Fastenal (FAST) 10-K risk factor changes: FY2016 vs FY2015

The most significant risks and uncertainties known to us which may cause [removed: the] [added: our] operating results to vary from anticipated results or which may negatively affect our operating results and profitability are as follows:

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

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

While we have taken and continue to undertake significant steps to protect our customer and confidential [removed: information and the functioning of our computer systems and website,] [added: information,] a compromise of our data security systems or those of businesses we interact [removed: with,] [added: with] could result in information related to our customers or business being obtained by unauthorized [removed: persons or other operational problems or interruptions.][added: persons.]

Consequently, despite our efforts, the possibility of [removed: intrusion, interruption of our business,] cyber security incidents [removed: and theft] cannot be eliminated [removed: entirely, and risks associated with each of these remain.][added: entirely.]

While we also seek to obtain assurances that third parties we interact with will protect confidential information, there is a risk the confidentiality of [removed: data held or accessed by third parties may be compromised.]

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

We may be unable to meet our goals regarding [removed: new store openings and other] [added: the] growth drivers of our business.

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

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

In recent [removed: years] [added: years, however,] we have devoted increased resources to other growth drivers, including our industrial vending [removed: and] [added: business (which is discussed in more detail below), our] Onsite [removed: businesses,] [added: business,] and our [added: national accounts team.]

[removed: Similarly, while] [added: While] we have taken steps to build momentum in [added: the growth drivers of] our [removed: industrial vending] business, we cannot assure you [removed: that] those steps will lead to additional [removed: growth in that business.][added: sales growth.]

Failure to achieve any of our goals regarding [removed: new store openings, our] industrial [removed: vending and] [added: vending,] Onsite [removed: businesses, or] [added: locations,] national accounts signings, [added: our CSP 16 (Customer Service Project 2016) initiative, or other growth drivers] could negatively impact our long-term sales growth.

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 [removed: better] [added: more competitive] pricing.

In addition, greater than expected decreases in our gross profit margin resulting from changes in customer mix or other factors noted [removed: below,] [added: above,] 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.

That has adversely affected our gross profit percentage as our non-fastener products generally carry lower gross profit [removed: margin] [added: margins] than our fastener products.

Also, as noted [removed: above,] [added: below,] 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.

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

[removed: Furthermore, reductions] [added: Reductions] in our volume of [removed: purchases, as also happened in 2009 and the latter half of 2013,] [added: purchases] can adversely impact gross profit by reducing supplier volume allowances.

[removed: During 2015, our gross profit continued to be impacted by changes] [added: The decrease] in [removed: customer and product mix, the latter of which] [added: 2015] was amplified by a reduction in our customers' discretionary spending in the fourth quarter.

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

Our ability to successfully attract and retain qualified personnel to staff our [removed: stores] [added: selling locations] could impact labor costs, sales at existing [removed: stores,] [added: selling locations,] and the [removed: rate] [added: successful execution] of [removed: new store openings, and] our [removed: ability to transition and retain key senior management may impact our business and financial results.][added: growth drivers.]

Our success [removed: also] depends on the efforts and abilities of [removed: certain key] [added: our] senior management and we have had some transition in our executive officers over the last [removed: couple of] [added: few] years.

We may not be able to compete effectively against our competitors, which could [removed: harm] [added: cause us to lose market share or erode] our [removed: business and] operating [removed: results.][added: income.]

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

While these machines, software, and services can be obtained from other sources, loss of our current suppliers [added: or difficulties transitioning our industrial vending hosting services] could be disruptive.

Acquisitions involve numerous risks and challenges, including, among others, a risk of potential loss of key employees of an acquired business, [removed: and] inability to achieve identified operating and financial synergies anticipated to result from an acquisition, diversion of our capital and our management's attention from other business issues, and risks related to the integration of the acquired business including unanticipated changes in our business, our industry, or general economic conditions that affect the assumptions underlying the acquisition.

This risk was demonstrated [removed: during recent years.][added: in 2015 and 2016.]

[removed: One of our] [added: Our] strategies [removed: is] to grow our business [removed: through] [added: include] the [removed: introduction] [added: opening] of stores [removed: into] [added: in] new and existing [removed: markets.][added: markets and the expansion of our industrial vending business and Onsite locations.]

[removed: Based on a snapshot of current marketplace demographics in the United States, Canada, and Mexico, we] [added: We] currently estimate there is potential market opportunity in North America to support approximately 3,500 [removed: stores, or approximately 900 more] stores [removed: than we have today.][added: and that the potential market opportunity for industrial vending is approximately 1.7 million machines.]

[removed: This estimate is] [added: These estimates are] based on our business model today, and [removed: market changes such as industrial vending and] the [removed: internet,] [added: introduction] or [removed: other types] [added: expansion] of [removed: e-business,] [added: other business strategies, such as on-line retailing,] could cause [removed: it] [added: them] to change.

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

[removed: While we estimate we have the potential in North America for approximately 900] [added: 1,000] 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.

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

While increases in the cost of fuel or raw materials could be damaging to us, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit [removed: margin] to deteriorate, or by negatively impacting customers in certain industries, which could cause our sales to those customers to decline.

Inclement weather and other disruptions to the transportation network could [added: adversely] impact our distribution system and [removed: adversely impact] demand for our products.

Disruptions at distribution centers or shipping [removed: ports, due to events such as the hurricanes of 2005 and 2012 and the longshoreman’s strike on the West Coast in 2002,] [added: ports] may affect our ability to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of operations.

We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase our costs to procure products and [added: impact] our foreign sales.

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

[removed: Our] [added: Historically, our] primary exchange rate exposure [removed: is] [added: has been] with the Canadian dollar.

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

During 2016 and 2015, our gross profit continued to be adversely impacted by changes in customer and product mix.

product depth, and in North America, our distribution strength.

Our inability to transition key executive officers may divert the attention of other members of our senior management from our existing operations.

Difficulties in smoothly implementing that transition, or of recruiting suitable replacements in the event of unsuccessful transitions, could divert the attention of other members of our senior management team from our existing operations.

data held or accessed by third parties may be compromised.

Our business is subject to a wide array of laws and regulations in every jurisdiction where we operate.

Compliance with these laws and regulations increases the cost of doing business and failure to comply could result in the imposition of fines or penalties and the termination of contracts.

We are subject to a variety of laws and regulations including without limitation; import and export requirements, anti-bribery and corruption laws, tax laws (including U.S. taxes on foreign subsidiaries), product compliance laws, environmental laws, foreign exchange controls and cash repatriation restrictions, advertising regulations, data privacy and cyber security requirements, regulations on suppliers regarding the sources of supplies or products, labor and employment laws, and anti-competition regulations.

In addition, as a supplier to federal, state, and local government agencies, we must comply with certain laws and regulations relating specifically to the formation, administration, and performance of our governmental contracts.

We are also subject to governmental audits and inquiries in the normal course of business.

Ongoing audit activity and changes to the legal and regulatory environments could increase the cost of doing business, and such costs may increase in the future as a result of changes in these laws and regulations or in their interpretation.

While we have implemented policies and procedures designed to facilitate compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations, or our policies.

Any such violations could result in the imposition of fines and penalties, damage to our reputation, and, in the case of laws and regulations relating specifically to governmental contracts, the loss of those contracts.

We have completed several acquisitions of businesses in recent years.

We have significant exposure to companies involved in the manufacture of capital goods and heavy equipment.

In 2015, our business was impacted by lower commodity prices, including oil, lower corporate capital spending, and a strong U.S. dollar.

These variables resulted in our manufacturing customers making less money, and when that happens they tend to cut back on spending which yields a slowdown in our business to those customers.

These same dynamics carried into 2016.

Additionally, the shipment of goods from foreign countries could be delayed by container shipping companies encountering financial or other difficulties.

New trade policies could make sourcing product from overseas more difficult and/or more costly.

We source a significant amount of the products we sell from outside of the United States, primarily Asia.

This sourcing is both direct (through our wholly-owned, Asia-based subsidiary, FASTCO Trading Co., Ltd.) and indirect (from vendors that themselves procure product from international sources).

Considerable political uncertainty has arisen in the United States that may result in changes in the trade policies that companies, such as Fastenal, have built their sourcing operations around.

Should this occur, it may be difficult in light of: (1) the significant structural investments made over time, and (2) the absence of significant domestic fastener production for us to adjust our capabilities to the new policies in the short term, which could increase the difficulty and/or cost of sourcing foreign products.

Such changes could adversely affect our ability to secure sufficient product to service our customers and/or adversely affect our cost of operating in a way that hurts our financial results.

Our current estimates of the market potential of our business strategies could be incorrect.

We have also identified over 15,000 customer locations with the potential to implement our Onsite service model.

In addition, the market potential of a particular business strategy may vary from expectations because of a change in the marketplace (such as changes in customer concentration or needs), a change in the nature of that business strategy, or weaker than anticipated acceptance by customers of that business strategy.

In particular, while we estimate we have the potential in North America for approximately

As of December 31, 2016, we had $390 million of outstanding debt obligations, including loans outstanding under our revolving credit facility (the 'Credit Facility') of $305 million and senior unsecured promissory notes issued under our master note agreement (the 'Master Note Agreement') in the aggregate principal amount of $75 million.

The notes issued under our Master Note Agreement consist of two series.

The first is in an aggregate principal amount of $40 million, bears interest at a fixed rate of 2.00% per annum, and is due and payable on July 20, 2021.

The second is in an aggregate principal amount of $35 million, bears interest at a fixed rate of 2.45% per annum, and is due and payable on July 20, 2022.

Our aggregate borrowing capacity under the Credit Facility is $700 million.

Our aggregate borrowing capacity under the Master Note Agreement is $200 million; however none of the institutional investors party to that agreement are committed to purchase notes thereunder.

Our indebtedness has increased significantly since 2009 and we have the capacity under our Credit Facility and Master Note Agreement to substantially increase borrowings in the future.

In addition, borrowing additional amounts to finance stock purchases, dividends, capital expenditures, and other liquidity needs or to refinance our existing indebtedness could be difficult and the cost of doing so could be high.

Disruptions or failures of, or security breaches with respect to, our information technology infrastructure could have a negative impact on our operations.

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.

We expect to open new stores at the rate of approximately 2% to 3% in 2016; however, we cannot assure you that we can open stores at this rate and we may continue to close or consolidate stores as the need arises.

national accounts team.

We have targeted the signing of 200 additional Onsite locations in 2016.

While we believe this is achievable with some additional focus from our district managers and our national accounts team, this goal is aggressive and we cannot assure you that we can achieve it.

The latter was evidenced in 2015 and 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 (2015 and 2014) and more district and regional leaders to better serve our stores (2014), and in part to rising miscellaneous expenses.

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

Any such delays, material increases in employee turnover rates, or increases in labor costs, could have a material adverse effect on our business, financial condition, or operating results.

Difficulties in smoothly implementing that transition or the loss of the services of one or more of such key personnel could have a material adverse effect on our business, financial condition, or operating results.

We are required to disclose the use of 'conflict minerals' in certain of the products we distribute, which imposes costs on us and could raise reputational and other risks.

The SEC has promulgated rules in connection with the Dodd-Frank Wall Street Reform and Consumer Protection 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 rules have required and will continue to require due diligence and disclosure 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 rules and the source of any 'conflict minerals' used in those products.

