Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and board of directors of

Fastenal Company:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Fastenal Company and subsidiaries (the 'Company') as of December 31, 2017 and 2016, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule listed in the table of contents at Item 15 (collectively, the 'consolidated financial statements'). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Fastenal Company acquired certain assets and assumed certain liabilities of Manufacturers Supply Company (‘Mansco’) on March 31, 2017, and management excluded from their assessment of the effectiveness of internal control over financial reporting as of December 31, 2017, Mansco's internal control over financial reporting associated with assets of approximately one percent of Fastenal Company's total assets and revenues of approximately one percent of Fastenal Company's total revenues included in the consolidated financial statements of Fastenal Company and subsidiaries as of and for the year ended December 31, 2017. Our audit of internal control over financial reporting of Fastenal Company also excluded an evaluation of the internal control over financial reporting of Mansco.

Basis for Opinion

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ('PCAOB') and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

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

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

/s/ KPMG LLP

We have served as the Company’s auditor since 1987.

Minneapolis, Minnesota

February 5, 2018

FASTENAL COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in millions except share information)

	December 31
	2017				2016
Assets
Current assets:
Cash and cash equivalents	$	116.9			112.7
Trade accounts receivable, net of allowance for doubtful accounts of $11.9 and $11.2, respectively	607.8				499.7
Inventories	1,092.9				993.0
Prepaid income taxes	—				12.9
Other current assets	118.1				102.5
Total current assets	1,935.7				1,720.8
Property and equipment, net	893.6				899.7
Other assets	81.2				48.4
Total assets	$	2,910.5			2,668.9
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt	$	3.0			10.5
Accounts payable	147.5				108.8
Accrued expenses	194.0				156.4
Income taxes payable	6.5				—
Total current liabilities	351.0				275.7
Long-term debt	412.0				379.5
Deferred income tax liabilities	50.6				80.6
Commitments and contingencies (Notes 5, 9, 10, and 11)
Stockholders’ equity:
Preferred stock: $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding	—				—
Common stock: $0.01 par value, 400,000,000 shares authorized, 287,591,536 and 289,161,924 shares issued and outstanding, respectively	2.9				2.9
Additional paid-in capital	8.5				37.4
Retained earnings	2,110.6				1,940.1
Accumulated other comprehensive loss	(25.1		)		(47.3	)
Total stockholders’ equity	2,096.9				1,933.1
Total liabilities and stockholders’ equity	$	2,910.5			2,668.9

See accompanying Notes to Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Consolidated Statements of Earnings

(Amounts in millions except earnings per share)

For the year ended December 31

	2017				2016			2015
Net sales	$	4,390.5			3,962.0			3,869.2
Cost of sales	2,226.9				1,997.2			1,920.3
Gross profit	2,163.6				1,964.8			1,948.9
Operating and administrative expenses	1,282.8				1,169.5			1,121.5
Gain on sale of property and equipment	(1.0		)		(0.5	)		(1.4	)
Operating income	881.8				795.8			828.8
Interest income	0.4				0.4			0.4
Interest expense	(9.1		)		(6.5	)		(3.1	)
Earnings before income taxes	873.1				789.7			826.1
Income tax expense	294.5				290.3			309.7
Net earnings	$	578.6			499.4			516.4
Basic net earnings per share	$	2.01			1.73			1.77
Diluted net earnings per share	$	2.01			1.73			1.77
Basic weighted average shares outstanding	288.2				288.9			291.5
Diluted weighted average shares outstanding	288.3				289.2			292.0

See accompanying Notes to Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Amounts in millions)

For the year ended December 31

	2017				2016			2015
Net earnings	$	578.6			499.4			516.4
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (net of tax of $0.0 in 2017, 2016, and 2015)	22.2				(0.9	)		(38.6	)
Comprehensive income	$	600.8			498.5			477.8

See accompanying Notes to Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

(Amounts in millions)

	Common Stock
	Shares			Amount				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance as of December 31, 2014	295.9			$	3.0			33.7			1,886.4			(7.8	)		1,915.3
Dividends paid in cash	—			—				—			(327.1	)		—			(327.1	)
Purchases of common stock	(7.1	)		(0.1		)		(60.0	)		(232.8	)		—			(292.9	)
Stock options exercised	0.8			—				19.1			—			—			19.1
Stock-based compensation	—			—				5.8			—			—			5.8
Excess tax benefits from stock-based compensation	—			—				3.4			—			—			3.4
Net earnings	—			—				—			516.4			—			516.4
Other comprehensive income (loss)	—			—				—			—			(38.6	)		(38.6	)
Balance as of December 31, 2015	289.6			$	2.9			2.0			1,842.9			(46.4	)		1,801.4
Dividends paid in cash	—			—				—			(346.6	)		—			(346.6	)
Purchases of common stock	(1.6	)		—				(3.9	)		(55.6	)		—			(59.5	)
Stock options exercised	1.2			—				29.3			—			—			29.3
Stock-based compensation	—			—				4.1			—			—			4.1
Excess tax benefits from stock-based compensation	—			—				5.9			—			—			5.9
Net earnings	—			—				—			499.4			—			499.4
Other comprehensive income (loss)	—			—				—			—			(0.9	)		(0.9	)
Balance as of December 31, 2016	289.2			$	2.9			37.4			1,940.1			(47.3	)		1,933.1
Dividends paid in cash	—			—				—			(369.1	)		—			(369.1	)
Purchases of common stock	(1.9	)		—				(43.6	)		(39.0	)		—			(82.6	)
Stock options exercised	0.3			—				9.5			—			—			9.5
Stock-based compensation	—			—				5.2			—			—			5.2
Net earnings	—			—				—			578.6			—			578.6
Other comprehensive income (loss)	—			—				—			—			22.2			22.2
Balance as of December 31, 2017	287.6			$	2.9			8.5			2,110.6			(25.1	)		2,096.9

