8 %-3.4 %3.3 %2.2 %-2.5 %7.5 %
20210.9 %-2.3 %5.6 %-2.2 %5.6 %1.6 %-3.4 %3.1 %4.8 %0.0 %13.0 %
21Delta1.9 %-3.5 %2.5 %-2.3 %3.9 %-0.2 %0.0 %-0.2 %2.6 %2.5 %5.5 %
2020-1.3 %2.5 %-0.3 %3.9 %10.4 %-3.3 %-10.5 %3.8 %2.9 %-2.6 %5.5 %
20Delta-0.3 %1.3 %-3.4 %3.8 %8.7 %-5.1 %-7.0 %0.5 %0.6 %-0.1 %-2.0 %
2019-0.5 %1.4 %4.2 %-2.4 %2.5 %1.4 %-4.4 %3.9 %3.1 %-4.4 %4.9 %
19Delta0.4 %0.2 %1.1 %-2.5 %0.8 %-0.4 %-1.0 %0.6 %0.9 %-1.9 %-2.6 %
 
Jan.(1)
 Feb. Mar. Apr. May June July Aug. Sept. Oct. Cumulative Change from Jan. to Oct.
Benchmark-1.1 % 0.9 % 4.5 % -1.0 % 1.9 % 1.8 % -3.7 % 3.8 % 1.8 % -2.4 % 7.6 %
20170.2 % 1.5 % 3.6 % 2.2 % 1.4 % 2.8 % -2.4 % 2.2 % 3.8 % -2.1 % 13.5 %
17Delta1.3 % 0.6 % -0.9 % 3.1 % -0.5 % 1.0 % 1.3 % -1.6 % 2.0 % 0.3 % 5.9 %
20160.4 % -0.8 % 1.5 % 1.7 % 0.6 % -0.2 % -2.3 % 2.4 % 1.5 % -0.9 % 3.6 %
16Delta1.5 % -1.7 % -3.0 % 2.7 % -1.3 % -1.9 % 1.4 % -1.4 % -0.2 % 1.5 % -4.0 %
2015-3.6 % -0.1 % 4.2 % -2.1 % 3.4 % 0.9 % -4.3 % 4.1 % -0.9 % -2.0 % 2.9 %
15Delta-2.5 % -1.0 % -0.4 % -1.1 % 1.4 % -0.9 % -0.6 % 0.3 % -2.7 % 0.4 % -4.7 %
(1) The January figures represent the percentage change from the previous October, whereas the remaining figures represent the percentage change from the previous month.
(2) The benchmark for each month is the average of the previous five years for that month (excluding the impact of the March 2017 Mansco acquisition). Surge sales associated with COVID-19 make sequential averages in 2020 unrepresentative. As a result, the 2021 benchmark uses a preceding five-year average that excludes 2020.
Note – Amounts may not foot due to rounding difference.
33
Table of Contents


A graph of the sequential daily sales change patterns discussed above, starting with a base of '100' in the previous October and ending with the next October, would be as follows:

fast-20211231_g2.jpg
End Market Performance
The sequential trends noted above were directly linked to fluctuations in our end markets. To place this in perspective – weWe estimate approximately 65% of our business has historically been with customers engaged in some type of manufacturing, a significant subset of which finds its way into the heavy equipment market. The daily sales growth (contraction) rates to these manufacturing customers, when compared to the same period in the prior year, were as follows(1):follows:
 Q1 Q2 Q3 Q4 Annual
20176.2% 11.5% 15.3% 16.6 % 12.3%
20161.3% 1.4% 1.1% 2.8 % 1.6%
20158.2% 4.6% 1.6% -2.5 % 2.9%
(1) In July 2017, we reclassified certain end market designations. The daily sales growth rates in the above table for all periods through the second quarter of 2017 differ from prior disclosures.
Daily sales growth - manufacturing customersQ1Q2Q3Q4Annual
20215.6 %24.5 %20.8 %23.8 %18.4 %
20203.0 %-9.4 %-4.7 %1.7 %-2.5 %
201913.4 %9.1 %7.7 %5.1 %8.8 %
Our manufacturing business consists of two subsets: the industrial production business (this is business where we supply products that become part of the finished goods produced by our customers and is sometimes referred to as OEM - original equipment manufacturing) and the maintenance portion (this is business where we supply products that maintain the facility or the equipment of our customers engaged in manufacturing and is sometimes referred to as MRO - maintenance, repair, and operations). The industrial business is more fastener centered, while the maintenance portion is represented by all product categories.
The best way to understand the change in our industrial production business is to examine the results in our fastener product line (35%(which, under normal business conditions, represents 30% to 40% 35%of our business) which is heavily influenced by changes in our business with heavy equipment manufacturers. From a company perspective, daily sales growth (contraction) rates of fasteners, when compared to the same period in the prior year, were as follows (note: this information includes all end markets):
Daily sales growth - fastenersQ1Q2Q3Q4Annual
20214.0 %28.4 %20.2 %24.2 %18.8 %
2020-2.6 %-16.4 %-6.9 %-2.3 %-7.2 %
201911.8 %5.5 %3.0 %1.8 %5.5 %
34
Table of Contents


 Q1 Q2 Q3 Q4 Annual
20170.8 % 7.9 % 12.1 % 13.4 % 8.4 %
2016-1.7 % -2.4 % -2.9 % -2.4 % -2.3 %
20155.5 % 0.0 % -4.4 % -6.2 % -1.4 %
The daily sales growth rates of fasteners noted in the table above for the second, third, and fourth quarters of 2017, include 3.6, 3.8, and 3.9 percentage points, respectively, attributable to Mansco (acquired on March 31, 2017).
By contrast, the best way to understand the change in the maintenance portion of the manufacturing business is to examine the results in our non-fastener product lines. From a company perspective, daily sales growth rates of non-fasteners, when compared to the same period in the prior year, were as follows (note: this information includes all end markets):
Daily sales growth - non-fastenersQ1Q2Q3Q4Annual
20216.1 %-10.8 %5.1 %9.6 %1.9 %
20206.0 %25.6 %7.8 %11.2 %12.7 %
201912.7 %9.5 %8.0 %5.1 %8.8 %
 Q1 Q2 Q3 Q4 Annual
20179.4% 12.2% 14.6% 16.1% 13.1%
20164.7% 4.7% 4.9% 5.9% 5.0%
201511.7% 9.0% 5.9% 1.2% 6.8%
TheTwo product lines, safety and janitorial, accounted for approximately 44% of total non-fastener sales in 2021. As previously disclosed, COVID-19 generated outsized growth in these two product categories in 2020 and the subsequent stabilization of the supply chain resulted in a reduction in orders and sales performance in 2021 that was well below what might normally be expected given the health of the industrial economy. As a result, the change in our non-fastener lines in 2021 and 2020 did not provide as much insight into the trends of our traditional manufacturing and construction customers as is typically the case. Still, we have sold non-fastener products through multiple cycles that do not include a pandemic and believe we can make several observations. Generally speaking, our non-fastener business demonstrated greater relative resilience over the last several years, when compared to our fastener business and to the distribution industry in general, due to our industrial vending program. However, this business wasis not immune to the impact of a weak industrial environment.cycles. However, we would typically expect it to outperform our fastener business in any cycle. This reflects three things: the non-fastener market is larger than the fastener market, we are underpenetrated in the non-fastener market relative to the fastener market, and industrial vending lends itself to sales of non-fastener products. This dynamic is visible in 2019 results.
Our non-residential construction and reseller customers have historically represented 20% to 25% of our business.business, though in 2021 it was slightly below the bottom of this range as our industrial customers led our sales recovery. The daily sales growth (contraction) rates to these customers, when compared to the same period in the prior year, were as follows(1):
follows:
 Q1 Q2 Q3 Q4 Annual
20176.9% 8.8% 9.4% 11.6 % 9.1%
20161.6% 0.5% 2.8% 2.6 % 1.8%
201510.1% 5.6% 0.1% -2.6 % 3.1%
Daily sales growth - non-residential construction and reseller customersQ1Q2Q3Q4Annual
2021-6.7 %3.5 %7.0 %10.3 %3.3 %
2020-1.2 %-10.0 %-11.5 %-8.3 %-7.8 %
201912.1 %6.0 %0.6 %0.7 %4.7 %
(1) In July 2017, we reclassified certain end market designations. The daily sales growth rates in the above table for all periods through the second quarter of 2017 differ from prior disclosures.
Our non-residential construction and reseller business is heavily influenced by manufacturing, oil and gas, and infrastructure spending. In 2021, improving economic business conditions, high prices for commodities such as metals and energy, and tightening facilities utilization produced improving growth rates throughout the industrial economy, particularlyyear. In 2020 and 2019, the poor and slowing production environment, respectively and as described above, and the accompanying worsening trends for commodities such as metals and energy, sector. The volatilitycaused the growth in our non-residential construction and weakness of energy prices weakenedreseller customers to slow. In 2020, this business, particularly beginningwas exacerbated by project suspensions as many states and regions shut down activity in an effort to control the second quarter ofpandemic.

2015 and throughout 2016. In 2017, improvements in energy sector metrics, including oil prices, as well as an improving outlook for industrial capital spending contributed to an improvement in growth for these end markets.
Gross Profit
The gross profit percentage during each period was as follows:
 Q1 Q2 Q3 Q4 Annual
201749.4% 49.8% 49.1% 48.8% 49.3%
201649.8% 49.5% 49.3% 49.8% 49.6%
201550.8% 50.3% 50.5% 49.9% 50.4%
 Q1Q2Q3Q4Annual
202145.4 %46.5 %46.3 %46.5 %46.2 %
202046.6 %44.5 %45.3 %45.6 %45.5 %
201947.7 %46.9 %47.2 %46.9 %47.2 %
Our gross profit, as a percentage of net sales, was 49.3%46.2% in 20172021 and 49.6%45.5% in 2016.2020. The gross profit percentage for 2017 declined2021 increased by 3070 basis points based on higher product margins, primarily for safety products and overhead/organizational leverage related to higher volumes.
During 2021, our gross profit percentage increased when compared to the prior year. This was largely due to two elementsthree factors. (1) We were able to leverage overhead/organizational expenses, absorbing certain fixed and period costs related to cyclical strength in our traditional manufacturing and construction markets. (2) An improvement in product margins, particularly for safety products. In response to the pandemic in 2020, we experienced a substantial surge in demand for COVID-related safety supplies, such that these products accounted for approximately 47% of total safety product sales in 2020, up from approximately 25% of total safety product sales in 2019. As these products tended to carry a lower gross margin than non-COVID-related products, their substantial expansion in our safety product mix in 2020 caused a decline in the gross profit percentage of our safety product line. In 2021, we experienced higher demand for non-COVID-related products as the industrial economy improved and lower demand for COVID-related products as the supply chain steadied. This caused our mix of lower margin COVID-related products to decline to approximately 31% of total safety product sales, improving our overall safety product margin. (3) Our net rebates were favorable. As supply chains normalized and demand improved, we purchased more
35
Table of Contents


products through our traditional partners increasing our supplier rebates. At the same time, customer rebates moderated as spending from several key customers that purchased significant COVID-related products declined.
These variables were only partly offset by a $7.8 write-down of masks in the first quarter of 2021. The impact of price/cost was neutral to 2021, as we were able to lift prices in response to higher costs for products and transportation services. The net impact of product and customer mix was also neutral to 2021, as the benefit of relatively stronger fastener sales to product mix was negatively impacted by relatively stronger growth from larger and Onsite customers.
During 2020, our gross profit percentage decreased when compared to the prior year. This decrease was primarily caused by three variables. (1) A decline in product margin for safety and other products, which itself reflects several trends. First, in the second quarter of 2020 in order to procure supplies we utilized unfamiliar supply chains and prioritized speed of acquisition over efficiency, resulting in lower margins. Second, in the third and fourth quarters of 2020 certain pandemic related products became oversupplied, and profits on our inventory fell (masks) while other products were in such short supply that cost rose (gloves). We mitigated these effects as the year progressed, but did not eliminate them. Third, mix within these categories had a negative impact on margin, as in general COVID-related products had lower margins and increased in the mix. The first was a(2) A change in product and customer mix. Fasteners are our largest product line and our highest gross profit margin product line due to the high transaction cost surrounding the sourcing and supply of the product for customers. As a result, the decline in ourOur fastener product line declined to 35.6%29.9% of sales in 20172020 from 36.6%34.2% of sales in 2016 contributed2019. (3) Overhead and organizational expenses. This includes the negative impact that reduced sales for certain product lines has on vendor rebates, clearance efforts to remove older and slower moving inventory, and the declinedeleverage of certain fixed and period costs related to cyclical weakness in our gross profit margin. This effect was exacerbatedtraditional manufacturing and construction markets. These three adverse variables were partly offset by relative growtha better cost profile for our captive fleet. We operate our own fleet of trucks for moving product between suppliers, our distribution centers, and our in-market locations. We believe this provides us a competitive advantage in the period from salesterms of our OEM fasteners, which tendability to havemove product efficiently and quickly, but there is a lower gross profit margin than our MRO fasteners. Larger customers (for which national accounts arecost to supporting and maintaining these assets. During periods of economic weakness, it can become more difficult to charge freight to offset these costs and/or the relatively stable cost profile of these assets could result in deleverage. We successfully mitigated these challenges in 2020 by reducing movement and labor costs.
Operating and Administrative Expenses
Our operating and administrative expenses, as a good proxy), whose more focused buying patterns allow uspercentage of net sales, increased by approximately 70 basis points to offer them better pricing, also influence the gross profit margin. Sales to our national account customers26.0% in 2021 from 25.3% in 2020. Employee-related expenses, as a percentage of net sales, increased to 48.7% in 2017 from 47.4% of sales in 2016, which contributed to the decline in our gross profit margin. The combination of relatively slower growth in our fastener product line and relatively faster growth in sales to our largest customers explains the decline in our overall gross profit margin in 2017. The second element of mix was driven by the acquisition of Mansco. Mansco's customer mix is more heavily oriented toward larger customers and its product mix tends to carry a lower gross profit product mix than the company's other products.
During 2016 and 2015, our gross profit,approximately 80 basis points. Occupancy-related expenses, as a percentage of net sales, decreased when compared to the prior year. In each year, the decreaseby approximately 10 basis points. All other operating and administrative expenses, as a percentage of net sales, was primarily caused by changeslargely unchanged in product and customer mix.
Operating and Administrative Expenses
2021 from 2020. Our operating and administrative expenses, (including a gain on the sale of property and equipment), as a percentage of net sales, improved to 29.2%25.3% in 20172020 from 29.5%27.3% in 2016. The primary contributor to this2019. This improvement was relatively modest growth in occupancy-related expenses. Though our employee-related and selling transportation expenses grew more quickly than our occupancy expenses, they also contributed to this leverage in 2017.
Thea function of the growth in employee-related, occupancy-related, and selling transportation expenses (the three largest components of ourall other operating and administrative expenses)expenses being more modest than the growth in sales. Employee-related expenses improved the ratio of operating and administrative expenses as a percentage of sales by 140 to 145 basis points in 2020 from 2019. Occupancy-related expenses improved the ratio of operating and administrative expenses as a percentage of sales by 25 to 30 basis points in 2020 from 2019. All other operating and administrative expenses improved the ratio of operating and administrative expenses as a percentage of sales by 40 to 45 basis points in 2020 from 2019.
The growth (contraction) in employee-related, occupancy-related, and all other operating and administrative expenses (including the gain on sales of property and equipment) compared to the same periods in the preceding year, is outlined in the table below.
Approximate Percentage of Total Operating and Administrative ExpensesTwelve-month PeriodApproximate Percentage of Total Operating and Administrative ExpensesTwelve-month Period
2017 2016 2015202120202019
Employee-related expenses65% to 70%10.2% 2.7% 0.7 %Employee-related expenses70%11.6 %-2.0 %5.1 %
Occupancy-related expenses15% to 20%1.3% 10.1% 7.4 %Occupancy-related expenses15% to 20%3.9 %0.3 %2.8 %
Selling transportation expenses5%8.1% 2.9% -13.1 %
All other operating and administrative expensesAll other operating and administrative expenses10% to 15%4.9 %-7.2 %1.5 %
Employee-related expenses include: (1) payroll (which includes cash compensation, stock option expense, and profit sharing), (2) health care, (3) personnel development, and (4) social taxes.
Our employee-related expenses increased in 2017. 2021 from 2020. This was related to: (1)improvement in our sales and profitability generating significantly higher bonuses and commissions; higher health insurance costs as employees became comfortable again in seeking non-COVID-related health care; an increase in our profit sharing contribution; and higher full-time equivalent ('FTE')and part-time wages producing an increase in base pay. Our employee-related expenses decreased in 2020 from 2019. This was related to: a decrease in FTE headcount and related base wages and employment taxes related to efforts to support growthreduce costs given weak demand in our business, (2) higher performancetraditional manufacturing and construction markets; lower bonuses and commissions duegiven weak demand in our traditional manufacturing and construction markets; and reduced costs associated with the Fastenal School of Business as
36
Table of Contents


training shifted from in-person to growth in net sales and net earnings, as well as regulatory driven incremental compensation, (3)online. This was only partly offset by an increase in our profit sharing contribution and option awards, (4) increased health care costs, and (5) the inclusion of Mansco personnel. The increase in 2016, when compared to 2015, was caused by increases in average annual FTE headcount and an increase in health care costs, which were partially offset by a contraction in our performance bonuses and commissions and in our profit sharing contribution, primarily due to lower sales growth, gross profit, and operating income (both on a dollar basis and on a relative basis). The slight increase in 2015, when compared to 2014, was caused by increases in full-time equivalent headcount and growth in our profit sharing contribution, primarily due to our expanding growth in operating income. Offsetting factors included lower performance bonuses and commissions due to the decrease in our gross profit percentage, and a focused reduction in overtime hours paid.