In addition, 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 'conflict minerals' used in products through the procedures we have implemented.

We may also encounter challenges to satisfy customers that may require all of the components of products purchased to be certified as conflict free.

If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.

We have completed several acquisitions of businesses, including, in 2015, our acquisition of certain assets of Fasteners, Inc., a regional industrial construction supply distributor with store locations in the states of Washington, Idaho, Oregon, and Montana.

As the economic condition in North America weakened significantly in the fall of 2008 and into 2009, our customers, which operate principally in various manufacturing, non-residential construction, and services sectors, experienced a pronounced slowdown that adversely impacted our sales and operating results in those periods.

A lag in these sectors, even as the general economy improved, has continued to adversely impact our business.

In a more recent example, 2015 saw a collapse in the price of oil.

When oil companies make less money, they also spend less money.

This cut-back had a ripple effect throughout not just the oil and gas industry, but also businesses catering to that industry, and resulted in a slowdown of our business with customers in those markets.

Our current estimate for total store market potential in North America could be incorrect.

In addition, a particular local market’s ability to support a store may change because of a change in that market, a change in our store format, or the presence of a competitor’s store.

This was evidenced in 2015, when our operating results were negatively impacted by a slow down in our business with customers associated with oil exploration, production, and refinement.

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.

Our business may be adversely affected by political gridlock in the United States.

We primarily operate in the United States.

During recent years there has been significant fiscal uncertainty in the country, the resolution of which has been impeded by political gridlock.

We believe this has adversely impacted our business and could negatively impact our business in the future.

As of December 31, 2015, we had loans outstanding under our revolving credit facility of $350,000.

If credit market volatility were to return, then obtaining additional or replacement financing could be more difficult and the cost of doing so could be higher than under our current facility.

Tight credit conditions could limit our ability to finance stock purchases, dividends, capital expenditures, and other liquidity needs on terms acceptable to us.

We distribute these supplies through a network of approximately [removed: 2,600] [added: 2,500] company owned stores.

Later in this document we discuss the average full-time equivalent [removed: employee count] [added: ('FTE') headcount] to help explain the expense trends in more detail.

The final [removed: two] [added: three] items below summarize our investments in industrial vending [removed: devices] [added: machines, Onsite locations,] and [removed: in] store locations.

| | Q4 [removed: 2014] [added: 2015] | | | Q4 [removed: 2015] [added: 2016] | | | Twelve-month % Change | |

| End of period total store employee count | [removed: 12,293] [added: 13,961] | | | [removed: 13,961] [added: 12,966] | | | [removed: 13.6] [added: \-7.1] | % |

| Change in total store employee count | | | | [removed: 1,668] [added: (995] | [added: )] | | | |

| End of period total employee count | [removed: 18,417] [added: 20,746] | | | [removed: 20,746] [added: 19,624] | | | [removed: 12.6] [added: \-5.4] | % |

| Change in total employee count | | | | [removed: 2,329] [added: (1,122] | [added: )] | | | |

| Industrial vending machines (installed device count) | [removed: 46,855] [added: 55,510] | | | [removed: 55,510] [added: 62,822] | | [added: (1)] | [removed: 18.5] [added: 13.2] | % |

| Number of store locations | [removed: 2,637] [added: 2,622] | | | [removed: 2,622] [added: 2,503] | | | [removed: \-0.6] [added: \-4.5] | % |

[removed: | (4) |] We [removed: have also seen an expansion of] [added: continue to add headcount where necessary to support] our [added: growth initiatives, notably our] Onsite business (defined as dedicated sales and service provided from within the customer's [removed: facility) during 2015. During the year we signed 82 new Onsite customer locations. |][added: facility).]

[removed: | (5) | We converted approximately 800 stores to the CSP 16 (Customer Service Project 2016) format in the fourth quarter of 2015.] This merchandising [removed: footprint, disclosed at our November 2015 Investor Day,] [added: footprint] involves expanded inventory placement at our store locations to enhance same-day capabilities. [removed: |]

The most important thing to note before you read this is to remember Fastenal is several businesses within itself; a fastener distributor [removed: (about] [added: (35% to] 40% of our business) and a non-fastener distributor [removed: (about 60%] [added: (60% to 65%] of our business).

While our [removed: customer base values] [added: customers value] the capabilities we bring to the table, in the last [removed: twelve months] [added: two years] this group of customers has seen [removed: a contraction in] its [removed: production and therefore its need for fasteners.][added: growth prospects weaken.]

This backbone has been enhanced in [removed: the last five] [added: recent] years with our added capabilities in industrial [removed: vending.][added: vending, where we believe we have a structural advantage given our local customer service.]

However, similar to our fastener business, [added: growth in] our non-fastener business has [added: generally] weakened in the last [removed: twelve months.][added: two years.]

Our gross profit decreased from [removed: 50.5%] [added: 49.9%] in [removed: both] the fourth quarter of [removed: 2014] [added: 2015,] and [added: increased from 49.3% in the] third quarter of [removed: 2015] [added: 2016,] to [removed: 49.9%] [added: 49.8%] in the fourth quarter of [removed: 2015.][added: 2016.]

[removed: The large account end market produces] [added: Larger customers produce] a [removed: below] [added: below-company] average gross profit; however, [removed: as demonstrated in recent quarters, it leverages] [added: they generally leverage] our existing network of capabilities [removed: and] [added: which typically] allows us to enjoy strong incremental operating income growth.

This customer mix change (large versus [removed: smaller),] [added: small),] as well as our product mix change (from fasteners to non-fasteners), over time [removed: are a constant drain] [added: places sustained pressure] on our gross [removed: profit, a trend we expect to continue in the future.][added: profit.]

| Note – Full-time equivalent is based on 40 hours per week. | | | | | | | | | [added: | | |]

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 [removed: $160] [added: $140] billion per year (and we have expanded beyond North America), (2) no company has a significant portion of this market, (3) many of the products we sell are individually inexpensive, (4) when our customer needs something quickly or unexpectedly our local store is a quick source, (5) the cost and time to manage and procure these products is meaningful, (6) the cost to move these products, many of which are bulky, can be significant, (7) many customers would prefer to reduce their number of suppliers to simplify their business, and (8) many customers would prefer to utilize various technologies to improve availability and reduce waste.

For us, this 'closest economic point of contact' is the local [removed: store;] [added: store or the customer's facility;] therefore, our focus centers on understanding our customers' day, their opportunities, and their obstacles.

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | [removed: 2013] [added: 2014] | |

| Net sales | $ | [removed: 3,869,187] [added: 3,962,036] | | | [removed: 3,733,507] [added: 3,869,187] | | | [removed: 3,326,106] [added: 3,733,507] | |

| Percentage change | [removed: 3.6] [added: 2.4] | | % | | [removed: 12.2] [added: 3.6] | % | | [removed: 6.1] [added: 12.2] | % |

| Business days | [removed: 254] [added: 255] | | | | [removed: 253] [added: 254] | | | [removed: 254] [added: 253] | |

| Daily sales | $ | [removed: 15,233] [added: 15,537] | | | [removed: 14,757] [added: 15,233] | | | [removed: 13,095] [added: 14,757] | |

| Percentage change | [removed: 3.2] [added: 2.0] | | % | | [removed: 12.7] [added: 3.2] | % | | [removed: 6.1] [added: 12.7] | % |

| Impact of currency fluctuations (primarily Canada) | [removed: \-1.2] [added: \-0.4] | | % | | [removed: \-0.5] [added: \-1.2] | % | | [removed: \-0.2] [added: \-0.5] | % |

The increase in net sales in [added: 2016,] 2015, [removed: 2014,] and [removed: 2013] [added: 2014] came primarily from higher unit sales.

[removed: Our growth in net] [added: Net] sales [removed: was] [added: were also] impacted by slight inflationary price changes in our non-fastener products and some price deflation in our fastener products, with the net impact being a slight drag on growth.

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

Over the last several years, our industrial vending initiative has stimulated faster growth with a subset of our [removed: customers (discussed later in this document).][added: customers.]

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

The [removed: rate] [added: rates] of growth in net sales in [added: 2016 and] 2015 [removed: was] [added: were] hindered by weakness in the industrial production and non-residential construction industries served by us.

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 [added: an] effort to generate more selling energy within our stores, and a stabilization in our OEM fastener business.

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: 2015] [added: 2016] group – opened [removed: 2005] [added: 2006] and earlier, [removed: 2014] [added: 2015] group – opened [removed: 2004] [added: 2005] and earlier, and [removed: 2013] [added: 2014] group – opened [removed: 2003] [added: 2004] and earlier) and opened greater than five years ago (store sites opened as follows: [removed: 2015] [added: 2016] group – opened [removed: 2010] [added: 2011] and earlier, [removed: 2014] [added: 2015] group – opened [removed: 2009] [added: 2010] and earlier, and [removed: 2013] [added: 2014] group – opened [removed: 2008] [added: 2009] and earlier).

The stores opened greater than two years ago represent a consistent [removed: ‘same store’] [added: 'same store'] view of our business (store sites opened as follows: [removed: 2015] [added: 2016] group – opened [removed: 2013] [added: 2014] and earlier, [removed: 2014] [added: 2015] group – opened [removed: 2012] [added: 2013] and earlier, and [removed: 2013] [added: 2014] group – opened [removed: 2011] [added: 2012] and earlier).

| Store Age | [removed: 2015] [added: 2016] | | [removed: 2014] [added: 2015] | | [removed: 2013] [added: 2014] |

| Opened greater than 10 years | [removed: 2.7%] [added: 0.5%] | | [removed: 10.5%] [added: 2.7%] | | [removed: 2.1%] [added: 10.5%] |

We are a growth-centric organization focused on identifying 'drivers' that will allow us to get closer to our customers and gain market share in what we believe remains a fragmented industrial distribution market.

Our current growth drivers will be discussed throughout this report.

Our growth drivers have evolved, and can be expected to continue to evolve, over time.

However, what has always been true, and what we expect to remain true, is the key to the success of any of our growth drivers is our employees and the services they provide to our customers in the field.

| Number of active Onsite locations | 264 | | | 401 | | | 51.9 | % |

(1) In February 2016, we signed an agreement to lease a significant number of industrial vending lockers to one of our customers.

As of December 31, 2016, we have deployed approximately 15,000 devices under this agreement.

These devices do not generate product revenue and are excluded from the count noted above.

Several items worth noting with respect to our results:

(1) During the last twelve months, we have reduced our headcount by 995 people in our stores and 1,122 people in total.

These reductions can be primarily attributed to natural attrition rather than an active headcount reduction program.

However, the continued softness of the North American industrial economy has caused us to more intensively scrutinize our full- and part-time staffing levels outside of these initiatives.

Indeed, after increasing our total headcount every quarter during 2015, it has declined during every quarter of 2016.

Our current staffing levels approximate those at the end of 2014.

(2) We opened 40 and 41 stores in 2016 and 2015, respectively.

Our store network forms the foundation of our business strategy, and we will continue to open stores in 2017 as is deemed necessary to sustain and improve our network and support our growth drivers.

(3) We closed or consolidated 144 stores in 2016; about 90% of these stores were in close proximity to another Fastenal store, and about 85% had leases expiring within 18 months.

We closed or consolidated 50 stores in 2015; about 80% of these stores were in close proximity to another Fastenal store, and about 90% had leases expiring within 18 months.