See accompanying Notes to Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Amounts in millions)

For the year ended December 31

	2017				2016			2015
Cash flows from operating activities:
Net earnings	$	578.6			499.4			516.4
Adjustments to reconcile net earnings to net cash provided by operating activities, net of acquisitions:
Depreciation of property and equipment	123.6				103.5			86.1
Gain on sale of property and equipment	(1.0		)		(0.5	)		(1.4	)
Bad debt expense	8.2				8.6			8.8
Deferred income taxes	(30.0		)		25.6			8.3
Stock-based compensation	5.2				4.1			5.8
Amortization of intangible assets	3.8				0.5			0.5
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable	(103.7		)		(40.5	)		(20.6	)
Inventories	(76.3		)		(80.9	)		(47.8	)
Other current assets	(15.6		)		29.1			(15.8	)
Accounts payable	36.3				(17.2	)		20.6
Accrued expenses	37.6				(28.6	)		11.1
Income taxes	19.4				15.5			(26.6	)
Other	(0.9		)		1.3			4.9
Net cash provided by operating activities	585.2				519.9			550.3
Cash flows from investing activities:
Purchases of property and equipment	(119.9		)		(189.5	)		(155.2	)
Proceeds from sale of property and equipment	7.4				6.5			9.9
Cash paid for acquisitions	(58.7		)		—			(23.5	)
Other	(8.1		)		(5.1	)		(11.8	)
Net cash used in investing activities	(179.3		)		(188.1	)		(180.6	)
Cash flows from financing activities:
Proceeds from debt obligations	1,015.0				950.0			1,215.0
Payments against debt obligations	(980.0		)		(920.0	)		(955.0	)
Proceeds from exercise of stock options	9.5				29.3			19.1
Purchases of common stock	(82.6		)		(59.5	)		(292.9	)
Payments of dividends	(369.1		)		(346.6	)		(327.1	)
Net cash used in financing activities	(407.2		)		(346.8	)		(340.9	)
Effect of exchange rate changes on cash and cash equivalents	5.5				(1.3	)		(14.2	)
Net increase (decrease) in cash and cash equivalents	4.2				(16.3	)		14.6
Cash and cash equivalents at beginning of year	112.7				129.0			114.4
Cash and cash equivalents at end of year	$	116.9			112.7			129.0
Supplemental disclosure of cash flow information:
Cash paid for interest	$	8.7			6.2			3.1
Net cash paid for income taxes	$	304.1			248.3			327.0

See accompanying Notes to Consolidated Financial Statements.

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Business Overview and Summary of Significant Accounting Policies

Business Overview

Fastenal is a leader in the wholesale distribution of industrial and construction supplies operating a branch-based business (with an increasing number of Onsite locations). Collectively we refer to our branches and Onsite locations as in-market locations. We have approximately 3,000 in-market locations located primarily in North America.

Principles of Consolidation

The consolidated financial statements include the accounts of Fastenal Company and its subsidiaries (collectively referred to as 'Fastenal' or by terms such as 'we', 'our', or 'us'). All material intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition and Accounts Receivable

Net sales include products, services, shipping and handling charges, and lease fees billed, net of any related sales incentives, and net of an estimate for product returns. We recognize revenue when persuasive evidence of an arrangement exists, title and risk of ownership have passed, the sales price is fixed or determinable, and collectibility is reasonably assured. These criteria are met at the time the product is shipped to or picked up by the customer. We recognize services at the time the service is completed and the product is provided to the customer. We recognize revenue for shipping and handling charges at the time the products are shipped to or picked up by the customer. We recognize revenue for lease fees on a straight-line basis over the corresponding lease term. We estimate product returns based on historical return rates. Accounts receivable are stated at their estimated net realizable value. The allowance for doubtful accounts is based on an analysis of customer accounts and our historical experience with accounts receivable write-offs. Sales taxes (and value added taxes in foreign jurisdictions) collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.

Foreign Currency Translation and Transactions

The functional currency of our foreign operations is typically the applicable local currency. The functional currency is translated into United States dollars for balance sheet accounts, except retained earnings, using current exchange rates as of the balance sheet date, for retained earnings at historical exchange rates, and for revenue and expense accounts using a weighted average exchange rate during the period. The translation adjustments are deferred as a separate component of stockholders' equity captioned accumulated other comprehensive income (loss). Gains or losses resulting from transactions denominated in foreign currencies are included in cost of sales or operating and administrative expenses.

