Fastenal Company of Winona, MN (Nasdaq:FAST) reported the results
of the quarter ended September 30, 2016. Except for per share
information, or as otherwise noted below, dollar amounts are stated
in thousands.
Net sales (and the related daily sales), pre-tax earnings, net
earnings, and net earnings per share (basic) were as follows for
the periods ended September 30:
|
Nine-month Period |
|
Three-month Period |
|
2016 |
|
2015 |
|
Change |
|
2016 |
|
2015 |
|
Change |
Net sales |
$ |
3,014,089 |
|
|
2,946,394 |
|
|
2.3 |
% |
|
$ |
1,013,122 |
|
|
995,250 |
|
|
1.8 |
% |
Business
days |
192 |
|
|
191 |
|
|
|
|
|
64 |
|
|
64 |
|
|
|
|
Daily
sales |
$ |
15,698 |
|
|
15,426 |
|
|
1.8 |
% |
|
$ |
15,830 |
|
|
15,551 |
|
|
1.8 |
% |
Pre-tax earnings |
$ |
608,907 |
|
|
647,815 |
|
|
-6.0 |
% |
|
$ |
201,239 |
|
|
219,204 |
|
|
-8.2 |
% |
% of
sales |
20.2 |
% |
|
22.0 |
% |
|
|
|
|
19.9 |
% |
|
22.0 |
% |
|
|
|
Net earnings |
$ |
384,673 |
|
|
404,457 |
|
|
-4.9 |
% |
|
$ |
126,925 |
|
|
136,494 |
|
|
-7.0 |
% |
Net earnings per share
(basic) |
$ |
1.33 |
|
|
1.38 |
|
|
-3.6 |
% |
|
$ |
0.44 |
|
|
0.47 |
|
|
-6.4 |
% |
BUSINESS UPDATE
Fastenal is a growth-focused organization and we constantly
strive to make investments into the growth drivers of our business.
These investments typically center on people. By adding more people
over time, we add to our ability to interact with and to serve our
customers from our local store and to back them up in some type of
support role. In recent years this investment has also centered on
more industrial vending devices to serve our customers’ needs on a
24 hours a day, 7 days a week basis.
The table below summarizes our store employee count and our
total employee count at the end of the periods presented. This is
intended to demonstrate the change in energy (or capacity). Later
in this document we discuss the average full-time equivalent
employee count to help explain the expense trends in more detail.
The final two items below summarize our investments in industrial
vending machines and in store locations.
|
|
|
|
|
|
|
Change Since: |
|
Q3 2015 |
|
Q4 2015 |
|
Q3 2016 |
|
Q3 2015 |
|
Q4 2015 |
End of period total
store employee count |
13,527 |
|
|
13,961 |
|
|
13,097 |
|
|
-3.2 |
% |
|
-6.2 |
% |
Change in total store
employee count |
|
|
|
|
|
|
-430 |
|
|
-864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period total
employee count |
19,979 |
|
|
20,746 |
|
|
19,864 |
|
|
-0.6 |
% |
|
-4.3 |
% |
Change in total
employee count |
|
|
|
|
|
|
-115 |
|
|
-882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial vending
machines (installed device count) |
53,547 |
|
|
55,510 |
|
|
60,400 |
|
|
(1 |
) |
12.8 |
% |
|
8.8 |
% |
Number of store
locations |
2,609 |
|
|
2,622 |
|
|
2,545 |
|
|
-2.5 |
% |
|
-2.9 |
% |
(1) In February 2016, we signed an agreement to lease a
significant number of industrial vending lockers to one of our
customers. As of September 30, 2016, we have deployed approximately
11,000 devices under this agreement. These devices do not generate
product revenue and are excluded from the count noted above.
Several items worth noting with respect to our results:
(1) During the last twelve months, we have reduced our headcount
by 430 people in our stores and 115 people in total. We continue to
add headcount where necessary to support our growth initiatives,
notably our Onsite business (defined as dedicated sales and service
provided from within the customer's facility). However, the
continued softness of the North American industrial economy has
caused us to more intensively scrutinize our full- and part-time
staffing levels outside of these initiatives. Indeed, after
increasing our total headcount every quarter during 2015, it has
declined during every quarter of 2016.(2) We opened 35 and 13
stores in the first nine months of 2016 and 2015, respectively, and
currently expect to open approximately 40 stores in total in 2016,
which is an annual rate of approximately 2%. (3) We closed or
consolidated 99 stores in the first nine months of 2016; about 90%
of these stores were in close proximity to another Fastenal store,
and about 85% had leases expiring within 18 months. We closed or
consolidated 35 stores in the first nine months of 2015; about 75%
of these stores were in close proximity to another Fastenal store,
and about 85% had leases expiring within 18 months. The store
closings in both periods did not have a meaningful impact on sales.
We intend to continue evaluating markets for openings and for
closures and consolidations in the remainder of 2016 and into
2017.(4) We continue to see a very strong pace of national account
signings (defined as new customer accounts with a multi-site
contract). In the first nine months of 2016 and 2015, we signed 144
and 131 new contracts, respectively. Beyond signings (or growth
activities), we look at the health of our large customer market,
and by extension our market place, by watching the trends of our
top 100 customers. For several years beginning in 2011, the typical
ratio of growth versus contraction in the sales of our top 100
customers was 3:1 (75 grew and 25 contracted). That performance has
weakened in recent periods, more typically approximating 1:1 since
the fourth quarter of 2015, including the third quarter of 2016
when 50 customers grew (31 with growth of 10% or more) and 50
customers contracted (28 with contraction of 10% or more).(5) We
have continued to expand our Onsite business. Our goal is to sign
200 Onsite customer locations in 2016, and we signed 133 in the
first nine months of 2016; 100 were operational as of September 30,
2016. All of the 80 Onsite customer locations we signed in 2015
were operational by the end of the second quarter of 2016.(6) We
had converted most of our stores, approximately 1,900, to the CSP
16 (Customer Service Project 2016) format as of May 31, 2016 and
have converted approximately 50 more as of September 30, 2016. This
merchandising footprint involves expanded inventory placement at
our store locations to enhance same-day capabilities.(7) The daily
sales of our Canadian business, which grew about 4% in 'local
currency' based on local business days during the fourth quarter of
2015, improved to about 7% growth in the first quarter of 2016. In
the second quarter of 2016, this growth slid back to about 4%.
