Fastenal (FAST) 10-K risk factor changes: FY2014 vs FY2013

| • | [added: energy and] fuel prices and electrical power rates, |

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 [removed: authorities] [added: authorities,] and by third parties who are injured or damaged as a result of such events.

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 [removed: us,] [added: 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.

In the event of a [removed: security breach or other] cyber security incident, we could experience certain operational problems or interruptions, incur substantial additional costs, or become subject to legal or regulatory proceedings, any of which could lead to damage to our reputation in the marketplace.

The nature of our business requires us to receive, [removed: retain] [added: 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.

If a compromise of our data security or function of our computer systems or website were to occur, it could have a material adverse effect on our operating results and financial condition and, possibly, subject us to additional legal, [removed: regulatory] [added: regulatory,] and operating costs, and damage our reputation in the marketplace.

One of our [removed: primary growth] strategies is to grow our business through the introduction of stores into new and existing markets.

Based on a snapshot of current marketplace demographics in the United States, Canada, and Mexico, we currently estimate there is potential market opportunity in North America to support approximately 3,500 [removed: stores.][added: stores, or approximately 900 more stores than we have today.]

We cannot guarantee that our market potential estimates are accurate or that we will [added: decide to] open stores to reach the full market opportunity.

Our growth is dependent primarily on our ability to attract new [added: customers and increase our activity with existing] customers.

Historically, the most effective way to attract new customers has been opening new [removed: stores.][added: stores, although that has not been our primary growth driver in recent years.]

We expect to open new stores at the rate of approximately [removed: 2% to 3%] [added: 1%] in [removed: 2014;] [added: 2015;] however, we cannot assure you that we can open stores at this rate, and failure to do [removed: so,] [added: so] could negatively impact our long-term growth.

We opened stores at the rate of approximately [added: 1%,] 2%, [removed: 3%,] and [removed: 5%] [added: 3%] in [added: 2014,] 2013, [removed: 2012,] and [removed: 2011,] [added: 2012,] respectively.

In April 2007, we introduced our [removed: 'pathway to profit'] [added: ‘pathway-to-profit’] strategy.

From time to time, we have experienced changes in customer or product mix that have caused [added: our] gross profit [added: percentage] to deteriorate.

[removed: For example, the growth of our national accounts since the mid-1990’s and of our non-fastener product line since the early 1990’s] [added: That] has adversely affected [added: our] gross [removed: profit, as national accounts have the leverage to negotiate lower prices, and] [added: profit percentage] as our non-fastener products generally carry lower gross profit [added: margin] than our fastener products.

[removed: Gross profit can deteriorate if we experience downward pressure on sales prices as a result of deflation, pressures from customers to] reduce costs, or increased competition, as was the case in 2009 and the latter half of 2013.

[added: In] new markets, we have less familiarity with local customer preferences and customers in these markets are less familiar with our name and capabilities.

We cannot assure success in operating our stores [removed: in new markets] on a profitable [removed: basis.][added: basis in new markets.]

The ability to identify new products and product lines, and integrate them into our store and distribution network, may impact our ability to compete and our sales and [added: profit] margins.

In addition, our ability to integrate new products and product lines into our stores and distribution network could impact sales and [added: profit] margins.

[removed: Increases] [added: Changes] in energy costs and the cost of raw materials used in our products could impact our [added: net sales, gross profit percentage,] cost of [removed: goods and] [added: goods,] distribution [added: expenses,] and occupancy expenses, which may result in lower operating [removed: margins.][added: income.]

Increases in these costs result in increased production costs for our [removed: vendors.][added: suppliers.]

These [removed: vendors] [added: suppliers] typically look to pass their increased costs along to us through price increases.

While we typically try to pass increased [removed: vendor] [added: supplier] prices and fuel costs through to our customers or to modify our activities to mitigate the impact, we may not be [removed: successful.][added: 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 [removed: margins.][added: income.]

Fluctuations in the relative strength of foreign economies and their related currencies could impact our ability to [removed: procure products overseas at competitive prices and our foreign sales.]

Increased competition [added: from brick and mortar retailers] in markets in which we have stores or [added: 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 [removed: methods] [added: methods,] could cause us to lose market share or reduce our prices or increase our spending, thus eroding our [removed: margins.][added: operating income.]

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 [removed: conditions] [added: conditions,] or trade issues.

Our FAST Solutions® (industrial vending) business is [added: relatively] new, and our competitive advantage could be eliminated.

We believe we have a competitive advantage [added: in industrial vending] due to our [removed: industrial] vending [removed: platform (hardware] [added: hardware] and [removed: software),] [added: software,] our local store [removed: presence,] [added: presence (allowing us to service machines more rapidly),] our 'vendible' product depth, and, in North America, our distribution strength.

These advantages have developed over time; however, other competitors could respond to our [removed: rapidly] expanding industrial vending business with highly competitive platforms of their own.

[removed: These alternative solutions] [added: Such competition] could negatively impact our ability to expand our [added: industrial vending] business [removed: and/or] [added: or] negatively impact the economics of [removed: the industrial vending] [added: that] business.

The trend in our industry toward consolidation could make it more difficult for us to maintain our current gross [added: profit] and operating [removed: margins.][added: income.]

We [removed: will need] [added: are required] to [removed: begin disclosing our] [added: disclose the] use of 'conflict minerals' in certain of the products we distribute, which [removed: will impose] [added: imposes] costs on us and could raise reputational and other risks.

The SEC has promulgated [removed: final] rules in connection with the Dodd-Frank Wall Street Reform and Consumer Protection [removed: Act,] [added: Act] regarding disclosure of the use of certain minerals, known as 'conflict minerals', that are mined from the Democratic Republic of the Congo and adjoining countries.

These [removed: new] rules have required and will continue to require due diligence [removed: efforts, with initial] [added: and] disclosure [removed: requirements becoming effective in May 2014.][added: efforts.]

There are and will continue to be costs associated with complying with these disclosure requirements, including costs to determine which of our products are subject to the [removed: new] rules and the source of any 'conflict minerals' used in those products.

In addition, [removed: the implementation of] [added: compliance with] these rules could adversely affect the sourcing, supply, and pricing of materials used in those products.

Also, we may face reputational challenges if we are unable to verify the origins for all [removed: metals] [added: 'conflict minerals'] used in products through the procedures we [removed: may implement.][added: have implemented.]

Some of our customers operate in challenging industries where there is a material risk of catastrophic events, and we are actively seeking to expand our sales to certain categories of customers (such as those in the aerospace industry) whose businesses entail heightened levels of that type of risk.

In addition, compliance with cyber security laws, regulations, and standards could be difficult and costly, and failure to comply could expose us to legal risk.

In addition, our handling and use of personal information is regulated at the international, federal, and state levels.

Privacy and information security laws, regulations, and standards such as the Payment Card Industry Data Security Standard change from time to time, and compliance with them may result in cost increases due to necessary system changes and the development of new processes, and may be difficult to achieve.

If we fail to comply with these laws, regulations, and standards, we could be subjected to legal risk.

This estimate is based on our business model today, and market changes such as industrial vending and the internet, or other types of e-business, could cause it to change.

While we estimate we have the potential in North America for approximately 900 more stores than we have today, we have slowed our store openings in recent years and have focused instead on other growth drivers of our business.

Our ‘pathway-to-profit’ strategy, the goal of which is to improve our pre-tax profit margins by growing the average annual sales of our stores, may prove unsuccessful on a long-term basis.

That strategy involved slowing our annual new store openings and investing the funds saved by opening fewer stores in additional sales and sales leadership personnel.

Under the 'pathway-to-profit' strategy, our goal is to increase our average annual sales per store, which would allow us to capture earnings leverage (by spreading operating and administrative expenses over higher sales) and grow our pre-tax profit margin.

Our gross profit margin generally decreases as our average per store sales increase, as larger stores sell to larger customers whose more focused buying patterns merit better pricing.

However, our operating and administrative expenses, expressed as a percentage of net sales, typically improve as average per store sales grow.

In most years the net effect is an increase in our pre-tax profit margin, as the relative improvement in operating and administrative expenses offsets the decrease in gross profit margin.

A downturn in the economy or in the principle markets served by us or difficulty in attracting and retaining qualified sales and sales leadership personnel could adversely impact our ability to continue to grow our average per store sales.

In addition, greater than expected decreases in our gross profit margin resulting from changes in customer mix or other factors noted below, or the failure to control operating and administrative expenses to the degree necessary to offset expected decreases in our gross profit margin, could adversely impact our pre-tax profit margin even as average per store sales increase.

The latter was evidenced in 2014, when the improvement in our operating and administrative expenses as a percentage of net sales was not sufficient to counterbalance the decrease in our gross profit margin, due in part to our push to add more personnel and labor hours in our stores and more district and regional leaders to better serve our stores, and in part to rising miscellaneous expenses.

For example, the portion of our sales attributable to fasteners has been decreasing in recent years.

Also, as noted above, our strategy of growing our pre-tax profit margin by increasing our average annual sales per store has contributed to a drop in our gross profit percentage due to resulting changes in our customer mix.

If our customer or product mix continues to change, our gross profit percentage may decline further.

We can experience downward pressure on sales prices as a result of deflation, pressure from customers to

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 margin to deteriorate, or by negatively impacting customers in certain industries (such as oil exploration, production, and refinement companies), which could cause our sales to those customers to decline.

This risk was felt in the first quarter of 2014 as our sales growth was hampered in January and February due to a severe winter in North America and its negative impact on our customers and our trucking network.

procure products overseas at competitive prices and our foreign sales.

Products manufactured in foreign countries may cease to be available, which could adversely affect our inventory levels and operating results.

Some of our customers operate in challenging industries where there is a material risk of catastrophic events.

We work hard to maintain the privacy and security of our customer and business information and the functioning of our computer systems and website.

Our current business strategy, 'pathway-to-profit', which involves reducing our rate of new store openings and using the money saved to add sales personnel at a faster rate, while successful over the last several years, has not yet proven successful on a long-term basis.

This strategy initially involved slowing our annual new store openings from our historical rate of 13% to 18% to approximately 7% to 10%.

The funds saved by opening fewer stores would be invested in additional sales personnel, with the goal of increasing our average annual per store sales, capturing earnings leverage, and increasing our pre-tax earnings.

At the time we introduced this strategy, we believed that, over the five year period from 2007 to 2012, we could grow our average store sales to $125 thousand per month and grow our pre-tax earnings as a percent of net sales from 18% to 23%.

The economic weakness that dramatically worsened in the fall of 2008 and continued into 2009 caused us to alter this strategy during 2009 by slowing our annual new store openings to a range of approximately 2% to 5% and temporarily stopping headcount additions except at newly opened stores and stores that were growing.