Cash and Cash Equivalents

We consider all investments purchased with original maturities of three months or less to be cash equivalents.

Inventories

Inventories, consisting of finished goods merchandise held for resale, are stated at the lower of cost (first in, first out method) or market.

Property and Equipment

Property and equipment are stated at cost. Depreciation on property and equipment is provided for using the straight-line method over the anticipated economic useful lives of the related property. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by the asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. There were no impairments recorded during any of the three years reported in these consolidated financial statements.

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Leases

We lease space under operating leases for certain distribution centers, branches, and manufacturing locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Any such terms are recognized as rent expense over the term of the lease. Further, the leases do not contain contingent rent provisions. Leasehold improvements on operating leases are amortized over their estimated service lives on a straight-line basis, or the remaining lease term, whichever is shorter. We lease certain semi-tractors, pick-ups, and equipment under operating leases.

Other Long-Lived Assets

Other assets consist of prepaid deposits, goodwill, and other definite-lived intangible assets. Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is reviewed for impairment annually. The identifiable intangible assets are amortized on a straight-line basis over their estimated life.

Accounting Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from those estimates.

Insurance Reserves

We are self-insured for certain losses relating to workers' compensation, automobile, health, and general liability costs. Specific stop-loss coverage is provided for catastrophic claims in order to limit exposure to significant claims. Self-insurance liabilities are based on our estimate of reported claims and claims incurred but not yet reported.

Product Warranties

We offer a basic limited warranty for certain of our products. The specific terms and conditions of those warranties vary depending upon the product sold. We typically recoup these costs through product warranties we hold with the original equipment manufacturers. Our warranty expense has historically been minimal.

Stock-Based Compensation

We estimate the value of stock option grants using a Black-Scholes valuation model. Stock-based compensation expense is recognized on a straight-line basis over the vesting period. Our stock-based compensation expense is recorded in operating and administrative expenses.

Income Taxes

We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We recognize the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits in income tax expense.

Earnings Per Share

Basic net earnings per share is calculated using net earnings available to common stockholders divided by the weighted average number of shares of common stock outstanding during the year. Diluted net earnings per share is similar to basic net earnings per share except that the weighted average number of shares of common stock outstanding includes the incremental shares assumed to be issued upon the exercise of stock options considered to be 'in-the-money' (i.e. when the market price of our stock is greater than the exercise price of our outstanding stock options).

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Segment Reporting

We have determined that for our North American operations we meet the aggregation criteria outlined in the accounting standards as our various operations have similar (1) economic characteristics, (2) products and services, (3) customers, (4) distribution channels, and (5) regulatory environments. Considering the insignificance of our operations outside of North America, we report as a single business segment.

Recently Adopted Accounting Pronouncements

Effective January 1, 2017, we adopted the FASB ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The standard simplifies several aspects of the accounting for employee share-based payment transactions, including accounting for income taxes, forfeitures, and statutory withholding requirements, as well as classification in the Consolidated Statements of Cash Flows. As a result of the adoption, on a prospective basis, for the year ended December 31, 2017, we recognized $1.8 of excess tax benefits from stock-based compensation as a discrete item in our income tax expense. Historically, these amounts were recorded as additional paid-in capital. Upon adoption, we elected to apply the change retrospectively to our Consolidated Statements of Cash Flows for the years ended December 31, 2016 and December 31, 2015, which resulted in a reclassification of excess tax benefits from stock-based compensation of $5.9 and $3.4, respectively, offsetting cash flows used in financing activities to cash flows provided by operating activities. We elected not to change our policy on accounting for forfeitures and will continue to estimate a requisite forfeiture rate. Additional amendments to the accounting for income taxes and minimum statutory withholding requirements had no impact on our results of operations.

On December 22, 2017, the Securities and Exchange Commission ('SEC') staff issued Staff Accounting Bulletin No. 118 ('SAB 118') to address the application of U.S. GAAP related to the enactment of the comprehensive tax legislation, commonly referred to as the Tax Cut and Jobs Act (the 'Tax Act'). This guidance was adopted in the fourth quarter of 2017. Additional information regarding our adoption of this guidance is contained in Note 7.

Recently Issued Accounting Pronouncements

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 for all entities by one year. This update is effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Earlier application was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. ASU 2014-09 was to become effective for us beginning January 2017; however, ASU 2015-14 deferred our effective date until January 2018, which is when we plan to adopt this standard. The ASU permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The ASU also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required for customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. We have completed the process of evaluating the effect of the adoption and determined there were no changes required to our reported revenues as a result of the adoption. The majority of our revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. Based on our evaluation process and review of our contracts with customers, the timing and amount of revenue recognized based on ASU 2015-14 is consistent with our revenue recognition policy under previous guidance. We adopted the new standard effective January 1, 2018, using the modified retrospective approach, and will expand our consolidated financial statement disclosures in order to comply with the ASU. We have determined the adoption of ASU 2015-14 will not have a material impact on our results of operations, cash flows, or financial position.