However, the locations affected by the fires in Western Canada in
May reduced our sales by approximately $1.1 million (approximately
$850 thousand U.S. Dollars), which lowered the growth of our
Canadian business in the second quarter by approximately one to two
percentage points. In the third quarter of 2016, daily sales
improved slightly with growth of about 5%.
The following sections contain an overview of Sales and Sales
Trends and Cash Flow Impact Items which contain a more in-depth
discussion of the following:
1. Sales growth, monthly sales
changes, sequential trends, and end market performance – a
recap of our recent sales trends and some insight into the
activities with different end
markets.2. Operational working
capital, balance sheet and cash flow – a recap of the
operational working capital utilized in our business, and the
related cash flow.
This document is laid out with a brief narrative and
supplemental information focusing on the most important aspects of
our business in the current environment. Those aspects include: (1)
what’s driving the weakness in sales growth, and (2) what is
happening within the cash flow statement as we have been buying
back some of our common stock and modifying our capital expenditure
plans.
The most important thing to note before you read this is to
remember Fastenal is several businesses within itself; a fastener
distributor (about 35% to 40% of our business) and a non-fastener
distributor (about 60% to 65% of our business).
FASTENER SALES
First and foremost, we are a fastener distributor. We have been
in this business for almost 50 years. We are good at it. We have
strong capabilities at sourcing and procurement, at quality
control, at logistics, and at local customer service. Each of these
capabilities is focused on the customer at the end of the supply
chain. This business is split about 60% production/construction
needs and about 40% maintenance needs. The former is a great
business, but it can be cyclical because about 75% of our
manufacturing customer base is engaged in some type of heavy
manufacturing. The sale of production fasteners is also a sticky
business in the short-term as it is expensive and time consuming
for our customers to change their supplier relationships. While our
customers value the capabilities we bring to the table, in the last
seven quarters this group of customers has seen its growth
prospects weaken. In fact, the daily sales growth of the fastener
product line peaked at over 10% in the second half of 2014. The
rate of growth decelerated in the first quarter of 2015 and began
contracting in the third quarter of 2015, including contraction of
2.9% in the third quarter of 2016.
NON-FASTENER SALES
Second, we have a non-fastener maintenance and supply business.
We have actively pursued this business in the last 20 to 25 years.
The capabilities we developed as a fastener distributor, described
above, provide a backbone to growing this ‘newer’ business. This
backbone has been enhanced in the last five years with our added
capabilities in industrial vending. Given our local customer
service, we believe we have a structural advantage in the
industrial vending business. There is more to industrial vending
than the device or the financial resources to deploy; we believe
the ability to replenish with a local team from an integrated
supply chain network (i.e., the 'Team behind the Machine') is
critical to the long-term success of this channel. Because of these
capabilities, the non-fastener business remains more resilient.
However, similar to our fastener business, our non-fastener
business has generally weakened in the last seven quarters. During
this time frame, daily sales of our non-fastener product line
experienced growth of about 18% in the last six months of 2014,
contracted to about 2% growth in the fourth quarter of 2015 and
improved to about 5% growth in each of the first three quarters of
2016.
One particular non-fastener product line, safety supplies, has
benefited significantly from our initiatives with industrial
vending. We introduced the safety supplies product line in 1999 and
at 15.3% of total sales in the third quarter of 2016, it now
represents our second largest product line after fasteners. Daily
sales of our safety supplies product line experienced growth of
about 27% in the last six months of 2014, declined to about 6%
growth in the fourth quarter of 2015 and improved to about 10%
growth in the first nine months of 2016.
Please read through the detailed Sales and Sales Trends section
later in this document for additional insight.
Our gross profit decreased from 50.5% in the third quarter of
2015 and 49.5% in the second quarter of 2016 to 49.3% in the third
quarter of 2016. The relationship between sales and gross profit
depends on our success within our large account business (an area
that is still under-represented in our customer mix). The large
account end market produces a below-company average gross profit;
however, it generally leverages our existing network of
capabilities and allows us to enjoy strong incremental operating
income growth. This customer mix change (larger versus smaller), as
well as our product mix change (from fasteners to non-fasteners),
over time are a constant drain on our gross profit. We
continued to face these headwinds during the first nine months of
2016 as the daily sales to our national accounts customers grew
approximately two percentage points faster than the total company
percentage. Our gross profit was also negatively impacted by
some short-term activities. These included certain costs related to
our CSP 16 set-up process. In the third quarter of 2016, sales of
non-fasteners grew to 63.9% of sales. This is significantly above
both the third quarter of 2015 (62.1%) and the second quarter of
2016 (62.9%), a fact that serves to pressure our gross profit. We
expect the customer mix and product mix change to continue into the
future.
During the first nine months of 2016, our operating expenses
increased due to the following: (1) an increase in full-time
equivalent headcount (see table below), (2) an increase in health
care costs, (3) an increase in the amount of industrial vending
equipment, (4) an increased investment in our distribution
infrastructure over the last several years, primarily automation,
and (5) an increase in the number of vehicles for sales personnel.
These increases were partially offset by a contraction in our
performance bonuses and commissions, in our profit sharing
contribution, and in fuel expense. During the third quarter of 2016
specifically, the largest factors behind the increase in operating
expenses were items (2) and (3), with no offsetting factor related
to fuel expenses.