costs.
The table below summarizes the percentage change in our FTE headcount at the end of the periods presented compared to the end of the prior period:
Twelve-month Period
202120202019
In-market locations (branches & Onsites)0.7 %-8.0 %0.2 %
Non-in-market selling (1)
8.0 %5.4 %5.3 %
Selling subtotal1.7 %-6.2 %0.8 %
Distribution/Transportation5.8 %-10.5 %2.2 %
Manufacturing2.0 %-9.9 %-2.7 %
Administration (2)
9.8 %8.7 %8.5 %
Non-selling subtotal6.5 %-5.2 %3.1 %
Total3.0 %-6.0 %1.4 %
 Twelve-month Period
 2017 2016 2015
In-market locations7.0% -5.6 % 15.7%
Total selling (includes in-market locations)7.3% -4.9 % 15.8%
Distribution8.4% -0.7 % 5.5%
Manufacturing8.4% -9.1 % 3.3%
Administrative10.7% 0.3 % 8.3%
Total7.7% -4.1 % 13.3%
(1) Our non-in-market selling employee count has grown in recent years due to an increased focus on resources to support our growth drivers, particularly Onsite and national account growth.
(2) Administrative primarily includes our Sales Support, Information Technology, Finance and Accounting, Human Resources, and senior leadership roles and functions. Our administrative employee count has also grown in recent years due to increased personnel investments in information technology and operational support, such as purchasing and product development.
Occupancy-related expenses include: (1) building rent and depreciation, (2) building utility costs, (3) equipment related to our branches and distribution locations, and (4) industrial vending equipment (we consider the vending equipment, excluding leased locker equipment, to be a logical extension of our branch operationin-market operations and classify the depreciation and repair costs as occupancy expense)expenses). The slight increase in
Our occupancy-related expenses increased in 2017, when compared to 2016,2021 from 2020. This was mainly driven by increases inrelated to: the timing of development costs related to industrial vending equipment FMI bins, and automation equipment at our distribution centers. The most significant componentsutilized as part of our FMI suite of technologies; depreciation related to a higher installed base of FMI devices; and higher facility costs, with higher costs for non-branch facilities and utilities being only partly offset by slightly lower costs for branch facilities from branch closings. Our occupancy-related expenses facility costs and utility expenses, were mostly flatincreased slightly in 2017, when compared to 20162020 from 2019. This was primarily due to a reductionhigher depreciation related to facility expansions completed in 2019, partly offset by lower utility costs in our numberbranches.
All other operating and administrative expenses include: (1) selling-related transportation, (2) information technology (IT) expenses, (3) general corporate expenses, which consists of public branches. The increase in 2016, when compared to 2015, was mainly driven by an increase inlegal expenses, general insurance expenses, travel and marketing expenses, etc., and (4) the amount gain on sales of industrial vending equipmentproperty and an increase in occupancy expense related to rent. The largest impact came from the industrial vending equipment. The increase in 2015, when compared to 2014, was driven by an increase in the amount of industrial vending equipment

Combined, all other operating and an increased investment in our distribution infrastructure over the previous several years, primarily related to automation.
Our selling transportation expenses consist primarily of expenses for our branch fleet of vehicles, including branch fuel expense, as most of the distribution fleet costs are included in cost of sales. Selling transportationadministrative expenses increased in 2017 when compared to 2016. We increased2021 from 2020. This was related to: higher spending on information technology; higher spending on travel, meals, and supplies as business activity recovered from the sizeCOVID-related travel restrictions of our field-based vehicle fleet2020; and higher costs for sales personnel which resultedlegal settlements. These elements were partly offset by lower bad debt expenses and lower general insurance costs. Combined, all other operating and administrative expenses decreased in higher expenses. However, the larger impact2020 from 2019. This was an increase in fuel expenserelated to: lower selling-related freight expenses due to higher fuel prices and consumption during the period. This was partially offset by gains on sales of leased vehicles. Selling transportation expenses increased in 2016, when compared to 2015. This was driven by an increase in the number of vehicles for sales personnel, and was partially offset by a decrease in fuel expense. The contraction in selling transportation expenses in 2015, when compared to 2014, was driven by the decline in fuel costs.
The last several years have seen some variation in the cost of diesel fuel and gasoline. During the first, second, third, and fourth quarters of 2017, our total vehicle fuel costs were approximately $8.9, $9.0, $8.5, and $9.7, respectively. During the first, second, third, and fourth quarters of 2016, our total vehicle fuel costs were approximately $6.4, $8.2, $8.3, and $8.0, respectively. The fluctuations were a result of: (1) variations in fuel costs, (2) the service levels provided to our in-market locations from our distribution centers, (3) the number of vehicles at our branch locations, (4) the number of other sales centered vehiclesreduced travel as a result of COVID-related restrictions, the expansionrationalization of our sales force,branch fleet, and (5) changes in driving conditions. These fuel costs include the fuel utilized in our distribution vehicles (semi-tractors, straight trucks,significantly reduced travel and sprinter trucks) which is recorded in costmeal expenses due to reduced travel as a result of sales and the fuel utilized in our branch delivery and other sales centered vehicles which is included in operating and administrative expenses (the split in the last several years has been approximately 50/50 between distribution and branch and other sales centered use). 
In 2017, aside from these larger impacts, our operating and administrative expenses were also affectedCOVID-related restrictions. This was partly offset by increases inhigher spending on information technology, incremental operating expenses, including amortization, related to our acquisition of Mansco, and the absence of supplier marketing incentives that existed in the first nine months of 2016 as part of our CSP 16 initiative.technology.
Net Interest Expense
Our net interest expense was $8.7$9.6 in 20172021 compared to $6.1$9.1 in 2016,2020, and $2.7$13.6 in 2015. The increase2019. This was related to: lower interest income, as the special dividend paid in 2017, when compared to 2016,December 2020 resulted in lower interest-earning cash balances in 2021; slightly higher interest expense which was mainly caused bythe net result of slightly higher average interest rates and slightly lower average debt. During the year, we repaid one tranche under our Master Note Agreement, reducing the balance from $405.0 to $390.0. However, in the fourth quarter of 2021 we increased our balance outstanding under our revolver by $25.0 to support working capital growth. The decrease in 2020, when compared to 2019, was due to a slightly higherlower average debt balance duringpaired with substantially lower interest rates. During the period. The increase in 2016, when comparedyear, we increased the debt held under our Master Note Agreement to 2015, was driven by higher average interest rates$405.0 as a means of fixing a portion of our debt and increased borrowings.freeing up borrowing capacity under our revolver.
37
Table of Contents


Income Taxes
We recorded a provisional income tax expense of $294.5$282.8 in 2017,2021, or 33.7%23.4% of earnings before income taxes. This amountOur effective tax rate reflects an estimated$8.7 reduction in our deferred income tax liabilities of $30.8 as a result of the income tax rate decrease included in the Tax Act, partially offset by an estimated increase in income tax payable in the amount of $6.5 as a result of the transition tax on cash and cash equivalent balances related to accumulated earnings associated with our international

operations, also included in the Tax Act. Absent the impact of the Tax Act, our income tax expense for 2017 would have been approximately $318.8, or 36.5% of earnings before income taxes. The decrease in our income tax rate from 2016 to 2017 was also related to changes in our reserve for uncertain tax positions and the adoption of the Financial Accounting Standards Board ('FASB') Accounting Standard Update ('ASU') 2016-09, Improvements to Employee Share-Based Payment Accounting, in the first quarter of 2017. This standard addresses accounting for excess tax benefits from stock-based compensation that were previously recorded in additional paid-in capital on the balance sheet and are now recognized in income tax expense ondue to discrete items mainly relating to benefits associated with the consolidated statementexercise of earnings for the year ended December 31, 2017. A more detailed description of the adoption of ASU 2016-09 is included in Note 1 of the Notes to Consolidated Financial Statements.
Income taxes, as a percentage of earnings before income taxes, were approximately 36.8% and 37.5% for 2016 and 2015, respectively. The decrease in our income tax rate from 2015 to 2016 was caused by a slight change in jurisdictional incomestock options and changes in the reserve for uncertain tax positions. As our international business and profits grew the past several years, the lower income tax rates in those jurisdictions, relative to the United States, lowered our effective tax rate.
We are evaluating the impacts of the Tax Act on our 2018 provisionalrecorded income tax expense booking rate. We currently estimate this rate will beof $273.6 in the range of 24% to 26%2020, or 24.2% of earnings before income taxes. Our income tax expense was reduced by $5.3 due to discrete items mainly relating to benefits associated with the exercise of stock options and changes in the reserve for uncertain tax positions.
Net Earnings
Net earnings, net earnings per share (EPS), the percentage change in net earnings, and the percentage change in EPS, were as follows:
Dollar Amounts202120202019
Net earnings$925.0 859.1 790.9 
Basic EPS1.61 1.50 1.38 
Diluted EPS1.60 1.49 1.38 
Percentage Change202120202019
Net earnings7.7 %8.6 %5.2 %
Basic EPS7.5 %8.5 %5.3 %
Diluted EPS7.4 %8.4 %5.2 %
202120202019
Tax Rate23.4 %24.2 %24.2 %
Dollar Amounts
   2017 (1)
 2016 2015
Net earnings$578.6
 499.4
 516.4
Basic EPS2.01
 1.73
 1.77
Diluted EPS2.01
 1.73
 1.77
      
Percentage Change
   2017 (1)
 2016 2015
Net earnings15.8% -3.3 % 4.5%
Basic EPS16.1% -2.3 % 6.0%
Diluted EPS16.2% -2.3 % 6.6%
(1) Absent the impact of the Tax Act, ourDuring 2021, net earnings for 2017 would have been $554.2, an increase of 11.0% when comparedincreased, primarily due to 2016, and our basic and diluted earnings per share would have each been $1.92, an increase of 11.2% and 11.3%, respectively.
During 2017,stronger sales translating into higher pre-tax profits, as well as a lower income tax rate. In 2020, net earnings increased, primarily due to stronger sales and higher operating profits, combined with a reductionand were only partly offset by an increase in income tax expense. The slightly higher increase in basic and diluted earnings per share was primarily due toalso reflected the purchase of our shares of common stock in 2017. During 2016, net earnings decreased, despitestock.


38
Table of Contents



Results of Operations (Comparison to 2019 Periods)
Given the unusual nature of our nominal sales growth, primarilymarketplace during 2021 and 2020 due to the reduction inCOVID-19 pandemic, we believe that a comparison of certain results of operations during the gross profit percent realizedyear and an increase in operating and administrative expenses. The contractionfourth quarter of basic and diluted earnings per share was smaller due primarily2021 to the purchasesame periods in 2019 provides further insight into sustainable trends and underlying performance of our sharesbusiness. As discussed earlier in this report, there were certain aspects of common stock in 2015 and early 2016. During 2015, the net earnings increase was greater thanCOVID-19 pandemic that of sales primarily duedramatically impacted our business during 2020. Given this, we believe that a comparison to the effective management2019 periods is helpful to demonstrate changes in financial condition and our results of operating expenses.operations during the most recently ended quarter and year. The table below provides such a comparison:

Twelve-month PeriodThree-month Period
20212019Change20212019Change
Net sales$6,010.9 5,333.7 12.7 %$1,531.8 1,276.9 20.0 %
Business days253 254 62 63 
Daily sales$23.8 21.0 13.1 %$24.7 20.3 21.9 %
Gross profit$2,777.2 2,515.4 10.4 %$712.9 598.4 19.1 %
% of net sales46.2 %47.2 %46.5 %46.9 %
Operating and administrative expenses$1,559.8 1,458.2 7.0 %$412.0 359.5 14.6 %
% of net sales26.0 %27.3 %26.9 %28.2 %
Operating income$1,217.4 1,057.2 15.2 %$300.9 238.9 25.9 %
% of net sales20.3 %19.8 %19.6 %18.7 %
Earnings before income taxes$1,207.8 1,043.7 15.7 %$298.5 236.4 26.3 %
% of net sales20.1 %19.6 %19.5 %18.5 %
Net earnings$925.0 790.9 17.0 %$231.2 178.7 29.4 %
Diluted net earnings per share$1.60 1.38 16.4 %$0.40 0.31 28.9 %
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities in dollars and as a percentage of net earnings were as follows:
202120202019
Net cash provided$770.1 1,101.8 842.7 
% of net earnings83.3 %128.3 %106.5 %
 2017 2016 2015
Net cash provided$585.2
 519.9
 550.3
% of net earnings101.1% 104.1% 106.6%
In 2017,2021, the increase in net cash provided by operating activities was primarily due to our net earnings growth. The declinedecrease in our operating cash flow as a percentage of net earnings largely reflectsis due to significant growth in working capital trends, and specifically accounts receivable as further described below. In 2016, the slight contractionwe support growth in our customers' operations as well as, in the case of inventory, significant product inflation. This was only slightly mitigated by ongoing efforts to improve the efficiency of our working capital and contrasts sharply with 2020 when weaker demand from our customers resulted in working capital being a net cash provided bysource of operating activities was driven by our current initiative to add additional products into branch inventory under our CSP 16 format, and an increase in net accounts receivable growth. This decrease was partially offset by a reduction in net cash paid for income taxes. cash. In 2015,2020, the increase in netour operating cash provided by operating activities was driven by growth inflow as a percentage of net earnings was due to working capital assets and liabilities being a modest source of cash in 2020, as opposed to a significant use of cash in 2019. This includes the deferral of $30.0 in payroll taxes resulting from the CARES Act and a decrease in the cash requiredtiming-related higher accounts payable balance.

39
Table of Contents
to fund our net

Trade Working Capital Assets
Trade working capital which includes accounts receivable and inventory changes. This was partially offset by an increase in cash paid for income taxes.
Operational Working Capital
Operational working capital, which we define as accounts receivable, net and inventories, isassets are highlighted below. The annual dollar change and the annual percentage change were as follows:
Dollar change2017 2016Dollar change20212020
Accounts receivable, net$108.1
 31.3
Accounts receivable, net$130.8 27.6 
Inventories99.9
 79.7
Inventories186.1 (28.9)
Operational working capital$208.1
 111.1
Trade working capital Trade working capital$316.9 (1.2)
Accounts payableAccounts payable26.1 14.2 
Trade working capital, net Trade working capital, net290.8 (15.4)
Annual percentage change2017 2016Annual percentage change20212020
Accounts receivable, net21.6% 6.7%Accounts receivable, net17.0 %3.7 %
Inventories10.1% 8.7%Inventories13.9 %(2.1)%
Operational working capital13.9% 8.0%
Trade working capital Trade working capital15.0 %(0.1)%
Accounts payableAccounts payable12.6 %7.3 %
Trade working capital, net Trade working capital, net15.3 %(0.8)%
Note – Amounts may not foot due to rounding difference.
In 2017,2021, the annual growth in net accounts receivable reflects acceleratingreflected several factors. First, our receivables are expanding as a result of improved business activity and resulting growth in sales throughoutour customers' sales. Second, in response to the course of the year combined with relatively stronger growthCOVID-19 pandemic, customers that traditionally have shorter payment terms represented a smaller proportion of our national accounts and international business. Growth in accounts receivable continued insales mix at the fourth quarterend of 2017, with2021 than was the timingcase at the end of the Christmas and New Year holidays affecting the timing of these customers' payments. Currency fluctuations also impacted accounts receivable in 2017. 2020. In 2016,2020, the annual growth in net accounts receivables outpaced thereceivable reflected growth in sales. This was notsales, mitigated by the case through the third quarter,substantial increase in sales to government customers, which tended to have shorter payment terms in 2020, and was mostly a function of conditions in the fourth quarter of 2016. In the fourth quarter of 2015, we collected receivables from our seasonally stronger third quarter, but because demand fell off surprisingly sharply in November and December, our fourth quarter receivables were unseasonably low. In the fourth quarter of 2016, by contrast, we collected receivables from our seasonally stronger third quarter, but because demand was more closely in line with seasonal norms, our receivables in the period were similarly more normal. Over a longer period of time, if we continue to see relatively strong growth in our international business and of our large customer accounts it could continue to create difficulty in managing the growth of accounts receivables relative to the growth in net sales.collections at year end.
Our growth in inventory balances over time does not have as directwill respond to business activity, though various factors produce a looser relationship to our monthly sales patterns as does our growththan we tend to experience in accounts receivable. ThisOne reason for this is impacted by other aspectscyclical. We source significant quantities of our business. For example, the dramatic economic slowdown in late 2008product from overseas, and early 2009 caused our inventory to spike. This occurred because the lead time for inventory procurementinvolved in procuring these products is typically longer than the visibility we have into future monthly sales patterns. OverAs a result, trends in our inventory will often lag trends in economic conditions. A second reason is our growth drivers, including our FMI offerings, Onsite channel, and international expansion, all of which tend to require significant investments in inventory. In 2021, our inventories increased, reflecting significant inflation in the last decade, we increased our relativevalue of stocked parts, and the addition of inventory levels due to the following: (1) new branch openings, (2) expanded stocking breadth at distribution centers (for example, our master stocking hub in Indianapolis expanded its product breadth over six fold from 2005 to 2011), (3) expanded direct sourcing, (4) expanded Fastenal brands, (5) expanded industrial vending solutions, (6) national accounts and Onsite growth, (7) international growth, and (8) expanded stocking breadth at individual branches related to our CSP initiatives. All of these items impacted both 2017 and 2016, though new branch openings have taken on a significantly diminished role. However, in 2017, the most significant contributor to the increase in inventories was improving business activity andsupport the growth of our Onsite business. manufacturing and construction customers as they expand production to meet improved business activity, and deeper inventory stocking due to disruption in supply chains. In 2016,2020, our inventories decreased, reflecting a number of factors, including reduced stocking needs on the most significant contributors to the increase in inventories were the impact of infusing incremental inventory into our network beginning at the end of 2015 as part of our CSP 16 initiative,traditional manufacturing and construction customers due to weak business activity, reduced vending and Onsite signings, and good execution on initiatives aimed at improving our inventory balances. This was partly offset by COVID-related PPE balances that we added in the relativesecond quarter of 2020 and declined over the second half of 2020, but we had no such PPE inventory in the preceding year.
In 2021, the annual growth of international sales, the growth of our Onsite business, and opportunistin accounts payable reflected product purchases increasing to support the improvement in business activity at year-end. Absentour manufacturing and construction customers. In 2020, the opportunistic product purchases at year-end,annual growth in inventories would have moderated substantially from earlier inaccounts payable reflected primarily the year, reflectingtiming of certain payments that slipped out of the stabilizingfourth quarter of CSP 16 inventories.2020 and into the first quarter of 2021.
The approximate percentage mix of inventory stocked at our selling locations versus our distribution center and manufacturing locations was as follows at year end:
202120202019
Selling locations57 %59 %60 %
Distribution center and manufacturing locations43 %41 %40 %
Total100 %100 %100 %
Lease Obligations
We have facilities, equipment, and vehicles leased under operating leases. A discussion of our lease obligations is contained in Note 8 of the Notes to Consolidated Financial Statements.
40
 2017 2016 2015
Selling locations65% 64% 61%
Distribution center and manufacturing locations35% 36% 39%
Total100% 100% 100%
Table of Contents