The store closings did not have a meaningful impact on sales in either period.

We intend to continue evaluating markets for closures and consolidations in 2017 as part of our ongoing efforts to optimize our store network.

(4) We continue to see a very strong pace of national account signings (defined as new customer accounts with a multi-site contract).

In 2016 and 2015, we signed 190 and 167 new contracts, respectively.

Beyond signings (or growth activities), we look at the health of our large customer market, and by extension our overall market, by watching the trends of our top 100 customers (which represented approximately 26% of our sales in 2016).

For several years beginning in 2011, the typical ratio of growth versus contraction in the sales of our top 100 customers was 3:1 (75 grew and 25 contracted).

That performance has weakened in recent periods, more typically approximating 1:1 since the fourth quarter of 2015, including the fourth quarter of 2016 when 51 customers grew (33 with growth of 10% or more) and 49 customers contracted (31 with contraction of 10% or more).

(5) We have continued to expand our Onsite business.

Our goal was to sign 200 Onsite customer locations in 2016, and we signed 176; 130 were operational as of December 31, 2016.

All of the 80 Onsite customer locations we signed in 2015 were operational by the end of the second quarter of 2016.

(6) We have converted most of our United States stores, approximately 2,000, to the CSP 16 (Customer Service Project 2016) format as of December 31, 2016.

At the end of the fourth quarter of 2016, our inventory of CSP 16 items at our stores was $42 million higher than the level at the end of the fourth quarter of 2015 (including inventory at our distribution centers, this value was $46 million higher).

From the end of the third quarter of 2015, before we began this initiative, to the end of the fourth quarter of 2016, our inventory of CSP 16 items at our stores increased by $50 million (or $54 million when including inventory at our distribution centers).

Within the non-fastener component, approximately 25% is distributed through a vending machine.

In fact, the daily sales growth of the fastener product line peaked at over 10% in the second half of 2014.

The rate of growth decelerated in the first quarter of 2015, began contracting in the third quarter of 2015, and continued to experience contraction throughout 2016, including contraction of 2.4% in the fourth quarter.

In fact, the daily sales growth of the non-fastener product line peaked at over 17% in the second half of 2014 before beginning to decelerate in the first quarter of 2015.

Daily sales of non-fasteners did not contract as fasteners did, but did slow to a growth rate of just 1.2% in the fourth quarter of 2015.

Daily sales of non-fasteners rebounded in 2016, growing about 5% in each of the first three quarters of the year, with 5.9% growth in the fourth quarter of 2016.

One particular non-fastener product line, safety supplies, has benefited significantly from our initiatives with industrial vending.

We introduced the safety supplies product line in 1999 and, at 15.3% of total sales in the fourth quarter of 2016, it represents our second largest product line after fasteners.

Daily sales of our safety supplies product line experienced growth of

We are a growth focused organization and we constantly strive to make investments into the growth drivers of our business.

These investments typically center on people.

By adding more people we add to our ability to interact with and to serve our customers from our local store and to back them up in some type of support role.

In recent years this investment has also centered on more industrial vending devices to serve our customers’ needs on a 24 hours a day, 7 days a week basis.

This is intended to demonstrate the energy (or capacity) added.

For a quick recap of some positive and negative aspects of our business, we would note the following:

Positive –

| | |

| --- | --- |

| (1) | During 2015, we added 1,668 people into our stores. We stated in January 2015 we would add people in an aggressive fashion during 2015. This is the result. |

| (2) | After several years of holding back on store openings and even contracting our total store base, we plan to expand our pace of store openings in 2016 with a goal of opening 60 to 75 new stores (an increase of approximately 2% to 3% over our number of stores as of December 31, 2015). We opened 41 and 24 stores in 2015 and 2014, respectively, and we closed or consolidated 50 and 73 stores in 2015 and 2014, respectively. |

| (3) | We are seeing a very strong pace of national account signings. During 2015, we signed more new contracts (defined as new customer accounts with a multi-site contract) with national account customers than in 2014. This increase reversed the declining trend in the previous year. Similar to the third quarter of 2015, the business with our top 100 national account customers (representing approximately 25% of sales) experienced poor sales results in the fourth quarter of 2015, with net sales contraction of approximately 4.3%, while sales to our remaining national account customers (representing approximately 22% of sales) grew approximately 8.1%. |

Negative –

| (1) | 2015 was hit hard by a slowdown in our business with customers connected to the oil and gas industry. Those customers include direct industry participants as well as other customers serving those participants. |

| (2) | 2015 was negatively affected by a strong U.S. dollar, relative to other currencies, which hurts our U.S. customer base (which accounts for approximately 89% of sales). |

| (3) | The net sales of our Canadian business, which grew about 4% in 'local currency' during the fourth quarter of 2015, slowed from 6% growth in the third quarter of 2015. |

| (4) | During the fourth quarter of 2015 we decided to terminate our manufacturing joint venture in Brazil and settled several unrelated disputes. These items resulted in approximately $4 million of additional expense in the quarter. We listed these as negative due to the immediate financial impact, but consider these to be positive developments allowing us to focus on growth. |

| (5) | In late November 2015, and even more so in late December 2015, we experienced a greater number and longer duration of customer plant shutdowns related to the holiday season. |

During this time frame, our fastener product line has seen its daily growth decrease from about 10% growth in the last six months of 2014 to about 6% contraction in the fourth quarter of 2015.

Said another way, our market share gains continue to be strong, but the contraction from our existing customers, plus some price deflation, has eliminated our growth and created contraction.

Given our local customer service, we believe we have a structural advantage in the industrial vending business.

During this time frame, our non-fastener product line has seen its daily sales growth decrease from about 18% growth in the last six months of 2014 to about 1% growth in the fourth quarter of 2015.

However, this trend had limited relevance in the fourth quarter of 2015.

Rather, we saw a noticeable squeezing of discretionary spending by our customers in November and December of 2015 (see related discussion about 2015 later in 'summarizing comments'), which produced a noticeable drop in the sale of less frequently purchased products.

This resulted in all of the drop in gross profit, when compared to the third quarter of 2015 and substantially all of the change from the fourth quarter of 2014.

We believe this to be a temporary issue; however, we don’t know when this drop will subside.

Our gross profit is also impacted by supplier incentives.

With weaker net sales growth and our tight management of inventory levels, the growth of spending with our suppliers is lower; hence, our supplier incentives are reduced.

In regards to operating expenses, we added 2,329 people to the Fastenal organization in the last twelve months (about 81% of these people were added to a store or some other type of selling location).

This provided a meaningful increase in our capacity.

However, we needed to fund this increased capacity.

We did this by (1) managing our total operating and administrative expenses outside of payroll related costs, and (2) managing our hours worked in a very focused site by site fashion (our store headcount grew by 13.6% in the last twelve months, but our average full-time equivalent store headcount only grew by 10.2%).

These two items allowed us to invest in store personnel and fund that investment in a weak economic environment.

Below is a quick recap of our full-time equivalent headcount to supplement the information discussed earlier in this document:

| Average full-time equivalent store employee count | 10,376 | | | 11,436 | | | 10.2 | % |

| Average full-time equivalent employee count | 15,512 | | | 16,901 | | | 9.0 | % |

We touched on our industrial vending earlier, but here is a quick recap: During the fourth quarter of 2015, we signed 4,016 devices (we signed 4,689 devices in the third quarter of 2015 and we signed 4,108 devices during the fourth quarter of 2014), our installed device count on December 31, 2015 was 55,510 (an increase of 18.5% over December 31, 2014), and the percent of total net sales to customers with industrial vending was 43.9%.

Our total daily sales to customers with industrial vending during the fourth quarter of 2015 grew 0.7% over the fourth quarter of 2014.

However, daily sales of non-fastener products to customers with vending grew approximately 4%, while daily sales of fasteners to customers with vending contracted approximately 8%.

Finally, some thoughts on capital allocation: During the latter half of 2014 and throughout 2015, we have been modifying our capital allocation by buying back some common stock.

[removed: Our] [added: Historically, our] primary exchange rate exposure [removed: is] [added: has been] with the Canadian dollar against the United States dollar.

In [removed: 2013, 2014,] [added: 2015] and [removed: 2015,] [added: 2014,] we noted some [added: overall] deflation in [removed: overall] steel pricing.

During the first half of 2016, we experienced some deflation in steel prices.

This deflation was largely offset by some inflation in the latter half of the year.

A 1% increase in LIBOR in 2016 would have resulted in approximately $3.9 million of additional interest expense.

However, due to the relatively small size of our debt, we do not believe our operations are currently subject to significant market risk for interest rate exposure under the credit facility.

The year end is [removed: typically] December 31, [removed: 2015] [added: 2016] unless additional years are included or noted.

Fastenal Company (together with our subsidiaries, hereinafter referred to as [removed: Fastenal] [added: 'Fastenal'] or the [removed: Company] [added: 'Company'] or by terms such as we, our, or us) began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968.

| Store and Onsite | [removed: 13,961] [added: 12,966] | | [removed: 12,293] [added: 13,961] | |

| Non-store selling | [removed: 1,566] [added: 1,575] | | [removed: 1,349] [added: 1,566] | |

| Selling subtotal | [removed: 15,527] [added: 14,541] | | [removed: 13,642] [added: 15,527] | |

| Distribution | [removed: 3,459] [added: 3,403] | | [removed: 3,120] [added: 3,459] | |

| Manufacturing | [removed: 662] [added: 594] | | [removed: 630] [added: 662] | |

| Administrative | [removed: 1,098] [added: 1,086] | | [removed: 1,025] [added: 1,098] | |

| Non-selling subtotal | [removed: 5,219] [added: 5,083] | | [removed: 4,775] [added: 5,219] | |

| Total | [removed: 20,746] [added: 19,624] | | [removed: 18,417] [added: 20,746] | |

[removed: These] [added: Over time, that mandate has expanded to a broader range of] industrial and construction supplies [removed: are grouped] [added: that we break] into twelve product lines [removed: described] [added: (described] later in this [removed: document.][added: document).]

The information contained on [removed: this] [added: our] website or connected to [removed: this] [added: our] website is not incorporated by reference into this [removed: Annual Report] [added: annual report] on Form 10-K and should not be considered part of this report.

We began [removed: in 1967] with a marketing strategy of supplying threaded fasteners to customers in small, medium-sized, and, in subsequent years, large cities.

We believe our success can be attributed to our ability to offer our customers a full line of products [removed: at convenient locations] and [added: services from convenient locations, as well as] to the high quality of our employees.

We opened our first store in [added: 1967 in] Winona, Minnesota, a city with a population today of approximately 27,000.

| | [added: 2016 | |] 2015 | | 2014 | | 2013 | | 2012 | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 | [removed: | 2006 |]

| Net sales (in millions) | [removed: $3,869.2] [added: $3,962.0] | | [added: 3,869.2 | |] 3,733.5 | | 3,326.1 | | 3,133.6 | | 2,766.9 | | 2,269.5 | | 1,930.3 | | 2,340.4 | | 2,061.8 | [removed: | 1,809.3 |]

| Number of stores | [added: 2,503 | |] 2,622 | | 2,637 | | 2,687 | | 2,652 | | 2,585 | | 2,490 | | 2,369 | | 2,311 | | 2,160 | [removed: | 2,000 |]

[removed: | Central & South America |] [added: (1)] Panama, Brazil, Colombia, and Chile [removed: | | 9 | | | 9 | |]

[removed: | Asia |] [added: (2)] China and India [removed: | | 10 | | | 10 | |]

[removed: | Southeast Asia |] [added: (3)] Singapore, Malaysia, and Thailand [removed: | | 7 | | | 7 | |]

[removed: | Europe |] [added: (4)] The Netherlands, Hungary, United Kingdom, Germany, Czech Republic, Italy, Romania, Poland, and Sweden [removed: | | 20 | | | 20 | |]

[removed: | Africa |] [added: (5)] South Africa [removed: | | 1 | | | 1 | |]

We select [added: these] new locations [removed: for our stores] based on their proximity to our distribution network, population statistics, and employment data for manufacturing and [added: non-residential] construction.