On average, the full-time equivalent ('FTE') headcount grew as
follows for the periods ended September 30 (compared to the same
period in the preceding year:
|
Nine-month Period |
|
Three-month Period |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Store based average FTE
headcount |
6.0 |
% |
|
3.9 |
% |
|
2.1 |
% |
|
5.2 |
% |
Total average FTE
headcount |
6.9 |
% |
|
4.1 |
% |
|
3.9 |
% |
|
4.6 |
% |
Note - Full-time
equivalent is based on 40 hours per week. |
|
|
|
|
|
|
|
We touched on our industrial vending earlier, but here is a
quick recap: During the first, second, and third quarters of 2016,
we signed 4,647, 4,869, and 4,783 devices, respectively. During the
first, second, and third quarters of 2015, we signed 3,962, 5,144,
and 4,689 devices, respectively. Our installed device count on
September 30, 2016 was 60,400 (excluding approximately 11,000
devices deployed under our locker lease program), which is an
increase of 12.8% over September 30, 2015. The percentage of total
net sales to customers with industrial vending was 45.0% in the
third quarter of 2016. Our total daily sales to customers with
industrial vending grew 2.4% over the third quarter of 2015.
However, daily sales of non-fastener products to customers with
industrial vending grew 5.0%, while daily sales of fasteners to
customers with industrial vending contracted 4.5%.
Finally, some thoughts on capital allocation: During the latter
half of 2014, throughout 2015, and into the first quarter of 2016,
we had been modifying our capital allocation by buying back some
common stock. One factor influencing our stock buybacks is our
external valuation. Our relative stock valuation had weakened over
the last several years, which prompted us to reassess our cash
deployment. To this end, we spent approximately $400 million buying
back stock since June 30, 2014 and repurchased approximately 3.3%
of our outstanding shares from the start of this time frame. We are
mindful of our shareholders’ expectations relative to our dividend
paying history and have primarily funded this buyback with debt. In
2015, 2014, and 2013, our net capital expenditures, expressed in
dollars and as a percentage of net earnings, were $145 million
(28.1%), $184 million (37.2%), and $202 million (44.9%),
respectively. In the first nine months of 2016, our net capital
expenditures, expressed in dollars and as a percentage of net
earnings, were $157 million (40.9%). We expect our net capital
expenditures to be approximately $190 million in 2016. Capital
expenditures in 2016 are being affected by two large items: the
purchase of industrial vending machines related to the locker lease
program we signed in February 2016 and spending on automation in
certain distribution centers. Collectively, these activities
are expected to inflate capital spending by roughly $91 million in
2016. We funded a portion of these planned capital expenditures
with the proceeds of a private placement of debt in July 2016.
Please read through the detailed Cash Flow Impact Items section and
the Condensed Consolidated Statements of Cash Flows for additional
insight.
SALES AND SALES TRENDS
While reading these items, it is helpful to appreciate several
aspects of our marketplace: (1) it's big, 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),
(2) no company has a significant portion of this market, (3) many
of the products we sell are individually inexpensive, (4) when our
customer needs something quickly or unexpectedly our local store is
a quick source, (5) the cost and time to manage and procure these
products is meaningful, (6) the cost to move these products, many
of which are bulky, can be significant, (7) many customers would
prefer to reduce their number of suppliers to simplify their
business, and (8) many customers would prefer to utilize various
technologies to improve availability and reduce waste.
Our motto is Growth through Customer
Service®. This is important given
the points noted above. We believe in efficient markets – to
us, this means we can grow our market share if we provide the
greatest value to our customers. We believe our ability to
grow is amplified if we can service our customers at the closest
economic point of contact. For us, this \'closest economic point of
contact' is the local store; therefore, our focus centers on
understanding our customers' day, their opportunities, and their
obstacles.
The concept of growth is simple, find more
customers every day and increase our activity with
them. However, execution is hard work. First, we recruit
service-minded individuals to support our customers and their
business. Second, we operate in a decentralized fashion to
help identify the greatest value for our customers. Third, we
have a great team behind the store to operate efficiently and to
help identify new business solutions. Fourth, we do these
things every day. Finally, we strive to generate strong
profits; these profits produce the cash flow necessary to fund our
growth and to support the needs of our customers.
SALES GROWTH
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.
Net sales and daily sales were as follows for the periods ended
September 30:
|
Nine-month Period |
|
Three-month Period |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Net sales |
$ |
3,014,090 |
|
|
2,946,394 |
|
|
$ |
1,013,122 |
|
|
995,250 |
|
Percentage change |
2.3 |
% |
|
5.0 |
% |
|
1.8 |
% |
|
1.5 |
% |
Business days |
192 |
|
|
191 |
|
|
64 |
|
|
64 |
|
Daily sales |
$ |
15,698 |
|
|
15,426 |
|
|
$ |
15,830 |
|
|
15,551 |
|
Percentage change |
1.8 |
% |
|
5.0 |
% |
|
1.8 |
% |
|
1.5 |
% |
Impact of currency
fluctuations (primarily Canada) |
-0.4 |
% |
|
-1.1 |
% |
|
-0.1 |
% |
|
-1.4 |
% |
Impact of
acquisitions |
0.7 |
% |
|
0.2 |
% |
|
0.6 |
% |
|
0.1 |
% |
The increase in net sales in the periods noted for 2016 and 2015
came primarily from higher unit sales. The higher unit sales
resulted primarily from increases in sales at existing store
locations and to a lesser degree the opening of new store locations
in the last several years. Net sales were also impacted by some
price deflation in our fastener products, which was a drag on
growth. Our growth in net sales was not meaningfully impacted by
the introduction of new products or services, with one exception.
Over the last several years, our industrial vending initiative has
stimulated faster growth with a subset of our customers. The impact
on net sales of the change in currencies in foreign countries
(primarily Canada) relative to the United States dollar is noted in
the table above.
MONTHLY SALES CHANGES, SEQUENTIAL TRENDS, AND END MARKET
PERFORMANCE
This section focuses on three distinct views of our business –
monthly sales changes, sequential trends, and end market
performance. The first discussion regarding monthly sales changes
provides a good mechanical view of our business based on the age of
our stores. 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.