In February 2016, the FASB issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The guidance will be applied on a modified retrospective basis with the earliest period presented. Based on the effective date, this guidance will apply beginning January 2019, which is when we plan to adopt this ASU. While we are still in the process of evaluating the effect of adoption on our consolidated financial statements and are currently assessing our leases, we expect the adoption will lead to a material increase in the assets and liabilities recorded on our Consolidated Balance Sheets. As part of our assessment, we will need to determine the impact of lease extension provisions provided in our facility and vehicle leases which will impact the amount of the right of use asset and lease liability recorded under the ASU.

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Note 2. Acquisition

On March 31, 2017, we acquired certain assets and assumed certain liabilities of Manufacturers Supply Company (‘Mansco’). Mansco, based in Hudsonville, Michigan, is a distributor of industrial and fastener supplies with a particularly strong market position with commercial furniture original equipment manufacturers. As such, this acquisition gives us a presence in a market where we have not meaningfully participated in the past, and provides Mansco with additional tools with which to service its customer base and reduce costs through economies of scale.

The total purchase price for this acquisition, based on the acquisition date fair value, consisted of $57.9 paid in cash at closing, $0.8 paid in cash after closing pursuant to a post-closing purchase price adjustment, and a contingent consideration arrangement which requires us to pay the former owner up to a maximum of $2.5 (undiscounted) in cash after closing based on sales growth of the acquired business. We funded the purchase price for the acquisition with the proceeds from the issuance of a new series of senior unsecured promissory notes under our master note agreement in the aggregate principal amount of $60.0.

The fair value of the assets acquired and liabilities assumed as of the acquisition date is summarized below.

Current assets	$	21.7
Property and equipment	0.9
Identifiable intangible assets	20.1
Current liabilities	(1.8		)
Total identifiable net assets	40.9
Goodwill	18.4
Total fair value of assets acquired and liabilities assumed	$	59.3

The identifiable intangible assets consist mainly of the value of the customer relationships that were acquired and the goodwill consists largely of the synergies and economies of scale expected from combining the Mansco operations with our existing operations. The identifiable intangible assets and goodwill are deductible for income tax purposes.

The amount of net sales and net earnings of the acquired business included in our Consolidated Statement of Earnings for the year ended December 31, 2017, and the pro forma net sales and net earnings of the combined entity had the acquisition occurred on January 1, 2016, are:

	2017			2016
Net sales	$	53.5		49.6
Net earnings	$	5.5		4.9

Note 3. Long-Lived Assets

Property and equipment

Property and equipment at year end consisted of the following:

	Depreciable Life in Years			2017				2016
Land	—			$	38.2			37.3
Buildings and improvements	15 to 40			308.2				297.1
Automated distribution and warehouse equipment	5 to 30			220.0				216.3
Shelving, industrial vending, and equipment	3 to 10			812.9				723.9
Transportation equipment	3 to 5			76.3				71.7
Construction in progress	—			149.3				152.5
				1,604.9				1,498.8
Less accumulated depreciation				(711.3		)		(599.1	)
Property and equipment, net				$	893.6			899.7

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Note 4. Accrued Expenses

Accrued expenses at year end consisted of the following:

	2017				2016
Payroll and related taxes	$	26.0			23.2
Bonuses and commissions	19.8				14.2
Profit sharing contribution	10.6				8.7
Insurance reserves	39.0				34.6
Promotions	31.3				24.9
Indirect taxes	51.1				43.4
Other	16.2				7.4
Accrued expenses	$	194.0			156.4

Note 5. Stockholders' Equity

Dividends

On January 16, 2018, our board of directors declared a quarterly dividend of $0.37 per share of common stock to be paid in cash on February 27, 2018 to shareholders of record at the close of business on January 31, 2018. We paid aggregate annual dividends per share of $1.28, $1.20, and $1.12 in 2017, 2016, and 2015, respectively.

Stock Options

Effective January 2, 2018, the compensation committee of our board of directors granted to our employees options to purchase a total of 520,601 shares of our common stock at an exercise strike price of $55.00 per share. The closing stock price on the effective date of the grant was $54.54 per share. On the same date, certain of our non-employee directors elected to forgo all or a portion of the 2018 annual cash retainer in exchange for options to acquire a total of 21,185 shares of our common stock at an exercise price of $55.00 per share. These options are subject to shareholder approval of the non-employee director stock option plan at our annual meeting of shareholders to be held in April 2018.

The following tables summarize the details of options granted under our stock option plan that were still outstanding as of December 31, 2017, and the assumptions used to value those grants. All such grants were effective at the close of business on the date of grant.