Because of this economic setback, we previously indicated that the time required to achieve our pre-tax earnings percentage goals for 'pathway to profit' could be delayed 24 to 30 months.

More recently, we have indicated we believe we could hit our pre-tax earnings percentage goal with less than the $125 thousand per month figure.

We now believe the pre-tax earnings goal might be accomplished with average store sales as low as $100 to $110 thousand per month due to the structural lowering of our costs.

A more prolonged downturn in the economy than expected, the prospect of future economic deterioration, changes in the rate of new store openings, difficulty in successfully attracting and retaining qualified sales personnel, an inability to realize anticipated savings from lowering our cost structure, and failure to successfully change our selling process could further adversely impact our ability to grow average store sales, capture earnings leverage, and achieve desired pre-tax earnings results.

If our customer or product mix continues to change, there can be no assurance that we will be able to maintain our historical gross profit.

In

Our revenues and net income may be adversely affected by economic conditions, political situations, and changing laws and regulations, over which we have no control.

BUSINESS AND OPERATIONAL [removed: OVERVIEW:][added: OVERVIEW]

The non-residential construction market includes general, electrical, plumbing, [removed: sheet metal, and road contractors.]

Other users of our product include farmers, truckers, railroads, [added: oil exploration, production, and refinement companies,] mining companies, federal, state, and local governmental entities, schools, and certain retail trades.

SALES [removed: GROWTH:][added: GROWTH]

| | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | [removed: 2011] [added: 2012] | |

| Net sales | $ | [removed: 3,326,106] [added: 3,733,507] | | | [removed: 3,133,577] [added: 3,326,106] | | | [removed: 2,766,859] [added: 3,133,577] | |

| Percentage change | [removed: 6.1] [added: 12.2] | | % | | [removed: 13.3] [added: 6.1] | % | | [removed: 21.9] [added: 13.3] | % |

The increase in net sales in [added: both 2014 and] 2013 came primarily from higher unit sales.

The growth in net sales at the older store locations was due to the growth drivers [added: of our business (discussed later in this document).]

The change in currencies in foreign countries (primarily Canada) relative to the United States dollar lowered our daily sales growth rate by [added: 0.5% and] 0.2% in [removed: 2013.][added: 2014 and 2013, respectively.]

Our growth in net sales was [added: not meaningfully] impacted by [removed: price changes in our products, but] the [removed: impact was limited.][added: introduction of new]

[removed: Our growth in net sales was not meaningfully impacted by the introduction of new] products or services, but was helped by initiatives such as FAST Solutions® (industrial vending).

The impact of the economy is best reflected in the growth performance of our stores opened greater than ten years ago (store sites opened as follows: [removed: 2013] [added: 2014] group – opened [removed: 2003] [added: 2004] and earlier, [removed: 2012] [added: 2013] group – opened [removed: 2002] [added: 2003] and earlier, and [removed: 2011] [added: 2012] group – opened [removed: 2001] [added: 2002] and earlier) and opened greater than five years ago (store sites opened as follows: [removed: 2013] [added: 2014] group – opened [removed: 2008] [added: 2009] and earlier, [removed: 2012] [added: 2013] group – opened [removed: 2007] [added: 2008] and earlier, and [removed: 2011] [added: 2012] group – opened [removed: 2006] [added: 2007] and earlier).

The stores opened greater than two years ago represent a consistent ‘same store’ view of our business (store sites opened as follows: [removed: 2013] [added: 2014] group – opened [removed: 2011] [added: 2012] and earlier, [removed: 2012] [added: 2013] group – opened [removed: 2010] [added: 2011] and earlier, and [removed: 2011] [added: 2012] group – opened [removed: 2009] [added: 2010] and earlier).

| Store Age | [removed: 2013] [added: 2014] | | [removed: 2012] [added: 2013] | | [removed: 2011] [added: 2012] |

| Opened greater than 10 years | [removed: 2.1%] [added: 10.5%] | | [removed: 8.1%] [added: 2.1%] | | [removed: 15.2%] [added: 8.1%] |

| Opened greater than 5 years | [removed: 3.6%] [added: 10.9%] | | [removed: 9.8%] [added: 3.6%] | | [removed: 17.1%] [added: 9.8%] |

| Opened greater than 2 years | [removed: 4.4%] [added: 11.5%] | | [removed: 10.8%] [added: 4.4%] | | [removed: 17.9%] [added: 10.8%] |

Stores opened in 2013 contributed approximately [added: $52,033 (or 1.4%) to 2014 net sales and approximately] $18,620 (or 0.6%) to 2013 net sales.

SALES BY PRODUCT [removed: LINE:][added: LINE]

| | [removed: 2013] [added: 2014] | | [removed: 2012] [added: 2013] | | [removed: 2011] [added: 2012] |

| Fastener product line | [removed: 42%] [added: 40%] | | [removed: 44%] [added: 42%] | | [removed: 47%] [added: 44%] |

| Other product lines | [removed: 58%] [added: 60%] | | [removed: 56%] [added: 58%] | | [removed: 53%] [added: 56%] |

[removed: This] [added: Since we sell primarily non-fastener products in our industrial vending machines, this] program has [removed: lead] [added: led] to greater resilience to weak industrial production of our non-fastener business compared to our fastener business.

The second discussion provides a framework for understanding the sequential trends (that is, comparing a month to the immediately preceding [added: month, and also looking at the cumulative change from an earlier benchmark] month) in our business.

All company sales – During the months [removed: in 2013, 2012, and 2011,] [added: noted below,] all of our selling locations, when combined, had daily sales growth rates of (compared to the [removed: comparable] [added: same] month in the preceding year):

| | [removed: Jan.] [added: Jan.(1)] | | | Feb. | | | Mar. | | | Apr. | | | May | | | June | | | July | | | Aug. | | | Sept. | | | Oct. | | | [removed: Nov. | | | Dec. |] [added: Cumulative Change from Jan. to Oct.] |

Stores opened greater than two years – Our stores opened greater than two years (store sites opened as follows: [removed: 2013] [added: 2014] group – opened [removed: 2011] [added: 2012] and earlier, [removed: 2012] [added: 2013] group – opened [removed: 2010] [added: 2011] and earlier, and [removed: 2011] [added: 2012] group – opened [removed: 2009] [added: 2010] and earlier) represent a consistent 'same-store' view of our business.

During the months [removed: in 2013, 2012, and 2011,] [added: noted below,] the stores opened greater than two years had daily sales growth rates of (compared to the [removed: comparable] [added: same] month in the preceding year):

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: [removed: 2013] [added: 2014] group – opened [removed: 2008] [added: 2009] and earlier, [removed: 2012] [added: 2013] group – opened [removed: 2007] [added: 2008] and earlier, and [removed: 2011] [added: 2012] group – opened [removed: 2006] [added: 2007] and earlier).

This group, which represented about [removed: 88%] [added: 90%] of our total sales in [removed: 2013,] [added: 2014,] is more cyclical due to the increased market share they enjoy in their local markets.

During the months [removed: in 2013, 2012, and 2011,] [added: noted below,] the stores opened greater than five years had daily sales growth rates of (compared to the [removed: comparable] [added: same] month in the preceding year):

During [removed: 2011 it lifted our growth by 0.7%, in 2012 it lowered our growth by 0.1%,] [added: the years 2014, 2013,] and [removed: in 2013] [added: 2012,] it lowered our growth by [removed: 0.2%.][added: 0.5%, 0.2%, and 0.1%, respectively.]

This third slowdown, similar to the first two listed, mirrored or slightly led some softening in the PMI [removed: index (discussed later in this document).][added: Index.]

The fastener piece was heavily impacted by our [removed: OEM (original][added: industrial production business.]

The December [added: 2013] impact was amplified due to poor weather conditions.

Our daily sales growth trends have [added: generally] improved since September 2013.

Our sales to customers engaged in light and medium duty manufacturing (largely related to consumer products) [removed: are improving;] [added: have improved since late 2013;] this makes sense given the trends in the PMI [removed: index.][added: Index since that time.]

[removed: However, our] [added: Our] sales to customers engaged in heavy machinery manufacturing (primarily serving the mining, military, agricultural, and [removed: construction end markets), which represents approximately one fifth of our business, continued to experience weak performance in the fourth quarter of 2013.]

The first landing centers on Easter, which alternates between March and April (Easter occurred in [added: April 2014,] March [removed: in] 2013, and [removed: in] April [removed: in] 2012 [removed: and 2011),] [added: – in 2015, Easter will occur in April),] 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 [removed: holiday.][added: holidays.]

sheet metal, and road contractors.

BUSINESS DISCUSSION

The following pages contain a marketplace overview, and a general sales growth and product line mix discussion, for each of the last three years.

This is followed by a more in depth discussion of the following:

| 1. | 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. | Growth drivers of our business – a recap of how we grow our business. |

| 3. | Profit drivers of our business – a recap of how we increase our profits. |

| 4. | Statement of earnings information – a recap of the components of our income statement. |

| 5. | Operational working capital, balance sheet, and cash flow – a recap of the operational working capital utilized in our business, and the related cash flow. |

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 $160 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 the products we sell 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 your 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 build a great machine 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.

The added growth in 2014 was largely related to two things – the expansion, which began in the latter half of 2013, in the number of our store employees and the number of district and regional leaders supporting our stores, all in an effort to generate more selling energy within our stores, and a stabilization in our OEM fastener business.

Stores opened in 2014 contributed approximately $9,762 (or 0.3%) to 2014 net sales.

| 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 | % |

| 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 | % |

| 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 | % |

The PMI Index is a composite index of economic activity in the United States manufacturing sector.

It is published by the Institute for Supply Management and is available at http://www.ism.ws/.

This was largely related to changing comparisons to the prior year and to the improving sequential patterns noted in the next discussion.

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), but the real story is good people, good execution, and minimal negative weather impacts.

Since March 2014, our double digit growth has continued.

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.

construction end markets), which represents approximately one fifth of our business, had a very weak 2013, but stabilized late in 2013 and has improved in 2014.

Since May 2014, our stores opened greater than five years have enjoyed double digit growth in every month.

This is a strong indicator of the strength of the marketplace.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

Like most industrial and construction-centric organizations, we have endured a roller coaster ride over the last several years.

The third quarter of 2008 included the final months of an inflationary period related to both steel prices (between 40% and 50% of our sales consist of some type of fastener – nuts, bolts, screws, etc. – most of which are made of steel) and energy prices (a meaningful item for us given the amount of energy that is necessary in the production of our products and in the transportation of our products across North America).

In the fourth quarter of 2008, and throughout much of 2009, this inflation turned to deflation.

When the swings are dramatic, this can hurt our gross profit because we are selling expensive inventory on the shelf at declining prices.

This hurt our gross profit in 2009.

The drop in energy costs over the same period provided some relief, but it was small in comparison to the impact of deflation.