Monthly Sales Changes:
All company sales – During the months noted
below, all of our selling locations, when combined, had daily sales
growth rates of (compared to the same month in the preceding
year):
|
Jan. |
|
Feb. |
|
Mar. |
|
Apr. |
|
May |
|
June |
|
July |
|
Aug. |
|
Sept. |
|
Oct. |
|
Nov. |
|
Dec. |
2016 |
3.3 |
% |
|
2.6 |
% |
|
0.0 |
% |
|
3.8 |
% |
|
1.1 |
% |
|
0.0 |
% |
|
2.1 |
% |
|
0.3 |
% |
|
2.8 |
% |
|
|
|
|
|
|
2015 |
12.0 |
% |
|
8.6 |
% |
|
5.6 |
% |
|
6.1 |
% |
|
5.3 |
% |
|
3.7 |
% |
|
3.2 |
% |
|
1.6 |
% |
|
-0.3 |
% |
|
-0.8 |
% |
|
-1.1 |
% |
|
-3.8 |
% |
2014 |
6.7 |
% |
|
7.7 |
% |
|
11.6 |
% |
|
10.0 |
% |
|
13.5 |
% |
|
12.7 |
% |
|
14.7 |
% |
|
15.0 |
% |
|
12.9 |
% |
|
14.6 |
% |
|
15.3 |
% |
|
17.4 |
% |
Stores opened greater than two years – Our
stores opened greater than two years (store sites opened as
follows: 2016 group – opened 2014 and earlier, 2015 group – opened
2013 and earlier, and 2014 group – opened 2012 and earlier)
represent a consistent 'same-store' view of our
business. During the months noted below, the stores opened
greater than two years had daily sales growth rates of (compared to
the same month in the preceding year):
|
Jan. |
|
Feb. |
|
Mar. |
|
Apr. |
|
May |
|
June |
|
July |
|
Aug. |
|
Sept. |
|
Oct. |
|
Nov. |
|
Dec. |
2016 |
2.2 |
% |
|
1.4 |
% |
|
-1.4 |
% |
|
2.5 |
% |
|
-0.2 |
% |
|
-1.2 |
% |
|
0.9 |
% |
|
-0.7 |
% |
|
1.6 |
% |
|
|
|
|
|
|
2015 |
11.2 |
% |
|
7.8 |
% |
|
4.8 |
% |
|
5.4 |
% |
|
4.6 |
% |
|
3.2 |
% |
|
2.6 |
% |
|
1.0 |
% |
|
-0.9 |
% |
|
-1.1 |
% |
|
-2.1 |
% |
|
-5.0 |
% |
2014 |
5.5 |
% |
|
6.5 |
% |
|
10.2 |
% |
|
8.4 |
% |
|
12.1 |
% |
|
11.4 |
% |
|
13.4 |
% |
|
14.0 |
% |
|
11.8 |
% |
|
13.5 |
% |
|
14.0 |
% |
|
16.5 |
% |
Stores opened greater than five years – The
impact of the economy, over time, is best reflected in the growth
performance of our stores opened greater than five years (store
sites opened as follows: 2016 group – opened 2011 and earlier, 2015
group – opened 2010 and earlier, and 2014 group – opened 2009 and
earlier). This group, which represented about 90% of our total
sales in the first nine months of 2016, is more cyclical due to the
increased market share they enjoy in their local markets. During
the months noted below, the stores opened greater than five years
had daily sales growth rates of (compared to the same month in the
preceding year):
|
Jan. |
|
Feb. |
|
Mar. |
|
Apr. |
|
May |
|
June |
|
July |
|
Aug. |
|
Sept. |
|
Oct. |
|
Nov. |
|
Dec. |
2016 |
1.7 |
% |
|
1.3 |
% |
|
-1.7 |
% |
|
2.1 |
% |
|
-0.4 |
% |
|
-1.8 |
% |
|
0.5 |
% |
|
-0.7 |
% |
|
1.1 |
% |
|
|
|
|
|
|
2015 |
10.8 |
% |
|
7.2 |
% |
|
4.8 |
% |
|
5.6 |
% |
|
4.6 |
% |
|
3.1 |
% |
|
3.1 |
% |
|
1.3 |
% |
|
-1.1 |
% |
|
-1.0 |
% |
|
-1.8 |
% |
|
-5.3 |
% |
2014 |
4.6 |
% |
|
5.4 |
% |
|
9.5 |
% |
|
7.7 |
% |
|
11.5 |
% |
|
10.8 |
% |
|
12.9 |
% |
|
13.4 |
% |
|
11.7 |
% |
|
13.3 |
% |
|
13.6 |
% |
|
16.2 |
% |
Summarizing comments – There are three distinct
influences to our growth: (1) execution, (2) currency fluctuations,
and (3) economic fluctuations. This discussion centers on (2) and
(3).
The change in currencies in foreign countries (primarily Canada)
relative to the United States dollar impacted our net sales growth
over the last several years. In the first nine months of 2016, it
lowered our net sales growth by 0.4%. During the years 2015 and
2014, it lowered our net sales growth by 1.2% and 0.5%,
respectively.
In 2013, sales of the fastener product line were heavily
impacted by weakness in our industrial production business. These
customers utilize our fasteners in the manufacture/assembly of
their finished products. The end markets with the most pronounced
weakening included heavy machinery manufacturers with exposure to
mining, military, agriculture, and construction. Our sales to
customers engaged in light and medium duty manufacturing (largely
related to consumer products) began to improve late in 2013 and
into 2014. This made sense given the trends in the PMI Index at
that time.
In the first quarter of 2014, our sales growth was hampered in
January and February due to a weak economy and foreign exchange
rate fluctuations (primarily related to the Canadian dollar);
however, the biggest impact was a severe winter in North America
and its negative impact on our customers and our trucking network.
In March 2014, the weak economy and negative foreign exchange rate
fluctuations continued; however, the weather normalized and our
daily sales growth expanded to 11.6%. This double digit growth in
March was helped by the Easter timing (April in 2014). In the
second quarter of 2014, the negative impact of the Easter timing
was felt, and then a 'less noisy' picture emerged in May and June.
Our sales to customers engaged in heavy machinery manufacturing,
which represents approximately one fifth of our business, improved
in 2014.
During 2015, our business weakened. As mentioned in prior
disclosures, the weakening initially involved customers tied to the
oil and gas sector, but grew 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. In
November and December one distinct trend emerged involving customer
plant shutdowns. This is not uncommon during the holiday season;
however, we experienced a greater frequency and duration of
shutdowns than in prior years during both late November and late
December, with the trend more pronounced in late December.