	Options Granted			Option Exercise (Strike) Price				Closing Stock Price on Date of Grant				December 31, 2017
Date of Grant	Options Outstanding			Options Exercisable
January 3, 2017	764,789			$	47.00			$	46.95			713,097			—
April 19, 2016	845,440			$	46.00			$	45.74			738,611			—
April 21, 2015	893,220			$	42.00			$	41.26			674,499			142,072
April 22, 2014	955,000			$	56.00			$	50.53			567,500			158,750
April 16, 2013	205,000			$	54.00			$	49.25			101,750			55,250
April 17, 2012	1,235,000			$	54.00			$	49.01			952,001			772,977
April 19, 2011	410,000			$	35.00			$	31.78			60,350			35,350
April 20, 2010	530,000			$	30.00			$	27.13			79,550			54,550
April 21, 2009	790,000			$	27.00			$	17.61			61,550			61,550
Total	6,628,449											3,948,908			1,280,499

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Date of Grant	Risk-free Interest Rate			Expected Life of Option in Years		Expected Dividend Yield			Expected Stock Volatility			Estimated Fair Value of Stock Option
January 3, 2017	1.9	%		5.00		2.6	%		24.49	%		$	8.40
April 19, 2016	1.3	%		5.00		2.6	%		26.34	%		$	8.18
April 21, 2015	1.3	%		5.00		2.7	%		26.84	%		$	7.35
April 22, 2014	1.8	%		5.00		2.0	%		28.55	%		$	9.57
April 16, 2013	0.7	%		5.00		1.6	%		37.42	%		$	12.66
April 17, 2012	0.9	%		5.00		1.4	%		39.25	%		$	13.69
April 19, 2011	2.1	%		5.00		1.6	%		39.33	%		$	11.20
April 20, 2010	2.6	%		5.00		1.5	%		39.10	%		$	8.14
April 21, 2009	1.9	%		5.00		1.0	%		38.80	%		$	3.64

All of the options in the tables above vest and become exercisable over a period of up to eight years. Generally, each option will terminate approximately nine years after the grant date.

The fair value of each share-based option is estimated on the date of grant using a Black-Scholes valuation method that uses the assumptions listed above. The risk-free interest rate is based on the U.S. Treasury rate over the expected life of the option at the time of grant. The expected life is the average length of time over which we expect the employee groups will exercise their options, which is based on historical experience with similar grants. The dividend yield is estimated over the expected life of the option based on our current dividend payout, historical dividends paid, and expected future cash dividends. Expected stock volatilities are based on the movement of our stock price over the most recent historical period equivalent to the expected life of the option.

A summary of activities under our stock option plan consisted of the following:

	Options Outstanding			Exercise Price(1)				Remaining Life(2)
Outstanding as of January 1, 2017	3,757,947			$	46.81			5.85
Granted	764,789			$	47.00			9.00
Exercised	(329,612	)		$	28.59
Cancelled/forfeited	(244,216	)		$	48.22
Outstanding as of December 31, 2017	3,948,908			$	48.28			5.89
Exercisable as of December 31, 2017	1,280,499			$	50.07			3.78

	Options Outstanding			Exercise Price(1)				Remaining Life(2)
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

(1) Weighted average exercise price.

(2) Weighted average remaining contractual life in years.

The total intrinsic value of stock options exercised during the years ended December 31, 2017, 2016, and 2015 was $6.9, $23.2, and $14.2, respectively. The intrinsic value represents the difference between the exercise price and fair value of the underlying shares at the date of exercise.

At December 31, 2017, there was $14.6 of total unrecognized stock-based compensation expense related to outstanding unvested stock options granted under the plan. This expense is expected to be recognized over a weighted average period of 4.16 years. Any future change in estimated forfeitures will impact this amount. The total grant date fair value of stock options vested under our stock option plan during 2017, 2016, and 2015 was $4.2, $7.1, and $5.1, respectively.

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Total stock-based compensation expense related to our stock option plan was $5.2, $4.1, and $5.8 for 2017, 2016, and 2015, respectively.

Earnings Per Share

The following tables present a reconciliation of the denominators used in the computation of basic and diluted earnings per share and a summary of the options to purchase shares of common stock which were excluded from the diluted earnings calculation because they were anti-dilutive:

Reconciliation	2017			2016			2015
Basic weighted average shares outstanding	288,208,435			288,949,525			291,453,107
Weighted shares assumed upon exercise of stock options	134,298			207,998			592,335
Diluted weighted average shares outstanding	288,342,733			289,157,523			292,045,442

Summary of Anti-dilutive Options Excluded	2017				2016			2015
Options to purchase shares of common stock	3,524,401				3,095,343			2,611,367
Weighted average exercise prices of options	$	49.85			50.09			51.89

Any dilutive impact summarized above related to periods when the average market price of our stock exceeded the exercise price of the potentially dilutive stock options then outstanding.

Note 6. Retirement Savings Plan

The Fastenal Company and Subsidiaries 401(k) and Employee Stock Ownership Plan covers all of our employees in the United States. Our employees in Canada may participate in a Registered Retirement Savings Plan. The general purpose of both of these plans is to provide additional financial security during retirement by providing employees with an incentive to make regular savings contributions. In addition to the participation of our employees, we make annual profit sharing contributions based on an established formula. The expense recorded under this profit sharing formula was approximately $10.6, $8.7, and $13.7 for 2017, 2016, and 2015, respectively.