The deflation of 2009 ended and these conditions normalized and allowed our gross profit to recover in 2010 and 2011.

(See later discussion on gross profit.)

The discussion that follows includes information regarding our sales growth and our sales by product line during 2013.

This information provides a summary view to understand the dynamics of the year.

However, we feel the real story is told in the monthly sales change, sequential trend, and end market information that follows – that information explains the real impact of the market dynamics affecting us over this period of uncertainty.

Over the last several years, we have continued to make significant investments in (1) store locations, (2) national accounts, (3) government sales, (4) internal manufacturing capabilities, (5) international operations (over 10% of our sales), (6) FAST Solutions® (industrial vending), (7) product expansion (with particular emphasis on metalworking products and on exclusive brands), (8) additional sales specialists to support safety products, metalworking products, and our manufacturing operations, (9) additional sales operational support to focus on under performing stores and under performing industrial vending, and (10) in the case of 2013, additional region and district leadership and additional store personnel.

We are excited about the prospects of each.

As always, the ‘pathway to profit’ is the cornerstone of our business evolution, and it influences everything we do.

Remember, our business centers on our 2,700 stores – their individual success leads to the success of the entire organization over time.

As always, we will continue to work to complete this task and maintain our goal of Growth through Customer Service®.

The higher unit sales resulted primarily from increases in sales at older store locations (discussed below and again later in this document) and to a lesser degree the opening of new store locations in the last several years.

of our business (discussed later in this document).

The increase in net sales in 2011 came primarily from higher unit sales.

The growth in net sales at the older store locations was helped by the moderating impacts of the previous recessionary environment.

The change in currencies in foreign countries (primarily Canada) relative to the United States dollar improved our daily sales growth rate by 0.7% in 2011.

Stores opened in 2012 contributed approximately $60,626 (or 1.8%) to 2013 net sales and approximately $24,859 (or 0.8%) to 2012 net sales.

Note – Daily sales are defined as the net sales for the period divided by the number of business days (in the United States) in the period.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 2011 | 18.8 | % | | 21.5 | % | | 22.8 | % | | 23.2 | % | | 22.6 | % | | 22.5 | % | | 22.4 | % | | 20.0 | % | | 18.8 | % | | 21.4 | % | | 22.2 | % | | 21.2 | % |

| 2011 | 16.0 | % | | 18.4 | % | | 19.4 | % | | 19.6 | % | | 19.2 | % | | 19.1 | % | | 18.7 | % | | 16.5 | % | | 15.2 | % | | 18.0 | % | | 18.5 | % | | 17.5 | % |

| 2011 | 15.3 | % | | 17.9 | % | | 19.2 | % | | 19.1 | % | | 17.9 | % | | 18.2 | % | | 17.3 | % | | 15.2 | % | | 14.5 | % | | 17.0 | % | | 17.4 | % | | 16.9 | % |

Regarding economic fluctuations, in 2011 we enjoyed strong growth.

This reflected the strengthening economic environment being experienced by our customers.

While the strength did not apply to all customers and to all geographies we serve, it was strong enough to produce acceptable results.

equipment manufacturing) customers.

The construction piece in 2013 was also hampered by poor weather during the winter and spring time frame throughout many areas in North America.

This was largely related to changing comparisons to 2012.

We chose this time frame because it had similar characteristics, a weaker industrial economy in North America, and could serve as a benchmark for current performance.

Beginning in 2014, we intend to utilize a new benchmark.

The new benchmark, labeled 'New Benchmark' in the table below, is a historical average of our sequential daily sales change for the period 1998 to 2013, excluding 2008 and 2009.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Jan.(1) | | | Feb. | | | Mar. | | | Apr. | | | May | | | June | | | July | | | Aug. | | | Sept. | | | Oct. | | | Cumulative Change from Jan. to Oct. | |

We are exposed to certain market risks from changes in foreign currency exchange [removed: rates] [added: rates, commodity steel pricing,] and commodity [removed: pricing.][added: energy prices.]

| (3) | Commodity [removed: Energy Prices] [added: energy prices] – We have market risk for changes in [added: prices of] gasoline, diesel fuel, natural gas, and electricity; however, this risk is mitigated in part by our ability to pass freight costs to our customers, the efficiency of our 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. |

| (2) | Commodity steel pricing – We buy and sell various types of steel products; these products consist primarily of different types of threaded fasteners. In 2012, we noted nominal price increases in steel products. In 2013 and 2014, we noted some deflation in overall steel pricing. We are exposed to the impacts of commodity steel pricing and our related ability to pass through the impacts to our end customers. |

| (4) | Interest rates - A description of our unsecured revolving credit facility is contained in Note 10 of the ‘Notes to Consolidated Financial Statements’ and is incorporated herein by reference. We do not believe our operations are currently subject to significant market risk for interest rate exposure under the credit facility. |

| (2) | Commodity Steel Pricing – We buy and sell various types of steel products; these products consist primarily of different types of threaded fasteners. During the last several decades, there has been nominal movement in overall steel pricing, with some deflation occurring in the wake of the economic crisis of the Far East markets that occurred in the late 1990’s. This trend reversed to inflation in the period from late 2003 to the early part of 2005 and again from mid 2007 to the fall of 2008. In the first half of 2009, we noted meaningful deflation. In 2010, we noted minimal price changes except for stainless steel which did inflate. Stainless steel products represent approximately 5% of our business. In 2011 and 2012 we noted nominal price increases while pricing has been flat to nominally down in 2013. We are exposed to the impacts of commodity steel pricing and our related ability to pass through the impacts to our end customers. |

| (4) | Interest Rates - We have a credit facility totaling $125,000 which expires December 13, 2015. This facility includes a $40,000 letter of credit subfacility. Loans under the facility bear interest at a rate per annum equal to LIBOR plus 0.875%, we pay a commitment fee of 0.10% to 0.125% per annum (depending on usage) on the unused portion of the facility, and we pay a fee of 0.875% per annum on the undrawn amount of outstanding letters of credit and, subject to certain exceptions, an issuance fee of 0.075% of the face amount of the outstanding letters of credit. During the year ended December 31, 2013, we received loan advances under the credit facility and repaid all advances during the year. On December 31, 2013, there were undrawn letters of credit outstanding under the letter of credit subfacility, with a face amount of $34,415. We do not believe our operations are currently subject to significant market risk for interest rates. |

The year end is typically December 31, [removed: 2013] [added: 2014] unless additional years are included or noted.

We have [removed: 2,687] [added: 2,637] store locations.

We employ [removed: 17,277] [added: 18,417] people.

| | [added: | 2014 | | |] 2013 | | [added: |] 2012 | | [added: | 2011 | | | 2010 | |]

| Store and in-plant | [removed: 11,550] [added: 12,293] | | [removed: 10,158] [added: 11,550] | |

| Non-store selling | [removed: 1,242] [added: 1,349] | | [removed: 1,111] [added: 1,242] | |

| Selling subtotal | [removed: 12,792] [added: 13,642] | | [removed: 11,269] [added: 12,792] | |

| Distribution | [removed: 2,931] [added: 3,120] | | [removed: 2,451] [added: 2,931] | |

| Manufacturing | [removed: 603] [added: 630] | | [removed: 569] [added: 603] | |

| Administrative | [removed: 951] [added: 1,025] | | [removed: 856] [added: 951] | |

| Non-selling subtotal | [removed: 4,485] [added: 4,775] | | [removed: 3,876] [added: 4,485] | |

| Total | [removed: 17,277] [added: 18,417] | | [removed: 15,145] [added: 17,277] | |

These industrial and construction supplies are grouped into [removed: eleven] [added: twelve] product lines described later in this document.

| | [added: 2014 | |] 2013 | | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | | 2006 | | 2005 | [removed: | 2004 |]

| Net sales (in millions) | [removed: $3,326.1] [added: $3,733.5] | | [added: 3,326.1 | |] 3,133.6 | | 2,766.9 | | 2,269.5 | | 1,930.3 | | 2,340.4 | | 2,061.8 | | 1,809.3 | | 1,523.3 | [removed: | 1,238.5 |]

| Number of stores [removed: at year end] | [added: 2,637 | |] 2,687 | | 2,652 | | 2,585 | | 2,490 | | 2,369 | | 2,311 | | 2,160 | | 2,000 | | 1,755 | [removed: | 1,533 |]

| North America | United States | | [removed: 2,394] [added: 2,336] | | | [removed: 2,380] [added: 2,394] | |

| | Puerto Rico [removed: &] [added: and] Dominican Republic | | 8 | | | [removed: 9] [added: 8] | |

| | Canada | | [removed: 204] [added: 202] | | | [removed: 195] [added: 204] | |

| | Mexico | | [removed: 41] [added: 44] | | | [removed: 36] [added: 41] | |

| | Subtotal | | [removed: 2,647] [added: 2,590] | | | [removed: 2,620] [added: 2,647] | |

| Central & South America | Panama, Brazil, [removed: Colombia &] [added: Colombia, and] Chile | | [removed: 8] [added: 9] | | | [removed: 4] [added: 8] | |

| Asia | China [added: and India] | | [removed: 8] [added: 10] | | | 8 | |

| Southeast Asia | Singapore, Malaysia, [removed: &] [added: and] Thailand | | 7 | | | 7 | |

| Europe | The Netherlands, Hungary, United Kingdom, Germany, Czech Republic, Italy, [removed: Romania & Poland] [added: Romania, Poland, and Sweden] | | [removed: 17] [added: 20] | | | [removed: 13] [added: 17] | |

| Total | | | [removed: 2,687] [added: 2,637] | | | [removed: 2,652] [added: 2,687] | |

In [added: 2014,] 2013, [removed: 2012,] and [removed: 2011,] [added: 2012,] we opened new stores at a rate of approximately [added: 1%,] 2%, [removed: 3%,] and [removed: 5%,] [added: 3%,] respectively.

Subsequent to a new opening, [removed: store and] district [added: and store] personnel may supplement the inventory offering to customize the selection to the needs of our local customer base.

The first type of selling location – a Fastenal store location – is either (1) a ‘traditional’ store, which services a wide variety of customers and stocks a wide selection of the products we offer or (2) an ‘overseas’ [removed: store] [added: store,] which focuses on manufacturing customers and on the fastener product line (this is the type of store format we [added: typically] have outside [removed: of North America).][added: the United States and Canada).]

A strategic account site is essentially the same, but it typically operates out of an existing store location, rather than a unique location; [removed: therefore,] [added: therefore] it is not included in our store count.

‘In-plant’ sites are not included in [removed: the] [added: our] store count numbers as they represent a customer subset of an existing store.