During the first quarter of 2016, the impact of seasonal plant
shutdowns subsided and the economy showed signs of improvement. The
first three months of 2016, as well as April and May of 2016, had
some unusual 'noise' due to changing business day counts. The extra
day in each of February, March, and May tends to 'understate' the
daily sales growth percentage and the missing day in January and
April tends to 'overstate' the daily sales growth number. The
movement of Easter into March 2016 (versus April in 2015) similarly
tends to 'understate' daily sales growth in March 2016 and tends to
'overstate' daily sales growth in April 2016. The decline in daily
sales growth in May and June of 2016 was driven by continued
weakness with our manufacturing and construction customers. This is
evidenced by the trends with our top 100 customers and by
additional plant shutdowns/slowdowns before and after Memorial
Day.
Business conditions in the third quarter of 2016 looked very
similar to those in the first half of 2016. Daily sales growth
remained slow at 1.8% in the third quarter of 2016, versus growth
of 1.9% and 1.6%, respectively, in the first and second quarters of
2016. Our OEM and construction fastener sales remain
relatively weak, reflecting the sustained relative weakness of our
heavy equipment and construction end markets. We saw similar
plant shutdowns/slowdowns around the July 4th holiday, but these
were less pronounced around Labor Day. Daily sales in the U.S. were
a little weaker in the third quarter of 2016 than was the case in
the first half of 2016, largely a result of the continued softness
among our largest (top 100) customers. Sales to those customers
declined 0.8% in the third quarter of 2016 after posting a modest
increase in the first half of 2016. This was offset by better
growth in our Canadian and international operations.
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 with impaired business
days (certain holidays). The first landing centers on Easter,
which alternates between March and April (Easter occurred in March
2016, in April 2015, and in April 2014), the second landing centers
on July 4th, and the third landing centers on the approach of
winter with its seasonal impact on primarily our 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).
The table below shows the pattern to the sequential change in
our daily sales. The line labeled 'Benchmark' is an historical
average of our sequential daily sales change for the period 1998 to
2013, excluding 2008 and 2009. We believe this time frame will
serve to show the historical pattern and could serve as a benchmark
for current performance. We excluded the 2008 to 2009 time
frame because it contains an extreme economic event and we don't
believe it is comparable. The '2016', '2015', and '2014' lines
represent our actual sequential daily sales changes. The
'16Delta', '15Delta', and '14Delta' lines indicate the difference
between the 'Benchmark' and the actual results in the respective
year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. to |
|
Jan. (1) |
|
Feb. |
|
Mar. |
|
Apr. |
|
May |
|
June |
|
July |
|
Aug. |
|
Sept. |
|
Oct. |
|
Sept. |
|
Oct. |
Benchmark |
0.8 |
% |
|
2.2 |
% |
|
3.8 |
% |
|
0.4 |
% |
|
3.1 |
% |
|
2.7 |
% |
|
-2.1 |
% |
|
2.5 |
% |
|
3.7 |
% |
|
-1.2 |
% |
|
17.2 |
% |
|
15.9 |
% |
2016 |
0.4 |
% |
|
-0.8 |
% |
|
1.5 |
% |
|
1.7 |
% |
|
0.6 |
% |
|
-0.2 |
% |
|
-2.3 |
% |
|
2.4 |
% |
|
1.5 |
% |
|
|
|
|
4.5 |
% |
|
|
|
16Delta |
-0.4 |
% |
|
-3.0 |
% |
|
-2.3 |
% |
|
1.3 |
% |
|
-2.5 |
% |
|
-2.9 |
% |
|
-0.2 |
% |
|
-0.1 |
% |
|
-2.2 |
% |
|
|
|
|
-12.7 |
% |
|
|
|
2015 |
-3.6 |
% |
|
-0.1 |
% |
|
4.2 |
% |
|
-2.1 |
% |
|
3.4 |
% |
|
0.9 |
% |
|
-4.3 |
% |
|
4.1 |
% |
|
-0.9 |
% |
|
-2.0 |
% |
|
5.0 |
% |
|
2.9 |
% |
15Delta |
-4.4 |
% |
|
-2.3 |
% |
|
0.4 |
% |
|
-2.5 |
% |
|
0.3 |
% |
|
-1.8 |
% |
|
-2.2 |
% |
|
1.6 |
% |
|
-4.6 |
% |
|
-0.8 |
% |
|
-12.2 |
% |
|
-13.0 |
% |
2014 |
-1.4 |
% |
|
3.0 |
% |
|
7.1 |
% |
|
-2.6 |
% |
|
4.2 |
% |
|
2.5 |
% |
|
-3.8 |
% |
|
5.8 |
% |
|
1.0 |
% |
|
-1.5 |
% |
|
18.0 |
% |
|
16.2 |
% |
14Delta |
-2.2 |
% |
|
0.8 |
% |
|
3.3 |
% |
|
-3.0 |
% |
|
1.1 |
% |
|
-0.2 |
% |
|
-1.7 |
% |
|
3.3 |
% |
|
-2.7 |
% |
|
-0.3 |
% |
|
0.8 |
% |
|
0.3 |
% |
(1) The January figures represent the percentage change from the
previous October, whereas the remaining figures represent the
percentage change from the previous month.
Note: We intend to modify this disclosure in 2017 to utilize a
more recent time line (2011-2016) for a benchmark.