Net Cash Used in Investing Activities
Net cash used in investing activities in dollars and as a percentage of net earnings were as follows:
202120202019
Net cash used$148.5 281.7 239.7 
% of net earnings16.1 %32.8 %30.3 %
 2017 2016 2015
Net cash used$179.3
 188.1
 180.6
% of net earnings31.0% 37.7% 35.0%


The changes in net cash used in investing activities in 2021 was primarily related to the absence of an acquisition, in contrast to the $125.0 spent in 2020 for the purchase of certain assets of Apex Industrial Technologies LLC (Apex), as well as lower net capital expenditures. The changes in net cash used in investing activities in 2020 were primarily related to an increase of $125.0 for the purchase of certain assets of Apex, which was partly offset by changes in our net capital expenditures as discussed below and cash paid for acquisitions in 2017 and 2015.
Net capital expenditures (purchases of property and equipment, less proceeds from the sale of property and equipment) in dollars and as a percentage of net earnings were as follows:
 2017 2016 2015
Net capital expenditures$112.5
 183.0
 145.3
% of net earnings19.4% 36.6% 28.1%
Note – A reconciliation of net capital expenditures is outlined in the table below.
Our net capital expenditures decreased in 2017, when compared to 2016, primarily due to lower spending in 2017 related to: (1) the absence of spending on vending equipment that occurred in 2016 related to the leased locker rollout, (2) the absence of spending on shelving and signage that occurred in 2016 for the CSP 16 initiative, and (3) timing associated with the addition of pickup trucks. Our net capital expenditures increased in 2016, when compared to 2015, which was primarily due to the purchase of industrial vending devices related to the leased locker program we signed in February 2016 and spending on automation in certain distribution centers. Our net capital expenditures decreased in 2015, when compared to 2014, which was largely related to the completion of distribution center automation projects in process during 2014.expenditures.
Property and equipment expenditures in 2017, 2016, and 2015 consistedtypically consist primarily of: (1) the purchasepurchases related to industrial vending, (2) purchases of property and equipment related to expansion of and enhancements to distribution centers, (3) spending on software and hardware for our information processing systems, (2)(4) the addition of fleet vehicles, (3) the purchase of signage, shelving, and other fixed assets related to branch openings and our CSP 16 initiative, (4) the addition of manufacturing and warehouse equipment, (5) the expansion, improvement or improvement ofinvestment in certain owned or leased branch properties, and (6) purchases related to industrial vending,the addition of manufacturing and (7) costs related to enhancements to distribution centers including automation systemswarehouse equipment. Disposals of property and equipment consisted of the planned disposition of certain pick-up trucks, distribution vehicles, and trailers in the normal course of business, and the disposition of real estate relating to several branch locations and a distribution center (2015).business.
Set forth below is an estimate of our 2018 net capital expenditures and a recap of our 2017, 2016,2021, 2020, and 20152019 net capital expenditures.expenditures in dollars and as a percentage of net sales and net earnings:
202120202019
Manufacturing, warehouse and packaging equipment, industrial vending equipment, and facilities$70.3 91.5 172.7 
Shelving and related supplies for in-market location openings and for product expansion at existing in-market locations11.0 15.7 12.3 
Data processing software and equipment28.0 31.4 31.1 
Real estate and improvements to branch locations37.9 16.1 8.9 
Vehicles9.4 13.4 21.4 
Purchases of property and equipment156.6 168.1 246.4 
Proceeds from sale of property and equipment(8.4)(10.6)(6.6)
Net capital expenditures148.2 157.5 239.8 
% of net sales2.5 %2.8 %4.5 %
% of net earnings16.0 %18.3 %30.3 %
 2018 2017 2016 2015
 (Estimate) (Actual) (Actual) (Actual)
Manufacturing, warehouse and packaging equipment, industrial vending equipment, and facilities$87.0
 66.2
 131.8
 112.5
Shelving and related supplies for branch openings and for product expansion at existing branches16.0
 8.3
 14.1
 8.9
Data processing software and equipment28.0
 23.2
 18.0
 19.7
Real estate and improvements to branch locations14.0
 6.2
 5.5
 4.2
Vehicles12.0
 16.0
 20.1
 9.9
Purchases of property and equipment157.0
 119.9
 189.5
 155.2
Proceeds from sale of property and equipment(8.0) (7.4) (6.5) (9.9)
Net Capital Expenditures$149.0
 112.5
 183.0
 145.3
Our net capital expenditures decreased in 2021, when compared to 2020. We had higher spending on an office building construction project in Winona, Minnesota intended to support growth in our business. This was more than offset by reduced spending in other areas. We saw a significant decline in spending on FMI equipment due to slower hardware signings, lower vending equipment costs following the March 2020 acquisition of certain industrial vending assets of Apex, and an increase in the refurbishment and redeployment of FMI hardware as an alternative to buying new devices. We also had lower capital investment in our hub properties following a period of heavier investment in 2018 and 2019, and reduced spending on selling-related vehicles as challenges in the supply chain reduced availability. Our net capital expenditures decreased in 2020, when compared to 2019. We reduced capital spending expectations early in 2020 across most tracked categories as financial uncertainty related to the pandemic response emerged. The decline relates to lower spending on facility capacity and equipment following our investments in 2019, lower spending for vending devices as a result of our acquisition of certain assets of Apex and lower signings, lower spending on our captive fleet, and lower spending for manufacturing equipment.


We anticipate fundingexpect our net capital expenditure needs with cash generatedexpenditures in 2022 to be within a range of $180.0 to $200.0. This increase from operations, from available cash2021 reflects an increase in spending on FMI equipment in anticipation of higher signings, an increase in spending on hub properties to reflect upgrades to and cash equivalents,investments in automation as well as facilities upgrades, and froman increase in manufacturing capacity to support demand and expand capabilities. This is partly offset by the absence of spending on our borrowing capacity. Winona construction project, which was completed in 2021.

41
Table of Contents


Net Cash Used in Financing Activities
Net cash used in financing activities in dollars and as a percentage of net earnings were as follows:
2017 2016 2015202120202019
Net cash used$407.2
 346.8
 340.9
Net cash used$627.1 754.4 595.1 
% of net earnings70.4% 69.4% 66.0%% of net earnings67.8 %87.8 %75.2 %
The fluctuations in net cash used in financing activities are due to changes in the level of our dividend payments and in the level of common stock purchases. These amounts were partially offset by the exercise of stock options and net proceedspayments (proceeds) from debt obligations. These items in dollars and as a percentage of earnings were as follows:
2017 2016 2015202120202019
Dividends paid$369.1
 346.6
 327.1
Dividends paid$643.7 803.4 498.6 
% of net earnings63.8 % 69.4 % 63.3 %% of net earnings69.6 %93.5 %63.0 %
     
Common stock purchases82.6
 59.5
 292.9
Common stock purchases— 52.0 — 
% of net earnings14.3 % 11.9 % 56.7 %% of net earnings— %6.1 %— %
     
Total returned to shareholders$451.7
 406.1
 620.0
Total returned to shareholders$643.7 855.4 498.6 
% of net earnings78.1 % 81.3 % 120.1 %% of net earnings69.6 %99.6 %63.0 %
     
Proceeds from the exercise of stock options$(9.5) (29.3) (19.1)Proceeds from the exercise of stock options$(31.6)(41.0)(58.5)
% of net earnings-1.6 % -5.9 % -3.7 %% of net earnings-3.4 %-4.8 %-7.4 %
     
Cash borrowings, net$(35.0) (30.0) (260.0)
Cash payments (proceeds), netCash payments (proceeds), net$15.0 (60.0)155.0 
% of net earnings-6.0 % -6.0 % -50.4 %% of net earnings1.6 %-7.0 %19.6 %
     
Net cash used$407.2
 346.8
 340.9
Net cash used$627.1 754.4 595.1 
% of net earnings70.4 % 69.4 % 66.0 %% of net earnings67.8 %87.8 %75.2 %
Stock Purchases
In 2017,2021, we purchased 1,900,000did not purchase any shares of our common stock. In 2020, we purchased 1,600,000 shares of our common stock at an average price of approximately $43.43 per share, in 2016,$32.54. In 2019, we purchased 1,600,000did not purchase any shares at an average price of approximately $37.15 per share, and in 2015, we purchased 7,100,000 shares at an average price of approximately $41.26 per share.our common stock.
Dividends
We declared a quarterly dividend of $0.37$0.31 per shareshare on January 16, 2018. We18, 2022. In 2021, we paid aggregate annual dividends per share of $1.12. In 2020, we paid aggregate annual dividends per share of $1.28, $1.20,$1.40, which included $1.00 in regular quarterly dividends and $1.12a $0.40 special dividend paid in 2017, 2016,December 2020 as a result of our high cash balances and 2015, respectively.favorable financial outlook.
Debt
In order to fund the considerable cash needed to purchase industrial vending devices under our leased locker program, to expand our industrial vending business, toexpand capacity and increase the use of automation in our distribution centers, pay dividends, and, in 2020, to purchase our common stock, pre-pay vendors to secure access to critical products during the pandemic, and pay dividends, and to fund the acquisitionacquire certain assets of Mansco on March 31, 2017,Apex, we have borrowed under our Credit Facility and our Master Note Agreement in recent periods.
Our borrowings under the Credit Facility and Master Note Agreement peaked during each quarter of 20172021 and 20162020 as follows:
Peak borrowings20212020
First quarter$485.0 470.0 
Second quarter430.0 640.0 
Third quarter455.0 445.0 
Fourth quarter470.0 495.0 
Peak borrowings2017 2016
First quarter$325.0
 440.0
Second quarter365.0
 485.0
Third quarter365.0
 460.0
Fourth quarter325.0
 405.0


As of December 31, 2017,2021, we had loans$25.0 outstanding under the Credit Facility of $280.0 and had contingent obligations from letters of credit outstanding under the Credit Facility in an aggregate face amount of $36.3. As of December 31, 2017,2021, we also had

loans outstanding under the Master Note Agreement of $135.0.$365.0. Descriptions of our Credit Facility and Master Note Agreement are contained in Note 109 of the Notes to Consolidated Financial Statements.

42
Table of Contents


Material Cash Requirements
Our material cash requirements for known contractual obligations include capital expenditures, debt, and lease obligations, each of which are discussed in more detail earlier in this section. We believe that net cash provided by operating activities will be adequate to meet our liquidity and capital needs for these items in the short-term over the next 12 months and also in the long-term beyond the next 12 months. We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current distribution needs and are fulfilled by our suppliers within short time horizons. We do not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities. In addition, we may have liabilities for uncertain tax positions but we do not believe any of these liabilities will be material. A discussion of income taxes is contained in Note 7 of the Notes to Consolidated Financial Statements.
Unremitted Foreign Earnings
Approximately $92.0$178.5 of cash and cash equivalents are held by non-U.S. subsidiaries. These funds may create foreign currency translation gains or losses depending on the functional currency of the entity holding the cash. We have considered the financial requirements of each foreign subsidiary and our parent company and will continue to reinvest these funds to support our expansion activities outside the U.S., even after taking into consideration the deemed repatriation and transition tax under the Tax Act. The income tax impact of repatriating cash associated with investments in foreign subsidiaries is discussed in Note 7 of the Notes to Consolidated Financial Statements.
Effects of Inflation
Throughout 2017,In 2021, we experienced increasing productsignificant increases in the cost inflation, particularly in our fastener products.of metals (especially steel), energy, and transportation costs (especially overseas containers and shipping). These inflationary trends meaningfully increased the cost of many of the products we purchase. We were able to take actions duringmitigate the period, including pricing adjustments, to mostly offset this inflation. Inadverse effects of higher costs on our gross profit percentage in 2021 by increasing prices, seeking alternative sources for products and services, and consolidating spend for products and services. While the aggregate, the overall impacteffects of inflation and pricing on sales and profitsin 2021 was not materialbroad-based, we did experience deflation for certain COVID-related products that had inflated in 2017. During2020 when the supply chain was disrupted. This did require us to write down the value of these products in 2021, which negatively impacted our gross profit percentage in the first halfquarter of 2016,2021 and, to a lesser extent, throughout the balance of the year. In 2020, we experienced somechanging price levels for COVID-related supplies, with inflation for certain products that were in short supply (e.g., nitrile gloves) and deflation in our fastenerfor certain products which was largely offset by some inflation inthat became oversupplied (e.g., disposable masks). These were event-specific circumstances related to the latter half ofpandemic. As it related to the year, and minimal price movements in our non-fastener products. In 2015,non-COVID environment, we experienced some deflation in our fastener products and minimal price movements in our non-fastener products, with the net impact being a slight drag on growth.stable product costs through 2020 relative to 2019.
Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with U.S. GAAP, we must make decisions that impact the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of relevant circumstances, historical experience, and actuarial valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared.
Our most significant accounting policies, including Revenue Recognition and Inventories, are described in Note 1 of the Notes to Consolidated Financial Statements. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments, or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations. Our most critical accounting estimates include the following:
Allowance for doubtful accountsCredit Losses – This reserve is for accounts receivable balances that are potentially uncollectible. The reserveallowance for credit losses is based on an analysis of customer accounts and our historical experience with accounts receivable write-offs. Our methodology for estimating this reserve includes ongoing reviewsincome statement approach which adjusts the ending balance sheet to take into consideration expected losses over the contractual lives of the aging of accounts receivable, the financial condition ofreceivables, considering factors such as historical data as a customer or industry, and general economic conditions.basis for future expected losses. If business or economic conditions change, our estimates and assumptions may be adjusted as deemed appropriate. Historically, actual required reserves have not varied materially from estimated amounts.
Inventory obsolescence reservesvaluation – These reservesAdjustments to the valuation of inventory are based on an analysis of inventory trends including reviews of inventory levels, sales information, and the on-hand quantities relative to the sales history for the product. Our methodology for estimating these reserveswhether adjustments are necessary is continually evaluated for factors that could require changes to the reserves including significant changes in product demand, market conditions, condition of the inventory, or liquidation value. If business or economic conditions change, our
43
Table of Contents


estimates and assumptions may be adjusted as deemed appropriate. Historically, actual required reservesadjustments have not varied materially from estimated amounts.
General insurance reserves – These reserves are for general claims related to workers' compensation, property and casualty losses, and other general liability self-insured losses. The reserves are based on an analysis of reported claims and claims incurred but not yet reported related to our historical claim trends. We perform ongoing reviews of our insured and uninsured risks and use this information to establish appropriate reserve levels. We analyze historical trends, claims experience, and loss development patterns to ensure the appropriate loss development factors are applied to the incurred costs associated with the claims made. Historically, actual required reserves have not varied materially from estimated amounts.
New Accounting Pronouncements
A description of new accounting pronouncements is contained in Note 1 of the Notes to Consolidated Financial Statements.

Geographic Information
Information regarding our revenues and long-lived assets by geographic area is contained in Note 82 and Note 3 of the Notes to Consolidated Financial Statements. Risks related to our foreign operations are described earlier in this Form 10-K under the heading 'Forward-Looking Statements' and 'Item 1A. Risk Factors'.
Certain Contractual Obligations
As of December 31, 2017, we had outstanding long-term debt and facilities, equipment, and vehicles leased under operating leases. Our future obligations to pay principal of and interest on such long-term debt and to make minimum lease payments under such operating leases are as follows:
44
 Total 2018 2019 and 2020 2021 and 2022 After 2022
Principal of long-term debt$415.0
 3.0
 277.0
 75.0
 60.0
Interest on long-term debt(1)
35.5
 11.3
 16.4
 5.6
 2.2
Operating leases324.7
 133.8
 152.5
 36.4
 2.0
Total$775.2
 148.1
 445.9
 117.0
 64.2
Table of Contents
(1) Interest on the long-term debt outstanding under our Credit Facility was calculated using the interest rates and balances at December 31, 2017.
Purchase orders and contracts for the purchase of inventory and other goods and services are not included in the table above. Our purchase orders are based on current distribution needs and are fulfilled by our suppliers within short time horizons. We do not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities.
Liabilities for uncertain tax positions have been excluded from the table above due to the uncertainty surrounding the ultimate settlement and timing of these liabilities. A discussion of income taxes is contained in Note 7 of the Notes to Consolidated Financial Statements.
Non-GAAP Financial Measures
On December 22, 2017, the Tax Act was signed into law. The financial information included in this Form 10-K reflects the estimated impact of the enactment of the Tax Act. Our income tax expense, net earnings, our basic and diluted net earnings per share, and our income tax as a percentage of earnings before income tax, excluding the impact of the Tax Act, are non-GAAP financial measures. Management believes reporting these measures will help investors understand the effect of tax reform on comparable reported results.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to certain market risks from changes in foreign currency exchange rates, commodity steel pricing, commodity energy prices, and interest rates. Changes in these factors cause fluctuations in our earnings and cash flows. Italicized discussions throughout Item 7A of this Form 10-K indicate discussions of market risks in 2020. We evaluate and manage exposure to these market risks as follows:
Foreign currency exchange rates – Foreign currency fluctuations can affect our net investments, our operations in countries other than the U.S., and earnings denominated in foreign currencies. Historically, our primary exchange rate exposure has been with the Canadian dollar against the United States dollar. Our estimated net earnings exposure for foreign currency exchange rates was not material at year end. We have not historically hedged our foreign currency risk given that exposure to date has not been material. During 2021, changes in foreign currency exchange rates increased our reported net sales by $37.4 with the estimated effect on our net earnings being immaterial. During 2020, changes in foreign currency exchange rates decreased our reported net sales by $5.7 with the estimated effect on our net earnings being immaterial.
Commodity steel pricing – We buy and sell various types of steel products; these products consist primarily of different types of threaded fasteners. During 2017, we experienced some inflation in overall steel pricing. During the first half of 2016, we experienced some deflation in steel pricing. This deflation was largely offset by some inflation in the latter half of the year. In 2015, we noted some overall deflation in steel pricing.fasteners and related hardware. We are exposed to the impacts of commodity steel pricing and our related ability to pass through the impacts to our end customers. During 2021, the price of steel as reflected in many market indexes increased, which contributed to cost inflation in our steel-based products. Based on our ability to pass these higher costs on, the estimated effect on our net earnings was immaterial in 2021. During 2020, the price of commodity steel as reflected in many market indexes fell sharply early in the year as business activity declined in response to actions to address the COVID-19 pandemic, recovered sharply as business activity rebounded, and finished 2020 above the preceding year end levels.
Commodity energy prices – We have market risk for changes in prices of oil, gasoline, diesel fuel, natural gas, and electricity; however, this risk iselectricity. During 2021, the price of energy as reflected in many market indexes increased as economic activity improved, which contributed to higher costs for fuel in our vehicles and utilities at our facilities. In 2021, our estimated net earnings exposure for commodity energy prices was immaterial. During 2020, prices for energy were mostly lower as business activity declined in response to actions to address the COVID-19 pandemic. As a result, we experienced lower costs for fuel for our vehicles and utilities for our facilities.
Fossil fuels are also often a key feedstock for chemicals and plastics that comprise a key raw material for many products that we sell. During 2021, prices for fossil fuels were generally higher which caused us to experience higher prices for products with high chemical or plastic content. In 2021, our estimated net earnings exposure for materials for which fossil fuels are feedstock was immaterial. During 2020, although fossil fuel prices were generally lower we experienced stable, not lower, prices for products with high chemical or plastic content. We believe that over time these risks are mitigated in part by our ability to pass freight and product costs to our customers, the efficiency of ourour trucking distribution network, and the ability, over time, to manage our occupancy costs related to the heating and cooling of our facilities through better efficiency.
Interest rates - Loans under our Credit Facility bear interest at floating ratesrates tied to LIBOR.LIBOR (or, if LIBOR is no longer available, at a replacement rate to be determined by the administrative agent for the Credit Facility and consented to by us). As a result, changes in LIBOR can affect our operating results and liquidity to the extent we do not have effective interest rate swap arrangements in place. We have not historically used interest rate swap arrangements to hedge the variable interest rates under our Credit Facility. A one percentage point increase in LIBOR in 20172021 would have resulted in approximately $2.8$0.2 of additional interest expense. A description of our Credit Facility is contained in Note 109 of the Notes to Consolidated Financial Statements.