We currently believe, based on the demographics of the marketplace in North America, [removed: that] there is sufficient potential in this geographic area to support at least 3,500 total stores.

| North America | United States | [added: 10 | | |] 30 | | | 58 | | | 101 | | | 111 | | [removed: | 62 | |]

| | Puerto Rico [removed: &] [added: and] Dominican Republic | — | | | — | | | — | | | — | | | [removed: 1] [added: —] | |

| | Canada | [added: 4 | | |] 10 | | | 13 | | | 11 | | | 7 | | [removed: | 2 | |]

| | Mexico | [removed: 5] [added: 3] | | | [removed: 2] [added: 5] | | | [removed: 1] [added: 2] | | | 1 | | | 1 | |

| | Subtotal | [added: 17 | | |] 45 | | | 73 | | | 113 | | | 119 | | [removed: | 66 | |]

| Central & South America | Panama, Brazil, [removed: Colombia &] [added: Colombia, and] Chile | [removed: 4] [added: 1] | | | [removed: 1] [added: 4] | | | 1 | | | [removed: 2] [added: 1] | | | [removed: —] [added: 2] | |

| Asia | China [added: and India] | [removed: —] [added: 2] | | | — | | | [removed: 3] [added: —] | | | 3 | | | [removed: 1] [added: 3] | |

| Southeast Asia | Singapore, Malaysia, [removed: &] [added: and] Thailand | — | | | [removed: 2] [added: —] | | | [removed: —] [added: 2] | | | [removed: 2] [added: —] | | | [removed: 1] [added: 2] | |

| | 2014 | | 2013 | |

| | | | 2014 | | | 2013 | |

| Africa | South Africa | | 1 | | | — | |

| | | | | | | | |

We expect to open 20 to 30 stores in 2015, which is an annual rate similar to 2014.

While we believe there is sufficient potential in North America for 3,500 total stores, or approximately 900 more than today, we have slowed our store openings in recent years and instead have increased our investments in other growth drivers such as people (both inside and outside our stores), FAST Solutions® (industrial vending), and end-market growth investments.

This allows us to maintain an aggressive offense where competitors are investing for growth, and to maintain a steady offense where competitors aren't investing - namely store openings.

| Africa | South Africa | 1 | | | — | | | — | | | — | | | — | |

| 1-2 years old | 2013 | | 53 | | | 0/0 | | | 0/0 | | | 82 | | | | | 29 | | 3 | | 182.8 | % |

| 5-6 years old | 2009 | | 62 | | | 4/1 | | | 0/0 | | | 134 | | | | | 125 | | | | 7.2 | % |

| 7-8 years old | 2007 | | 144 | | | 8/0 | | | 0/0 | | | 102 | | | | | 90 | | | | 13.3 | % |

| 8-9 years old | 2006 | | 219 | | | 12/1 | | | 0/0 | | | 102 | | | | | 91 | | | | 12.1 | % |

| 10-11 years old | 2004 | | 208 | | | 4/1 | | | 0/0 | | | 107 | | | | | 95 | | | | 12.6 | % |

| 12-16 years old | 1999-2002 | | 387 | | | 4/3 | | | \-1/0 | | | 124 | | | | | 111 | | | | 11.7 | % |

| 16+ years old | 1967-1998 | | 750 | | | 5/2 | | | 1/0 | | | 158 | | | | | 145 | | | | 9.0 | % |

| Direct Ship | 2004 |

| | |

These 'private label' brands represented approximately 11% of our total net sales in 2014.

In recent years, our national advertising has been focused on NASCAR® sponsorships through our partnership with Roush Fenway Racing.

From 2012 through 2014, Fastenal was the primary sponsor of Carl Edwards’ No. 99 car in the Sprint Cup Series, and we’ll continue to present the Fastenal brand to millions of Sprint Cup fans as the primary sponsor of Ricky Stenhouse Jr.’s No. 17 car in 2015.

In addition to our NASCAR® sponsorship, we do limited print and online advertising through a variety of publications and outlets.

| | |

| --- | --- |

| | | | | |

| --- | --- | --- | --- | --- |

| | | | 2013 | | | 2012 | |

We expect to open 50 to 70 stores in 2014, or a rate of approximately 2% to 3%.

| | | 2013 | | | 2012 | | | 2011 | | | 2010 | | | 2009 | |

| 4-5 years old | 2009 | | 66 | | | 1/0 | | | 0/0 | | | 118 | | | | | 106 | | | | 11.3 | % |

| 6-7 years old | 2007 | | 152 | | | 0/2 | | | 0/0 | | | 85 | | | | | 81 | | | | 4.9 | % |

| 7-8 years old | 2006 | | 231 | | | 1/3 | | | 0/0 | | | 86 | | | | | 80 | | | | 7.5 | % |

| 9-10 years old | 2004 | | 212 | | | 1/2 | | | 0/0 | | | 93 | | | | | 87 | | | | 6.9 | % |

| 11-12 years old | 2002 | | 139 | | | 1/0 | | | 0/0 | | | 99 | | | | | 92 | | | | 7.6 | % |

| 12-16 years old | 1998-2001 | | 371 | | | 2/0 | | | 0/0 | | | 116 | | | | | 110 | | | | 5.5 | % |

| 16+ years old | 1967-1997 | | 636 | | | 2/0 | | | 0/1 | | | 149 | | | | | 149 | | | | 0.0 | % |

| Total | | | 1,448,000 | |

Our national advertising has been focused on NASCAR® sponsorships over the past few years, including sponsoring No. 99 driver, Carl Edwards, in the Sprint Cup Series since 2012.

Along with the NASCAR® sponsorship, we do limited print advertising across a variety of industry publications and Delta Sky magazine.

We, however, believe the convenience provided to customers by operating stores in small,

| | For the fiscal year ended December 31, [removed: 2013,] [added: 2014,] |

[removed: ][added: ]

Securities registered pursuant to Section [removed: 12(g):][added: 12(g) of the Act:]

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. [removed: o][added: x]

The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June [removed: 28, 2013,] [added: 30, 2014,] the last business day of the registrant’s most recently completed second fiscal quarter, was [removed: $12,423,671,823,] [added: $14,587,577,033,] based on the closing sale price of the Common Stock on that date.

For purposes of determining this number, all executive officers and directors of the registrant as of June [removed: 28, 2013] [added: 30, 2014] are considered to be affiliates of the registrant.

As of January [removed: 24, 2014,] [added: 23, 2015,] the registrant had [removed: 296,772,269] [added: 295,880,219] shares of Common Stock issued and outstanding.

| Item 1. | | [removed: [Business](#sE7DFF4CA93DCED84B430CBFCECC82AD3)] [added: [Business](#s5165F76A85793553AB9E57292177E7EB)] | [removed: [3](#sE7DFF4CA93DCED84B430CBFCECC82AD3)] [added: [3](#s5165F76A85793553AB9E57292177E7EB)] |

| Item 1A. | | [Risk [removed: Factors](#sA6EDA32A8B05272DA11DCBFCFF371F80)] [added: Factors](#s47A6C61A893F0DAF083A572922337460)] | [removed: [10](#sA6EDA32A8B05272DA11DCBFCFF371F80)] [added: [10](#s47A6C61A893F0DAF083A572922337460)] |

| Item 1B. | | [Unresolved Staff [removed: Comments](#s7A5CA3F272C073168362CBFCFF562FFF)] [added: Comments](#s5612FF5279C97FC7655E572922523D58)] | [removed: [14](#s7A5CA3F272C073168362CBFCFF562FFF)] [added: [14](#s5612FF5279C97FC7655E572922523D58)] |

| Item 2. | | [removed: [Properties](#sFFC04C9C738F21212D13CBFCFF85CACB)] [added: [Properties](#sC40A90109CEE70FC9F205729227115B9)] | [removed: [14](#sFFC04C9C738F21212D13CBFCFF85CACB)] [added: [14](#sC40A90109CEE70FC9F205729227115B9)] |

| Item 3. | | [Legal [removed: Proceedings](#sE4356865CD231696B0B0CBFCFFA53F94)] [added: Proceedings](#s5390A4A4F9B0BF2F2030572922A0796C)] | [removed: [15](#sE4356865CD231696B0B0CBFCFFA53F94)] [added: [15](#s5390A4A4F9B0BF2F2030572922A0796C)] |

| Item 4. | | [Mine Safety [removed: Disclosures](#sD4B6DE8B1BF63E023CF1CBFCFFE3A1C5)] [added: Disclosures](#s99EAD95E220ADEB71673572922CF0B3E)] | [removed: [15](#sD4B6DE8B1BF63E023CF1CBFCFFE3A1C5)] [added: [15](#s99EAD95E220ADEB71673572922CF0B3E)] |

| Item X. | | [Executive Officers of the [removed: Registrant](#sB15C92DA02B36DC6D747CBFD0002D77F)] [added: Registrant](#sBAC6D45D8E87ED512635572922FEAD21)] | [removed: [16](#sB15C92DA02B36DC6D747CBFD0002D77F)] [added: [16](#sBAC6D45D8E87ED512635572922FEAD21)] |

| Item 5. | | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#s608C8851DC1FE4A284B0CBFD0050317B)] [added: Securities](#sD5EC028C1306EF05465057290A17A785)] | [removed: [18](#s608C8851DC1FE4A284B0CBFD0050317B)] [added: [18](#sD5EC028C1306EF05465057290A17A785)] |

| Item 6. | | [Selected Financial [removed: Data](#s97F30D434C57CD4BDD16CBFD007FA2B6)] [added: Data](#sAE44A6EC27E48B375FA45729236BA155)] | [removed: [19](#s97F30D434C57CD4BDD16CBFD007FA2B6)] [added: [19](#sAE44A6EC27E48B375FA45729236BA155)] |

| Item 7. | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s2651337EECA7E1F49DB8CBFD009F544A)] [added: Operations](#s03D4B126D0F148996FB85729239AC2E0)] | [removed: [20](#s2651337EECA7E1F49DB8CBFD009F544A)] [added: [19](#s03D4B126D0F148996FB85729239AC2E0)] |

| Item 7A. | | [Quantitative and Qualitative Disclosures About Market [removed: Risks](#s524AC58B34AEC7A4A0CECBFD02F0D742)] [added: Risks](#sA5D6C2B91846827FD23B572924F2F060)] | [removed: [41](#s524AC58B34AEC7A4A0CECBFD02F0D742)] [added: [38](#sA5D6C2B91846827FD23B572924F2F060)] |

| Item 8. | | [Financial Statements and Supplementary [removed: Data](#sAA4DE679D2A93671AB21CBFD031F1E49)] [added: Data](#sF1A23E7855ABB4F7426F5729251110D4)] | [removed: [42](#sAA4DE679D2A93671AB21CBFD031F1E49)] [added: [39](#sF1A23E7855ABB4F7426F5729251110D4)] |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s0A374978BF49955E9BA0CBFD08205496)] [added: Disclosure](#s594FF18456692AA6AB49572929D48AE3)] | [removed: [61](#s0A374978BF49955E9BA0CBFD08205496)] [added: [57](#s594FF18456692AA6AB49572929D48AE3)] |