In [removed: 2015, 2014,] [added: both 2016] and [removed: 2013,] [added: 2015,] we opened new stores at a rate of approximately [removed: 2%, 1%, and 2%, respectively.][added: 2%.]

[removed: We also closed or consolidated certain stores in 2015, 2014, and 2013, which] [added: This] resulted in a net decrease in store locations in [added: each of] the last two years.

[removed: Subsequent to a] [added: We stock all] new [removed: opening,] [added: stores with inventory drawn from all of our product lines, and over time, our] district and store personnel may [removed: supplement] [added: tailor] the inventory offering to [removed: customize] the [removed: selection to the] needs of [removed: our] [added: the] local customer base.

[removed: 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) [removed: an ‘overseas’ store, which] [added: An 'overseas store'] focuses on manufacturing customers and [removed: on the] [added: our] fastener product line [removed: (this] [added: and] is the [removed: type of store] format we typically [removed: have] [added: deploy] outside the United States and [removed: Canada).][added: Canada.]

[added: (3)] A [removed: strategic] [added: 'strategic] account [removed: store] [added: store'] is a unique location that sells to multiple large [removed: customers] [added: accounts] in a market.

[added: (4)] A [removed: strategic] [added: 'strategic] account [removed: site] [added: site'] is [removed: essentially the same,] [added: similar to a strategic account store,] but [removed: it] typically operates out of an existing store [removed: location,] rather than [added: from] a unique [removed: location; therefore it is not included in our store count.][added: location.]

[added: (5)] An [removed: Onsite location] [added: 'Onsite location'] is a selling unit located in or near a [removed: customer’s] [added: customer's] facility that sells product solely to that customer.

[added: Neither strategic account sites nor] Onsite locations are [removed: not] included in our [added: total] store count [removed: numbers as they] [added: because strategic account sites operate from an existing store location and Onsite locations] represent a customer subset of an existing [removed: store.][added: store location.]

We plan to open additional [removed: stores] [added: selling locations] outside of the United States in the future.

The [removed: stores located] [added: selling locations] outside [added: of] the United States contributed approximately [removed: 11%] [added: 12%] of our consolidated net sales in [removed: 2015,] [added: 2016,] with approximately [removed: 52%] [added: 49% and 30%] of this amount attributable to our Canadian [removed: operations.][added: and Mexican operations, respectively.]

It has been our experience that [removed: near-term] [added: our] profitability [removed: has been adversely] [added: is] affected by the [removed: opening] [added: age] of [removed: new] [added: our] store [removed: locations.][added: base.]

[removed: This adverse effect is] [added: New stores tend to be less profitable] due to [removed: the] start-up costs and the time necessary to generate a customer base.

A new store generates [added: most of] its sales from direct sales calls, a slow process involving repeated contacts.

[removed: Of] [added: To illustrate, of] the [removed: two] [added: 17] stores opened in the first quarter of [removed: 2015, one was] [added: 2016, nine were] profitable in the fourth quarter of [removed: 2015.][added: 2016.]

The data in the following table shows the change in the average sales of our stores from [removed: 2014 to] 2015 [added: to 2016] based on the age of each store.

The stores opened in [removed: 2015] [added: 2016] contributed approximately [removed: $8,745] [added: $14,900] (or approximately [removed: 0.2%)] [added: 0.4%)] of our consolidated net sales in [removed: 2015,] [added: 2016,] with the remainder coming from stores opened prior to [removed: 2015] [added: 2016] or from our non-store business.

Overview

The large majority of our transactions are business-to-business, though we also have some 'walk-in' retail business.

At the end of 2016, we had 2,503 store locations in 21 countries supported by 14 distribution centers in North America (eleven in the United States, two in Canada, and one in Mexico), and we employed 19,624 people.

The following table provides a summary of the store locations we operated at the end of each year, as well as the store openings, closings, and conversions during each year:

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

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

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

| | North America | | | | | | | | | | | Outside North America | | | | | | | | | | | |

| | United States | | Canada | | Mexico | | Puerto Rico and Dominican Republic | | Subtotal | | | Central & South America (1) | | Asia (2) | | Southeast Asia (3) | | Europe (4) | | Africa (5) | | Total | |

| Total as of December 31, 2014 | 2,336 | | 202 | | 44 | | 8 | | 2,590 | | | 9 | | 10 | | 7 | | 20 | | 1 | | 2,637 | |

| Opened stores | 32 | | 4 | | 3 | | — | | 39 | | | 1 | | 1 | | — | | — | | — | | 41 | |

| Closed stores | (44 | ) | (4 | ) | — | | — | | (48 | ) | | (1 | ) | (1 | ) | — | | — | | — | | (50 | ) |

| Converted stores(6) | (4 | ) | (2 | ) | — | | — | | (6 | ) | | — | | — | | — | | — | | — | | (6 | ) |

| Total as of December 31, 2015 | 2,320 | | 200 | | 47 | | 8 | | 2,575 | | | 9 | | 10 | | 7 | | 20 | | 1 | | 2,622 | |

| Opened stores | 27 | | 3 | | 5 | | — | | 35 | | | — | | — | | — | | 4 | | 1 | | 40 | |

| Closed stores | (140 | ) | (3 | ) | — | | — | | (143 | ) | | (1 | ) | — | | — | | — | | — | | (144 | ) |

| Converted stores(6) | (13 | ) | (2 | ) | — | | — | | (15 | ) | | — | | — | | — | | — | | — | | (15 | ) |

| Total as of December 31, 2016 | 2,194 | | 198 | | 52 | | 8 | | 2,452 | | | 8 | | 10 | | 7 | | 24 | | 2 | | 2,503 | |

(6) Converted stores are sites converted from stores to non-store selling locations, net of sites converted from non-store selling locations to stores.

Our stores represent the foundation of our service approach, putting us close to the customer and providing an efficient means of providing them with a broad range of products and services on a timely basis.

We believe there are few companies that offer our store coverage on a national basis.

We are constantly evaluating the efficacy of our store network.

There are times when this leads us to open new locations.

Our store network evaluations also reveal locations that are candidates for closure, consolidation, or conversion, as was the case in 2016 and 2015.

(1) A 'traditional store' services a wide variety of customers and stocks a wide selection of the products we offer.

Because traditional, overseas, and strategic account stores sell to multiple customers, they are included in our total store count.

We have long maintained that marketplace demographics could support a North American network of 3,500 stores.

We continue to believe this, but since establishing this figure our strategy has changed.

Store openings, at least in their historical sense (the 'traditional store'), are no longer our primary growth driver.

At this point, the emergence of, and increased investment in, new growth drivers and business models make it unlikely that we will approach the total store potential of North America.

These new growth drivers include industrial vending, Onsite locations, and end market growth investments (CSP 16, for example), as well as the investment in sales personnel (both store and non-store) to support them.

These represent alternative means to address the requirements of certain customer groups.

They also get us even closer to our customers than the traditional store, which has always been core to Fastenal’s strategy and an effective means of providing differentiated and 'sticky' service that is very difficult for large and small competitors to replicate.

These growth drivers appear to have substantial market opportunities of their own.

For instance, we believe the market could support approximately 1.7 million industrial vending machines.

We have also identified over 15,000 customer locations with potential to implement the Onsite service model.

We remain committed to a large, robust store network; it remains the indispensable foundation of our business.

Still, our store count peaked in 2013 and has declined in each of the three years since, and more often than not going forward, it will likely be difficult to know if our total store count will increase or decrease in any given year.

In contrast, we expect to grow our installed base of industrial vending machines and increase our Onsite locations meaningfully over time.

It has also been our experience that when these new stores mature and increase their sales base, their profitability similarly increases.

We have 2,622 store locations.

The various geographic areas in which we operate these store locations are summarized later in this document.

We employ 20,746 people.

| | 2015 | | 2014 | |

We sell industrial and construction supplies to end-users (typically business-to-business), and also have some 'walk-in' retail business.

We operate 14 distribution centers in North America from which we distribute products to our store and Onsite locations.

Eleven of these are in the United States, two are in Canada, and one is in Mexico.

Development of the Business

We operated the following number of store locations:

| | | | | | | | |

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

| | | | 2015 | | | 2014 | |

| North America | United States | | 2,320 | | | 2,336 | |

| | Puerto Rico and Dominican Republic | | 8 | | | 8 | |

| | Canada | | 200 | | | 202 | |

| | Mexico | | 47 | | | 44 | |

| | Subtotal | | 2,575 | | | 2,590 | |

| Total | | | 2,622 | | | 2,637 | |

We expect to open 60 to 75 stores in 2016, which is an annual rate of 2% to 3%, and to continue to close or consolidate stores as the need arises.

We stock all new stores with inventory drawn from all of our product lines.

In addition to the Fastenal store type discussed above, we also operate strategic account stores, strategic account sites, and Onsite locations.

Because this location sells to multiple customers, it is included in our store count.

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

Many of the new store locations may be in cities in which we currently operate.

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), 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.

Fastenal has not operated outside of North America long enough to assess the market potential of those markets.

We opened the following stores in the last five years:

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

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

| | | 2015 | | | 2014 | | | 2013 | | | 2012 | | | 2011 | |

| North America | United States | 32 | | | 10 | | | 30 | | | 58 | | | 101 | |

| | Puerto Rico and Dominican Republic | — | | | — | | | — | | | — | | | — | |

| | Canada | 4 | | | 4 | | | 10 | | | 13 | | | 11 | |

| | Mexico | 3 | | | 3 | | | 5 | | | 2 | | | 1 | |

| | Subtotal | 39 | | | 17 | | | 45 | | | 73 | | | 113 | |

| Central & South America | Panama, Brazil, Colombia, and Chile | 1 | | | 1 | | | 4 | | | 1 | | | 1 | |

| Asia | China and India | 1 | | | 2 | | | — | | | — | | | 3 | |

| Southeast Asia | Singapore, Malaysia, and Thailand | — | | | — | | | — | | | 2 | | | — | |

| Europe | The Netherlands, Hungary, United Kingdom, Germany, Czech Republic, Italy, Romania, Poland, and Sweden | — | | | 3 | | | 4 | | | 4 | | | 5 | |

| | For the fiscal year ended December 31, [removed: 2015,] [added: 2016,] |

The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, [removed: 2015,] [added: 2016,] the last business day of the [removed: registrant’s] [added: registrant's] most recently completed second fiscal quarter, was [removed: $12,195,658,299,] [added: $12,778,423,898,] 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 30, [removed: 2015] [added: 2016] are considered to be affiliates of the registrant.