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Note 7. Income Taxes

Earnings before income taxes were derived from the following sources:

	2017				2016			2015
Domestic	$	809.4			739.4			786.0
Foreign	63.7				50.3			40.1
Earnings before income taxes	$	873.1			789.7			826.1

Components of income tax expense (benefit) were as follows:

2017:	Current				Deferred			Total
Federal	$	270.6			(33.1	)		237.5
State	33.2				3.3			36.5
Foreign	20.5				—			20.5
Income tax expense	$	324.3			(29.8	)		294.5

2016:	Current				Deferred			Total
Federal	$	223.9			23.2			247.1
State	28.2				1.2			29.4
Foreign	12.6				1.2			13.8
Income tax expense	$	264.7			25.6			290.3

2015:	Current				Deferred			Total
Federal	$	256.7			7.4			264.1
State	31.3				0.2			31.5
Foreign	13.7				0.4			14.1
Income tax expense	$	301.7			8.0			309.7

Income tax expense in the accompanying consolidated financial statements differed from the expected expense as follows:

	2017				2016			2015
Federal income tax expense at the 'expected' rate of 35%	$	305.6			276.4			289.1
Increase (decrease) attributed to:
State income taxes, net of federal benefit	21.5				20.0			21.6
Transition tax	6.5				—			—
Effect of 2018 deferred rate change	(30.8		)		—			—
Other, net	(8.3		)		(6.1	)		(1.0	)
Total income tax expense	$	294.5			290.3			309.7
Effective income tax rate	33.7		%		36.8	%		37.5	%

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

The tax effects of temporary differences that give rise to deferred income tax assets and liabilities at year end consisted of the following:

	2017				2016
Deferred income tax assets (liabilities):
Inventory costing and valuation methods	$	3.6			4.8
Allowance for doubtful accounts	3.0				4.3
Insurance reserves	8.4				11.5
Promotions payable	1.3				1.7
Stock-based compensation	5.2				6.8
Federal and state benefit of uncertain tax positions	0.9				1.9
Foreign net operating loss and credit carryforwards	4.2				5.1
Foreign valuation allowances	(2.8		)		(4.0	)
Other, net	0.8				2.1
Total deferred income tax assets	24.6				34.2
Property and equipment	(75.2		)		(114.8	)
Total deferred income tax liabilities	(75.2		)		(114.8	)
Deferred income tax liabilities	$	(50.6	)		(80.6	)

A reconciliation of the beginning and ending amount of total gross unrecognized tax benefits was as follows:

	2017				2016
Balance at beginning of year:	$	5.4			5.4
Increase related to prior year tax positions	0.4				0.2
Decrease related to prior year tax positions	(0.5		)		—
Increase related to current year tax positions	0.7				0.8
Decrease related to statute of limitation lapses	(1.1		)		(1.0	)
Settlements	(0.5		)		—
Balance at end of year:	$	4.4			5.4

Included in the liability for gross unrecognized tax benefits is an immaterial amount for interest and penalties, both of which we classify as a component of income tax expense. The amount of gross unrecognized tax benefits that would favorably impact the effective tax rate, if recognized, is not material. We do not anticipate significant changes in total unrecognized tax benefits during the next twelve months.

Fastenal files income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. With limited exceptions, we are no longer subject to income tax examinations by taxing authorities for taxable years before 2015 in the case of United States federal examinations, and 2013 in the case of foreign, state, and local examinations.

On December 22, 2017, the Tax Act was signed into law. The Tax Act makes broad and complex changes to the U.S. tax code that affected our income tax rate in 2017. The Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21% and requires companies to pay a one-time transition tax on certain unrepatriated earnings from foreign subsidiaries that is payable over eight years. The Tax Act also establishes new tax laws that will affect 2018.

ASC 740 requires a company to record the effects of a tax law change in the period of enactment, however, shortly after the enactment of the Tax Act, the SEC staff issued SAB 118, which allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

We have made a reasonable estimate of the impact of the Tax Act and recorded discrete items in our 2017 income tax expense of $24.4 which reflects an estimated reduction in our deferred income tax liabilities of $30.8 as a result of the maximum federal rate decrease to 21% from 35% which was partially offset by an estimated increase in income tax payable in the amount of $6.5 as a result of the transition tax on cash and cash equivalent balances related to accumulated earnings associated with our international operations. We are continuing to gather additional information related to estimates surrounding the remeasurement

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

of deferred taxes and to unrepatriated earnings from foreign subsidiaries to more precisely compute the remeasurement of deferred taxes and the impact of the transition tax.

In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or very minimal and that position has not changed following incurring the transition tax under the Tax Act. No deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our foreign investments to the United States. It is not practicable to estimate the amount of deferred income tax liabilities related to investments in these foreign subsidiaries.