45
Table of Contents


ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholdersStockholders and boardBoard of directors ofDirectors
Fastenal Company:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Fastenal Company and subsidiaries (the 'Company')Company) as of December 31, 20172021 and 2016,2020, the related consolidated statements of earnings, comprehensive income, stockholders’stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2021 and the related notes and financial statement schedule listed in the table of contents at Item 15 (collectively, the 'consolidatedconsolidated financial statements')statements). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016,2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021 based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Fastenal Company acquired certain assets and assumed certain liabilities of Manufacturers Supply Company (‘Mansco’) on March 31, 2017, and management excluded from their assessment of the effectiveness of internal control over financial reporting as of December 31, 2017, Mansco's internal control over financial reporting associated with assets of approximately one percent of Fastenal Company's total assets and revenues of approximately one percent of Fastenal Company's total revenues included in the consolidated financial statements of Fastenal Company and subsidiaries as of and for the year ended December 31, 2017. Our audit of internal control over financial reporting of Fastenal Company also excluded an evaluation of the internal control over financial reporting of Mansco.

Basis for OpinionOpinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ('PCAOB')(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
46
Table of Contents


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Sufficiency of audit evidence over inventory quantities at in-market locations
As disclosed in the consolidated balance sheet, the Company held $1,523.6 million of inventory, the majority of which was held at 3,209 in-market locations, as of December 31, 2021. The Company's processes to track and determine consolidated inventory relies on a perpetual inventory system which involves the interaction of information technology (IT) systems.
We identified the evaluation of the sufficiency of audit evidence obtained related to the quantities of inventory at in-market locations as a critical audit matter. Evaluating the sufficiency of audit evidence over quantities of inventory at in-market locations required challenging auditor judgment to assess the number of in-market locations visited and included the involvement of IT professionals with specialized skills and knowledge due to the interaction of IT systems that track physical inventory quantities by location.
The following are the primary procedures we performed to address this critical audit matter: We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included IT application controls, as well as certain controls related to access to programs and data, program changes, and computer operations. It also included certain controls related to the Company's physical inventory cycle counts. We involved IT professionals with specialized skills and knowledge, who assisted in testing certain IT controls, inclusive of the interface of IT systems, which support the Company's perpetual inventory system. We applied auditor judgment in the determination of the locations to test the Company's inventory quantities by evaluating:
•Homogeneity of the locations;
•Historical inventory locations we have visited and results of prior physical counts;
•Inventory dollars by location; and
•The Company's inventory cycle count results, including the results of monitoring and compliance with the cycle count program by in-market location.

We tested the existence and completeness of inventory by counting inventory quantities on a sample basis through in-market location visits during the year to evaluate the Company's perpetual inventory records. In addition, we evaluated the overall sufficiency of audit evidence obtained over the quantities of inventory at in-market locations.
/s/    KPMG LLP
We have served as the Company’sCompany's auditor since 1987.
Minneapolis, Minnesota
February 5, 20187, 2022



47
Table of Contents


FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions except share information)


December 31
December 31
2017 2016 20212020
Assets   Assets
Current assets:   Current assets:
Cash and cash equivalents$116.9
 112.7
Cash and cash equivalents$236.2 245.7 
Trade accounts receivable, net of allowance for doubtful accounts of $11.9 and $11.2, respectively607.8
 499.7
Trade accounts receivable, net of allowance for credit losses of $12.0 and $12.3, respectivelyTrade accounts receivable, net of allowance for credit losses of $12.0 and $12.3, respectively900.2 769.4 
Inventories1,092.9
 993.0
Inventories1,523.6 1,337.5 
Prepaid income taxes—
 12.9
Prepaid income taxes8.5 6.7 
Other current assets118.1
 102.5
Other current assets188.1 140.3 
Total current assets1,935.7
 1,720.8
Total current assets2,856.6 2,499.6 
Property and equipment, net893.6
 899.7
Property and equipment, net1,019.2 1,030.7 
Operating lease right-of-use assetsOperating lease right-of-use assets242.3 243.0 
Other assets81.2
 48.4
Other assets180.9 191.4 
Total assets$2,910.5
 2,668.9
Total assets$4,299.0 3,964.7 
Liabilities and Stockholders' Equity   Liabilities and Stockholders' Equity
Current liabilities:   Current liabilities:
Current portion of debt$3.0
 10.5
Current portion of debt$60.0 40.0 
Accounts payable147.5
 108.8
Accounts payable233.1 207.0 
Accrued expenses194.0
 156.4
Accrued expenses298.3 272.1 
Income taxes payable6.5
 —
Current portion of operating lease liabilitiesCurrent portion of operating lease liabilities90.8 93.6 
Total current liabilities351.0
 275.7
Total current liabilities682.2 612.7 
Long-term debt412.0
 379.5
Long-term debt330.0 365.0 
Deferred income tax liabilities50.6
 80.6
Commitments and contingencies (Notes 5, 9, 10, and 11)
 
Stockholders’ equity:   
Operating lease liabilitiesOperating lease liabilities156.0 151.5 
Deferred income taxesDeferred income taxes88.6 102.3 
Commitments and contingencies (Notes 5, 8, 9, and 10)Commitments and contingencies (Notes 5, 8, 9, and 10)00
Stockholders' equity:Stockholders' equity:
Preferred stock: $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding—
 —
Preferred stock: $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding— — 
Common stock: $0.01 par value, 400,000,000 shares authorized, 287,591,536 and 289,161,924 shares issued and outstanding, respectively2.9
 2.9
Common stock: $0.01 par value, 800,000,000 shares authorized, 575,464,682 and 574,159,575 shares issued and outstanding, respectivelyCommon stock: $0.01 par value, 800,000,000 shares authorized, 575,464,682 and 574,159,575 shares issued and outstanding, respectively5.8 5.7 
Additional paid-in capital8.5
 37.4
Additional paid-in capital96.2 59.1 
Retained earnings2,110.6
 1,940.1
Retained earnings2,970.9 2,689.6 
Accumulated other comprehensive loss(25.1) (47.3)Accumulated other comprehensive loss(30.7)(21.2)
Total stockholders’ equity2,096.9
 1,933.1
Total liabilities and stockholders’ equity$2,910.5
 2,668.9
Total stockholders' equityTotal stockholders' equity3,042.2 2,733.2 
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity$4,299.0 3,964.7 
See accompanying Notes to Consolidated Financial Statements.

48
Table of Contents


FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Earnings
(Amounts in millions except earnings per share)
For the year ended December 31
 
2017 2016 2015202120202019
Net sales$4,390.5
 3,962.0
 3,869.2
Net sales$6,010.9 5,647.3 5,333.7 
Cost of sales2,226.9
 1,997.2
 1,920.3
Cost of sales3,233.7 3,079.5 2,818.3 
Gross profit2,163.6
 1,964.8
 1,948.9
Gross profit2,777.2 2,567.8 2,515.4 
Operating and administrative expenses1,282.8
 1,169.5
 1,121.5
Operating and administrative expenses1,559.8 1,426.0 1,458.2 
Gain on sale of property and equipment(1.0) (0.5) (1.4)
Operating income881.8
 795.8
 828.8
Operating income1,217.4 1,141.8 1,057.2 
Interest income0.4
 0.4
 0.4
Interest income0.1 0.6 0.4 
Interest expense(9.1) (6.5) (3.1)Interest expense(9.7)(9.7)(13.9)
Earnings before income taxes873.1
 789.7
 826.1
Earnings before income taxes1,207.8 1,132.7 1,043.7 
Income tax expense294.5
 290.3
 309.7
Income tax expense282.8 273.6 252.8 
Net earnings$578.6
 499.4
 516.4
Net earnings$925.0 859.1 790.9 
Basic net earnings per share$2.01
 1.73
 1.77
Basic net earnings per share$1.61 1.50 1.38 
Diluted net earnings per share$2.01
 1.73
 1.77
Diluted net earnings per share$1.60 1.49 1.38 
Basic weighted average shares outstanding288.2
 288.9
 291.5
Basic weighted average shares outstanding574.8 573.8 573.2 
Diluted weighted average shares outstanding288.3
 289.2
 292.0
Diluted weighted average shares outstanding577.1 575.7 574.4 
See accompanying Notes to Consolidated Financial Statements.

49
Table of Contents


FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Amounts in millions)
For the year ended December 31


2017 2016 2015202120202019
Net earnings$578.6
 499.4
 516.4
Net earnings$925.0 859.1 790.9 
Other comprehensive income (loss), net of tax:     
Foreign currency translation adjustments (net of tax of $0.0 in 2017, 2016, and 2015)22.2
 (0.9) (38.6)
Other comprehensive (loss) income, net of tax:Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments (net of tax of $0.0 in 2021, 2020, and 2019)Foreign currency translation adjustments (net of tax of $0.0 in 2021, 2020, and 2019)(9.5)17.2 6.4 
Comprehensive income$600.8
 498.5
 477.8
Comprehensive income$915.5 876.3 797.3 
See accompanying Notes to Consolidated Financial Statements.



50
Table of Contents


FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Amounts in millions)
202120202019
Common stockCommon stock
Balance at beginning of yearBalance at beginning of year$5.7 5.7 5.7 
Stock options exercisedStock options exercised0.1 0.0 0.0 
Balance at end of yearBalance at end of year5.8 5.7 5.7 
Additional paid-in capitalAdditional paid-in capital
Balance at beginning of yearBalance at beginning of year59.1 64.4 0.2 
Stock options exercisedStock options exercised31.5 41.0 58.5 
Purchases of common stockPurchases of common stock— (52.0)— 
Stock-based compensationStock-based compensation5.6 5.7 5.7 
Balance at end of yearBalance at end of year96.2 59.1 64.4 
Retained earningsRetained earnings
Balance at beginning of yearBalance at beginning of year2,689.6 2,633.9 2,341.6 
Net earningsNet earnings925.0 859.1 790.9 
Dividends paid in cashDividends paid in cash(643.7)(803.4)(498.6)
Balance at end of yearBalance at end of year2,970.9 2,689.6 2,633.9 
Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income
Balance at beginning of yearBalance at beginning of year(21.2)(38.4)(44.8)
Other comprehensive (loss) incomeOther comprehensive (loss) income(9.5)17.2 6.4 
Balance at end of yearBalance at end of year(30.7)(21.2)(38.4)
Total stockholders' equityTotal stockholders' equity$3,042.2 2,733.2 2,665.6 
Common Stock        
Shares Amount 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 Total
Stockholders'
Equity
Balance as of December 31, 2014295.9
 $3.0
 33.7
 1,886.4
 (7.8) 1,915.3
Dividends paid in cash—
 —
 —
 (327.1) —
 (327.1)
Purchases of common stock(7.1) (0.1) (60.0) (232.8) —
 (292.9)
Stock options exercised0.8
 —
 19.1
 —
 —
 19.1
Stock-based compensation—
 —
 5.8
 —
 —
 5.8
Excess tax benefits from stock-based compensation—
 —
 3.4
 —
 —
 3.4
Net earnings—
 —
 —
 516.4
 —
 516.4
Other comprehensive income (loss)—
 —
 —
 —
 (38.6) (38.6)
Balance as of December 31, 2015289.6
 $2.9
 2.0
 1,842.9
 (46.4) 1,801.4
Dividends paid in cash—
 —
 —
 (346.6) —
 (346.6)
Purchases of common stock(1.6) —
 (3.9) (55.6) —
 (59.5)
Stock options exercised1.2
 —
 29.3
 —
 —
 29.3
Stock-based compensation—
 —
 4.1
 —
 —
 4.1
Excess tax benefits from stock-based compensation—
 —
 5.9
 —
 —
 5.9
Net earnings—
 —
 —
 499.4
 —
 499.4
Other comprehensive income (loss)—
 —
 —
 —
 (0.9) (0.9)
Balance as of December 31, 2016289.2
 $2.9
 37.4
 1,940.1
 (47.3) 1,933.1
Dividends paid in cash—
 —
 —
 (369.1) —
 (369.1)
Purchases of common stock(1.9) —
 (43.6) (39.0) —
 (82.6)
Stock options exercised0.3
 —
 9.5
 —
 —
 9.5
Stock-based compensation—
 —
 5.2
 —
 —
 5.2
Net earnings—
 —
 —
 578.6
 —
 578.6
Other comprehensive income (loss)—
 —
 —
 —
 22.2
 22.2
Balance as of December 31, 2017287.6
 $2.9
 8.5
 2,110.6
 (25.1) 2,096.9
Cash dividends paid per share of common stockCash dividends paid per share of common stock$1.12 1.40 0.87 
See accompanying Notes to Consolidated Financial Statements.

51
Table of Contents


FASTENAL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in millions)
For the year ended December 31
2017 2016 2015202120202019
Cash flows from operating activities:     Cash flows from operating activities:
Net earnings$578.6
 499.4
 516.4
Net earnings$925.0 859.1 790.9 
Adjustments to reconcile net earnings to net cash provided by operating activities, net of acquisitions:     
Adjustments to reconcile net earnings to net cash provided by operating activities, net of acquisition:Adjustments to reconcile net earnings to net cash provided by operating activities, net of acquisition:
Depreciation of property and equipment123.6
 103.5
 86.1
Depreciation of property and equipment159.9 153.3 144.6 
Gain on sale of property and equipment(1.0) (0.5) (1.4)Gain on sale of property and equipment(1.1)(1.4)(1.2)
Bad debt expense8.2
 8.6
 8.8
Bad debt expense2.5 7.5 5.5 
Deferred income taxes(30.0) 25.6
 8.3
Deferred income taxes(13.7)2.9 15.0 
Stock-based compensation5.2
 4.1
 5.8
Stock-based compensation5.6 5.7 5.7 
Amortization of intangible assets3.8
 0.5
 0.5
Amortization of intangible assets10.8 9.1 4.1 
Changes in operating assets and liabilities, net of acquisitions:     
Changes in operating assets and liabilities, net of acquisition:Changes in operating assets and liabilities, net of acquisition:
Trade accounts receivable(103.7) (40.5) (20.6)Trade accounts receivable(135.2)(29.7)(30.4)
Inventories(76.3) (80.9) (47.8)Inventories(189.5)36.0 (84.4)
Other current assets(15.6) 29.1
 (15.8)Other current assets(47.8)17.1 (10.4)
Accounts payable36.3
 (17.2) 20.6
Accounts payable26.1 14.2 (0.8)
Accrued expenses37.6
 (28.6) 11.1
Accrued expenses26.2 20.6 10.7 
Income taxes19.4
 15.5
 (26.6)Income taxes(1.8)10.0 (7.7)
Other(0.9) 1.3
 4.9
Other3.1 (2.6)1.1 
Net cash provided by operating activities585.2
 519.9
 550.3
Net cash provided by operating activities770.1 1,101.8 842.7 
Cash flows from investing activities:     Cash flows from investing activities:
Purchases of property and equipment(119.9) (189.5) (155.2)Purchases of property and equipment(156.6)(168.1)(246.4)
Proceeds from sale of property and equipment7.4
 6.5
 9.9
Proceeds from sale of property and equipment8.4 10.6 6.6 
Cash paid for acquisitions(58.7) —
 (23.5)
Cash paid for acquisitionCash paid for acquisition— (125.0)— 
Other(8.1) (5.1) (11.8)Other(0.3)0.8 0.1 
Net cash used in investing activities(179.3) (188.1) (180.6)Net cash used in investing activities(148.5)(281.7)(239.7)
Cash flows from financing activities:     Cash flows from financing activities:
Proceeds from debt obligations1,015.0
 950.0
 1,215.0
Proceeds from debt obligations525.0 1,000.0 910.0 
Payments against debt obligations(980.0) (920.0) (955.0)Payments against debt obligations(540.0)(940.0)(1,065.0)
Proceeds from exercise of stock options9.5
 29.3
 19.1
Proceeds from exercise of stock options31.6 41.0 58.5 
Purchases of common stock(82.6) (59.5) (292.9)Purchases of common stock— (52.0)— 
Payments of dividends(369.1) (346.6) (327.1)Payments of dividends(643.7)(803.4)(498.6)
Net cash used in financing activities(407.2) (346.8) (340.9)Net cash used in financing activities(627.1)(754.4)(595.1)
     
Effect of exchange rate changes on cash and cash equivalents5.5
 (1.3) (14.2)Effect of exchange rate changes on cash and cash equivalents(4.0)5.1 (0.2)
Net increase (decrease) in cash and cash equivalents4.2
 (16.3) 14.6
Net (decrease) increase in cash and cash equivalentsNet (decrease) increase in cash and cash equivalents(9.5)70.8 7.7 
Cash and cash equivalents at beginning of year112.7
 129.0
 114.4
Cash and cash equivalents at beginning of year245.7 174.9 167.2 
Cash and cash equivalents at end of year$116.9
 112.7
 129.0
Cash and cash equivalents at end of year$236.2 245.7 174.9 
Supplemental disclosure of cash flow information:     
Supplemental information:Supplemental information:
Cash paid for interest$8.7
 6.2
 3.1
Cash paid for interest$9.9 8.4 13.9 
Net cash paid for income taxes$304.1
 248.3
 327.0
Net cash paid for income taxes$294.0 260.1 242.7 
See accompanying Notes to Consolidated Financial Statements.