| Item 9A. | | [Controls and [removed: Procedures](#s41E2E55F70BB4A998943CBFD084F2601)] [added: Procedures](#sCA8D44D6FC86993BF4E1572929F33C81)] | [removed: [61](#s41E2E55F70BB4A998943CBFD084F2601)] [added: [57](#sCA8D44D6FC86993BF4E1572929F33C81)] |

| Item 9B. | | [Other [removed: Information](#s5D3143C5DC1754DD8877CBFD086F3CAF)] [added: Information](#s70A4E7BC19C4E813111357292A22C302)] | [removed: [62](#s5D3143C5DC1754DD8877CBFD086F3CAF)] [added: [58](#s70A4E7BC19C4E813111357292A22C302)] |

| | | [PART [removed: III](#s7A2BBAB4BA8D4602657DCBFD08ADA167)] [added: III](#s1F7E5B3627BE9A999F4D57292A41FB10)] | |

| Item 10. | | [Directors, Executive Officers, and Corporate [removed: Governance](#s3AEF2804E70199073194CBFD08CC7F28)] [added: Governance](#s3389EB69DDC68CECABBE57292A70BDEF)] | [removed: [63](#s3AEF2804E70199073194CBFD08CC7F28)] [added: [59](#s3389EB69DDC68CECABBE57292A70BDEF)] |

| Item 11. | | [Executive [removed: Compensation](#s8CFF1EB01E0355EE28C5CBFD08FBF1B9)] [added: Compensation](#s406986FA5ECE97A01D6357292A9FA19B)] | [removed: [63](#s8CFF1EB01E0355EE28C5CBFD08FBF1B9)] [added: [59](#s406986FA5ECE97A01D6357292A9FA19B)] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sF4777AB7459BC75A33CFCBFD091A0ABF)] [added: Matters](#sC21AD4DCA78621FAB9C157292ACE471D)] | [removed: [64](#sF4777AB7459BC75A33CFCBFD091A0ABF)] [added: [60](#sC21AD4DCA78621FAB9C157292ACE471D)] |

| Item 13. | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#s0E58BB8985605B971218CBFD0949C6B9)] [added: Independence](#s1F297D29510B8218F4EC57292AED5885)] | [removed: [64](#s0E58BB8985605B971218CBFD0949C6B9)] [added: [60](#s1F297D29510B8218F4EC57292AED5885)] |

| Item 14. | | [Principal Accountant Fees and [removed: Services](#s58AF35330CC15BE079A6CBFD0969725E)] [added: Services](#s1A0A76AD89D53B5A625857292B1C93A3)] | [removed: [64](#s58AF35330CC15BE079A6CBFD0969725E)] [added: [60](#s1A0A76AD89D53B5A625857292B1C93A3)] |

| Item 15. | | [Exhibits and Financial Statement [removed: Schedules](#s52FA0D93180B57FAC573CBFD09C640FE)] [added: Schedules](#sC4E13D1B7EF680798D3D57292B6AACFD)] | [removed: [65](#s52FA0D93180B57FAC573CBFD09C640FE)] [added: [61](#sC4E13D1B7EF680798D3D57292B6AACFD)] |

| | | [Index to [removed: Exhibits](#sA012F445BF79190CE1D7CBFD0A43511B)] [added: Exhibits](#sD5646B8E639DED8090E957292BE7E165)] | [removed: [68](#sA012F445BF79190CE1D7CBFD0A43511B)] [added: [64](#sD5646B8E639DED8090E957292BE7E165)] |

Portions of our Proxy Statement for the annual meeting of shareholders to be held Tuesday, April [removed: 22, 2014] [added: 21, 2015] (‘Proxy Statement’) are incorporated by reference in Part III.

Portions of our [removed: 2013] [added: 2014] Annual Report to Shareholders are incorporated by reference in Part II.

Such statements can be identified by the use of terminology such as anticipate, believe, should, estimate, expect, intend, may, plan, goal, project, will, [added: potential, momentum, trend, target, generally, typically, experience, strive,] and similar words or expressions.

[removed: The Company’s] [added: 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.

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, [added: change 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 vending, difficulty in maintaining installation quality as our vending business expands, difficulty in hiring, relocating, [removed: training] [added: training,] or retaining qualified personnel, failure to accurately predict the number of North American markets able to support stores or to meet store opening goals, 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, changes in tax law, changes in the availability or price of commercial real estate, changes in the nature or price of distribution and other technology, 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.

All information contained in this Form 10-K reflects the two-for-one stock [removed: split] [added: splits] in [removed: May 2011.][added: 2011 and 2005.]

10-K 1 fast1231201410-k.htm 10-K

| | | [PART I](#s9F44D0A005EA435DB44157292158DF7C) | |

| | | [PART II](#s528B331987DD2E49ABE45729231D0D46) | |

| | | [PART IV](#s4295C1D4C85EDFB5624357292B3BACBB) | |

| | | [Signatures](#s40CE5C80B4C3C8782FCD57292BC8C71A) | [63](#s40CE5C80B4C3C8782FCD57292BC8C71A) |

10-K 1 fast1231201310-k.htm 10-K

| | | [PART I](#sDBC10CFD2C570641DE67CBFCFEE990EE) | |

| | | [PART II](#s9047CA945BCC69DF46E3CBFD0031D04D) | |

| | | [PART IV](#sC48868C81FADA0D796F7CBFD09A70496) | |

| | | [Signatures](#sD00140E2AB3EB9FDEFB9CBFD0A146DE5) | [67](#sD00140E2AB3EB9FDEFB9CBFD0A146DE5) |

| Purpose | [added: | Tote Locations (ASRS)1 | | |] Approximate Square Feet | | [removed: |]

| Distribution center and home office | [removed: 259,000] | [added: 253,000] | [removed: 1] | [added: | 259,000 | |]

| Manufacturing facility | [removed: 100,000] | | | [added: | 100,000 | |]

| Computer support center | [removed: 13,000] | | | [added: | 13,000 | |]

| Winona store | [removed: 15,000] | | | [added: | 15,000 | |]

| Winona product support facility | [removed: 55,000] | | | [added: | 55,000 | |]

| Rack and shelving storage | [removed: 42,000] | | | [added: | 42,000 | |]

| Multi-building complex which houses certain operations of the distribution group, [removed: our] [added: the] support services group, and the home office support group | [removed: 30,000] | | | [added: | 30,000 | |]

| Supplemental warehouse, [removed: office space,] [added: office,] and potential store [removed: space purchased in 2013,] [added: space,] which is subject to a pre-existing retail [removed: and warehouse] lease | [removed: 100,000] | | | [added: | 100,000 | |]

| Purpose | Location | [added: Tote Locations (ASRS)1] | [added: | | |] Approximate Square Feet | | | [added: |]

| Distribution center and manufacturing facility | Indianapolis, Indiana | [added: 539,000] | [added: | 2 | |] 525,000 | | [removed: 1] | [added: |]

| Storage facilities | Indianapolis, Indiana | | [removed: 389,000] | | [removed: 2] | [added: 569,000 | | | |]

| Distribution center | Atlanta, Georgia | [added: 78,000] | [added: | | |] 198,000 | | [removed: 3] | [added: |]

| Distribution center | Dallas, Texas | [added: 41,000] | [added: | 3 | |] 176,000 | | [removed: 4] | [added: |]

| Distribution center | Scranton, Pennsylvania | [added: 87,000] | [added: | | |] 189,000 | | [removed: 5] | [added: |]

| Distribution center | Akron, Ohio | [added: 74,000] | [added: | | |] 152,000 | | [removed: 6] | [added: |]

| Distribution center | Kansas City, Kansas | | [added: | | |] 300,000 | | | [added: |]

| Distribution center | Kitchener, Ontario, Canada | | [added: | | |] 62,000 | | [removed: 7] [added: 4] | [added: |]

| Distribution center | High Point, North Carolina | | [added: | | |] 256,000 | | | [added: |]

| Distribution center and manufacturing facility | Modesto, California | [added: 83,000] | [added: | | |] 328,000 | | [removed: 8] | [added: |]

| Manufacturing facility | Rockford, Illinois | | [added: | | |] 100,000 | | | [added: |]

| Local re-distribution center and manufacturing facility | Johor, Malaysia | | [added: | | |] 27,000 | | | [added: |]

| Manufacturing facility | Wallingford, Connecticut | | [added: | | |] 187,000 | | | [added: |]

| [removed: 1] [added: 2] | [removed: In addition, this facility has an auxiliary building which] [added: This property] contains an [removed: automated storage and retrieval system] [added: ASRS] with capacity of 52,000 pallet [removed: locations and 273,000] [added: locations, in addition to the 539,000] tote locations for small [removed: parts. The] [added: parts noted above; 185,000 of these small part tote locations are located in the] FAST Solutions® (industrial vending) automated replenishment facility [removed: ('T-Hub')] [added: ('T-Hub'), which] is also located on this [removed: property and contains an additional 85,000 tote locations for small parts.] [added: property.] |

| 3 | [removed: In addition, this] [added: This] facility contains an [removed: automated storage and retrieval system] [added: ASRS] with capacity of [removed: 56,000] [added: 14,000 pallet locations, in addition to the 41,000] tote locations for small [removed: parts.] [added: parts noted above.] |

| [removed: 4] [added: 1] | [removed: In addition, this facility contains] [added: Total number of tote locations for small parts storage included in facilities with] an automated storage and retrieval system [removed: with capacity of 14,000 pallet locations and 41,000 tote locations for small parts.] [added: (ASRS).] |

| [removed: 6] [added: 1] | [removed: In addition, this facility contains] [added: Total number of tote locations for small parts storage included in facilities with] an automated storage and retrieval system [removed: with capacity of 117,000 tote locations for small parts.] [added: (ASRS).] |

In addition, we own [removed: 180] [added: 177] buildings that house our store locations in various cities throughout North America.

In addition to our leased store locations, we also lease the [removed: following:][added: following facilities:]

| Distribution center | Salt Lake City, Utah | | [removed: 44,000] [added: 74,000] | | | July [removed: 2015] [added: 2017] | | Two |

| Distribution center [removed: - additional] [added: and] packaging facility | Salt Lake City, Utah | | 26,000 | | | [removed: February 2016] [added: July 2017] | | One |

| Distribution center | [removed: Monterrey,] [added: Apodaca,] Nuevo Leon, Mexico | | [removed: 14,000] [added: 46,000] | | | [removed: June 2014] [added: March 2020] | | [removed: One] [added: None] |

| Manufacturing facility | Houston, Texas | | 21,000 | | | [removed: June 2014] [added: July 2019] | | None |

Our experience has been that space suitable for our needs and available for leasing is [removed: more than] sufficient.