Note 8. Geographic Information

Our revenues and long-lived assets related to the following geographic areas:

Revenues	2017				2016			2015
United States	$	3,842.9			3,493.5			3,441.1
Canada	257.6				228.7			223.3
Other foreign countries	290.0				239.8			204.8
Total revenues	$	4,390.5			3,962.0			3,869.2

Long-Lived Assets	2017				2016			2015
United States	$	919.5			899.1			821.1
Canada	35.9				33.2			32.3
Other foreign countries	19.4				15.8			14.3
Total long-lived assets	$	974.8			948.1			867.7

The accounting policies of the operations in the various geographic areas are the same as those described in the summary of significant accounting policies. Long-lived assets consist of net property and equipment, deposits, goodwill, and other net intangibles. Revenues are attributed to countries based on the location of the branch from which the sale occurred. In each of the years presented in the table above, no single customer represented 5% or more of our consolidated net sales.

Note 9. Operating Leases

We lease space under non-cancelable operating leases for several distribution centers, several manufacturing locations, and certain branch locations. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other build-out clauses. Any such terms are recognized as rent expense over the term of the lease. Further, the leases do not contain contingent rent provisions. The net book value of leasehold improvements at December 31, 2017 was $2.5. We lease certain semi-tractors and pick-ups under operating leases. Future minimum lease payments for all operating leases are as follows:

	Leased Facilities and Equipment				Leased Vehicles			Total
2018	$	96.8			37.0			133.8
2019	70.9				23.7			94.6
2020	47.5				10.4			57.9
2021	25.2				1.9			27.1
2022	9.3				—			9.3
2023 and thereafter	2.0				—			2.0
Total minimum lease payments	$	251.7			73.0			324.7

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Rent expense under all operating leases was as follows:

	Leased Facilities and Equipment				Leased Vehicles			Total
2017	$	109.5			45.8			155.3
2016	$	110.1			42.7			152.8
2015	$	105.9			38.2			144.1

Certain operating leases for pick-up trucks contain residual value guarantee provisions which would generally become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. The aggregate residual value guarantee related to these leases was approximately $75.5. We believe the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remote other than where we have established an accrual for estimated losses, which was immaterial at December 31, 2017. To the extent our fleet contains vehicles we estimate will settle at a gain, such gains on these vehicles will be recognized when we sell the vehicle.

Note 10. Debt Commitments

Credit Facility, Notes Payable, and Commitments

Debt obligations and letters of credit outstanding at year end consisted of the following:

	2017				2016
Outstanding loans under unsecured revolving credit facility	$	280.0			305.0
2.00% Senior unsecured promissory note payable	40.0				40.0
2.45% Senior unsecured promissory note payable	35.0				35.0
3.22% Senior unsecured promissory note payable	60.0				—
Note payable under asset purchase agreement	—				10.0
Total debt	415.0				390.0
Less: Current portion of debt	(3.0		)		(10.5	)
Long-term debt	$	412.0			379.5
Outstanding letters of credit under unsecured revolving credit facility - contingent obligation	$	36.3			36.3

Unsecured Revolving Credit Facility

We have a $700.0 committed unsecured revolving credit facility ('Credit Facility'). The Credit Facility includes a committed letter of credit subfacility of $55.0. The commitments under the Credit Facility will expire (and any borrowings outstanding under the Credit Facility will become due and payable) on March 10, 2020. In the next twelve months, we have the ability and intent to repay a portion of the outstanding loans using cash; therefore, we have classified this portion as a current liability. The Credit Facility contains certain financial and other covenants, and our right to borrow under the Credit Facility is conditioned upon, among other things, our compliance with these covenants. We are currently in compliance with these covenants.

Borrowings under the Credit Facility generally bear interest at a rate per annum equal to the London Interbank Offered Rate ('LIBOR') for interest periods of various lengths selected by us, plus 0.95%. Based on the interest periods we have chosen, our weighted per annum interest rate at December 31, 2017 was approximately 2.5%. We pay a commitment fee for the unused portion of the Credit Facility. This fee is either 0.10% or 0.125% per annum based on our usage of the Credit Facility.

Senior Unsecured Promissory Notes Payable

On July 20, 2016 (the 'Effective Date'), we entered into a master note agreement (the 'Master Note Agreement') with certain institutional lenders, pursuant to which, during the period commencing on the Effective Date and ending three years thereafter, we may issue at our discretion in private placements, and the institutional lenders may purchase at their discretion, senior unsecured promissory notes of the company (the 'Notes') in the aggregate principal amount outstanding from time to time of up to $200.0. The Notes will bear interest at either a fixed rate, or a floating rate based on LIBOR for an interest period of one, three, or six months. The Notes will mature no later than 12 years after the date of issuance thereof, in the case of fixed rate Notes, or 10 years after the date of issuance thereof, in the case of floating rate Notes. All of the Notes will be prepayable at our option in whole or in part. The Master Note Agreement contains certain financial and other covenants. We are currently in compliance with these covenants.