52
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements

Note 1. Business Overview and Summary of Significant Accounting Policies
Business Overview
Fastenal is a leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies operatingthrough a branch-based business (with an increasing numbernetwork of branches and Onsite locations).locations. Collectively we refer to our branches and Onsite locations as in-market locations. We have approximately 3,000over 3,200 in-market locations located primarily in North America.
Principles of Consolidation
The consolidated financial statements include the accounts of Fastenal Company and its subsidiaries (collectively referred to as 'Fastenal'Fastenal or by terms such as 'we', 'our',we, our, or 'us')us). All material intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition and Accounts Receivable
Net sales include products services,and shipping and handling charges, and lease fees billed, net of estimates for product returns and any related sales incentives, and netincentives. Revenue is measured as the amount of an estimateconsideration we expect to receive in exchange for product returns.transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue when persuasive evidenceby transferring the promised products to the customer, with the majority of an arrangement exists, title and risk of ownership have passed, the sales price is fixed or determinable, and collectibility is reasonably assured. These criteria are metrevenue recognized at the point in time the product is shipped to or picked up bycustomer obtains control of the customer. We recognize services at the time the service is completed and the product is provided to the customer.products. We recognize revenue for shipping and handling charges at the time the products are shippeddelivered to or picked up by the customer. We recognize revenue for lease fees on a straight-line basis over the corresponding lease term. We estimate product returns based on historical return rates. Accounts receivableUsing probability assessments, which are stated at their estimated net realizable value. The allowance for doubtful accounts is based on an analysisknown inputs at year-end, we estimate sales incentives expected to be paid over the term of customer accountsthe contract. The majority of our contracts have a single performance obligation and our historical experience with accounts receivable write-offs.are short term in nature. Sales taxes (andand value added taxes in foreign jurisdictions)jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
Accounts Receivable
Credit is extended based upon an evaluation of the customers' financial condition. Accounts receivable are stated at their estimated net realizable value. The allowance for credit losses is based on an income statement approach which adjusts the ending balance sheet to take into consideration expected losses over the contractual lives of the receivables, considering factors such as historical data as a basis for future expected losses.
Foreign Currency Translation and Transactions
The functional currency of our foreign operations is typically the applicable local currency. The functional currency is translated into United States dollars for balance sheet accounts, except retained earnings, using current exchange rates as of the balance sheet date, for retained earnings at historical exchange rates, and for revenue and expense accounts using a weighted average exchange rate during the applicable period. The translation adjustments are deferred as a separate component of stockholders' equity captioned accumulated other comprehensive income (loss). Gains or losses resulting from transactions denominated in foreign currencies are included in cost of sales or operating and administrative expenses.
Cash and Cash Equivalents
We consider all investments purchased with original maturities of three months or less to be cash equivalents.
Inventories
Inventories, consisting of finished goods merchandise held for resale, are stated at the lower of cost (first in, first out method) or market.net realizable value. We record valuation adjustments for excess, slow-moving, and obsolete inventory that are equal to the difference between the cost and estimated net realizable value for that inventory. These estimates are based on a review and comparison of the current inventory levels to projected and historical sales of inventory.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and equipment is provided for using the straight-line method over the anticipated economic useful lives of the related property. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If
53
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by the asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. There were no impairments recorded during any of the three years reported in these consolidated financial statements.

42
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Leases
We determine if an arrangement contains a lease space underat inception. Operating leases are included in our operating leaseslease right-of-use (ROU) assets, the current portion of operating lease liabilities, and the operating lease liabilities in our Consolidated Balance Sheets.
The ROU assets represent our right to control the use of an underlying asset for certain distribution centers, branches,the lease term, and manufacturing locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Any such termslease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized as rent expenseat commencement date based on the present value of lease payments over the term of the lease. Further, the leases do not contain contingent rent provisions. Leasehold improvements onlease term. The operating leases are amortized over their estimated service liveslease ROU assets also include any prepaid lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and nonlease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component as we have elected the remainingpractical expedient to group lease and nonlease components for all leases. Our pick-up truck leases typically have a non-cancelable lease term whicheverof less than one year and therefore, we have elected the practical expedient to exclude these short-term leases from our ROU assets and lease liabilities.
Most leases include one or more options to renew. The exercise of lease renewal options is shorter.typically at our sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our ROU assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease certain semi-tractors, pick-ups,term.
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. We have a centrally managed treasury function; therefore, based on the applicable lease terms and equipment under operating leases.the current economic environment, we apply a portfolio approach for determining the incremental borrowing rate.
Other Long-Lived Assets
Other assets consist of prepaid deposits, goodwill, and other definite-lived intangible assets. Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is reviewed for impairment annually. The identifiable intangible assets are amortized on a straight-line basis over their estimated life.
On March 30, 2020 we purchased certain assets of Apex for $125.0, including identifiable intangible assets totaling $123.8, with a weighted average amortization period of approximately 19.4 years.
Accounting Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP)GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from those estimates.
Insurance Reserves
We are self-insured for certain losses relating to workers' compensation, automobile, health, and general liability costs. Specific stop-loss coverage is provided for catastrophic claims in order to limit exposure to significant claims. Self-insurance liabilities are based on our estimate of reported claims and claims incurred but not yet reported.
Product Warranties
We offer a basic limited warranty for certain of our products. The specific terms and conditions of those warranties vary depending upon the product sold. We typically recoup these costs through product warranties we hold with the original equipment manufacturers. Our warranty expense has historically been minimal.
54
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Stock-Based Compensation
We estimate the value of stock option grants using a Black-Scholes valuation model. Stock-based compensation expense is recognized on a straight-line basis over the vesting period. Our stock-based compensation expense is recorded in operating and administrative expenses.
Income Taxes
We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.
Earnings Per Share
Basic net earnings per share is calculated using net earnings available to common stockholders divided by the weighted average number of shares of common stock outstanding during the year. Diluted net earnings per share is similar to basic net earnings per share except that the weighted average number of shares of common stock outstanding includes the incremental shares assumed to be issued upon the exercise of stock options considered to be 'in-the-money' (i.e., when the market price of our stock is greater than the exercise price of our outstanding stock options).

43
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Segment Reporting
We have determined that for our North American operationsregions we meet the aggregation criteria outlined in the accounting standards as our various operationsthese regions have similarsimilar: (1) economic characteristics, (2) products and services, (3) customers, (4) distribution channels, and (5) regulatory environments. Considering the insignificance of our operations outside of North America, we report as a single business segment.
Recently Adopted Accounting PronouncementsImpact of COVID-19
Effective January 1, 2017, we adoptedThe COVID-19 pandemic has likely influenced various trends the FASB ASU 2016-09, Improvementscompany is currently experiencing. These include supply chain disruptions and labor shortages, and a modest shift in our mix to Employee Share-Based Payment Accounting. The standard simplifies several aspectsinclude more safety products. Evaluating 2021 is challenging given the impacts of the accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classificationpandemic on the company in the Consolidated Statements of Cash Flows. As a resultyear-earlier period. However, in contrast to much of the adoption, onpreceding one to two years, we are currently seeing a prospective basis, for the year ended December 31, 2017, we recognized $1.8 of excess tax benefits from stock-based compensation as a discrete item in our income tax expense. Historically, these amounts were recorded as additional paid-in capital. Upon adoption, we elected to apply the change retrospectively to our Consolidated Statements of Cash Flows for the years ended December 31, 2016 and December 31, 2015, which resulted in a reclassification of excess tax benefits from stock-based compensation of $5.9 and $3.4, respectively, offsetting cash flows used in financing activities to cash flows provided by operating activities. We elected not to change our policy on accounting for forfeitures and will continue to estimate a requisite forfeiture rate. Additional amendments to the accounting for income taxes and minimum statutory withholding requirements had nonarrower impact on our results of operations.
On December 22, 2017, the Securities and Exchange Commission ('SEC') staff issued Staff Accounting Bulletin No. 118 ('SAB 118') to address the application of U.S. GAAPbusiness related directly to the enactmentCOVID-19 pandemic, as economic activity has recovered and customer and product mix has reverted back to close to pre-pandemic levels. We believe current financial results are more reflective of traditional economic and marketplace dynamics than of pandemic-related issues such as facility restrictions, labor force illness, and personal protective equipment (PPE) demand. The primary exception to this normalization trend is in the signings of our Onsite and Fastenal Managed Inventory (FMI), which have yet to recover to pre-pandemic levels. To the extent that COVID-19 infections and/or interventions continue to meaningfully influence the marketplace, on a national, local, or business-specific basis, this can either directly impact or indirectly influence access to customer facilities and decision-makers, and lengthen the sales cycle for certain of our solutions.
However, it is possible the COVID-19 pandemic, particularly in light of variant strains of the comprehensive tax legislation, commonly referred to asvirus, could further impact our operations and the Tax Cutoperations of our suppliers and Jobs Act (the 'Tax Act'). This guidance was adopted in the fourth quarter of 2017. Additional information regarding our adoption of this guidance is contained in Note 7. 
Recently Issued Accounting Pronouncements
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 was to become effective for us beginning January 2017; however, ASU 2015-14 deferred our effective date until January 2018, which is when we plan to adopt this standard. The ASU permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The ASU also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. We have completed the process of evaluating the effect of the adoption and determined there were no changes required to our reported revenuesvendors as a result of quarantines, facility closures, illnesses, and travel and logistics restrictions. The extent to which the adoption. The majorityCOVID-19 pandemic impacts our business, results of our revenue arrangements generally consistoperations, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the resumption of a single performance obligation to transfer promised goods or services. Based on our evaluation processhigh levels of infection and review of our contracts with customers,hospitalization, the timing and amount of revenue recognized based on ASU 2015-14 is consistent with our revenue recognition policy under previous guidance. We adopted the new standard effective January 1, 2018, using the modified retrospective approach, and will expand our consolidated financial statement disclosures in order to comply with the ASU. We have determined the adoption of ASU 2015-14 will not have a materialresulting impact on our resultscustomers, suppliers, and vendors, the remedial actions and stimulus measures adopted by federal, state, and local governments, and to what extent normal economic and operating conditions are impacted. We cannot reasonably estimate the future impact at this time.
Stock Split
On April 17, 2019, the board of operations, cash flows, or financial position.
In February 2016, the FASB issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The guidance will be applied ondirectors approved a modified retrospective basis with the earliest period presented. Based on the effective date, this guidance will apply beginning January 2019, which is when we plan to adopt this ASU. While we are still in the process of evaluating the effect of adoption on our consolidated financial statements and are currently assessing our leases, we expect the adoption will lead to a material increase in the assets and liabilities recorded on our Consolidated Balance Sheets. As part of our assessment, we will need to determine the impact of lease extension provisions provided in our facility and vehicle leases which will impact the amount2-for-one stock split of the rightcompany's outstanding common stock. Holders of use asset and lease liability recorded under the ASU.

company's common stock, par value $0.01 per share, at the close of business on May 2, 2019, received 1
44
55
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


additional share of common stock for every share of common stock they owned. The stock split took effect at the close of business on May 22, 2019. All historical common stock share and per share information for all periods presented in the accompanying consolidated financial statements and notes thereto have been retroactively adjusted to reflect the stock split.
Immaterial Revision
The prior period balances for additional paid-in capital and common stock have been updated in both the Consolidated Balance Sheets and 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 consolidated financial statements; however, we have determined that, of our current debt commitments as outlined in detail in Note 9 'Debt Commitments', only the obligations described under Unsecured Revolving Credit Facility in Note 9 would be impacted by ASU 2020-04. Our Senior Unsecured Promissory Notes Payable described in Note 9 each have fixed interest rates.
Note 2. AcquisitionRevenue
On March 31, 2017, we acquired certain assets and assumed certain liabilitiesDisaggregation of Manufacturers Supply Company (‘Mansco’). Mansco, based in Hudsonville, Michigan, is a distributorRevenue
The accounting policies of industrial and fastener supplies with a particularly strong market position with commercial furniture original equipment manufacturers. As such, this acquisition gives us a presence in a market where we have not meaningfully participatedthe operations in the past, and provides Mansco with additional tools with whichvarious geographic areas are the same as those described in the summary of significant accounting policies. Revenues are attributed to service its customer base and reduce costs through economies of scale.
The total purchase price for this acquisition,countries based on the acquisition date fair value, consistedselling location from which the sale occurred. During 2021, no single customer represented 5% or more of $57.9 paid in cash at closing, $0.8 paid in cash after closing pursuantour consolidated net sales. During 2020, we had a single customer that represented 5% of our consolidated net sales, whereas all remaining customers fell below that threshold. During 2019, no single customer represented 5% or more of our consolidated net sales.
Our revenues related to a post-closing purchase price adjustment, and a contingent consideration arrangement which requires us to pay the former owner up to a maximum of $2.5 (undiscounted) in cash after closing based on sales growth of the acquired business. We funded the purchase pricefollowing geographic areas were as follows for the acquisition with the proceeds from the issuance of a new series of senior unsecured promissory notes under our master note agreement in the aggregate principal amount of $60.0.periods ended December 31:
Twelve-month period
202120202019
United States$5,033.3 4,825.3 4,568.9 
Canada and Mexico749.0 625.0 606.8 
North America5,782.3 5,450.3 5,175.7 
All other foreign countries228.6 197.0 158.0 
Total revenues$6,010.9 5,647.3 5,333.7 
The fair valuepercentages of our sales by end market were as follows for the assets acquired and liabilities assumed as of the acquisition date is summarized below.periods ended December 31:
Twelve-month period
202120202019
Manufacturing68.9 %62.4 %67.5 %
Non-residential construction11.1 %11.3 %12.9 %
Other20.0 %26.3 %19.6 %
100.0 %100.0 %100.0 %
56
Current assets$21.7
Property and equipment0.9
Identifiable intangible assets20.1
Current liabilities(1.8)
Total identifiable net assets40.9
Goodwill18.4
Total fair value of assets acquired and liabilities assumed$59.3
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
The identifiable intangible assets consist mainlypercentages of the value of the customer relationships thatour sales by product line were acquired and the goodwill consists largely of the synergies and economies of scale expected from combining the Mansco operations with our existing operations. The identifiable intangible assets and goodwill are deductible for income tax purposes.
The amount of net sales and net earnings of the acquired business included in our Consolidated Statement of Earningsas follows for the yearperiods ended December 31, 2017,31:
Twelve-month Period
TypeIntroduced202120202019
Fasteners (1)
196733.3 %29.9 %34.2 %
Tools19938.5 %8.2 %9.9 %
Cutting tools19965.0 %4.7 %5.7 %
Hydraulics & pneumatics19966.4 %5.9 %6.8 %
Material handling19965.6 %5.1 %5.9 %
Janitorial supplies19968.2 %9.8 %7.8 %
Electrical supplies19974.3 %4.1 %4.7 %
Welding supplies19973.8 %3.5 %4.2 %
Safety supplies199921.2 %25.5 %17.9 %
Other3.7 %3.3 %2.9 %
100.0 %100.0 %100.0 %
(1) The fastener product line represents fasteners and the pro forma net sales and net earnings of the combined entity had the acquisition occurred on January 1, 2016, are:miscellaneous supplies.
 20172016
Net sales$53.5
49.6
Net earnings$5.5
4.9
Note 3. Long-Lived Assets
PropertyThe accounting policies of the operations in the various geographic areas are the same as those described in the summary of significant accounting policies. Long-lived assets consist of net property and equipment, operating lease right-of-use assets, deposits, goodwill, and other net intangibles.
Property and equipment at year end consisted of the following:
Depreciable Life
in Years		20212020
Land— $58.3 51.9 
Buildings and improvements15 to 40501.9 450.4 
Automated distribution and warehouse equipment5 to 30266.5 254.7 
Shelving, industrial vending, and equipment3 to 101,211.2 1,141.3 
Transportation equipment3 to 586.6 87.3 
Construction in progress— 72.7 99.0 
2,197.2 2,084.6 
Less accumulated depreciation(1,178.0)(1,053.9)
Property and equipment, net$1,019.2 1,030.7 
Our long-lived assets related to the following geographic areas at year end:
20212020
United States$1,322.9 1,344.9 
Canada and Mexico85.6 85.1 
North America1,408.5 1,430.0 
All other foreign countries33.9 35.1 
Total long-lived assets$1,442.4 1,465.1 

 
Depreciable Life
in Years
 2017 2016
Land—
 $38.2
 37.3
Buildings and improvements15 to 40
 308.2
 297.1
Automated distribution and warehouse equipment5 to 30
 220.0
 216.3
Shelving, industrial vending, and equipment3 to 10
 812.9
 723.9
Transportation equipment3 to 5
 76.3
 71.7
Construction in progress—
 149.3
 152.5
   1,604.9
 1,498.8
Less accumulated depreciation  (711.3) (599.1)
Property and equipment, net  $893.6
 899.7


45
57
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Note 4. Accrued Expenses
Accrued expenses at year end consisted of the following:
20212020
Employee payroll and related taxes$32.3 60.3 (1)
Employee bonuses and commissions37.0 22.3 
Profit sharing contribution17.4 16.2 
Insurance reserves35.7 41.0 
Indirect taxes91.4 54.3 
Customer promotions and marketing56.3 57.9 
Other28.2 20.1 
Accrued expenses$298.3 272.1 
(1) Includes the deferral of $30.0 in payroll taxes resulting from the CARES Act in 2020.