A graph of the sequential daily sales change pattern discussed
above, starting with a base of '100' in the previous October and
ending with the next October, would be as follows:
http://www.globenewswire.com/NewsRoom/AttachmentNg/b2d78e6e-dc1e-4ca8-a5a8-30ed48941f86
End Market Performance:
Fluctuations in end market business – The
sequential trends noted above were directly linked to fluctuations
in our end markets. To place this in perspective –
approximately 50% of our business has historically been with
customers engaged in some type of manufacturing. The daily
sales growth rates to these customers, when compared to the same
period in the prior year, were as follows:
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Annual |
2016 |
|
0.9 |
% |
|
0.7 |
% |
|
1.0 |
% |
|
|
|
|
2015 |
|
6.9 |
% |
|
3.8 |
% |
|
1.1 |
% |
|
-2.2 |
% |
|
2.3 |
% |
2014 |
|
9.0 |
% |
|
11.2 |
% |
|
13.7 |
% |
|
13.8 |
% |
|
12.0 |
% |
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% to 40% of our business) which is heavily
influenced by changes in our business with heavy equipment
manufacturers. From a company perspective, daily sales growth rates
of fasteners, when compared to the same period in the prior year,
were as follows (note: this information includes all end
markets):
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Annual |
2016 |
|
-1.7 |
% |
|
-2.4 |
% |
|
-2.9 |
% |
|
|
|
|
2015 |
|
5.5 |
% |
|
0.0 |
% |
|
-4.4 |
% |
|
-6.2 |
% |
|
-1.4 |
% |
2014 |
|
1.6 |
% |
|
5.5 |
% |
|
9.9 |
% |
|
11.4 |
% |
|
6.9 |
% |
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):
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Annual |
2016 |
|
4.7 |
% |
|
4.7 |
% |
|
4.9 |
% |
|
|
|
|
2015 |
|
11.7 |
% |
|
9.0 |
% |
|
5.9 |
% |
|
1.2 |
% |
|
6.8 |
% |
2014 |
|
14.2 |
% |
|
17.1 |
% |
|
17.6 |
% |
|
19.0 |
% |
|
17.2 |
% |
The 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 strong industrial vending program. However, this business
was not immune to the impact of a weak industrial environment.
Our non-residential construction customers have historically
represented 20% to 25% of our business. The daily sales growth
rates to these customers, when compared to the same period in the
prior year, were as follows:
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Annual |
2016 |
|
-0.4 |
% |
|
-1.7 |
% |
|
-1.9 |
% |
|
|
|
|
2015 |
|
6.2 |
% |
|
1.6 |
% |
|
-1.7 |
% |
|
-6.1 |
% |
|
-0.2 |
% |
2014 |
|
2.9 |
% |
|
7.5 |
% |
|
9.3 |
% |
|
12.6 |
% |
|
7.8 |
% |
Our non-residential construction business is heavily influenced
by the industrial economy, particularly the energy sector. The
volatility and weakness of energy prices has weakened this
business, particularly in the last four quarters.
A graph of the sequential daily sales trends to these two end
markets in 2016, 2015, and 2014, starting with a base of '100' in
the previous October and ending with the next October, would be as
follows:
http://www.globenewswire.com/NewsRoom/AttachmentNg/c00f336f-014e-4c3d-a84f-414c202da50a
CASH FLOW IMPACT ITEMS
As indicated earlier, we included this section to provide some
added insight into the items that impact our cash flow.
OPERATIONAL WORKING CAPITAL
The year-over-year comparison and the related dollar and
percentage changes related to accounts receivable, net and
inventories were as follows:
|
|
September 30: |
|
Twelve-month Dollar Change |
|
Twelve-month Percentage Change |
|
|
2016 |
|
2015 |
|
2014 |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Accounts receivable,
net |
|
$ |
543,744 |
|
|
537,055 |
|
|
522,265 |
|
|
$ |
6,689 |
|
|
14,790 |
|
|
1.2 |
% |
|
2.8 |
% |
Inventories |
|
966,931 |
|
|
883,207 |
|
|
836,379 |
|
|
83,724 |
|
|
46,828 |
|
|
9.5 |
% |
|
5.6 |
% |
Operational working
capital(1) |
|
$ |
1,510,675 |
|
|
1,420,262 |
|
|
1,358,644 |
|
|
$ |
90,413 |
|
|
61,618 |
|
|
6.4 |
% |
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales in last two
months |
|
$ |
703,172 |
|
|
661,203 |
|
|
657,118 |
|
|
$ |
41,969 |
|
|
4,085 |
|
|
6.3 |
% |
|
0.6 |
% |
(1) For purposes of this discussion, we are defining operational
working capital as accounts receivable, net and inventories.
The growth in our net accounts receivable has been broadly
consistent with our sales growth over the periods represented. This
is despite the strong growth of our international business and of
our large customer accounts, which can create meaningful difficulty
with managing the growth of accounts receivable relative to the
growth in sales.
Our growth in inventory balances over time does not have as
direct a relationship to our monthly sales patterns as does our
growth in accounts receivable. This is impacted by other
aspects of our business. For example, the dramatic economic
slowdown in late 2008 and early 2009 caused our inventory to
spike. This occurred because the lead time for inventory
procurement is typically longer than the visibility we have into
future monthly sales patterns. Over the last decade, we increased
our relative inventory levels due to the following: (1) new store
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 (private label), (5)
expanded industrial vending solutions, (6) national accounts and
Onsite growth, (7) international growth, and (8) expanded stocking
breadth at individual stores related to our CSP initiatives.
Through the first nine months of 2016, 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, the incremental
inventory related to the acquisition of Fasteners, Inc., the
relative growth of international sales, and the growth of our
Onsite business. The sequential decrease in our inventory in
the third quarter of 2016 is a function of a significant focus on
our stocking levels throughout our network, particularly in our
distribution centers.
BALANCE SHEET AND CASH FLOW
Our balance sheet continues to be very strong and our operations
have good cash generating characteristics. Our operating cash flow
as a percentage of net earnings in the first nine months of 2016
contracted slightly compared to the first nine months of 2015. It
decreased primarily due to our current initiative to add additional
products into store inventory under our CSP 16 format, and this
decrease was partially offset by a reduction in net cash used to
fund trade accounts receivable and income tax payments. Our first
quarter typically has stronger cash flow characteristics due to the
timing of tax payments; this benefit reverses itself in the second,
third, and fourth quarters as income tax payments go out in April,
June, September, and December. The remaining amounts of cash
flow from operating activities are largely linked to the pure
dynamics of a distribution business and its strong correlation to
working capital as discussed above. During 2015, and the first nine
months of 2016, we incurred some debt to fund capital expenditures,
purchases of our common stock, and payments of dividends as
discussed earlier in this document.