We own the following facilities in Winona, Minnesota:

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | | | | | |

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | |

| Distribution center | Kitchener, Ontario, Canada | 105,000 | | | | 142,000 | | 4 | |

| 4 | Our distribution center in Kitchener, Ontario, Canada moved to a new 142,000 square foot facility in 2014. The 62,000 square foot facility is being vacated and is currently for sale. |

We own several facilities in Winona, Minnesota.

These facilities are as follows:

| | | | |

| --- | --- | --- | --- |

| | |

| --- | --- |

| 1 | This facility was expanded in 2012 to include an auxiliary building which contains an automated storage and retrieval system with 253,000 tote locations for small parts. |

| | | | | | |

| --- | --- | --- | --- | --- | --- |

| 2 | We purchased two additional storage facilities in 2013, one of which is subject to a pre-existing lease. |

| 5 | This facility is currently under construction to add an automated storage and retrieval system with capacity of 117,000 tote locations for small parts. |

| 7 | A replacement distribution center with approximately 130,000 square feet is currently under construction. |

| 8 | This facility is currently under construction to add an automated storage and retrieval system with capacity of 83,000 tote locations for small parts. |

| [removed: Willard D. Oberton] [added: Leland J. Hein] | [removed: 1980] [added: 1985] | | [removed: 55] [added: 54] | | [added: President,] Chief Executive [removed: Officer] [added: Officer,] and Director |

| Daniel L. Florness | 1996 | | [removed: 50] [added: 51] | | Executive Vice President and Chief Financial Officer |

| Steven A. Rucinski | 1980 | | [removed: 56] [added: 57] | | Executive Vice President – Sales |

| Gary A. Polipnick | 1983 | | [removed: 51] [added: 52] | | Executive Vice President – Sales |

| Kenneth R. Nance | 1992 | | [removed: 49] [added: 50] | | Executive Vice President – Sales |

| Reyne K. Wisecup | 1988 | | [removed: 50] [added: 51] | | Executive Vice President – Human Resources and Director |

| Nicholas J. Lundquist | 1979 | | [removed: 56] [added: 57] | | Executive Vice President – Operations |

| James C. Jansen | 1992 | | [removed: 43] [added: 44] | | Executive Vice President – Operations |

| Ashok Singh | 2001 | | [removed: 51] [added: 52] | | Executive Vice President – Information Technology |

| Sheryl A. Lisowski | 1994 | | [removed: 46] [added: 47] | | Controller and Chief Accounting Officer |

Mr. [removed: Oberton] [added: Hein] has been our chief executive officer since [removed: December 2002.][added: January 2015 and our president since July 2012.]

Mr. [removed: Oberton] [added: Hein] has [removed: also] served as one of our directors since [removed: June 1999.][added: 2014.]

Mr. [removed: Hein] [added: Owen] has been our [added: executive vice] president [added: – e-business] since [removed: July 2012.][added: May 2014.]

[removed: In addition to his financial role,] Mr. [removed: Florness'] [added: Lundquist's] responsibilities [removed: also] include [added: distribution development,] product development, supplier development, and supply chain.

Mr. Rucinski’s responsibilities include sales and operational oversight over our international [removed: business.][added: business (other than Canada).]

From November 2007 to July 2012, Mr. Polipnick served as [removed: the leader] [added: regional vice president] of our Winona based region.

Mr. Nance's responsibilities include sales and operational oversight of our business in the eastern United States and [removed: Mexico.][added: Canada.]

From June 2005 to July 2012, Mr. Nance served as [removed: the leader] [added: regional vice president] of our Texas based region.

Since July 2012, [removed: Mr] [added: Mr.] Jansen's responsibilities [removed: include] [added: have included] oversight of our manufacturing.

From May 2005 to November 2007, Mr. Jansen served as leader of systems development (this role encompassed [added: both information systems and distribution systems development).]

None of our executive officers [removed: are] [added: is] related to any other such executive officer or to any of our [removed: other] directors.

| Terry M. Owen | 1999 | | 46 | | Executive Vice President – E-Business |

| John L. Soderberg | 1993 | | 43 | | Executive Vice President – Sales Operations & Support |

In addition to his financial role, Mr. Florness' responsibilities also include oversight over our national accounts business.

Mr. Owen’s responsibilities include FAST Solutions® (industrial vending) and e-commerce sales.

From December 2007 to May 2014, Mr. Owen served as regional vice president of our Texas based and Mexico regions.

Prior to December 2007, Mr. Owen served in various distribution center leadership roles.

Mr. Rucinski has indicated his intention to retire during 2015.

Mr. Soderberg has been our executive vice president – sales operations & support since May 2014.

Mr. Soderberg’s responsibilities include industry sales, pricing, contracts, and sales 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 Washington based region.

Prior to April 2005, Mr. Soderberg served in various sales leadership roles.

| Leland J. Hein | 1985 | | 53 | | President |

From July 2001 to July 2012, Mr. Oberton was our president and chief executive officer.

From July 2001 through December 2002, Mr. Oberton was our president and chief operating officer.

Mr. Lundquist's responsibilities include distribution development.

both information systems and distribution systems development).

As of January [removed: 24, 2014,] [added: 23, 2015,] there were approximately [removed: 1,300] [added: 1,200] record holders of our common stock, which includes nominees or broker dealers holding stock on behalf of an estimated [removed: 166,000] [added: 173,000] beneficial owners.

The following table sets forth, by quarter, the high and low closing sale price1 of our shares on The NASDAQ Stock Market for [removed: 2013] [added: 2014] and [removed: 2012.][added: 2013.]

| [removed: 2013:] [added: 2014:] | High | | Low | | [removed: 2012:] [added: 2013:] | | High | | Low |

| First quarter | [removed: $53.18] [added: $50.43] | | [removed: 46.47] [added: 42.70] | | First quarter | | [removed: $54.59] [added: $53.18] | | [removed: 43.76] [added: 46.47] |

| Second quarter | [removed: $52.18] [added: $51.20] | | [removed: 44.95] [added: 47.80] | | Second quarter | | [removed: $54.65] [added: $52.18] | | [removed: 38.37] [added: 44.95] |

| Third quarter | [removed: $50.98] [added: $50.08] | | [removed: 43.99] [added: 43.74] | | Third quarter | | [removed: $45.30] [added: $50.98] | | [removed: 39.03] [added: 43.99] |

| Fourth quarter | [removed: $51.89] [added: $48.21] | | [removed: 45.62] [added: 40.78] | | Fourth quarter | | [removed: $46.65] [added: $51.89] | | [removed: 40.20] [added: 45.62] |

| | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | | [removed: 2011] [added: 2012] | | |

| First quarter | $ | [removed: 0.10] [added: 0.25] | | | $ | [removed: 0.17] [added: 0.10] | | | $ | [removed: 0.25] [added: 0.17] | |

| Second quarter | [removed: 0.20] [added: 0.25] | | | | [removed: 0.17] [added: 0.20] | | | | [removed: 0.13] [added: 0.17] | | |

| Third quarter | 0.25 | | | | [removed: 0.19] [added: 0.25] | | | | [removed: 0.13] [added: 0.19] | | |

| Fourth quarter | 0.25 | | | | [removed: 0.21] [added: 0.25] | | | | [removed: 0.14] [added: 0.21] | | |

| Total regular dividend | [removed: 0.80] [added: 1.00] | | | | [removed: 0.74] [added: 0.80] | | | | [removed: 0.65] [added: 0.74] | | |

| Supplemental* | — | | | | [removed: 0.50] [added: —] | | | | [removed: —] [added: 0.50] | | |

| Total | $ | [removed: 0.80] [added: 1.00] | | | $ | [removed: 1.24] [added: 0.80] | | | $ | [removed: 0.65] [added: 1.24] | |

On January 14, [removed: 2014,] [added: 2015,] we announced a quarterly dividend of [removed: $0.25] [added: $0.28] per share to be paid on February [removed: 28, 2014] [added: 27, 2015] to shareholders of record at the close of business on January [removed: 31, 2014.][added: 30, 2015.]

The table below sets forth information regarding purchases of our common stock during each of the last three months of [removed: 2013:][added: 2014:]

| Period | Total Number of Shares Purchased | | Average Price Paid per Share | | [added: |] Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |

| December 1-31, [removed: 2013] [added: 2014] | 0 | | $0.00 | | [added: |] 0 | | [removed: 1,600,000] [added: 400,000] |

| Total | [removed: 0] [added: 600,000] | | [removed: $0.00] [added: $43.74] | | [removed: 0] | [added: 600,000] | [removed: 1,600,000] | [added: 400,000 |]

Purchases of shares of our common stock earlier in [removed: 2013] [added: 2014] are described later in this Form 10-K under the heading ‘Item 7.

Set forth below is a graph comparing, for the five years ended December 31, [removed: 2013,] [added: 2014,] the yearly cumulative total shareholder return on our common stock with the yearly cumulative total shareholder return of the S&P 500 [removed: Index,] [added: Index and] the Dow Jones US Industrial Suppliers [removed: Index, and an index (the 'Peer Group Index') of a group of peer companies selected by us (the 'Peer Group').][added: Index.]

The comparison of total shareholder returns in the performance graph assumes that $100 was invested on December 31, [removed: 2008] [added: 2009] in Fastenal Company, the [removed: Peer Group Index, 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 [removed: Peer Group] [added: S&P 500] Index, [added: and the Dow Jones US Industrial Suppliers Index]

[removed: ][added: ]

| | [removed: 2008 | |] 2009 | | 2010 | | 2011 | | 2012 | | 2013 | [added: | 2014 |]

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | |

| | (a) | | (b) | | | (c) | | (d) |

| October 1-31, 2014 | 300,000 | | $42.73 | | | 300,000 | | 700,000 |

| November 1-30, 2014 | 300,000 | | $44.76 | | | 300,000 | | 400,000 |

On January 14, 2015, our board of directors increased the maximum number of shares that may yet be purchased from 400,000 shares to 2,000,000 shares.

| Fastenal Company | 100.00 | | 147.68 | | 219.19 | | 241.26 | | 249.84 | | 255.72 |

| S&P 500 Index | 100.00 | | 115.06 | | 117.49 | | 136.30 | | 180.44 | | 205.14 |

| Dow Jones US Industrial Suppliers Index | 100.00 | | 142.09 | | 188.95 | | 206.06 | | 238.54 | | 238.41 |

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | (a) | | (b) | | (c) | | (d) |

| October 1-31, 2013 | 0 | | $0.00 | | 0 | | 1,600,000 |

| November 1-30, 2013 | 0 | | $0.00 | | 0 | | 1,600,000 |

In prior years, we compared our total shareholder return with that of the S&P 500 Index and the Peer Group Index.