 2017 2016
Payroll and related taxes$26.0
 23.2
Bonuses and commissions19.8
 14.2
Profit sharing contribution10.6
 8.7
Insurance reserves39.0
 34.6
Promotions31.3
 24.9
Indirect taxes51.1
 43.4
Other16.2
 7.4
Accrued expenses$194.0
 156.4


Note 5. Stockholders' Equity
Dividends
On January 16, 2018,18, 2022, our board of directors declared a quarterly dividend of $0.37$0.31 per share of common stock to be paid in cash on February 27, 2018March 2, 2022 to shareholders of record at the close of business on January 31, 2018.February 2, 2022. We paid aggregate annual cash dividends per share of $1.28, $1.20,$1.12, $1.40, and $1.12$0.87 in 2017, 2016,2021, 2020, and 2015,2019, respectively.
Stock Options
Effective January 2, 2018,3, 2022, the compensation committee of our board of directors granted to our employees options to purchase a total of 520,601660,083 shares of our common stock at an exercise strike price of $55.00$62.00 per share. On the same date, certain of our non-employee directors received options to acquire a total of 53,355 shares of our common stock at an exercise price of $62.00 per share. The closing stock price on the effective date of the grantgrants was $54.54$61.98 per share. On the same date, certain
58
Table of our non-employee directors electedContents
Fastenal Company and Subsidiaries
Notes to forgo all or a portion of the 2018 annual cash retainer in exchange for options to acquire a total of 21,185 shares of our common stock at an exercise price of $55.00 per share. These options are subject to shareholder approval of the non-employee director stock option plan at our annual meeting of shareholders to be held in April 2018.Consolidated Financial Statements—Continued
The following tables summarize the details of options granted under our stock option planplans that were still outstanding as of December 31, 2017,2021, and the assumptions used to value those 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
 December 31, 2017Options
Granted		Option Exercise
(Strike) Price		Closing Stock
Price on Date
of Grant		December 31, 2021
Date of Grant
Options
Outstanding
 
Options
Exercisable
Date of GrantOptions
Outstanding		Options
Exercisable
January 4, 2021January 4, 2021741,510 $48.00 $47.650 711,199 26,643 
January 2, 2020January 2, 2020902,263 $38.00 $37.230 846,225 24,964 
January 2, 2019January 2, 20191,316,924 $26.00 $25.705 1,017,660 268,714 
January 2, 2018January 2, 20181,087,936 $27.50 $27.270 743,788 318,052 
January 3, 2017764,789
 $47.00
 $46.95
 713,097
 —
January 3, 20171,529,578 $23.50 $23.475 732,180 363,406 
April 19, 2016845,440
 $46.00
 $45.74
 738,611
 —
April 19, 20161,690,880 $23.00 $22.870 524,119 331,739 
April 21, 2015893,220
 $42.00
 $41.26
 674,499
 142,072
April 21, 20151,786,440 $21.00 $20.630 403,736 240,908 
April 22, 2014955,000
 $56.00
 $50.53
 567,500
 158,750
April 22, 20141,910,000 $28.00 $25.265 186,391 111,407 
April 16, 2013205,000
 $54.00
 $49.25
 101,750
 55,250
April 16, 2013410,000 $27.00 $24.625 7,972 7,972 
April 17, 20121,235,000
 $54.00
 $49.01
 952,001
 772,977
April 19, 2011410,000
 $35.00
 $31.78
 60,350
 35,350
April 20, 2010530,000
 $30.00
 $27.13
 79,550
 54,550
April 21, 2009790,000
 $27.00
 $17.61
 61,550
 61,550
Total6,628,449
     3,948,908
 1,280,499
Total11,375,531 5,173,270 1,693,805 

Date of GrantRisk-free
Interest Rate		Expected Life
of Option in
Years		Expected
Dividend
Yield		Expected
Stock
Volatility		Estimated Fair
Value of Stock
Option
January 4, 20210.4% 5.002.0% 29.17 %$9.57 
January 2, 20201.7% 5.002.4% 25.70 %$6.81 
January 2, 20192.5% 5.002.9% 23.96 %$4.40 
January 2, 20182.2% 5.002.3% 23.45 %$5.02 
January 3, 20171.9% 5.002.6% 24.49 %$4.20 
April 19, 20161.3% 5.002.6% 26.34 %$4.09 
April 21, 20151.3% 5.002.7% 26.84 %$3.68 
April 22, 20141.8% 5.002.0% 28.55 %$4.79 
April 16, 20130.7% 5.001.6% 37.42 %$6.33 
46
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


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, 20171.9% 5.00 2.6% 24.49% $8.40
April 19, 20161.3% 5.00 2.6% 26.34% $8.18
April 21, 20151.3% 5.00 2.7% 26.84% $7.35
April 22, 20141.8% 5.00 2.0% 28.55% $9.57
April 16, 20130.7% 5.00 1.6% 37.42% $12.66
April 17, 20120.9% 5.00 1.4% 39.25% $13.69
April 19, 20112.1% 5.00 1.6% 39.33% $11.20
April 20, 20102.6% 5.00 1.5% 39.10% $8.14
April 21, 20091.9% 5.00 1.0% 38.80% $3.64
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 nineapproximately 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.
A summary of activities under our stock option planplans consisted of the following:
Options
Outstanding
Exercise
Price (1)
Remaining
Life (2)
Options
Outstanding
 
Exercise
Price(1)
 
Remaining
Life(2)
Outstanding as of January 1, 20173,757,947
 $46.81
 5.85
Outstanding as of January 1, 2021Outstanding as of January 1, 20215,914,757 $26.73 6.22
Granted764,789
 $47.00
 9.00Granted741,510 $48.00 9.00
Exercised(329,612) $28.59
 Exercised(1,305,107)$24.34 
Cancelled/forfeited(244,216) $48.22
 Cancelled/forfeited(177,890)$31.22 
Outstanding as of December 31, 20173,948,908
 $48.28
 5.89
Exercisable as of December 31, 20171,280,499
 $50.07
 3.78
Outstanding as of December 31, 2021Outstanding as of December 31, 20215,173,270 $30.23 6.08
Exercisable as of December 31, 2021Exercisable as of December 31, 20211,693,805 $25.11 4.68
 
59
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Options
Outstanding
Exercise
Price (1)
Remaining
Life (2)
Options
Outstanding
 
Exercise
Price(1)
 
Remaining
Life(2)
Outstanding as of January 1, 20164,530,982
 $41.49
 4.89
Outstanding as of January 1, 2020Outstanding as of January 1, 20206,807,217 $24.89 6.09
Granted845,440
 $46.00
 8.41Granted902,263 $38.00 9.00
Exercised(1,180,242) $24.80
 Exercised(1,630,664)$25.18 
Cancelled/forfeited(438,233) $49.49
 Cancelled/forfeited(164,059)$27.64 
Outstanding as of December 31, 20163,757,947
 $46.81
 5.85
Exercisable as of December 31, 20161,200,250
 $45.93
 3.74
Outstanding as of December 31, 2020Outstanding as of December 31, 20205,914,757 $26.73 6.22
Exercisable as of December 31, 2020Exercisable as of December 31, 20201,885,241 $24.23 4.71
(1) Weighted average exercise price.
(2) Weighted average remaining contractual life in years.
The total intrinsic value of stock options exercised during the years ended December 31, 2017, 2016,2021, 2020, and 20152019 was $6.9, $23.2,$38.8, $26.7, and $14.2,$20.2, respectively. The intrinsic value represents the difference between the exercise price and fair value of the underlying shares at the date of exercise.
At December 31, 2017,2021, there was $14.6$12.8 of total unrecognized stock-based compensation expense related to outstanding unvested stock options granted under the employee stock option plan. This expense is expected to be recognized over a weighted average period of 4.163.98 years. Any future change in estimated forfeitures will impact this amount. The total grant date fair value of stock options vested under our employee stock option plan during 2017, 2016,2021, 2020, and 20152019 was $4.2, $7.1,$4.8, $6.1, and $5.1,$5.9, respectively.

47
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Total stock-based compensation expense related to our employee stock option plan was $5.2, $4.1,$5.6, $5.7, and $5.8$5.7 for 2017, 2016,2021, 2020, and 2015,2019, respectively.
Shares Outstanding
Shares of common stock outstanding were as follows:
202120202019
Balance at beginning of year574,159,575 574,128,911 571,803,838 
Stock options exercised1,305,107 1,630,664 2,325,073 
Purchases of common stock— (1,600,000)— 
Balance at end of year575,464,682 574,159,575 574,128,911 
Earnings Per Share
The following tables present a reconciliation of the denominators used in the computation of basic and diluted earnings per share and a summary of the options to purchase shares of common stock which were excluded from the diluted earnings calculation because they were anti-dilutive:
Reconciliation202120202019
Basic weighted average shares outstanding574,808,030 573,778,761 573,202,152 
Weighted shares assumed upon exercise of stock options2,309,026 1,893,193 1,239,476 
Diluted weighted average shares outstanding577,117,056 575,671,954 574,441,628 
Reconciliation2017 2016 2015
Basic weighted average shares outstanding288,208,435
 288,949,525
 291,453,107
Weighted shares assumed upon exercise of stock options134,298
 207,998
 592,335
Diluted weighted average shares outstanding288,342,733
 289,157,523
 292,045,442
Summary of Anti-dilutive Options Excluded2017 2016 2015Summary of Anti-dilutive Options Excluded202120202019
Options to purchase shares of common stock3,524,401
 3,095,343
 2,611,367
Options to purchase shares of common stock678,310 846,041 — 
Weighted average exercise prices of options$49.85
 50.09
 51.89
Weighted average exercise prices of options$48.00 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.
Note 6. Retirement Savings Plan
The Fastenal Company and Subsidiaries 401(k) and Employee Stock Ownership Plan covers all of our employees in the United States. Our employees in Canada may participate in a Registered Retirement Savings Plan. The general purpose of both of these plans is to provide additional financial security during retirement by providing employees with an incentive to make regular
60
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
savings contributions. In addition to the participation of our employees, we make annual profit sharing contributions based on an established formula. The expense recorded under this profit sharing formula was approximately $10.6, $8.7,$17.4, $16.2, and $13.7$13.8 for 2017, 2016,2021, 2020, and 2015,2019, respectively.

48
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Note 7. Income Taxes
Earnings before income taxes were derived from the following sources:
2017 2016 2015202120202019
Domestic$809.4
 739.4
 786.0
Domestic$1,100.3 1,046.7 977.6 
Foreign63.7
 50.3
 40.1
Foreign107.5 86.0 66.1 
Earnings before income taxes$873.1
 789.7
 826.1
Earnings before income taxes$1,207.8 1,132.7 1,043.7 
Components of income tax expense (benefit) were as follows:
2017:Current Deferred Total
2021:2021:CurrentDeferredTotal
Federal$270.6
 (33.1) 237.5
Federal$214.3 (11.4)202.9 
State33.2
 3.3
 36.5
State46.7 (1.7)45.0 
Foreign20.5
 —
 20.5
Foreign34.1 0.8 34.9 
Income tax expense$324.3
 (29.8) 294.5
Income tax expense$295.1 (12.3)282.8 
 
2016:Current Deferred Total
2020:2020:CurrentDeferredTotal
Federal$223.9
 23.2
 247.1
Federal$195.4 1.8 197.2 
State28.2
 1.2
 29.4
State47.5 (0.5)47.0 
Foreign12.6
 1.2
 13.8
Foreign28.1 1.3 29.4 
Income tax expense$264.7
 25.6
 290.3
Income tax expense$271.0 2.6 273.6 
 
2015:Current Deferred Total
2019:2019:CurrentDeferredTotal
Federal$256.7
 7.4
 264.1
Federal$177.4 11.3 188.7 
State31.3
 0.2
 31.5
State41.6 0.2 41.8 
Foreign13.7
 0.4
 14.1
Foreign22.1 0.2 22.3 
Income tax expense$301.7
 8.0
 309.7
Income tax expense$241.1 11.7 252.8 
Income tax expense in the accompanying consolidated financial statements differed from the expected expense as follows:
202120202019
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
U.S. federal income tax expense at statutory rate$253.6 237.9 219.2 
Increase (decrease) attributed to:
State income taxes, net of federal benefit34.9 36.3 32.8 
Other, net(5.7)(0.6)0.8 
Total income tax expense$282.8 273.6 252.8 
Effective income tax rate23.4 %24.2 %24.2 %
 2017 2016 2015
Federal income tax expense at the 'expected' rate of 35%$305.6
 276.4
 289.1
Increase (decrease) attributed to:     
State income taxes, net of federal benefit21.5
 20.0
 21.6
Transition tax6.5
 —
 —
Effect of 2018 deferred rate change(30.8) —
 —
Other, net(8.3) (6.1) (1.0)
Total income tax expense$294.5
 290.3
 309.7
Effective income tax rate33.7% 36.8% 37.5%


49
61
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


The tax effects of temporary differences that give rise to deferred income tax assets and liabilities at year end consisted of the following:
2017 201620212020
Deferred income tax assets (liabilities):   Deferred income tax assets (liabilities):
Inventory costing and valuation methods$3.6
 4.8
Inventory costing and valuation methods$5.2 5.3 
Allowance for doubtful accounts3.0
 4.3
Allowance for credit lossesAllowance for credit losses3.1 3.1 
Insurance reserves8.4
 11.5
Insurance reserves7.4 9.1 
Promotions payable1.3
 1.7
Customer promotionsCustomer promotions2.3 2.4 
Stock-based compensation5.2
 6.8
Stock-based compensation2.8 3.3 
Operating lease liabilitiesOperating lease liabilities62.6 62.1 
Federal and state benefit of uncertain tax positions0.9
 1.9
Federal and state benefit of uncertain tax positions0.9 0.8 
Foreign net operating loss and credit carryforwards4.2
 5.1
Foreign net operating loss and credit carryforwards1.4 1.9 
Foreign valuation allowances(2.8) (4.0)Foreign valuation allowances(1.7)(2.2)
Prepaid royaltyPrepaid royalty5.9 — 
Other, net0.8
 2.1
Other, net0.2 (0.3)
Total deferred income tax assets24.6
 34.2
Total deferred income tax assets90.1 85.5 
Property and equipment(75.2) (114.8)Property and equipment(110.0)(117.6)
Operating lease ROU assetsOperating lease ROU assets(61.3)(61.4)
Total deferred income tax liabilities(75.2) (114.8)Total deferred income tax liabilities(171.3)(179.0)
Deferred income tax liabilities$(50.6) (80.6)Deferred income tax liabilities$(81.2)(93.5)
A reconciliation of the beginning and ending amount of total gross unrecognized tax benefits was as follows:
20212020
Balance at beginning of year:$8.8 8.6 
Increase related to prior year tax positions0.3 0.2 
Decrease related to prior year tax positions— (0.1)
Increase related to current year tax positions0.9 0.8 
Decrease related to statute of limitation lapses(2.6)(0.7)
Balance at end of year:$7.4 8.8 
 2017 2016
Balance at beginning of year:$5.4
 5.4
Increase related to prior year tax positions0.4
 0.2
Decrease related to prior year tax positions(0.5) —
Increase related to current year tax positions0.7
 0.8
Decrease related to statute of limitation lapses(1.1) (1.0)
Settlements(0.5) —
Balance at end of year:$4.4
 5.4
Included in the liability for gross unrecognized tax benefits is an immaterial amount for interest and penalties, both of which we classify as a component of income tax expense. The amount of gross unrecognized tax benefits that would favorably impact the effectiveeffective tax rate, if recognized, is not material. We do not anticipate significant changes in total unrecognized tax benefits during the next twelve months. The 2021 and 2020 liability is included in deferred income taxes in the Consolidated Balance Sheets.
Fastenal filesWe file income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. With limited exceptions, weWe are no longer subject to income tax examinations by taxing authorities for taxable years before 20152018 in the case of United States federal examinations, and 2013with limited exception, before 2016 in the case of foreign, state, and local examinations.
On December 22, 2017, the Tax Act was signed into law. The Tax Act makes broad and complex During 2021, there were no material changes to the U.S.in unrecognized tax code that affected our income tax rate in 2017. The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21% and requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries that is payable over eight years. The Tax Act also establishes new tax laws that will affect 2018.
ASC 740 requires a company to record the effects of a tax law change in the period of enactment, however, shortly after the enactment of the Tax Act, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.
We have made a reasonable estimate of the impact of the Tax Act and recorded discrete items in our 2017 income tax expense of $24.4 which reflects an estimated reduction in our deferred income tax liabilities of $30.8 as a result of the maximum federal rate decrease to 21% from 35% which was partially offset by an estimated increase in income tax payable in the amount of $6.5 as a result of the transition tax on cash and cash equivalent balances related to accumulated earnings associated with our international operations. We are continuing to gather additional information related to estimates surrounding the remeasurement

50
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


of deferred taxes and to unrepatriated earnings from foreign subsidiaries to more precisely compute the remeasurement of deferred taxes and the impact of the transition tax.benefits.
In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or very minimal and that position has not changed following incurring the transition tax under the Tax Act. Nominimal. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our approximately $436.3 of undistributed earnings from foreign investmentssubsidiaries to the United States. It is not practicable to estimate the amount of deferred income tax liabilities related to investments in these foreign subsidiaries.
Note 8. Geographic Information
Our revenues and long-lived assets related to the following geographic areas:
Revenues2017 2016 2015
United States$3,842.9
 3,493.5
 3,441.1
Canada257.6
 228.7
 223.3
Other foreign countries290.0
 239.8
 204.8
Total revenues$4,390.5
 3,962.0
 3,869.2
Long-Lived Assets2017 2016 2015
United States$919.5
 899.1
 821.1
Canada35.9
 33.2
 32.3
Other foreign countries19.4
 15.8
 14.3
Total long-lived assets$974.8
 948.1
 867.7
The accounting policies of the operations in the various geographic areas are the sameU.S. as those described in the summaryearnings continue to be permanently reinvested.