As of January [removed: 22, 2016,] [added: 20, 2017,] the registrant had [removed: 288,403,782] [added: 289,247,424] shares of Common Stock issued and outstanding.

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| Item 3. | | [Legal [removed: Proceedings](#s52EAEBBFD0D95F353D268FD5C8E44F76)] [added: Proceedings](#s0E3319FC6939F562B37FB42FECA6034B)] | [removed: [16](#s52EAEBBFD0D95F353D268FD5C8E44F76)] [added: [15](#s0E3319FC6939F562B37FB42FECA6034B)] |

| Item 4. | | [Mine Safety [removed: Disclosures](#s9646BF06D8BEF2671EE98FD5C8EEED84)] [added: Disclosures](#sB1D1E21603FD996F7DAFB42FECC7DC68)] | [removed: [16](#s9646BF06D8BEF2671EE98FD5C8EEED84)] [added: [15](#sB1D1E21603FD996F7DAFB42FECC7DC68)] |

| Item 5. | | [Market for [removed: Registrant’s] [added: Registrant's] Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#sC068D06C68EBF4B965D98FD5BAB98B5D)] [added: Securities](#s59DA0C0DC077D0AE2F9FB42FCB883475)] | [removed: [19](#sC068D06C68EBF4B965D98FD5BAB98B5D)] [added: [16](#s59DA0C0DC077D0AE2F9FB42FCB883475)] |

| Item 6. | | [Selected Financial [removed: Data](#s76BE82CEACD2E6EF8A348FD5C99972A7)] [added: Data](#s033176A95CEF98AD3A65B42FED76F2FA)] | [removed: [20](#s76BE82CEACD2E6EF8A348FD5C99972A7)] [added: [17](#s033176A95CEF98AD3A65B42FED76F2FA)] |

| Item 7. | | [removed: [Management’s] [added: [Management's] Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sB53EE1DFDD5BCC6C54238FD5C9A176C6)] [added: Operations](#s1BF4E6C2C6122B80FBE7B42FEDA01B73)] | [removed: [21](#sB53EE1DFDD5BCC6C54238FD5C9A176C6)] [added: [18](#s1BF4E6C2C6122B80FBE7B42FEDA01B73)] |

| Item 7A. | | [Quantitative and Qualitative Disclosures About Market [removed: Risks](#s1F9276152061A9B38F778FD5CBCEC7FB)] [added: Risks](#sC884DAD7AFF389BCFBC0B42FEF3F5FCF)] | [removed: [39](#s1F9276152061A9B38F778FD5CBCEC7FB)] [added: [38](#sC884DAD7AFF389BCFBC0B42FEF3F5FCF)] |

| Item 8. | | [Financial Statements and Supplementary [removed: Data](#s1474191E8763F48795E18FD5CBE60087)] [added: Data](#sC2890F670F208A6B450BB42FCB8860BA)] | [removed: [40](#s1474191E8763F48795E18FD5CBE60087)] [added: [39](#sC2890F670F208A6B450BB42FCB8860BA)] |

| Item 9. | | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s0D5B14E03592EDA273D38FD5D0798EEC)] [added: Disclosure](#sD350D7C7E68E26E9A1F6B42FF3922423)] | [removed: [58](#s0D5B14E03592EDA273D38FD5D0798EEC)] [added: [57](#sD350D7C7E68E26E9A1F6B42FF3922423)] |

| Item 9A. | | [Controls and [removed: Procedures](#s4F3473B274D34C4D842A8FD5D07C65A3)] [added: Procedures](#sF585309E82356D720936B42FF39C0E79)] | [removed: [58](#s4F3473B274D34C4D842A8FD5D07C65A3)] [added: [57](#sF585309E82356D720936B42FF39C0E79)] |

| Item 9B. | | [Other [removed: Information](#sAC872D3A5E43B36F5F898FD5D0CA3CDD)] [added: Information](#sB4FB3805F95D9976F80FB42FF3CFA3AC)] | [removed: [59](#sAC872D3A5E43B36F5F898FD5D0CA3CDD)] [added: [58](#sB4FB3805F95D9976F80FB42FF3CFA3AC)] |

| | | [PART [removed: III](#s59049104E5F98CE7BA648FD5D0CE9392)] [added: III](#s4E93368FBC3C262DEEADB42FF3F90770)] | |

| Item 10. | | [Directors, Executive Officers, and Corporate [removed: Governance](#sD5BEFF73B18B2C5119CB8FD5D0FCDA11)] [added: Governance](#s9AE8D7718A32C2DB336BB42FF4212C34)] | [removed: [60](#sD5BEFF73B18B2C5119CB8FD5D0FCDA11)] [added: [59](#s9AE8D7718A32C2DB336BB42FF4212C34)] |

| Item 11. | | [Executive [removed: Compensation](#s978689D27FF052D0868A8FD5D1238CB3)] [added: Compensation](#sC1E155A6C82861C0651BB42FF44B55D1)] | [removed: [60](#s978689D27FF052D0868A8FD5D1238CB3)] [added: [61](#sC1E155A6C82861C0651BB42FF44B55D1)] |

| Item 12. | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sC9A399F6C244D50EF34F8FD5D14FBCEB)] [added: Matters](#s3D899D09CF542B2CB78EB42FF499C4F3)] | [removed: [60](#sC9A399F6C244D50EF34F8FD5D14FBCEB)] [added: [61](#s3D899D09CF542B2CB78EB42FF499C4F3)] |

| Item 13. | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#s31DA65A1B0EC0033E98E8FD5D1740C6E)] [added: Independence](#sF52734BE853082502545B42FF4AA672B)] | [removed: [60](#s31DA65A1B0EC0033E98E8FD5D1740C6E)] [added: [61](#sF52734BE853082502545B42FF4AA672B)] |

| Item 14. | | [Principal Accountant Fees and [removed: Services](#s8043CAB55CDF2071E73B8FD5D1A3B2E9)] [added: Services](#s56F9ECC82D511DD73B58B42FF4C92B23)] | [removed: [60](#s8043CAB55CDF2071E73B8FD5D1A3B2E9)] [added: [61](#s56F9ECC82D511DD73B58B42FF4C92B23)] |

| Item 15. | | [Exhibits and Financial Statement [removed: Schedules](#sC99F31D925A5B45AD3F18FD5BF1C21A2)] [added: Schedules](#sEA10E38C65F20E78CE0AB42FCEBBE136)] | [removed: [61](#sC99F31D925A5B45AD3F18FD5BF1C21A2)] [added: [62](#sEA10E38C65F20E78CE0AB42FCEBBE136)] |

| | | [Index to [removed: Exhibits](#sF53B11848266F23F19948FD5D26A9608)] [added: Exhibits](#sB22D5471C2C8C9113CFBB42FF5924C1E)] | [removed: [64](#sF53B11848266F23F19948FD5D26A9608)] [added: [66](#sB22D5471C2C8C9113CFBB42FF5924C1E)] |

Portions of our Proxy Statement for the annual meeting of shareholders to be held Tuesday, April [removed: 19, 2016 (‘Proxy Statement’)] [added: 25, 2017 ('Proxy Statement')] are incorporated by reference in Part III.

Portions of our [removed: 2015] [added: 2016] Annual Report to Shareholders are incorporated by reference in Part II.

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, [removed: customers] [added: customers,] or geographic locations, changes in our average store size, changes in our purchasing patterns, changes in customer needs, changes in fuel or commodity prices, inclement weather, changes in foreign currency exchange rates, difficulty in adapting our business model to different foreign business environments, [added: failure to accurately predict the market potential of our business strategies, the introduction or expansion of new business strategies,] weak acceptance or adoption of [added: our] vending [removed: technology] or [added: Onsite business models,] increased competition in industrial [removed: vending,] [added: vending or Onsite,] difficulty in maintaining installation quality as our industrial vending business expands, [added: the leasing to customers of a significant number of additional industrial vending machines, the failure to meet our goals and expectations regarding store openings, store closings, or expansion of our industrial vending or Onsite operations, changes in the implementation objectives of our business strategies,] difficulty in hiring, relocating, [removed: training] [added: training,] or retaining qualified personnel, [removed: 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 or our need to make capital expenditures, credit market volatility, changes in tax law, changes in the availability or price of commercial real estate, changes in the nature, [removed: price] [added: price,] or availability of distribution, supply chain, or other technology (including software licensed from third parties) and services related to that technology, cyber-security incidents, potential liability and reputational damage that can arise if our products are defective, and other risks and uncertainties detailed in this Form 10-K under the heading 'Item 1A.

10-K 1 fast1231201610-k.htm 10-K

| | | [PART I](#s9EEC082452EB95A54246B42FEBCED286) | |

| | | [PART II](#s5A21F66862417EABE33BB42FED1A323C) | |

| | | [PART IV](#s2FDDC6A096803E208449B42FF4E90005) | |

| Item 16. | | [Form 10-K Summary](#s7616d4d9ac07481cb74e82479d9a0c26) | [63](#s7616d4d9ac07481cb74e82479d9a0c26) |

| | | [Signatures](#sE1443DB06144F0567427B42FF57EF922) | [65](#sE1443DB06144F0567427B42FF57EF922) |

10-K 1 fast1231201510-k.htm 10-K

____________________________________________________________


| | | [PART I](#sBCB6C13C680909189F508FD5C7FD398F) | |

| Item X. | | [Executive Officers of the Registrant](#s0A42B4CA493B19BE647F8FD5C8F90977) | [17](#s0A42B4CA493B19BE647F8FD5C8F90977) |

| | | [PART II](#s09A57B96F30DEF2442B08FD5C92BBFC8) | |

| | | [PART IV](#s6AF6C933FBD4AFC44E168FD5D1E5A899) | |

| | | [Signatures](#s5E392255BC01C0BB10BC8FD5D2487670) | [63](#s5E392255BC01C0BB10BC8FD5D2487670) |

| Distribution center and home office | | [removed: 253,000] [added: 246,000] | | | 259,000 | |

(1) Total number of tote locations for small parts storage included in facilities with an [removed: automated storage and retrieval system ('ASRS').][added: ASRS.]

We own the following facilities, excluding [removed: store] [added: selling] locations, outside of Winona, Minnesota:

| Distribution center | Indianapolis, Indiana | [removed: 539,000] [added: 561,000] | | (2) | 1,039,000 | |

| Distribution center | Atlanta, Georgia | [removed: 78,000] [added: 77,000] | | | 198,000 | |

| Distribution center | Scranton, Pennsylvania | [removed: 87,000] [added: 104,000] | | | 189,000 | |

| Distribution center | Akron, Ohio | [removed: 74,000] [added: 103,000] | | | [removed: 152,000] [added: 182,000] | |

| Distribution center | Kansas City, Kansas | [removed: —] | | | 300,000 | |

| Distribution center | Kitchener, Ontario, Canada | [removed: 105,000] [added: 128,000] | | | 142,000 | |

| Distribution center | High Point, North Carolina | [removed: —] [added: 132,000] | | [removed: (4)] | [removed: 256,000] [added: 301,000] | |

| Distribution center and manufacturing facility | Modesto, California | [removed: 83,000] [added: 69,000] | | | 328,000 | |

(2) This property contains an ASRS with capacity of 52,000 pallet locations, in addition to the [removed: 539,000] [added: 561,000] tote locations for small parts noted above; [removed: 185,000] [added: 105,000] of these small part tote locations are located in the industrial vending automated replenishment facility ('T-Hub'), which is also located on this property.