However, we have decided to move away from the Peer Group Index because we believe that a broader-based index of public companies within our industry provides a more appropriate basis for comparison.

Therefore, going forward, we will be comparing our total shareholder return with that of the S&P 500 Index and the Dow Jones US Industrial Suppliers Index.

In accordance with SEC rules, we are including the total shareholder return of the Peer Group Index in this Form 10-K for transitional purposes, but will not be including the Peer Group information in future reports.

The companies in the Peer Group are Lawson Products, Inc., MSC Industrial Direct Co., Inc., Airgas, Inc., and W.W. Grainger, Inc. Fastenal is not included in the Peer Group.

In calculating the yearly cumulative total shareholder return of the Peer Group Index, the shareholder returns of the companies included in the Peer Group are weighted according to the stock market capitalization of such companies at the beginning of each period for which a return is indicated.

the S&P 500 Index, and the Dow Jones US Industrial Suppliers Index

| Fastenal Company | 100.00 | | 121.93 | | 180.07 | | 267.27 | | 294.17 | | 304.64 |

| Peer Group Index | 100.00 | | 125.31 | | 177.17 | | 227.82 | | 253.75 | | 313.59 |

| S&P 500 Index | 100.00 | | 126.46 | | 145.51 | | 148.59 | | 172.37 | | 228.19 |

| Dow Jones US Industrial Suppliers Index | 100.00 | | 127.17 | | 180.70 | | 240.29 | | 262.04 | | 303.35 |

Incorporated herein by reference is Ten-Year Selected Financial Data on pages 4 and 5 of Fastenal’s [removed: 2013] [added: 2014] Annual Report to Shareholders of which this Form 10-K forms a part, a portion of which is filed as Exhibit 13 to this Form 10-K.

We have audited the accompanying consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, [removed: 2013] [added: 2014] and [removed: 2012,] [added: 2013,] and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, [removed: 2013.][added: 2014.]

We also have audited the Company’s internal control over financial reporting as of December 31, [removed: 2013,] [added: 2014,] based on criteria established in Internal Control – Integrated Framework (1992) 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 Fastenal Company and subsidiaries as of December 31, [removed: 2013] [added: 2014] and [removed: 2012,] [added: 2013,] and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, [removed: 2013,] [added: 2014,] in conformity with U.S. generally accepted accounting principles.

Furthermore, in our opinion, Fastenal Company and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2013,] [added: 2014,] based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

| | [removed: 2013] [added: 2014] | | | | [added: 2013 | | |] 2012 | |

| Cash and cash equivalents | $ | [removed: 58,506] [added: 114,496] | | | [removed: 79,611] [added: 58,506] | |

| Marketable securities | [removed: 451] [added: —] | | | | [removed: 354] [added: 451] | |

| Trade accounts receivable, net of allowance for doubtful accounts of [removed: $9,248] [added: $12,619] and [removed: $6,728,] [added: $9,248,] respectively | [removed: 414,331] [added: 462,077] | | | | [removed: 372,159] [added: 414,331] | |

| Inventories | [removed: 784,068] [added: 869,224] | | | | [removed: 715,383] [added: 784,068] | |

| Deferred income tax assets | [removed: 18,248] [added: 21,765] | | | | [removed: 14,420] [added: 18,248] | |

| Prepaid income taxes | [removed: 24,869] [added: —] | | | | [removed: 7,368] [added: 24,869] | |

| Other current assets | [removed: 107,988] [added: 115,703] | | | | [removed: 97,361] [added: 107,988] | |

| Total current assets | [removed: 1,408,461] [added: 1,583,265] | | | | [removed: 1,286,656] [added: 1,408,461] | |

| Property and equipment, less accumulated depreciation | [removed: 654,850] [added: 763,889] | | | | [removed: 516,427] [added: 654,850] | |

| Other assets, net | [removed: 12,473] [added: 11,948] | | | | [removed: 12,749] [added: 12,473] | |

| Total assets | $ | [removed: 2,075,784] [added: 2,359,102] | | | [removed: 1,815,832] [added: 2,075,784] | |

| Accounts payable | [removed: $] [added: 103,909] | [removed: 91,253] | | | [removed: 78,019] [added: 91,253] | |

| Accrued expenses | [removed: 148,579] [added: 174,002] | | | | [removed: 126,155] [added: 148,579] | |

| Total current liabilities | [removed: 239,832] [added: 375,353] | | | | [removed: 204,174] [added: 239,832] | |

| Deferred income tax liabilities | [removed: 63,255] [added: 68,532] | | | | [removed: 51,298] [added: 63,255] | |

| Common stock, 400,000,000 shares authorized, [removed: 296,753,544] [added: 295,867,844] and [removed: 296,564,382] [added: 296,753,544] shares issued and outstanding, respectively | [removed: 2,968] [added: 2,959] | | | | [removed: 2,966] [added: 2,968] | |

| Additional paid-in capital | [removed: 69,847] [added: 33,744] | | | | [removed: 61,436] [added: 69,847] | |

| Retained earnings | [removed: 1,688,781] [added: 1,886,350] | | | | [removed: 1,477,601] [added: 1,688,781] | |

| Accumulated other comprehensive [added: (loss)] income | [removed: 11,101] [added: (7,836] | | [added: )] | | [removed: 18,357] [added: 11,101] | |

| Total stockholders’ equity | [removed: 1,772,697] [added: 1,915,217] | | | | [removed: 1,560,360] [added: 1,772,697] | |

| Total liabilities and stockholders’ equity | $ | [removed: 2,075,784] [added: 2,359,102] | | | [removed: 1,815,832] [added: 2,075,784] | |

For the year ended December [removed: 31,][added: 31]

| | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | [removed: 2011] [added: 2012] | |

| Net sales | $ | [removed: 3,326,106] [added: 3,733,507] | | | [removed: 3,133,577] [added: 3,326,106] | | | [removed: 2,766,859] [added: 3,133,577] | |

| Cost of sales | [removed: 1,606,661] [added: 1,836,105] | | | | [removed: 1,519,053] [added: 1,606,661] | | | [removed: 1,332,687] [added: 1,519,053] | |

| Gross profit | [removed: 1,719,445] [added: 1,897,402] | | | | [removed: 1,614,524] [added: 1,719,445] | | | [removed: 1,434,172] [added: 1,614,524] | |

| Operating and administrative expenses | [removed: 1,007,431] [added: 1,110,776] | | | | [removed: 941,236] [added: 1,007,431] | | | [removed: 859,369] [added: 941,236] | |

| [removed: (Gain) loss] [added: Gain] on sale of property and equipment | [removed: (643] [added: (964] | | ) | | [removed: (403] [added: (643] | ) | | [removed: 194] [added: (403] | [added: )] |

| Operating income | [removed: 712,657] [added: 787,590] | | | | [removed: 673,691] [added: 712,657] | | | [removed: 574,609] [added: 673,691] | |

| Interest income | [removed: 924] [added: 759] | | | | [removed: 464] [added: 924] | | | [removed: 472] [added: 464] | |

| Interest expense | [removed: (113] [added: (915] | | ) | | [removed: —] [added: (113] | [added: )] | | — | |

| Earnings before income taxes | [removed: 713,468] [added: 787,434] | | | | [removed: 674,155] [added: 713,468] | | | [removed: 575,081] [added: 674,155] | |

| Income tax expense | [removed: 264,832] [added: 293,284] | | | | [removed: 253,619] [added: 264,832] | | | [removed: 217,152] [added: 253,619] | |

| Net earnings | $ | [removed: 448,636] [added: 494,150] | | | [removed: 420,536] [added: 448,636] | | | [removed: 357,929] [added: 420,536] | |

| Basic net earnings per share | $ | [removed: 1.51] [added: 1.67] | | | [removed: 1.42] [added: 1.51] | | | [removed: 1.21] [added: 1.42] | |

February 5, 2015

| | 2014 | | | | 2013 | |

| Line of credit | $ | 90,000 | | | — | |

| Income taxes payable | 7,442 | | | | — | |

For the year ended December 31

| Net earnings | $ | 494,150 | | | 448,636 | | | 420,536 | |

| Purchases of common stock | (1,200 | ) | | (12 | | ) | | (52,930 | ) | | — | | | — | | | (52,942 | ) |

| Stock options exercised | 315 | | | 3 | | | | 7,694 | | | — | | | — | | | 7,697 | |

| Net earnings | — | | | — | | | | — | | | 494,150 | | | — | | | 494,150 | |

| Balance as of December 31, 2014 | 295,868 | | | $ | 2,959 | | | 33,744 | | | 1,886,350 | | | (7,836 | ) | | 1,915,217 | |

For the year ended December 31

| | 2014 | | | | 2013 | | | 2012 | |

| Net earnings | $ | 494,150 | | | 448,636 | | | 420,536 | |

| Gain on sale of property and equipment | (964 | | ) | | (643 | ) | | (403 | ) |

| Cash paid for acquisition | (5,575 | | ) | | — | | | — | |

We did not have any marketable securities as of December 31, 2014.

Due to the varying short-term cash needs of our business, we periodically have marketable securities.

| | | | | 1,193,734 | | | | 1,019,902 | |

| | 2014 | | | | 2013 | |

| Deferred revenue | 3,125 | | | | 2,447 | |

| Other | 1,818 | | | | 1,953 | |

| | $ | 174,002 | | | 148,579 | |

The 2012 amount included a fourth quarter supplemental dividend of $0.50.

Stock Purchases

On January 14, 2015, our board of directors increased the maximum number of shares of our common stock that may yet be purchased to 2,000,000 shares.

| April 22, 2014 | 955,000 | | | $ | 56.00 | | | $ | 50.53 | | | 852,500 | | | — | |

| Total | 9,055,000 | | | | | | | | | | | 4,712,330 | | | 1,972,330 | |

| April 22, 2014 | 1.8 | % | | 5.00 | | 2.0 | % | | 28.55 | % | | $ | 9.57 | |

Each option will terminate approximately nine years after the grant date.

| Outstanding as of January 1, 2014 | 4,356,630 | | | $ | 34.06 | | | 4.66 |

| Exercised | (314,300 | ) | | $ | 24.49 | | | |

| Cancelled/forfeited | (285,000 | ) | | $ | 44.39 | | | |

| Outstanding as of December 31, 2014 | 4,712,330 | | | $ | 38.52 | | | 4.59 |

| Exercisable as of December 31, 2014 | 1,972,330 | | | $ | 27.89 | | | 2.51 |

| | 2014 | | | | 2013 | | | 2012 | |

| Federal | $ | 250,527 | | | 1,919 | | | 252,446 | |

| State | 30,768 | | | | 256 | | | 31,024 | |

| Foreign | 10,518 | | | | (704 | ) | | 9,814 | |

| | $ | 291,813 | | | 1,471 | | | 293,284 | |

| | 2014 | | | | 2013 | | | 2012 | |

February 6, 2014

FASTENAL COMPANY AND SUBSIDIARIES

| Balance as of December 31, 2010 | 294,861 | | | $ | 2,948 | | | 2,889 | | | 1,258,183 | | | 18,492 | | | 1,282,512 | |

| Stock options exercised | 397 | | | 5 | | | | 8,934 | | | — | | | — | | | 8,939 | |

| Net earnings | — | | | — | | | | — | | | 357,929 | | | — | | | 357,929 | |

Notes to Consolidated Financial Statements—Continued

The following table presents the placement in the fair value hierarchy of assets that are measured at fair value on a recurring basis:

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| December 31, 2013: | Total | | | | Level 1 | | | Level 2 | | | Level 3 | |

| Common stock | $ | 451 | | | 451 | | | — | | | — | |

| Total available-for-sale securities | $ | 451 | | | 451 | | | — | | | — | |

| December 31, 2012: | Total | | | | Level 1 | | | Level 2 | | | Level 3 | |

| Common stock | $ | 354 | | | 354 | | | — | | | — | |

| Total available-for-sale securities | $ | 354 | | | 354 | | | — | | | — | |

There were no transfers between levels during 2013 and 2012.