62
Table of significant accounting policies. Long-lived assets consist of net propertyContents
Fastenal Company and equipment, deposits, goodwill, and other net intangibles. Revenues are attributedSubsidiaries
Notes to countries based on the location of the branch from which the sale occurred. In each of the years presented in the table above, no single customer represented 5% or more of our consolidated net sales.Consolidated Financial Statements—Continued
Note 9.8. Operating Leases
We lease space under non-cancelable operating leases for several distribution centers, several manufacturing locations, and certain branch locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Any such terms are recognized as rent expense over the term of the lease. Further, the leases do not contain contingent rent provisions. The net book value of leasehold improvements at December 31, 2017 was $2.5. We also lease certain semi-tractors, pick-up trucks, and pick-upscomputer equipment under operating leases. Future minimum lease payments for all operating leases are as follows:
 
Leased
Facilities and Equipment
 
Leased
Vehicles
 Total
2018$96.8
 37.0
 133.8
201970.9
 23.7
 94.6
202047.5
 10.4
 57.9
202125.2
 1.9
 27.1
20229.3
 —
 9.3
2023 and thereafter2.0
 —
 2.0
Total minimum lease payments$251.7
 73.0
 324.7

51
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Rent expense under all operating leases was as follows:
 
Leased
Facilities and Equipment
 
Leased
Vehicles
 Total
2017$109.5
 45.8
 155.3
2016$110.1
 42.7
 152.8
2015$105.9
 38.2
 144.1
Certain operating leases for pick-up trucks contain residual value guarantee provisions which would generally become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. The aggregate residual value guarantee related to these leases was approximately $75.5. approximately $83.4. We believe the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remoteremote.
The cost components of our operating leases were as follows for the periods ended December 31:
202120202019
Leased
Facilities and
Equipment		Leased
Vehicles		TotalLeased
Facilities and
Equipment		Leased
Vehicles		TotalLeased
Facilities and
Equipment		Leased
Vehicles		Total
Operating lease cost$99.7 13.7 113.4 102.5 15.1 117.6 104.0 14.1 118.1 
Variable lease cost10.4 1.3 11.7 7.2 1.5 8.7 10.0 1.9 11.9 
Short-term lease cost— 19.2 19.2 — 23.6 23.6 — 27.4 27.4 
Total$110.1 34.2 144.3 109.7 40.2 149.9 114.0 43.4 157.4 
Variable lease costs are excluded from ROU assets and lease liabilities and consist primarily of taxes, insurance, and common area or other than where we have established an accrualmaintenance costs for estimated losses,our leased facilities and equipment which was immaterial atare paid based on actual costs incurred by the lessor as well as variable mileage costs related to our leased vehicles.
Maturities of our lease liabilities for all operating leases are as follows as of December 31, 2017. To2021:
Leased
Facilities and
Equipment		Leased
Vehicles		Total
2022$83.5 9.4 92.9 
202363.4 6.4 69.8 
202443.3 2.9 46.2 
202526.4 1.1 27.5 
202611.8 — 11.8 
2027 and thereafter5.4 — 5.4 
Total lease payments$233.8 19.8 253.6 
Less: Imputed interest(6.5)(0.3)(6.8)
Present value of lease liabilities$227.3 19.5 246.8 
The weighted average remaining lease terms and discount rates for all of our operating leases were as follows for the extentperiods ended December 31:
Remaining lease term and discount rate:20212020
Weighted average remaining lease term (years)
    Leased facilities and equipment3.533.47
    Leased vehicles2.472.44
Weighted average discount rate
    Lease facilities and equipment1.79%2.37%
    Leased vehicles1.79%2.39%
63
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued
Supplemental cash flow information related to our fleet contains vehicles we estimate will settle at a gain, such gains on these vehicles will be recognized when we selloperating leases was as follows for the vehicle.periods ended December 31:
202120202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflow from operating leases$112.4 115.8 117.2 
   Leased assets obtained in exchange for new operating lease liabilities103.6 99.2 116.1 
Note 10.9. Debt Commitments
Credit Facility, Notes Payable, and Commitments
Debt obligations and letters of credit outstanding at year end consisted of the following:
Average Interest Rate at December 31, 2021Debt Outstanding
Maturity
Date		20212020
Unsecured revolving credit facility1.05 %November 30, 2023$25.0 — 
Senior unsecured promissory notes payable, Series A2.00 %July 20, 2021— 40.0 
Senior unsecured promissory notes payable, Series B2.45 %July 20, 202235.0 35.0 
Senior unsecured promissory notes payable, Series C3.22 %March 1, 202460.0 60.0 
Senior unsecured promissory notes payable, Series D2.66 %May 15, 202575.0 75.0 
Senior unsecured promissory notes payable, Series E2.72 %May 15, 202750.0 50.0 
Senior unsecured promissory notes payable, Series F1.69 %June 24, 202370.0 70.0 
Senior unsecured promissory notes payable, Series G2.13 %June 24, 202625.0 25.0 
Senior unsecured promissory notes payable, Series H2.50 %June 24, 203050.0 50.0 
Total390.0 405.0 
   Less: Current portion of debt(60.0)(40.0)
Long-term debt$330.0 365.0 
Outstanding letters of credit under unsecured revolving credit facility - contingent obligation$36.3 36.3 
 2017 2016
Outstanding loans under unsecured revolving credit facility$280.0
 305.0
2.00% Senior unsecured promissory note payable40.0
 40.0
2.45% Senior unsecured promissory note payable35.0
 35.0
3.22% Senior unsecured promissory note payable60.0
 —
Note payable under asset purchase agreement—
 10.0
Total debt415.0
 390.0
   Less: Current portion of debt(3.0) (10.5)
Long-term debt$412.0
 379.5
    
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')(Credit Facility). The Credit Facility includes a committed letter of credit subfacility of $55.0. The commitments under the Credit Facility will expire (and anyAny borrowings outstanding under the Credit Facility will become due and payable) on March 10, 2020. In the next twelve months,for which we have the ability and intent to repay a portion ofpay using cash within the outstanding loans using cash; therefore, we havenext twelve months, will be classified this portion as a current liability. The Credit Facility contains certain financial and other covenants, and our right to borrow under the Credit Facility is conditioned upon, among other things, our compliance with these covenants. We are currently in compliance with these covenants.
Borrowings under the Credit Facility generally bear interest at a rate per annum equal to the London Interbank Offered Rate ('LIBOR')LIBOR for interest periods of various lengths selected by us, plus 0.95%. Based on the interest periods we have chosen, our weighted per annum interest rate at December 31, 2017 was approximately 2.5%. We pay a commitment fee for the unused portion of the Credit Facility. This fee is either 0.10% or 0.125% per annum based on our usage of the Credit Facility.
Senior Unsecured Promissory Notes Payable
On July 20, 2016 (the 'Effective Date'), we entered into aWe have issued senior unsecured promissory notes under our master note agreement (the 'MasterMaster Note Agreement') with certain institutional lenders, pursuant to which, during the period commencing on the Effective Date and ending three years thereafter, we may issue at our discretion in private placements, and the institutional lenders may purchase at their discretion, senior unsecured promissory notes of the company (the 'Notes')Agreement) in the aggregate principal amount outstanding from timeof $365.0 as of December 31, 2021. Our aggregate borrowing capacity under the Master Note Agreement is $600.0; however, none of the institutional investors party to timethat agreement are committed to purchase notes thereunder. There is no amortization of upthese notes prior to $200.0.their maturity date and interest is payable quarterly. The Notes will bearnotes currently issued under our Master Note Agreement, including the maturity date and fixed interest at either a fixed rate or a floating rate based on LIBOR for an interest periodper annum of one, three, or six months. The Notes will mature no later than 12 years after the dateeach series of issuance thereof,note, are contained in the case of fixed rate Notes, or 10 years after the date of issuance thereof, in the case of floating rate Notes. All of the Notes will be prepayable at our option in whole or in part.table above. The Master Note Agreement contains certain financial and other covenants. Wecovenants and we are currently in compliance with these covenants.

5264
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Three series of Notes are currentlyPrincipal payments required on our outstanding under the Master Note Agreement. The first series of Notes ('Series A'), was issuedindebtedness, based on the Effective Date, is in an aggregate principal amount of $40.0, is due and payable in full on July 20, 2021, and bears interest at a fixed rate of 2.00% per annum. The second series of Notes ('Series B'), was issued on the Effective Date, is in an aggregate principal amount of $35.0, is due and payable in full on July 20, 2022, and bears interest at a fixed rate of 2.45% per annum. The third series of Notes ('Series C'), was issued on March 1, 2017, is in an aggregate principal amount of $60.0, is due and payable in full on March 1, 2024, and bears interest at a fixed rate of 3.22% per annum. There is no amortization of these Notes prior to their maturity dates. Interest on such Notes is payable quarterly in arrears on January 20, April 20, July 20, and October 20 of each year. The carrying value of the Notes approximates fair value. The fair value was based on available external pricing data and current market rates for similardates defined within our long-term debt instruments, among other factors, which are classified as a level 2 measurement within the fair value hierarchy.
Note Payable Under Asset Purchase Agreement
On December 7, 2015, we signed an agreement to purchase, effective January 2, 2017 ('Asset Purchase Effective Date'), certain assets related to the collection and management of certain portions of our business and financial data from Apex Industrial Technologies, LLC ('Apex'), a provider of automated point-of-use dispensing and supply chain technologies. The agreement included a transition arrangement which required us to assume responsibility for certain software that was licensed by Apex. The total considerationarrangements, for the assets was $27.0,succeeding five years, are displayed in the table below, as of which $12.0 was paid in cash in December 2015 in advance of the Asset Purchase Effective Date. The remaining $15.0 was payable in installments pursuant to an unsecured note. The first $5.0 installment was paid in December 2016, the second $5.0 was paid in June 2017, and the final installment of $5.0 was paid in December 2017. Interest on the unpaid principal balance of the note was due and payable on the last day of each calendar quarter at an annual rate of 0.56%. In 2015, the $15.0 note represented a non-cash investing and financing activity in our Consolidated Statements of Cash Flows, while the payments made in 2017, 2016, and 2015 are included in our Consolidated Statements of Cash Flows as net cash used in investing activities in 'Other'.31, 2021:
Principal Payments
2022$35.0 
202370.0 
202460.0 
202575.0 
202625.0 
2027 and thereafter100.0 
Total$365.0 

Note 11.10. Legal Contingencies
We are involved in certain legal actions. The outcomes of these legal actions are not within our complete control and may not be known for prolonged periods of time. In some actions, the claimants seek damages, as well as other relief, that could require significant expenditures or result in lost revenues. We record a liability for these legal actions when a loss is known or considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed. In most cases, significant judgment is required to estimate the amount and timing of a loss to be recorded. As of December 31, 2017,2021, there were no litigation matters that we consider to be probable or reasonably possible to have a material adverse outcome.

53
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Note 12. Sales by Product Line
The percentages of our sales by product line were as follows:
TypeIntroduced 2017 2016 2015
Fasteners(1)
1967 35.6% 36.6% 38.3%
Tools1993 10.1% 9.9% 9.5%
Cutting tools1996 5.8% 5.7% 5.6%
Hydraulics & pneumatics1996 6.8% 6.9% 7.2%
Material handling1996 6.3% 6.4% 6.5%
Janitorial supplies1996 7.6% 7.6% 7.5%
Electrical supplies1997 4.9% 4.8% 4.7%
Welding supplies1997 4.6% 4.6% 4.7%
Safety supplies(2)
1999 15.2% 14.9% 13.9%
Metals2001 0.5% 0.5% 0.5%
Direct ship(3)
2004 0.5% 0.5% 0.4%
Office supplies2010 0.1% 0.1% 0.1%
Other  2.0% 1.5% 1.1%
   100.0% 100.0% 100.0%
(1) Fastener product line represents fasteners and miscellaneous supplies.
(2) The safety supplies product line has expanded, as a percentage of sales, in the last several years due to our industrial vending program.
(3) Direct ship represents a cross section of products from the remaining product lines. The items included here represent certain items with historically low gross profit margins which are shipped directly from our distribution channel to our customers, bypassing our branch network.
Note 13.11. Subsequent Events
We evaluated all subsequent event activity and concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the Notes to Consolidated Financial Statements, with the exception of the dividend declaration and stock option activities disclosed in Note 5.

54
Table of Contents
Fastenal Company and Subsidiaries
Notes to Consolidated Financial Statements—Continued


Note 14. Selected Quarterly Financial Data (Unaudited)
(Amounts in millions except per share information)
2017:Net Sales 
Gross
Profit
 
Pre-tax
Earnings
 
Net
Earnings
 Basic Net
Earnings per Share
(1) 
Diluted Net Earnings per Share
(1) 
First quarter$1,047.7
 518.0
 210.9
 134.2
 0.46
 0.46
 
Second quarter1,121.5
 558.5
 235.4
 148.9
 0.52
 0.52
 
Third quarter1,132.8
 555.9
 226.0
 143.1
 0.50
 0.50
 
Fourth quarter1,088.5
 531.2
 200.8
 152.4
(2) 
0.53
(2) 
0.53
(2) 
Total$4,390.5
 2,163.6
 873.1
 578.6
(3) 
2.01
(3) 
2.01
(3) 
2016:Net Sales 
Gross
Profit
 
Pre-tax
Earnings
 
Net
Earnings
 Basic Net
Earnings per Share
(1) 
Diluted Net Earnings per Share
(1) 
First quarter$986.7
 491.5
 199.9
 126.2
 0.44
 0.44
 
Second quarter1,014.3
 501.6
 207.8
 131.5
 0.46
 0.45
 
Third quarter1,013.1
 499.8
 201.2
 126.9
 0.44
 0.44
 
Fourth quarter947.9
 471.9
 180.8
 114.8
 0.40
 0.40
 
Total$3,962.0
 1,964.8
 789.7
 499.4
 1.73
 1.73
 
(1) Amounts may not foot due to rounding difference.
(2) Absent the impact of the Tax Act, our net earnings for the fourth quarter of 2017 would have been approximately $128.1, and our basic and diluted net earnings per share would have each been $0.45.
(3) Absent the impact of the Tax Act, our net earnings for 2017 would have been approximately $554.2, and our basic and diluted net earnings per share would have each been $1.92.
***End of Notes to Consolidated Financial Statements***

65
Table of Contents

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.


ITEM 9A.CONTROLS AND PROCEDURES
ITEM 9A.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the 'SecuritiesSecurities Exchange Act')Act)). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including the principal executive officer and principal financial officer, to allow for timely decisions regarding required disclosure. We have excluded Mansco from our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017, which represented 0.8% of total assets and 0.9% of net sales included in our consolidated financial statements as of and for the year ended December 31, 2017.

Attestation Report of Independent Registered Public Accounting Firm
The attestation report required under this item is contained earlier in this Form 10-K under the heading 'Item 8, Financial Statements and Supplementary Data'.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. The company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The company's internal control over financial reporting includes those policies and procedures that:
(i)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii)provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
(i)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii)provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As discussed in Note 2 of the Notes to Consolidated Financial Statements, on March 31, 2017, we acquired certain assets and assumed certain liabilities of Manufacturers Supply Company (‘Mansco’). We have excluded Mansco from our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017, which represented 0.8% of total assets and 0.9% of net sales included in our consolidated financial statements as of and for the year ended December 31, 2017.
Based on our assessment and those criteria, management believes that the company maintained effective internal control over financial reporting as of December 31, 2017.2021. There was no change in the company's internal control over financial reporting during the company's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.



/s/    Daniel L. Florness/s/    Holden Lewis
Daniel L. FlornessHolden Lewis
President and Chief Executive OfficerExecutive Vice President and Chief Financial Officer
Winona, Minnesota
February 5, 20187, 2022


66
Table of Contents
ITEM 9B.OTHER INFORMATION
ITEM 9B.OTHER INFORMATION
None.

ITEM 9C.     DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III


ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Incorporated herein by reference is the information appearing under the headings 'Proposal #1—Election of Directors', 'Corporate Governance and Director Compensation—Board Leadership Structure and Committee Membership', 'Corporate Governance and Director Compensation—Audit Committee', and 'Corporate Governance and Director Compensation—Delinquent Section 16(a) Beneficial Ownership Reporting Compliance'Reports' in the Proxy Statement.
There have been no material changes to the procedures by which security holders may recommend nominees to the board of directors since our last report.
In January 2004, our board of directors adopted a supplement to our existing standards of conduct designed to qualify the standards of conduct as a code of ethics within the meaning of Item 406(b) of Regulation S-K promulgated by the SEC ('Code(Code of Ethics')Ethics). The standards of conduct, as supplemented, apply to all of our directors, officers, and employees, including without limitation our chief executive officer, chief financial officer, principal accounting officer, and controller (if any), and persons performing similar functions ('Senior(Senior Financial Officers')Officers). Those portions of the standards of conduct, as supplemented, that constitute a required element of a Code of Ethics are available without charge by submitting a request to us pursuant to the directions detailed under 'Does Fastenal have a Code of Conduct?' on the 'Investor FAQs' page of the 'Investor Relations' section of our website at www.fastenal.com. In the event we amend or waive any portion of the standards of conduct, as supplemented, that constitutes a required element of a Code of Ethics and such amendment or waiver applies to any of our Senior Financial Officers, we intend to post on our website at www.fastenal.com, within four business days after the date of such amendment or waiver, a brief description of such amendment or waiver, the name of each Senior Financial Officer to whom the amendment or waiver applies, and the date of the amendment or waiver.
TheInformation about our Executive Officers
As of the date of filing this Form 10-K, the following individuals were executive officers of Fastenal Company are:the Company:
Name
Employee of
Fastenal
Since
 Age PositionNameEmployee of
Fastenal
Since		AgePosition
Daniel L. Florness1996 54 President, Chief Executive Officer, and DirectorDaniel L. Florness199658President, Chief Executive Officer, and Director
William J. Drazkowski1995 46 Executive Vice President – National Accounts SalesWilliam J. Drazkowski199550Executive Vice President – Sales
Leland J. Hein1985 57 Senior Executive Vice President – Sales
James C. Jansen1992 47 Executive Vice President – ManufacturingJames C. Jansen199251Executive Vice President – Manufacturing
Holden Lewis2016 48 Executive Vice President and Chief Financial OfficerHolden Lewis201652Executive Vice President and Chief Financial Officer
Sheryl A. Lisowski1994 50 Controller, Chief Accounting Officer, and TreasurerSheryl A. Lisowski199454Executive Vice President – Chief Accounting Officer and Treasurer
Nicholas J. Lundquist1979 60 Senior Executive Vice President – Operations
Charles S. Miller1999 43 Executive Vice President – SalesCharles S. Miller199947Senior Executive Vice President – Sales
Terry M. Owen1999 49 Senior Executive Vice President – Sales OperationsTerry M. Owen199953Senior Executive Vice President – Sales Operations
Gary A. Polipnick1983 55 
Executive Vice President – FAST Solutions®
John L. Soderberg1993 46 Executive Vice President – Information TechnologyJohn L. Soderberg199350Senior Executive Vice President – Information Technology
Jeffery M. Watts1996 46 Executive Vice President – International SalesJeffery M. Watts199650Executive Vice President – International Sales
Reyne K. Wisecup1988 54 Senior Executive Vice President – Human Resources and DirectorReyne K. Wisecup198858Senior Executive Vice President – Human Resources and Director
Mr. Florness has been our president and chief executive officer since January 2016. From December 2002 to December 2015, Mr. Florness was an executive vice president and our chief financial officer. From June 1996 to November 2002, Mr. Florness was our chief financial officer. During his time as chief financial officer, Mr. Florness' responsibilities expanded beyond finance, including leadership of a portion of our manufacturing division, our product development and procurement, and the company's national accounts business. Mr. Florness has served as one of our directors since January 2016.
Mr. Drazkowski has been our executive vice president - sales since October 2019. Mr. Drazkowski's responsibilities include sales and operational oversight of our Western United States business. From December 2016 to September 2019, Mr. Drazkowski was executive vice president – national accounts sales since December 2016.sales. From October 2014 to December 2016, Mr. Drazkowski was our vice president – national accounts sales. Fromsales, from September 2013 to September 2014, he served as regional vice president of our Minnesota based region, and from November 2007 to August 2013, he served as one of our district managers. Prior to November 2007, Mr. Drazkowski served in various sales leadership roles at our company.
Mr. Hein has been our senior executive vice president – sales since January 2016. Mr. Hein's responsibilities include sales and operational oversight
67
Table of our Western United States business, which spans from Ohio to the West Coast. From July 2015 to December 2015, Mr. Hein was our chief operating officer. Mr. Hein was our president and chief executive officer from January 2015 to July 2015, and our president from July 2012 to December 2014. From November 2007 to July 2012, Mr. Hein was one of our executive vice presidents – sales. Prior to November 2007, Mr. Hein served in various sales leadership roles at our company.Contents