Operating cash flow as a percentage of net earnings were as
follows in 2016 and 2015:
|
2016 |
|
2015 |
First quarter |
127.8 |
% |
|
141.1 |
% |
Second quarter |
65.9 |
% |
|
57.7 |
% |
Year-to-date (June) |
96.2 |
% |
|
97.5 |
% |
Third quarter |
105.0 |
% |
|
103.2 |
% |
Year-to-date (September) |
99.1 |
% |
|
99.4 |
% |
Fourth quarter |
|
|
129.5 |
% |
Year-to-date (December) |
|
|
105.9 |
% |
Our dividends (on a per share basis) were as follows in 2016 and
2015:
|
2016 |
|
|
|
2015 |
|
|
First quarter |
$ |
0.30 |
|
|
|
$ |
0.28 |
|
|
Second quarter |
0.30 |
|
|
|
0.28 |
|
|
Third quarter |
0.30 |
|
|
|
0.28 |
|
|
Fourth quarter |
0.30 |
|
(1 |
) |
|
0.28 |
|
|
Total |
$ |
1.20 |
|
|
|
$ |
1.12 |
|
|
(1) The fourth quarter dividend was declared on October 10,
2016, and is payable on November 22, 2016 to shareholders of
record at the close of business on October 25, 2016.
STOCK PURCHASES
During the first quarter of 2016, we purchased 1,600,000 shares
of our common stock at an average price of approximately $37.15 per
share. During the second and third quarters of 2016, we did not
purchase any shares of our common stock. During 2015, we purchased
a total of 7,100,000 shares of our common stock at an average price
of $41.26 per share. We currently have authority to purchase up to
an additional 1,300,000 shares of our common stock.
CONFERENCE CALL TO DISCUSS QUARTERLY
EARNINGS
As we previously disclosed, we will host a conference call today
to review the quarterly results, as well as current
operations. This conference call will be broadcast live over
the Internet at 9:00 a.m., central time. To access the
webcast, please go to the Fastenal Company Investor Relations
Website at http://investor.fastenal.com/events.cfm.
MONTHLY, QUARTERLY, AND ANNUAL REPORTING
SCHEDULE
We publish on the 'Investor Relations' page of our website at
www.fastenal.com, both our monthly consolidated net sales figures
and certain quarterly supplemental information. We expect to
publish the consolidated net sales figures for each month, other
than the third month of a quarter, at 6:00 a.m., central time, on
the fourth business day of the following month. We expect to
publish the consolidated net sales figures for the third month of
each quarter and the supplemental information for each quarter at
6:00 a.m., central time, on the date our earnings announcement for
such quarter is publicly released.
We anticipate our quarterly reports on Form 10-Q will be filed
with the Securities and Exchange Commission within 30 days after
the end of the quarter.
We anticipate our 2016 annual report on Form 10-K will be filed
with the Securities and Exchange Commission in February 2017.
ADDITIONAL INFORMATION
Certain statements contained in this document 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 historical fact, including estimates, projections,
future 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, and our
strategies, goals, mission, and vision. 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, weakness in the manufacturing or commercial
construction industries, competitive pressure on selling prices,
changes in our current mix of products, customers or geographic
locations, changes in our average store size, changes in our
purchasing patterns, changes in customer needs, changes in fuel or
commodity prices, inclement weather, changes in foreign currency
exchange rates, difficulty in adapting our business model to
different foreign business environments, weak acceptance or
adoption of vending technology or increased competition in
industrial vending, difficulty in maintaining installation quality
as our industrial vending business expands, the entering into of
future arrangements with customers to lease a significant number of
industrial vending machines (which could cause unexpected increases
in capital expenditures or the need for additional hiring),
difficulty in hiring, relocating, training or retaining qualified
personnel, failure to meet store opening goals, store closing
expectations, or Onsite implementation objectives, 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, changes in credit market volatility, changes
in tax law, changes in the availability or price of commercial real
estate, changes in the nature, price or availability of
distribution, supply chain, and other technology (including
software licensed from third parties) and services related to that
technology, cyber-security incidents, potential liability and
reputational damage that can arise if our products are defective,
and other risks and uncertainties detailed in our filings with the
Securities and Exchange Commission, including our most recent
annual and quarterly reports. 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. FAST-E
|
FASTENAL COMPANY AND SUBSIDIARIES |
Condensed Consolidated Balance Sheets |
(Amounts in thousands except share and per share
information) |
|
|
|
|
|
|
|
(Unaudited) |
|
|
Assets |
|
September 30, 2016 |
|
December 31, 2015 |
Current assets: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
146,983 |
|
|
129,019 |
|
Trade
accounts receivable, net of allowance for doubtful accounts of
$11,469 and $11,729, respectively |
|
543,744 |
|
|
468,375 |
|
Inventories |
|
966,931 |
|
|
913,263 |
|
Prepaid
income taxes |
|
— |
|
|
22,558 |
|
Other current assets |
|
120,004 |
|
|
131,561 |
|
Total
current assets |
|
1,777,662 |
|
|
1,664,776 |
|
|
|
|
|
|
Property and equipment,
net |
|
904,201 |
|
|
818,889 |
|
Other
assets, net |