In addition, we own [removed: 177] [added: 179] buildings that house our store locations in various cities throughout North America.

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

| Distribution center | Apodaca, Nuevo Leon, Mexico | | 46,000 | | | March 2020 | | [removed: None] [added: Three] |

| Distribution center and manufacturing facility | Edmonton, Alberta, Canada | | 45,000 | | | July 2020 | | [removed: One] [added: None] |

| Local re-distribution center and manufacturing facility | Modrice, Czech Republic | | 15,000 | | | [removed: July 2021] [added: April 2022] | | None |

If economic conditions are [removed: suitable, we will,] [added: suitable] in the future, [added: we will] consider purchasing store locations to house our older stores.

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

Note – Information in this section is as of December 31, 2016, unless otherwise noted.

| | |

| --- | --- |

| (4) | This facility is currently under construction to add an ASRS with capacity of approximately 112,000 tote locations for small parts. |

| | |

| --- | --- |

| ITEM X. | EXECUTIVE OFFICERS OF THE REGISTRANT |

The executive officers of Fastenal Company are:

| | | | | | |

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

| Name | Employee of Fastenal Since | | Age | | Position |

| Daniel L. Florness | 1996 | | 52 | | President, Chief Executive Officer, and Director |

| Leland J. Hein | 1985 | | 55 | | Senior Executive Vice President – Sales and Director |

| James C. Jansen | 1992 | | 45 | | Executive Vice President – Manufacturing |

| Sheryl A. Lisowski | 1994 | | 48 | | Interim Chief Financial Officer, Controller, and Chief Accounting Officer |

| Nicholas J. Lundquist | 1979 | | 58 | | Executive Vice President – Operations |

| Charles S. Miller | 1999 | | 41 | | Executive Vice President – Sales |

| Terry M. Owen | 1999 | | 47 | | Senior Executive Vice President – Sales Operations |

| Gary A. Polipnick | 1983 | | 53 | | Executive Vice President – FAST Solutions® |

| Ashok Singh | 2001 | | 53 | | Executive Vice President – Information Technology |

| John L. Soderberg | 1993 | | 44 | | Executive Vice President – Sales Operations and Support |

| Reyne K. Wisecup | 1988 | | 52 | | Executive Vice President – Human Resources and Director |

Mr. Florness has been our president and chief executive officer since January 2016.

From December 2002 to December 2015, Mr. Florness was an executive vice president and our chief financial officer.

From June 1996 to November 2002, Mr. Florness was our chief financial officer.

During his time as chief financial officer, Mr. Florness' responsibilities expanded beyond finance, including leadership of product development and procurement and the company's national accounts business.

Mr. Florness has served as one our directors since January 2016.

Mr. Hein has been our senior executive vice president – sales since January 2016.

Mr. Hein's responsibilities include sales and operational oversight of our western United States business.

From July 2015 to December 2015, Mr. Hein was our chief operating officer.

Mr. Hein was our president and chief executive officer from January 2015 to July 2015, and our president from July 2012 to December 2014.

From November 2007 to July 2012, Mr. Hein was one of our executive vice presidents – sales.

Prior to November 2007, Mr. Hein served in various sales leadership roles at our Company.

Mr. Hein has served as one of our directors since 2014.

Mr. Jansen has been our executive vice president – manufacturing since January 2016.

Mr. Jansen's responsibilities include oversight of our manufacturing operations.

From December 2010 to December 2015, Mr. Jansen was our executive vice president - operations.

From November 2007 to December 2010, Mr. Jansen was our executive vice president – internal operations.

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

From April 2000 to April 2005, Mr. Jansen served as sales leader of our Texas based region.

Ms. Lisowski has been our interim chief financial officer since January 2016, and our controller and chief accounting officer since October 2013.

From March 2007 to October 2013, Ms. Lisowski served as our controller – accounting operations.

Ms. Lisowski joined Fastenal in 1994 and, prior to March 2007, served in various roles of increasing responsibility within our finance and accounting team.

Mr. Lundquist has been our executive vice president – operations since July 2012.

As of January [removed: 22, 2016,] [added: 20, 2017,] there were approximately [removed: 1,200] [added: 1,100] record holders of our common stock, which includes nominees or broker dealers holding stock on behalf of an estimated [removed: 185,000] [added: 205,000] beneficial owners.

The following table sets forth, by quarter, the high and low closing sale price(1) of our shares on The NASDAQ Stock Market for [removed: 2015] [added: 2016] and [removed: 2014.][added: 2015.]

| [removed: 2015] [added: 2016] | High | | | | Low | | | | [removed: 2014] [added: 2015] | | High | | | | Low | | |

| First quarter | $ | [removed: 47.40] [added: 49.87] | | | $ | [removed: 39.82] [added: 36.53] | | | First quarter | | $ | [removed: 50.43] [added: 47.40] | | | $ | [removed: 42.70] [added: 39.82] | |

| Second quarter | [removed: 43.41] [added: 48.93] | | | | [removed: 40.01] [added: 42.70] | | | | Second quarter | | [removed: 51.20] [added: 43.41] | | | | [removed: 47.80] [added: 40.01] | | |

| Third quarter | [removed: 42.82] [added: 45.36] | | | | [removed: 36.13] [added: 39.92] | | | | Third quarter | | [removed: 50.08] [added: 42.82] | | | | [removed: 43.74] [added: 36.13] | | |

| Fourth quarter | [removed: 41.64] [added: 49.17] | | | | [removed: 35.50] [added: 38.16] | | | | Fourth quarter | | [removed: 48.21] [added: 41.64] | | | | [removed: 40.78] [added: 35.50] | | |

| First quarter | $ | [removed: 0.28] [added: 0.30] | | | $ | [removed: 0.25] [added: 0.28] | |

| Second quarter | [removed: 0.28] [added: 0.30] | | | | [removed: 0.25] [added: 0.28] | | |

| Third quarter | [removed: 0.28] [added: 0.30] | | | | [removed: 0.25] [added: 0.28] | | |

| Fourth quarter | [removed: 0.28] [added: 0.30] | | | | [removed: 0.25] [added: 0.28] | | |

| Total | $ | [removed: 1.12] [added: 1.20] | | | $ | [removed: 1.00] [added: 1.12] | |

On January [removed: 14, 2016,] [added: 17, 2017,] we announced a quarterly dividend of [removed: $0.30] [added: $0.32] per share to be paid on February [removed: 26, 2016] [added: 28, 2017] to shareholders of record at the close of business on [removed: January 29, 2016.][added: February 1, 2017.]

The table below sets forth information regarding purchases of our common stock during each of the last three months of [removed: 2015:][added: 2016:]

(1) On May 1, 2015, our board of directors authorized the purchase by us of [removed: an additional] 4,000,000 shares of our common stock.

As of December 31, [removed: 2015,] [added: 2016,] we had remaining authority to purchase [removed: 2,900,000] [added: 1,300,000] shares under this authorization.

Purchases of shares of our common stock [removed: earlier in 2015] [added: throughout 2016] are described later in this Form 10-K under the heading [removed: ‘Item] [added: 'Item] 7.

[removed: The] Fastenal Company Common Stock Comparative Performance Graph

Set forth below is a graph comparing, for the five years ended December 31, [removed: 2015,] [added: 2016,] the yearly cumulative total shareholder return on our common stock with the yearly cumulative total shareholder return of the S&P 500 Index and the Dow Jones US Industrial Suppliers Index.

The comparison of total shareholder returns in the performance graph assumes that $100 was invested on December 31, [removed: 2010] [added: 2011] in Fastenal Company, the S&P 500 Index, and the Dow Jones US Industrial Suppliers Index, and that dividends were reinvested when and as paid.

Comparison of [removed: Five Year] [added: Five-Year] Cumulative Total Return Among Fastenal Company, the S&P 500 Index, and the Dow Jones US Industrial Suppliers Index

[removed: ][added: ]

| | | [removed: 2010 | |] 2011 | | 2012 | | 2013 | | 2014 | | 2015 | [added: | 2016 |]

| | 2016 | | | | 2015 | | |

| October 1-31, 2016 | 0 | | $0.00 | | | 0 | | 1,300,000 |

| November 1-30, 2016 | 0 | | $0.00 | | | 0 | | 1,300,000 |

| December 1-31, 2016 | 0 | | $0.00 | | | 0 | | 1,300,000 |

| Total | 0 | | $0.00 | | | 0 | | 1,300,000 |

| Fastenal Company | $ | 100.00 | | 110.07 | | 113.98 | | 116.67 | | 102.88 | | 121.93 |

| S&P 500 Index | | 100.00 | | 116.00 | | 153.57 | | 174.60 | | 177.01 | | 198.18 |

| Dow Jones US Industrial Suppliers Index | | 100.00 | | 109.05 | | 126.24 | | 126.17 | | 102.85 | | 126.35 |

| | 2015 | | | | 2014 | | |

| October 1-31, 2015 | 200,000 | | $38.55 | | | 200,000 | | 3,200,000 |

| November 1-30, 2015 | 200,000 | | $38.77 | | | 200,000 | | 3,000,000 |

| December 1-31, 2015 | 100,000 | | $39.97 | | | 100,000 | | 2,900,000 |

| Total | 500,000 | | $38.92 | | | 500,000 | | 2,900,000 |

The reported purchases were made under this authorization, which does not have an expiration date.

See Note 4 of the Notes to Consolidated Financial Statements for a description of certain additional purchases by us of shares of our common stock effected after December 31, 2015.

| Fastenal Company | $ | 100.00 | | 148.43 | | 163.37 | | 169.18 | | 173.16 | | 152.71 |

| S&P 500 Index | | 100.00 | | 102.11 | | 118.45 | | 156.82 | | 178.28 | | 180.75 |

| Dow Jones US Industrial Suppliers Index | | 100.00 | | 132.98 | | 145.02 | | 167.88 | | 167.78 | | 136.77 |

Incorporated herein by reference is Ten-Year Selected Financial Data on pages 4 and 5 of [removed: Fastenal’s 2015] [added: Fastenal's 2016] Annual Report to Shareholders of which this Form 10-K forms a part, a portion of which is filed as Exhibit 13 to this [removed: Form 10-K.][added: annual report on]

Form 10-K.

We have audited the accompanying consolidated balance sheets of Fastenal Company and subsidiaries as of December 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] and the related consolidated statements of earnings, comprehensive income, [removed: stockholders’] [added: stockholders'] equity, and cash flows for each of the years in the three-year period ended December 31, [removed: 2015.][added: 2016.]

We also have audited the [removed: Company’s] [added: Company's] internal control over financial reporting as of December 31, [removed: 2015,] [added: 2016,] based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, [removed: 2015,] [added: 2016,] in conformity with U.S. generally accepted accounting principles.