Mr. Jansen has been our executive vice president – manufacturing since January 2016. Mr. Jansen's responsibilities include oversight of our industrial services, quality assurance, aerospace, manufacturing operations, and manufacturing operations.EHS management. From December 2010 to December 2015, Mr. Jansen was our executive vice president - operations. From November 2007 to December 2010, Mr. Jansen was our executive vice president – internal operations. From May 2005 to November 2007, Mr. Jansen served as our leader of systems development (this role encompassed both information systems and distribution systems development). From April 2000 to April 2005, Mr. Jansen served as sales leaderregional vice president of our Texas based region.
Mr. Lewis has been our executive vice president and chief financial officer since August 2016. From April 2016 to July 2016, Mr. Lewis was a senior vice president/equity research-industrial technology with FBR Capital Markets & Co. (a full-service investment bank). From September 2014 to January 2016, Mr. Lewis was a managing director/equity research-industrial technology with Oppenheimer & Co Inc. (a full-service investment bank). From August 2002 to August 2014, Mr. Lewis was a managing director/equity research-industrial manufacturing & distribution with BB&T Capital Markets, a division of BB&T Securities LLC (a full-service investment bank). Prior to August 2002, Mr. Lewis held similar roles with various other organizations since 1994. In each of Mr. Lewis' positions prior to joining Fastenal, he was responsible for studying the strategic and financial direction of companies for the purpose of making investment recommendations to institutional clients.
Ms. Lisowski has been our controller,executive vice president - chief accounting officer and treasurer since December 2020. From August 2016.2016 to November 2020, Ms. Lisowski was our controller, chief accounting officer, and treasurer. Ms. Lisowski was our controller and chief accounting officer from October 2013 to August 2016, and also served as our interim chief financial officer from January 2016 to August 2016. From March 2007 to October 2013, Ms. Lisowski served as our controller – accounting operations. Ms. Lisowski joined Fastenal in 1994 and, prior to March 2007, served in various roles of increasing responsibility within our finance and accounting team.
Mr. LundquistMiller has been our senior executive vice president – operations since December 2016. Mr. Lundquist's responsibilities include distribution development, product development, supplier development, and supply chain. From July 2012 to December 2016, Mr. Lundquist was our executive vice president – operations. From November 2007 to July 2012, he was one of our executive vice presidents – sales, and from December 2002 to November 2007, he was our executive vice president and chief operating officer.
Mr. Miller has been our executive vice president – sales since November 2015.January 2020. Mr. Miller's responsibilities include sales and operational oversight of our business which spans the East CoastEastern United States business. From November 2015 to December 2019, Mr. Miller was one of and Southern and Southwestern areas of, the United States.our executive vice presidents – sales. From January 2009 to October 2015, Mr. Miller served as regional vice president of our southeast central region based primarily in Tennessee and Kentucky. Prior to January 2009, Mr. Miller served in various sales leadership roles at our company.
Mr. Owen has been our senior executive vice president – sales operations since January 2016. Mr. Owen's responsibilities include oversight of our information technology, sales operations and support, international sales,eCommerce, marketing, national accounts sales, government sales, FAST Solutions®(Onsite and FMI), our Mansco division, manufacturing, distribution, transportation, product development, supplier development, procurement, and manufacturing operations.supply chain. From July 2015 to December 2015, Mr. Owen was one of our executive vice presidentpresidents – sales. From May 2014 to June 2015, Mr. Owen served as our executive vice president – e-business, and from December 2007 to May 2014, Mr. Owen was regional vice president of our Texas based and Mexico regions. Prior to December 2007, Mr. Owen served in various distribution center leadership roles at our company.
Mr. Polipnick has been our executive vice president – FAST Solutions® since January 2016. Mr. Polipnick's responsibilities include our FAST Solutions® programs and branch inventory modeling and merchandising programs. From July 2015 to December 2015, Mr. Polipnick was our executive vice president – e-business. From July 2012 to June 2015, Mr. Polipnick served as one of our executive vice president – sales. From November 2007 to July 2012, Mr. Polipnick was regional vice president of our Winona based region. Prior to November 2007, Mr. Polipnick served in various sales leadership roles at our company. After 34 years with Fastenal, Mr. Polipnick has indicated his intention to retire effective March 31, 2018.
Mr. Soderberg has been our senior executive vice president – information technology since December 2020. From May 2016.2016 to November 2020, Mr. Soderberg was our executive vice president – information technology. From May 2014 to May 2016, Mr. Soderberg served as our executive vice president – sales operations and support. From April 2010 to May 2014, Mr. Soderberg was one of our vice presidents – sales. From April 2005 to April 2010, Mr. Soderberg served as regional vice president of our Seattle, Washington based region. Prior to April 2005, Mr. Soderberg served in various sales leadership roles in the mid-Atlantic area of our company.
Mr. Watts has been our executive vice president – international sales since December 2016. From March 2015 to December 2016, Mr. Watts was our vice president – international sales. From June 2005 to February 2015, he served as regional vice president of our Canadian region. Prior to June 2005, Mr. Watts served in various sales leadership roles at our company.
Ms. Wisecup has been our senior executive vice president – human resources since December 2016. From November 2007 to December 2016, Ms. Wisecup was our executive vice president – human resources. Prior to November 2007, she served in various support roles, including director of employee development. Ms. Wisecup has also served as one of our directors since 2000.
The executive officers are elected by our board of directors for a term of one year and serve until their successors are elected and qualified. None of our executive officers is related to any other such executive officer or to any of our directors.

68
Table of Contents
ITEM 11.EXECUTIVE COMPENSATION
ITEM 11.EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing under the headings 'Corporate Governance and Director Compensation—Compensation Committee Interlocks and Insider Participation', 'Executive Compensation', and 'Corporate Governance and Director Compensation—Compensation of our Directors' in the Proxy Statement.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated herein by reference is the information appearing under the heading 'Security Ownership of Principal Shareholders and Management' in the Proxy Statement.
Equity Compensation Plan Information
Plan CategoryNumber of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights		Weighted-Average Exercise
Price of Outstanding
Options, Warrants,
and Rights		Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(a)(b)(c)
Equity compensation plans approved by security holders (1)
5,173,270 $30.23 12,193,276 
Equity compensation plans not approved by security holders— — — 
Total5,173,270 12,193,276 
Plan Category
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights
 
Weighted-Average Exercise
Price of Outstanding
Options, Warrants,
and Rights
 
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
 (a) (b) (c)
Equity compensation plans approved by security holders (1)
3,948,908
 $48.28
 5,169,233
Equity compensation plans not approved by security holders (2)
21,185
 55.00
 2,478,815
Total3,970,093
   7,648,048

(1) Reflects securities to bestock option awards issued and issuable in the future under our Fastenal Company Stock Option Plan and our Fastenal Company Non-Employee Director Stock Option Plan.
(2)Reflects stock option awards issued and issuable in the future under the Fastenal Company Non-Employee Director Stock Option Plan, which was approved by our board of directors on October 10, 2017 but has not yet been approved by our shareholders. Our shareholders are being asked to approve this plan at our April 2018 annual meeting, and the exercisability and continued existence of the plan and all option awards currently outstanding thereunder is expressly conditioned on shareholder approval of that plan at the annual meeting. A description of the material terms of the plan and a summary of option awards currently outstanding thereunder will be provided in the Proxy Statement.


ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated herein by reference is the information appearing under the headings 'Corporate Governance and Director Compensation—Director Independence and Other Board Matters'Independence', 'Corporate Governance and Director Compensation—Related Person Transaction Approval Policy', and 'Corporate Governance and Director Compensation—Transactions with Related Persons' in the Proxy Statement.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated herein by reference is the information appearing under the heading 'Audit and Related Matters—Audit and Related Fees' and 'Audit and Related Matters—Pre-Approval of Services' in the Proxy Statement.

69
Table of Contents
PART IV


ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 15.a)EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a)1. Financial Statements:
Consolidated Balance Sheets as of December 31, 20172021 and 20162020
Consolidated Statements of Earnings for the years ended December 31, 2017, 2016,2021, 2020, and 20152019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016,2021, 2020, and 20152019
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2017, 2016,2021, 2020, and 20152019
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016,2021, 2020, and 20152019
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (KPMG LLP, Minneapolis, MN, Auditor Firm ID: 185)
2. Financial Statement Schedules:
Schedule II—Valuation and Qualifying Accounts
3. Exhibits:
INDEX TO EXHIBITS
Exhibit NumberDescription of Document
3.1
Restated Articles of Incorporation of Fastenal Company, as amended (incorporated by reference to Exhibit 3.1 to Fastenal Company'sCompany's Form 10-Q for the quarter ended March 31, 2012 (file no. 000-016125))8-K dated as of April 23, 2019)
3.2
Restated By-Laws of Fastenal Company (incorporated by reference to Exhibit 3.2 to Fastenal Company'sCompany's Form 8-K dated as of October 15, 2010 (file no. 000-16125))January 17, 2019)
4.1
Form of Senior Notes due July 20, 2021 (incorporated by reference to Exhibit 4.1 to Fastenal Company’s Form 8‑K dated as of July 20, 2016)
4.2
Form of Senior Notes due July 20, 2022 (incorporated by reference to Exhibit 4.2 to Fastenal Company’sCompany's Form 8‑K dated as of July 20, 2016)
4.34.2
Form of Senior Notes due March 1, 2024 (incorporated by reference to Exhibit 4.1 to Fastenal Company'sCompany's Form 10-Q for the quarter ended March 31, 2017 (file no. 000-016125))2017)
10.14.3
Description of Capital Stock
4.4
Form of Senior Notes due May 15, 2025 (incorporated by reference to Exhibit 4.1 to Fastenal Company's Form 10-Q for the quarter ended June 30, 2020)
4.5
Form of Senior Notes due May 15, 2027 (incorporated by reference to Exhibit 4.2 to Fastenal Company's Form 10-Q for the quarter ended June 30, 2020)
4.6
Form of Senior Notes due June 24, 2023 (incorporated by reference to Exhibit 4.3 to Fastenal Company's Form 10-Q for the quarter ended June 30, 2020)
4.7
Form of Senior Notes due June 24, 2026 (incorporated by reference to Exhibit 4.4 to Fastenal Company's Form 10-Q for the quarter ended June 30, 2020)
4.8
Form of Senior Notes due June 24, 2030 (incorporated by reference to Exhibit 4.5 to Fastenal Company's Form 10-Q for the quarter ended June 30, 2020)
10.1
Bonus Program for Executive Officers*
10.2
Fastenal Company Stock Option Plan as amended and restated effective as of December 12, 2014 (incorporated by reference to Exhibit 10.1 to Fastenal Company'sCompany's Form 8-K dated December 17, 2014)*
10.3
Fastenal Company Incentive Plan (incorporated by reference to Appendix A to Fastenal Company'sCompany's Proxy Statement dated February 23, 2012)*
10.4
Fastenal Company Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 99 to Fastenal Company's Registration Statement on Form S-8 filed on April 25, 2018).*
10.5
Credit Agreement, dated as of May 1, 2015, among Fastenal Company, the Lenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender (incorporated by reference to Exhibit 10.1 to Fastenal Company'sCompany's Form 8-K dated May 5, 2015), as amended by the .
10.6
First Amendment to Credit Agreement, dated as of November 23, 2015, (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated November 25, 2015), and as amended by the Second Amendment to Credit Agreement dated as of March 10, 2017 (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated March 14, 2017)
10.5
Second Amendment to Credit Agreement dated as of March 10, 2017 by and among Fastenal Company, the lendersLenders from time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to Fastenal Company'sCompany's Form 8-K dated November 25, 2015).
10.7
Second Amendment to Credit Agreement, dated as of March 10, 2017, by and among Fastenal Company, the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated as of March 14, 2017 (file no. 000-016125))2017).
70
Table of Contents
Exhibit NumberDescription of Document
10.8
Third Amendment to Credit Agreement dated as of November 30, 2018 among Fastenal Company, the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8‑K dated December 3, 2018).
10.610.9
Master Note Agreement dated as of July 20, 2016 by and among (i) Fastenal Company, (ii) Metropolitan Life Insurance Company, NYL Investors LLC and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), as investor group representatives (each, an 'Investor'Investor Group Representative'Representative'), and (iii) Metropolitan Life Insurance Company (in its capacity as a purchaser of notes under such Master Note Agreement) and/or affiliates of any Investor Group Representative who become purchasers of notes under such Master Note Agreement (incorporated by reference to Exhibit 10.1 to Fastenal Company’s Form 8‑K8-K dated as of July 20, 2016).
1310.10
PortionsOmnibus First Amendment to Master Note Agreement and Subsidiary Guaranty Agreement dated as of 2017 Annual Report to Shareholders not included in this Form 10-K (only those sections specifically incorporatedNovember 30, 2018 by and among Fastenal Company, Fastenal Company Purchasing, and Fastenal IP Company, on one hand, and Metropolitan Life Insurance Company, NYL Investors LLC, PGIM, Inc., and each holder of Notes that are signatory thereto, on the other hand (incorporated by reference in thisto Exhibit 10.2 to Fastenal Company's Form 10-K shall be deemed filed with the SEC)8-K dated December 3, 2018).
2110.11
Consent, Waiver and Agreement to Master Note Agreement dated as of June 10, 2020 by and among Fastenal Company, Fastenal Company Purchasing, and Fastenal IP Company, on the one hand, and Metropolitan Life Insurance Company, MetLife Investment Management, LLC, NYL Investors LLC, PGIM, Inc. and each holder of Notes that are signatory thereto, on the other hand (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 10-Q for the quarter ended June 30, 2020).
21
List of Subsidiaries
23
Consent of Independent Registered Public Accounting Firm
31
Certifications under Section 302 of the Sarbanes-Oxley Act of 2002
32
Certification under Section 906 of the Sarbanes-Oxley Act of 2002

101The following financial statements from the Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Earnings, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
Exhibit Number104Description of Document
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Calculation Linkbase Document
101.DEFXBRL Taxonomy Definition Linkbase Document
101.LABXBRL Taxonomy Label Linkbase Document
101.PREXBRL Taxonomy Presentation Linkbase DocumentThe cover page from the Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 15(b).
ITEM 16.FORM 10-K SUMMARY
ITEM 16.FORM 10-K SUMMARY
Not applicable.

71
Table of Contents
FASTENAL COMPANY
Schedule II—Valuation and Qualifying Accounts
Years ended December 31, 2017, 2016,2021, 2020, and 20152019
(Amounts in millions)
 
DescriptionBalance at
Beginning
of Year		"Additions"
Charged to
Costs and
Expenses		 "Other"
Additions
(Deductions)		"Less"
Deductions		 Balance
at End
of Year
Year ended December 31, 2021
Allowance for credit losses$12.3 2.5 — 2.8 12.0 
Insurance reserves$41.0 78.6 (1)— 83.9 (2)35.7 
Year ended December 31, 2020
Allowance for credit losses$10.9 7.5 — 6.1 12.3 
Insurance reserves$41.1 72.1 (1)— 72.2 (2)41.0 
Year ended December 31, 2019
Allowance for credit losses$12.8 5.5 — 7.4 10.9 
Insurance reserves$37.6 69.7 (1)— 66.2 (2)41.1 
Description
Balance at
Beginning
of Year
 
"Additions"
Charged to
Costs and
Expenses
 
"Other"
Additions
(Deductions)
 
"Less"
Deductions
 
Balance
at End
of Year
Year ended December 31, 2017         
Allowance for doubtful accounts$11.2
 8.2
 —
 7.5
 11.9
Insurance reserves$34.6
 68.2
(1) 
—
 63.8
(2) 
39.0
Year ended December 31, 2016         
Allowance for doubtful accounts$11.7
 8.5
 —
 9.0
 11.2
Insurance reserves$31.8
 62.3
(1) 
—
 59.5
(2) 
34.6
Year ended December 31, 2015         
Allowance for doubtful accounts$12.6
 8.8
 —
 9.7
 11.7
Insurance reserves$31.1
 54.3
(1) 
—
 53.6
(2) 
31.8
(1) Includes costs and expenses incurred for premiums and claims related to health and general insurance.
(2) Includes costs and expenses paid for premiums and claims related to health and general insurance.
See accompanying Report of Independent Registered Public Accounting Firm incorporated herein by reference.

72
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date:February 5, 20187, 2022
FASTENAL COMPANY
By/s/    Daniel L. Florness
Daniel L. Florness, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Date:February 5, 2018

Date:February 7, 2022

/s/    Daniel L. Florness/s/    Holden Lewis
Daniel L. Florness, President and Chief Executive Officer (Principal Executive Officer), and DirectorHolden Lewis, Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/    Sheryl A. Lisowski
Sheryl A. Lisowski, Controller,Executive Vice President - Chief Accounting Officer and Treasurer (Principal Accounting Officer)
/s/    Willard D. ObertonScott A. Satterlee/s/    Darren R. JacksonDaniel L. Johnson
Willard D. Oberton,Scott A. Satterlee, Director (Chairman)(Chair)Darren R. Jackson,Daniel L. Johnson, Director
/s/    Michael J. Ancius/s/    Daniel L. JohnsonNicholas J. Lundquist
Michael J. Ancius, DirectorDaniel L. Johnson,Nicholas J. Lundquist, Director
/s/    Michael J. Dolan/s/    Scott A. Satterlee
Michael J. Dolan, DirectorScott A. Satterlee, Director
/s/    Stephen L. Eastman/s/    Sarah N. Nielsen
Stephen L. Eastman, DirectorSarah N. Nielsen, Director
/s/    Rita J. Heise/s/    Reyne K. Wisecup
Stephen L. Eastman,Rita J. Heise, DirectorReyne K. Wisecup, Director
/s/    Rita J. HeiseHsenghung Sam Hsu
Rita J. Heise,Hsenghung Sam Hsu, Director

6473