|
48,605 |
|
|
48,797 |
|
|
|
|
|
|
Total assets |
|
$ |
2,730,468 |
|
|
2,532,462 |
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Current
portion of debt |
|
$ |
12,610 |
|
|
62,050 |
|
Accounts
payable |
|
117,765 |
|
|
125,973 |
|
Accrued
expenses |
|
189,012 |
|
|
185,143 |
|
Income taxes payable |
|
11,678 |
|
|
— |
|
Total current liabilities |
|
331,065 |
|
|
373,166 |
|
|
|
|
|
|
Long-term debt |
|
432,390 |
|
|
302,950 |
|
Deferred
income tax liabilities |
|
57,715 |
|
|
55,057 |
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
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; 289,024,824
and 289,581,682 shares issued and outstanding, respectively |
|
2,890 |
|
|
2,896 |
|
Additional paid-in capital |
|
31,503 |
|
|
2,024 |
|
Retained
earnings |
|
1,912,048 |
|
|
1,842,772 |
|
Accumulated other comprehensive loss |
|
(37,143 |
) |
|
(46,403 |
) |
Total stockholders' equity |
|
1,909,298 |
|
|
1,801,289 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
2,730,468 |
|
|
2,532,462 |
|
|
|
|
|
|
|
|
|
FASTENAL COMPANY AND
SUBSIDIARIES |
Condensed Consolidated Statements of Earnings |
(Amounts in thousands except earnings per share) |
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
Nine Months Ended September 30, |
|
Three Months Ended September 30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Net sales |
$ |
3,014,089 |
|
|
2,946,394 |
|
|
$ |
1,013,122 |
|
|
995,250 |
|
|
|
|
|
|
|
|
|
Cost of
sales |
1,521,203 |
|
|
1,458,032 |
|
|
513,288 |
|
|
493,025 |
|
Gross
profit |
1,492,886 |
|
|
1,488,362 |
|
|
499,834 |
|
|
502,225 |
|
|
|
|
|
|
|
|
|
Operating and
administrative expenses |
879,847 |
|
|
839,409 |
|
|
297,047 |
|
|
282,378 |
|
Gain on
sale of property and equipment |
(312 |
) |
|
(659 |
) |
|
(182 |
) |
|
(162 |
) |
Operating
income |
613,351 |
|
|
649,612 |
|
|
202,969 |
|
|
220,009 |
|
|
|
|
|
|
|
|
|
Interest income |
258 |
|
|
299 |
|
|
105 |
|
|
137 |
|
Interest
expense |
(4,702 |
) |
|
(2,096 |
) |
|
(1,835 |
) |
|
(942 |
) |
|
|
|
|
|
|
|
|
Earnings
before income taxes |
608,907 |
|
|
647,815 |
|
|
201,239 |
|
|
219,204 |
|
|
|
|
|
|
|
|
|
Income
tax expense |
224,234 |
|
|
243,358 |
|
|
74,314 |
|
|
82,710 |
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
384,673 |
|
|
404,457 |
|
|
$ |
126,925 |
|
|
136,494 |
|
|
|
|
|
|
|
|
|
Basic net
earnings per share |
$ |
1.33 |
|
|
1.38 |
|
|
$ |
0.44 |
|
|
0.47 |
|
|
|
|
|
|
|
|
|
Diluted
net earnings per share |
$ |
1.33 |
|
|
1.38 |
|
|
$ |
0.44 |
|
|
0.47 |
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding |
288,908 |
|
|
292,084 |
|
|
288,995 |
|
|
289,918 |
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding |
289,136 |
|
|
292,721 |
|
|
289,150 |
|
|
290,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
FASTENAL COMPANY AND SUBSIDIARIES |
Condensed Consolidated Statements of Cash Flows |
(Amounts in thousands) |
|
|
(Unaudited) |
|
|
Nine Months Ended September 30, |
|
|
2016 |
|
2015 |
|
|
|
|
|
Cash flows from
operating activities: |
|
|
|
|
Net
earnings |
|
$ |
384,673 |
|
|
404,457 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
Depreciation of property and equipment |
|
74,471 |
|
|
60,500 |
|
Gain on
sale of property and equipment |
|
(312 |
) |
|
(659 |
) |
Bad debt
expense |
|
6,626 |
|
|
6,768 |
|
Deferred
income taxes |
|
2,658 |
|
|
2,822 |
|
Stock-based compensation |
|
2,900 |
|
|
4,641 |
|
Excess
tax benefits from stock-based compensation |
|
(5,537 |
) |
|
(1,756 |
) |
Amortization of non-compete agreements |
|
395 |
|
|
395 |
|
Changes
in operating assets and liabilities: |
|
|
|
|
Trade
accounts receivable |
|
(80,406 |
) |
|
(88,420 |
) |
Inventories |
|
(51,041 |
) |
|
(24,623 |
) |
Other
current assets |
|
11,557 |
|
|
(1,984 |
) |
Accounts
payable |
|
(8,208 |
) |
|
28,070 |
|
Accrued
expenses |
|
3,869 |
|
|
20,789 |
|
Income
taxes |
|
39,773 |
|
|
(8,525 |
) |
Other |
|
(100 |
) |
|
(490 |
) |
Net cash provided by operating activities |
|
381,318 |
|
|
401,985 |
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
Purchases
of property and equipment |
|
(161,975 |
) |
|
(119,462 |
) |
Proceeds
from sale of property and equipment |
|
4,577 |
|
|
6,696 |
|
Other |
|
(203 |
) |
|
(82 |
) |
Net cash used in investing activities |
|
(157,601 |
) |
|
(112,848 |
) |
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
Borrowings under debt obligations |
|
760,000 |
|
|
965,000 |
|
Payments
against debt obligations |
|
(680,000 |
) |
|
(740,000 |
) |
Proceeds
from exercise of stock options |
|
24,957 |
|
|
9,289 |
|
Excess
tax benefits from stock-based compensation |
|
5,537 |
|
|
1,756 |
|
Purchases
of common stock |
|
(59,440 |
) |
|
(273,490 |
) |
Payments of dividends |
|
(259,878 |
) |
|
(245,983 |
) |
Net cash used in financing activities |
|
(208,824 |
) |
|
(283,428 |
) |
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
3,071 |
|
|
(8,430 |
) |
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents |
|
17,964 |
|
|
(2,721 |
) |
|
|
|
|
|
Cash and
cash equivalents at beginning of period |
|
129,019 |
|
|
114,496 |
|
|
|
|
|
|
Cash and
cash equivalents at end of period |
|
$ |
146,983 |
|
|
111,775 |
|
|
|
|
|
|
Supplemental disclosure
of cash flow information: |
|
|
|
|
Cash paid
for interest |
|
$ |
4,372 |
|
|
2,096 |
|
Net cash paid for income taxes |
|
$ |
181,247 |
|
|
248,473 |
|
|
|
|
|
|
|
|
|
CONTACT:
Ellen Trester
Financial Reporting & Regulatory Compliance Manager
507-313-7282
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