As of December 31, 2013, our financial assets that are measured at fair value on a recurring basis include only common stock.

Marketable securities, all treated as available-for-sale securities, consist of the following:

| December 31, 2013: | Amortized Cost | | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | |

| Common stock | $ | 197 | | | 254 | | | — | | | 451 | |

| Total available-for-sale securities | $ | 197 | | | 254 | | | — | | | 451 | |

| December 31, 2012: | Amortized Cost | | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | |

| Common stock | $ | 197 | | | 157 | | | — | | | 354 | |

| Total available-for-sale securities | $ | 197 | | | 157 | | | — | | | 354 | |

The unrealized gains and losses recorded in accumulated other comprehensive income and the realized gains and losses recorded in earnings were immaterial during the three years reported in these consolidated financial statements.

Future maturities of our available-for-sale securities consist of the following:

| | Less than 12 months | | | | | | | Greater than 12 months | | | | |

| December 31, 2013: | Amortized Cost | | | | Fair Value | | | Amortized Cost | | | Fair Value | |

| Common stock | $ | 197 | | | 451 | | | — | | | — | |

| Total available-for-sale securities | $ | 197 | | | 451 | | | — | | | — | |

| | | | | 1,019,902 | | | | 840,078 | |

| Vehicle loss reserve and deferred rebates | 36 | | | | 200 | |

| Other | 4,364 | | | | 3,210 | |

| | $ | 148,579 | | | 126,155 | |

| Total | 8,100,000 | | | | | | | | | | | 4,356,630 | | | 1,442,380 | |

Each option will terminate, to the extent not previously exercised, 13 months after the end of the relevant vesting period.

| Outstanding as of January 1, 2012 | 5,132,750 | | | $ | 24.92 | | | 4.72 |

| Exercised | (1,305,708 | ) | | 22.70 | | | | |

| Cancelled/forfeited | (226,250 | ) | | $ | 34.12 | | | |

| Outstanding as of December 31, 2012 | 4,835,792 | | | $ | 32.51 | | | 5.40 |

Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, [removed: 2013.][added: 2014.]

| [added: President and] Chief Executive Officer | | Executive Vice-President and Chief Financial Officer |

| /s/ Leland J. Hein | | /s/ Daniel L. Florness |

| Leland J. Hein | | Daniel L. Florness |

| February 5, 2015 | | |

| /s/ Willard D. Oberton | | /s/ Daniel L. Florness |

| Willard D. Oberton | | Daniel L. Florness |

| February 6, 2014 | | |

| Equity compensation plans approved by security holders | 4,712,330 | | $38.52 | | 6,739,190 |

| Total | 4,712,330 | | | | 6,739,190 |

| Equity compensation plans approved by security holders | 4,536,630 | | $34.06 | | 7,225,440 |

| Total | 4,536,630 | | | | 7,225,440 |

Consolidated Balance Sheets as of December 31, [removed: 2013] [added: 2014] and [removed: 2012][added: 2013]

Consolidated Statements of Earnings for the years ended December 31, [added: 2014,] 2013, [removed: 2012,] and [removed: 2011][added: 2012]

Consolidated Statements of Comprehensive Income for the years ended December 31, [added: 2014,] 2013, [removed: 2012,] and [removed: 2011][added: 2012]

Consolidated Statements of Stockholders’ Equity for the years ended December 31, [added: 2014,] 2013, [removed: 2012,] and [removed: 2011][added: 2012]

Consolidated Statements of Cash Flows for the years ended December 31, [added: 2014,] 2013, [removed: 2012,] and [removed: 2011][added: 2012]

| 10.2 | Fastenal Company Stock Option Plan [added: as amended and restated effective as of December 12, 2014] (incorporated by reference to Exhibit [removed: A] [added: 10.1] to Fastenal Company’s [removed: Proxy Statement] [added: Form 8-K] dated [removed: February 23, 2007)*] [added: December 17, 2014)*] |

| 10.4 | Credit Agreement dated as of December 13, 2012 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's Form 8-K dated [added: December 19, 2012),] as [added: amended by the First Amendment to Credit Agreement dated as] of [added: April 15, 2014 (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 10-Q dated April 16, 2014), the Second Amendment to Credit Agreement dated as of August 19, 2014 (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated August 22, 2014), and the Third Amendment to Credit Agreement dated as of] December [added: 16, 2014 (incorporated by reference to Fastenal Company's Form 8-K dated December] 19, [removed: 2012)] [added: 2014)] |

| 13 | Portions of [removed: 2013] [added: 2014] Annual Report to Shareholders not included in this Form 10-K (only those sections specifically incorporated by reference in this Form 10-K shall be deemed filed with the SEC) |

| 101 | The following materials formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of [removed: Cash Flows,] [added: Stockholders’ Equity,] (v) the Consolidated Statements of [removed: Stockholders’ Equity,] [added: Cash Flows,] and (vi) the Notes to Consolidated Financial Statements. |

Years ended December 31, [added: 2014,] 2013, [removed: 2012,] and [removed: 2011][added: 2012]

| Year ended December 31, [removed: 2011] [added: 2014] | | | | | | | | | | | | | | | |

| Date: | | February [removed: 6, 2014] [added: 5, 2015] |

| [removed: By | |] /s/ Willard D. Oberton | [added: | | /s/ Michael M. Gostomski |]

| [removed: | |] (Principal Executive [removed: Officer)] [added: Officer),] and [removed: |] [added: Director] | | | [added: Financial Officer] (Principal Financial Officer and |

| | | [removed: Director] | [removed: | | |] Principal Accounting Officer) |

| [removed: | |] /s/ Michael [removed: M. Gostomski |] [added: J. Dolan] | | | /s/ [removed: Michael J. Dolan] [added: Reyne K. Wisecup] |

| [removed: | |] Michael [removed: M. Gostomski,] [added: J. Dolan,] Director | | | [removed: | Michael J. Dolan,] [added: Reyne K. Wisecup,] Director |

| [removed: | | Reyne K. Wisecup,] [added: Hugh L. Miller,] Director | | | [removed: | Hugh L. Miller,] [added: Michael J. Ancius,] Director |

| [removed: | | Michael J. Ancius,] [added: Scott A. Satterlee,] Director | | | [removed: | Scott A. Satterlee,] [added: Rita J. Heise,] Director |

| [removed: | |] /s/ [removed: Rita J. Heise | | | | /s/] Darren R. Jackson | [added: | | |]

| [removed: | | Rita J. Heise, Director | | | |] Darren R. Jackson, Director | [added: | | |]

| 10.2 | Fastenal Company Stock Option Plan [added: as amended and restated effective as of December 12, 2014 (incorporated by reference to Exhibit 10.1 to Fastenal Company’s Form 8-K dated December 17, 2014)] | Incorporated by Reference |

| 10.4 | Credit Agreement dated as of December 13, 2012 among Fastenal Company, the Lenders from time to time [added: party] thereto, and Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender and Issuing Lender [added: (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated December 19, 2012), as amended by the First Amendment to Credit Agreement dated as of April 15, 2014 (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 10-Q dated April 16, 2014), the Second Amendment to Credit Agreement dated as of August 19, 2014 (incorporated by reference to Exhibit 10.1 to Fastenal Company's Form 8-K dated August 22, 2014), and the Third Amendment to Credit Agreement dated as of December 16, 2014 (incorporated by reference to Fastenal Company's Form 8-K dated December 19, 2014)] | Incorporated by Reference |

| 13 | Portions of [removed: 2013] [added: 2014] Annual Report to Shareholders not included in this Form 10-K (only those sections specifically incorporated by reference in this Form 10-K shall be deemed filed with the SEC) | Electronically Filed |

| Allowance for doubtful accounts | $ | 9,248 | | | 11,480 | | | — | | | 8,109 | | | 12,619 | |

| Insurance reserves | $ | 30,880 | | | 52,858 | | 1 | — | | | 52,601 | | 2 | 31,137 | |

| By | | /s/ Leland J. Hein |

| | | Leland J. Hein, President and Chief Executive Officer |

| Date: | | February 5, 2015 |

| | | | |

| --- | --- | --- | --- |

| | | | |

| /s/ Leland J. Hein | | | /s/ Daniel L. Florness |

| Leland J. Hein, President and Chief Executive Officer | | | Daniel L. Florness, Executive Vice President and Chief |

| | | | |

| Willard D. Oberton, Director (Chairman) | | | Michael M. Gostomski, Director |

| | | | |

| | | | |

| /s/ Hugh L. Miller | | | /s/ Michael J. Ancius |

| | | | |

| /s/ Scott A. Satterlee | | | /s/ Rita J. Heise |

| | | | |

| Allowance for doubtful accounts | $ | 4,761 | | | 9,217 | | | — | | | 8,331 | | | 5,647 | |

| Insurance reserves | $ | 28,067 | | | 46,287 | | 1 | — | | | 43,806 | | 2 | 30,548 | |

| | | Willard D. Oberton, Chief Executive Officer |

| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | /s/ Willard D. Oberton | | | | /s/ Daniel L. Florness |

| | | Willard D. Oberton, Chief Executive Officer | | | | Daniel L. Florness, Chief Financial Officer |

| | | /s/ Robert A. Kierlin | | | | /s/ Stephen M. Slaggie |

| | | Robert A. Kierlin, Director (Chairman) | | | | Stephen M. Slaggie, Director |

| | | /s/ Reyne K. Wisecup | | | | /s/ Hugh L. Miller |

| | | /s/ Michael J. Ancius | | | | /s/ Scott A. Satterlee |