Also in our opinion, Fastenal Company and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2015,] [added: 2016,] based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

| | [removed: 2015] [added: 2016] | | | | [added: 2015 | | |] 2014 | |

| Cash and cash equivalents [removed: | $] [added: at beginning of year] | 129,019 | | | [added: |] 114,496 | | [added: | 58,506 | |]

| Trade accounts receivable, net of allowance for doubtful accounts of [removed: $11,729] [added: $11,249] and [removed: $12,619,] [added: $11,729,] respectively | [removed: 468,375] [added: 499,716] | | | | [removed: 462,077] [added: 468,375] | |

| Inventories | [removed: 913,263] [added: 992,989] | | | | [removed: 869,224] [added: 913,263] | |

| [removed: Deferred] [added: Total deferred] income tax assets | [removed: —] [added: 34,210] | | | | [removed: 21,765] [added: 35,224] | |

| Prepaid income taxes | [removed: 22,558] [added: 12,907] | | | | [removed: —] [added: 22,558] | |

| Other current assets | [removed: 131,561] [added: 102,423] | | | | [removed: 115,703] [added: 131,561] | |

| Total current assets | [removed: 1,664,776] [added: 1,720,770] | | | | [removed: 1,583,265] [added: 1,664,776] | |

| Property and equipment, net | [removed: 818,889] [added: 899,697] | | | | [removed: 763,889] [added: 818,889] | |

| Other assets, net | [removed: 48,797] [added: 48,417] | | | | [removed: 11,948] [added: 48,797] | |

| Total assets | $ | [removed: 2,532,462] [added: 2,668,884] | | | [removed: 2,359,102] [added: 2,532,462] | |

| Current portion of debt | $ | [removed: 62,050] [added: 10,482] | | | [removed: 90,000] [added: 62,050] | |

| Accounts payable | [removed: 125,973] [added: 108,740] | | | | [removed: 103,909] [added: 125,973] | |

| Accrued expenses | [removed: 185,143] [added: 156,422] | | | | [removed: 174,002] [added: 185,143] | |

| Total current liabilities | [removed: 373,166] [added: 275,644] | | | | [removed: 375,353] [added: 373,166] | |

| Long-term debt | [removed: 302,950] [added: 379,518] | | | | [removed: —] [added: 302,950] | |

| Deferred income tax liabilities | [removed: 55,057] [added: 80,628] | | | | [removed: 68,532] [added: 55,057] | |

| Preferred stock, [added: $0.01 par value,] 5,000,000 shares [removed: authorized] [added: authorized; no shares issued or outstanding] | — | | | | — | |

| Common stock, [added: $0.01 par value,] 400,000,000 shares [removed: authorized, 289,581,682] [added: authorized; 289,161,924] and [removed: 295,867,844] [added: 289,581,682] shares issued and outstanding, respectively | [removed: 2,896] [added: 2,892] | | | | [removed: 2,959] [added: 2,896] | |

| Additional paid-in capital | [removed: 2,024] [added: 37,363] | | | | [removed: 33,744] [added: 2,024] | |

| Retained earnings | [removed: 1,842,772] [added: 1,940,143] | | | | [removed: 1,886,350] [added: 1,842,772] | |

| Accumulated other comprehensive [removed: (loss)] income [added: (loss)] | [removed: (46,403] [added: (47,304] | | ) | | [removed: (7,836] [added: (46,403] | ) |

| Total stockholders’ equity | [removed: 1,801,289] [added: 1,933,094] | | | | [removed: 1,915,217] [added: 1,801,289] | |

| Total liabilities and stockholders’ equity | $ | [removed: 2,532,462] [added: 2,668,884] | | | [removed: 2,359,102] [added: 2,532,462] | |

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | [removed: 2013] [added: 2014] | |

| Net sales | $ | [removed: 3,869,187] [added: 3,962,036] | | | [removed: 3,733,507] [added: 3,869,187] | | | [removed: 3,326,106] [added: 3,733,507] | |

| Cost of sales | [removed: 1,920,253] [added: 1,997,259] | | | | [removed: 1,836,105] [added: 1,920,253] | | | [removed: 1,606,661] [added: 1,836,105] | |

| Gross profit | [removed: 1,948,934] [added: 1,964,777] | | | | [removed: 1,897,402] [added: 1,948,934] | | | [removed: 1,719,445] [added: 1,897,402] | |

| Operating and administrative expenses | [removed: 1,121,590] [added: 1,169,470] | | | | [removed: 1,110,776] [added: 1,121,590] | | | [removed: 1,007,431] [added: 1,110,776] | |

| Gain on sale of property and equipment | [removed: (1,411] [added: (532] | | ) | | [removed: (964] [added: (1,411] | ) | | [removed: (643] [added: (964] | ) |

| Operating income | [removed: 828,755] [added: 795,839] | | | | [removed: 787,590] [added: 828,755] | | | [removed: 712,657] [added: 787,590] | |

| Interest income | [removed: 373] [added: 394] | | | | [removed: 759] [added: 373] | | | [removed: 924] [added: 759] | |

| Interest expense | [removed: (3,108] [added: (6,504] | | ) | | [removed: (915] [added: (3,108] | ) | | [removed: (113] [added: (915] | ) |

| Earnings before income taxes | [removed: 826,020] [added: 789,729] | | | | [removed: 787,434] [added: 826,020] | | | [removed: 713,468] [added: 787,434] | |

| Income tax expense | [removed: 309,659] [added: 290,251] | | | | [removed: 293,284] [added: 309,659] | | | [removed: 264,832] [added: 293,284] | |

| Net earnings | $ | [removed: 516,361] [added: 499,478] | | | [removed: 494,150] [added: 516,361] | | | [removed: 448,636] [added: 494,150] | |

February 6, 2017

| | 2016 | | | | 2015 | |

| Net earnings | $ | 499,478 | | | 516,361 | | | 494,150 | |

| Purchases of common stock | (1,600 | ) | | (16 | | ) | | (3,905 | ) | | (55,519 | ) | | — | | | (59,440 | ) |

| Stock options exercised | 1,180 | | | 12 | | | | 29,260 | | | — | | | — | | | 29,272 | |

| Net earnings | — | | | — | | | | — | | | 499,478 | | | — | | | 499,478 | |

| Balance as of December 31, 2016 | 289,162 | | | $ | 2,892 | | | 37,363 | | | 1,940,143 | | | (47,304 | ) | | 1,933,094 | |

| Net earnings | $ | 499,478 | | | 516,361 | | | 494,150 | |

| Gain on sale of property and equipment | (532 | | ) | | (1,411 | ) | | (964 | ) |

We recognize revenue for lease fees on a straight-line basis over the corresponding lease term.

Unrealized holding gains and losses on available-for-sale securities are excluded from earnings but are included in accumulated other comprehensive income (loss) as a separate component of stockholders' equity until realized.

Considering the insignificance of our operations outside of North America, we report as a single business segment.

| Automated distribution and warehouse equipment | 5 to 30 | | | 216,276 | | | | 204,708 | |

| Shelving, industrial vending, and equipment | 3 to 10 | | | 723,854 | | | | 548,921 | |

| | | | | 1,498,835 | | | | 1,324,923 | |

| | 2016 | | | | 2015 | |

| Indirect taxes | 43,443 | | | | 66,563 | |

Effective January 3, 2017, the compensation committee of our board of directors granted to our employees options to purchase a total of 764,789 shares of our common stock at an exercise strike price of $47.00 per share.

The closing stock price on the effective date of the grant was $46.95 per share.

| April 19, 2016 | 845,440 | | | $ | 46.00 | | | $ | 45.74 | | | 789,363 | | | — | |

| Total | 6,413,660 | | | | | | | | | | | 3,757,947 | | | 1,200,250 | |

| April 19, 2016 | 1.3 | % | | 5.00 | | 2.6 | % | | 26.34 | % | | $ | 8.18 | |

| Outstanding as of January 1, 2016 | 4,530,982 | | | $ | 41.49 | | | 4.89 |

| Granted | 845,440 | | | $ | 46.00 | | | 8.41 |

| Exercised | (1,180,242 | ) | | $ | 24.80 | | | |

| Cancelled/forfeited | (438,233 | ) | | $ | 49.49 | | | |

| Outstanding as of December 31, 2016 | 3,757,947 | | | $ | 46.81 | | | 5.85 |

| Exercisable as of December 31, 2016 | 1,200,250 | | | $ | 45.93 | | | 3.74 |

| | 2016 | | | | 2015 | | | 2014 | |

| Earnings before income taxes | $ | 789,729 | | | 826,020 | | | 787,434 | |

| Federal | $ | 223,837 | | | 23,149 | | | 246,986 | |

| State | 28,231 | | | | 1,236 | | | 29,467 | |

| Foreign | 12,634 | | | | 1,164 | | | 13,798 | |

| Income tax expense | $ | 264,702 | | | 25,549 | | | 290,251 | |

| | 2016 | | | | 2015 | | | 2014 | |

| | 2016 | | | | 2015 | |

| Insurance reserves | 11,489 | | | | 10,930 | |

| | 2016 | | | | 2015 | |

We do not anticipate significant changes in total unrecognized tax benefits during the next twelve months.

Such earnings are considered to be indefinitely reinvested and, accordingly, no U.S. federal or state deferred income taxes have been provided on this amount or any additional excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries.

February 5, 2016

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

| Balance as of December 31, 2012 | 296,564 | | | $ | 2,966 | | | 61,436 | | | 1,477,601 | | | 18,357 | | | 1,560,360 | |

| Purchases of common stock | (200 | ) | | (2 | | ) | | (9,078 | ) | | — | | | — | | | (9,080 | ) |

| Stock options exercised | 389 | | | 4 | | | | 9,302 | | | — | | | — | | | 9,306 | |

| Net earnings | — | | | — | | | | — | | | 448,636 | | | — | | | 448,636 | |

Therefore, we report as a single business segment.

| Automated storage and retrieval equipment | 5 to 30 | | | 139,101 | | | | 116,127 | |

| Equipment and shelving | 3 to 10 | | | 614,528 | | | | 519,635 | |

| | | | | 1,324,923 | | | | 1,193,734 | |

| Sales, real estate, and personal property taxes | 66,563 | | | | 58,716 | |

Our authorized, issued, and outstanding shares (stated in whole numbers) at year end consisted of the following:

| | | | | | | | |

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

| Preferred stock | $0.01/share | | | | | | |

| Shares authorized | | | 5,000,000 | | | 5,000,000 | |

| Shares issued and outstanding | | | — | | | — | |

| Common stock | $0.01/share | | | | | | |

| Shares authorized | | | 400,000,000 | | | 400,000,000 | |

| Shares issued and outstanding | | | 289,581,682 | | | 295,867,844 | |

Stock Purchases

Subsequent to December 31, 2015, we have purchased 1,600,000 shares of our common stock at an average price of approximately $37.15 per share.

| April 17, 2007 | 4,380,000 | | | $ | 22.50 | | | $ | 20.15 | | | 849,492 | | | 849,492 | |

| Total | 9,948,220 | | | | | | | | | | | 4,530,982 | | | 1,792,242 | |

| April 17, 2007 | 4.6 | % | | 4.85 | | 1.0 | % | | 31.59 | % | | $ | 5.63 | |

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

| Granted | 955,000 | | | $ | 56.00 | | | 8.41 |

| 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 |

| | $ | 826,020 | | | 787,434 | | | 713,468 | |

| Federal | $ | 220,588 | | | 8,547 | | | 229,135 | |

| State | 29,073 | | | | 527 | | | 29,600 | |

| Foreign | 7,487 | | | | (1,390 | ) | | 6,097 | |

| | $ | 257,148 | | | 7,684 | | | 264,832 | |

| Insurance claims payable | 10,930 | | | | 10,404 | |

| Total deferred income tax assets | 35,224 | | | | 33,691 | |

In November 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-17, Income Taxes (Topic 740), to simplify the presentation of deferred income taxes.

Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet.

Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, [removed: 2015.][added: 2016.]

| President and Chief Executive Officer | | [removed: Interim Chief Financial Officer, Controller,] [added: Executive Vice President] and Chief [removed: Accounting] [added: Financial] Officer |

| /s/ Daniel L. Florness | | /s/ Holden Lewis |

| Daniel L. Florness | | Holden Lewis |

| February 6, 2017 | | |

| /s/ Daniel L. Florness | | /s/ Sheryl A. Lisowski |

| Daniel L. Florness | | Sheryl A. Lisowski |

| February 5, 2016 | | |

Incorporated herein by reference is the information appearing under the headings 'Proposal [removed: #1 — Election] [added: #1—Election] of Directors', 'Corporate Governance and Director Compensation—Board Leadership Structure and Committee Membership', 'Corporate Governance and Director Compensation—Audit Committee', and 'Corporate Governance and Director Compensation—Section 16(a) Beneficial Ownership Reporting Compliance' in the Proxy Statement.

[removed: Executive Officers] [added: The executive officers] of [removed: the Registrant'.][added: Fastenal Company are:]

Those portions of the standards of conduct, as supplemented, that constitute a required element of a Code of Ethics are available without charge by submitting a request to us pursuant to the directions detailed under 'Does Fastenal have a Code of Conduct?' on the 'Investor FAQs' page of the [removed: 'Investors'] [added: 'Investor Relations'] section of our website at www.fastenal.com.

| | | | | | |

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

| | | | | | |

| Name | Employee of Fastenal Since | | Age | | Position |

| Daniel L. Florness | 1996 | | 53 | | President, Chief Executive Officer, and Director |

| William J. Drazkowski | 1995 | | 45 | | Executive Vice President – National Accounts Sales |

| Leland J. Hein | 1985 | | 56 | | Senior Executive Vice President – Sales |

| James C. Jansen | 1992 | | 46 | | Executive Vice President – Manufacturing |

| Holden Lewis | 2016 | | 47 | | Executive Vice President and Chief Financial Officer |

| Sheryl A. Lisowski | 1994 | | 49 | | Controller, Chief Accounting Officer, and Treasurer |

| Nicholas J. Lundquist | 1979 | | 59 | | Senior Executive Vice President – Operations |

| Charles S. Miller | 1999 | | 42 | | Executive Vice President – Sales |

| Terry M. Owen | 1999 | | 48 | | Senior Executive Vice President – Sales Operations |

| Gary A. Polipnick | 1983 | | 54 | | Executive Vice President – FAST Solutions® |

| John L. Soderberg | 1993 | | 45 | | Executive Vice President – Information Technology |

| Jeffery M. Watts | 1996 | | 45 | | Executive Vice President – International Sales |

| Reyne K. Wisecup | 1988 | | 53 | | Senior Executive Vice President – Human Resources and Director |

Mr. Florness has been our president and chief executive officer since January 2016.

From December 2002 to December 2015, Mr. Florness was an executive vice president and our chief financial officer.

From June 1996 to November 2002, Mr. Florness was our chief financial officer.

During his time as chief financial officer, Mr. Florness' responsibilities expanded beyond finance, including leadership of product development and procurement and the company's national accounts business.

Mr. Florness has served as one our directors since January 2016.

Mr. Drazkowski has been our executive vice president - national accounts sales since December 2016.

From October 2014 to December 2016, Mr. Drazkowski was our vice president - national accounts sales.

From September 2013 to September 2014, he served as regional vice president of our Minnesota based region, and from November 2007 to August 2013, he served as one of our district managers.

Prior to November 2007, Mr. Drazkowski served in various sales leadership roles at our Company.

Mr. Hein has been our senior executive vice president – sales since January 2016.

Mr. Hein's responsibilities include sales and operational oversight of our western United States business.

From July 2015 to December 2015, Mr. Hein was our chief operating officer.

Mr. Hein was our president and chief executive officer from January 2015 to July 2015, and our president from July 2012 to December 2014.

From November 2007 to July 2012, Mr. Hein was one of our executive vice presidents – sales.

Prior to November 2007, Mr. Hein served in various sales leadership roles at our Company.

Mr. Jansen has been our executive vice president – manufacturing since January 2016.

Mr. Jansen's responsibilities include oversight of our manufacturing operations.

From December 2010 to December 2015, Mr. Jansen was our executive vice president - operations.

From November 2007 to December 2010, Mr. Jansen was our executive vice president – internal operations.

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

From April 2000 to April 2005, Mr. Jansen served as sales leader of our Texas based region.

Mr. Lewis has been our executive vice president and chief financial officer since August 2016.

From April 2016 to July 2016, Mr. Lewis was a senior vice president/equity research-industrial technology with FBR Capital Markets & Co. (a full-service investment bank).

See also Part I hereof under the heading 'Item X.

| Equity compensation plans approved by security holders | 3,757,947 | | $46.81 | | 5,695,743 |

| Total | 3,757,947 | | | | 5,695,743 |

| Equity compensation plans approved by security holders | 4,530,982 | | $41.49 | | 6,120,700 |

| Total | 4,530,982 | | | | 6,120,700 |

Consolidated Balance Sheets as of December 31, [removed: 2015] [added: 2016] and [removed: 2014][added: 2015]

Consolidated Statements of Earnings for the years ended December 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013][added: 2014]

Consolidated Statements of Comprehensive Income for the years ended December 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013][added: 2014]

Consolidated Statements of [removed: Stockholders’] [added: Stockholders'] Equity for the years ended December 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013][added: 2014]

Consolidated Statements of Cash Flows for the years ended December 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013][added: 2014]

| 3.1 | Restated Articles of Incorporation of Fastenal Company, as amended [removed: effective as of April 17, 2012] (incorporated by reference to Exhibit 3.1 to Fastenal [removed: Company’s] [added: Company's] Form 10-Q for the quarter ended March 31, 2012) |

| 13 | Portions of [removed: 2015] [added: 2016] 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 [removed: materials] [added: financial statements from Fastenal Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed on February 6, 2017,] 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: Stockholders’] [added: Stockholders'] Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements |

| 4.1 | Form of Senior Notes due July 20, 2021 (incorporated by reference to Exhibit 4.1 to Fastenal Company’s Form 8‑K dated as of July 20, 2016) |

| 4.2 | Form of Senior Notes due July 20, 2022 (incorporated by reference to Exhibit 4.2 to Fastenal Company’s Form 8‑K dated as of July 20, 2016) |

| 10.5 | Master Note Agreement dated as of July 20, 2016 by and among (i) Fastenal Company, (ii) Metropolitan Life Insurance Company, NYL Investors LLC and PGIM, Inc. (formerly known as Prudential Investment Management, Inc.), as investor group representatives (each, an 'Investor Group Representative'), and (iii) Metropolitan Life Insurance Company (in its capacity as a purchaser of notes under such Master Note Agreement) and/or affiliates of any Investor Group Representative who become purchasers of notes under such Master Note Agreement (incorporated by reference to Exhibit 10.1 to Fastenal Company’s Form 8‑K dated as of July 20, 2016) |

| --- | --- |

| | |

Schedule II—Valuation and Qualifying Accounts

FASTENAL COMPANY

Years ended December 31, 2015, 2014, and 2013

(Amounts in thousands)

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

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

| Description | Balance at Beginning of Year | | | | “Additions” Charged to Costs and Expenses | | | “Other” Additions (Deductions) | | | “Less” Deductions | | | Balance at End of Year | |

| Year ended December 31, 2015 | | | | | | | | | | | | | | | |

| Allowance for doubtful accounts | $ | 12,619 | | | 8,769 | | | — | | | 9,659 | | | 11,729 | |

| Insurance reserves | $ | 31,137 | | | 54,341 | | (1) | — | | | 53,657 | | (2) | 31,821 | |

| Year ended December 31, 2014 | | | | | | | | | | | | | | | |

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

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

| Year ended December 31, 2013 | | | | | | | | | | | | | | | |

| Allowance for doubtful accounts | $ | 6,728 | | | 9,421 | | | — | | | 6,901 | | | 9,248 | |

| Insurance reserves | $ | 25,188 | | | 52,658 | | (1) | — | | | 46,966 | | (2) | 30,880 | |

(1) Includes costs and expenses incurred for premiums and claims related to health and general insurance.

(2) Includes costs and expenses paid for premiums and claims related to health and general insurance.

See accompanying Report of Independent Registered Public Accounting Firm incorporated herein by reference.

SIGNATURES

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

| | | |

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

| Date: | | February 5, 2016 |

| FASTENAL COMPANY | | |

| By | | /s/ Daniel L. Florness |

| | | Daniel L. Florness, President and Chief Executive Officer |

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

| | | | |

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

| /s/ Daniel L. Florness | | | /s/ Sheryl A. Lisowski |

| Daniel L. Florness, President and Chief Executive Officer (Principal Executive Officer), and Director | | | Sheryl A. Lisowski, Interim Chief Financial Officer, Controller, and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer) |

| /s/ Willard D. Oberton | | | /s/ Rita J. Heise |

| Willard D. Oberton, Director (Chairman) | | | Rita J. Heise, Director |

| /s/ Michael J. Ancius | | | /s/ Darren R. Jackson |

| Michael J. Ancius, Director | | | Darren R. Jackson, Director |

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

| Michael J. Dolan, Director | | | Hugh L. Miller, Director |

| /s/ Stephen L. Eastman | | | /s/ Scott A. Satterlee |

Not applicable.

FASTENAL COMPANY

Schedule II—Valuation and Qualifying Accounts

Years ended December 31, 2016, 2015, and 2014

(Amounts in thousands)

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

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

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

| Description | Balance at Beginning of Year | | | | “Additions” Charged to Costs and Expenses | | | “Other” Additions (Deductions) | | | “Less” Deductions | | | Balance at End of Year | |

| Year ended December 31, 2016 | | | | | | | | | | | | | | | |

| Allowance for doubtful accounts | $ | 11,729 | | | 8,550 | | | — | | | 9,030 | | | 11,249 | |

| Insurance reserves | $ | 31,821 | | | 62,313 | | (1) | — | | | 59,494 | | (2) | 34,640 | |

| Year ended December 31, 2015 | | | | | | | | | | | | | | | |

| Allowance for doubtful accounts | $ | 12,619 | | | 8,769 | | | — | | | 9,659 | | | 11,729 | |

| Insurance reserves | $ | 31,137 | | | 54,341 | | (1) | — | | | 53,657 | | (2) | 31,821 | |

| Year ended December 31, 2014 | | | | | | | | | | | | | | | |

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

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

(1) Includes costs and expenses incurred for premiums and claims related to health and general insurance.

(2) Includes costs and expenses paid for premiums and claims related to health and general insurance.

See accompanying Report of Independent Registered Public Accounting Firm incorporated herein by reference.

SIGNATURES

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

| | | |

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

| | | |

| Date: | | February 6, 2017 |

| | | |

| FASTENAL COMPANY | | |

| | | |

| By | | /s/ Daniel L. Florness |

| | | Daniel L. Florness, President and Chief Executive Officer |

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

| | | |

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

| | | |

| Date: | | February 6, 2017 |

| | | | |

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

| | | | |