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Three series of Notes are currently outstanding under the Master Note Agreement. The first series of Notes ('Series A'), was issued on the Effective Date, is in an aggregate principal amount of $40.0, is due and payable in full on July 20, 2021, and bears interest at a fixed rate of 2.00% per annum. The second series of Notes ('Series B'), was issued on the Effective Date, is in an aggregate principal amount of $35.0, is due and payable in full on July 20, 2022, and bears interest at a fixed rate of 2.45% per annum. The third series of Notes ('Series C'), was issued on March 1, 2017, is in an aggregate principal amount of $60.0, is due and payable in full on March 1, 2024, and bears interest at a fixed rate of 3.22% per annum. There is no amortization of these Notes prior to their maturity dates. Interest on such Notes is payable quarterly in arrears on January 20, April 20, July 20, and October 20 of each year. The carrying value of the Notes approximates fair value. The fair value was based on available external pricing data and current market rates for similar debt instruments, among other factors, which are classified as a level 2 measurement within the fair value hierarchy.

Note Payable Under Asset Purchase Agreement

On December 7, 2015, we signed an agreement to purchase, effective January 2, 2017 ('Asset Purchase Effective Date'), certain assets related to the collection and management of certain portions of our business and financial data from Apex Industrial Technologies, LLC ('Apex'), a provider of automated point-of-use dispensing and supply chain technologies. The agreement included a transition arrangement which required us to assume responsibility for certain software that was licensed by Apex. The total consideration for the assets was $27.0, of which $12.0 was paid in cash in December 2015 in advance of the Asset Purchase Effective Date. The remaining $15.0 was payable in installments pursuant to an unsecured note. The first $5.0 installment was paid in December 2016, the second $5.0 was paid in June 2017, and the final installment of $5.0 was paid in December 2017. Interest on the unpaid principal balance of the note was due and payable on the last day of each calendar quarter at an annual rate of 0.56%. In 2015, the $15.0 note represented a non-cash investing and financing activity in our Consolidated Statements of Cash Flows, while the payments made in 2017, 2016, and 2015 are included in our Consolidated Statements of Cash Flows as net cash used in investing activities in 'Other'.

Note 11. Legal Contingencies

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

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Note 12. Sales by Product Line

The percentages of our sales by product line were as follows:

Type	Introduced		2017		2016		2015
Fasteners(1)	1967		35.6%		36.6%		38.3%
Tools	1993		10.1%		9.9%		9.5%
Cutting tools	1996		5.8%		5.7%		5.6%
Hydraulics & pneumatics	1996		6.8%		6.9%		7.2%
Material handling	1996		6.3%		6.4%		6.5%
Janitorial supplies	1996		7.6%		7.6%		7.5%
Electrical supplies	1997		4.9%		4.8%		4.7%
Welding supplies	1997		4.6%		4.6%		4.7%
Safety supplies(2)	1999		15.2%		14.9%		13.9%
Metals	2001		0.5%		0.5%		0.5%
Direct ship(3)	2004		0.5%		0.5%		0.4%
Office supplies	2010		0.1%		0.1%		0.1%
Other			2.0%		1.5%		1.1%
			100.0%		100.0%		100.0%

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

(2) The safety supplies product line has expanded, as a percentage of sales, in the last several years due to our industrial vending program.

(3) Direct ship represents a cross section of products from the remaining product lines. The items included here represent certain items with historically low gross profit margins which are shipped directly from our distribution channel to our customers, bypassing our branch network.

Note 13. Subsequent Events

We evaluated all subsequent event activity and concluded that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the Notes to Consolidated Financial Statements, with the exception of the dividend declaration and stock option activities disclosed in Note 5.

Fastenal Company and Subsidiaries

Notes to Consolidated Financial Statements—Continued

Note 14. Selected Quarterly Financial Data (Unaudited)

(Amounts in millions except per share information)

2017:	Net Sales				Gross Profit			Pre-tax Earnings			Net Earnings			Basic Net Earnings per Share		(1)	Diluted Net Earnings per Share		(1)
First quarter	$	1,047.7			518.0			210.9			134.2			0.46			0.46
Second quarter	1,121.5				558.5			235.4			148.9			0.52			0.52
Third quarter	1,132.8				555.9			226.0			143.1			0.50			0.50
Fourth quarter	1,088.5				531.2			200.8			152.4		(2)	0.53		(2)	0.53		(2)
Total	$	4,390.5			2,163.6			873.1			578.6		(3)	2.01		(3)	2.01		(3)

2016:	Net Sales				Gross Profit			Pre-tax Earnings			Net Earnings			Basic Net Earnings per Share		(1)	Diluted Net Earnings per Share		(1)
First quarter	$	986.7			491.5			199.9			126.2			0.44			0.44
Second quarter	1,014.3				501.6			207.8			131.5			0.46			0.45
Third quarter	1,013.1				499.8			201.2			126.9			0.44			0.44
Fourth quarter	947.9				471.9			180.8			114.8			0.40			0.40
Total	$	3,962.0			1,964.8			789.7			499.4			1.73			1.73

(1) Amounts may not foot due to rounding difference.

(2) Absent the impact of the Tax Act, our net earnings for the fourth quarter of 2017 would have been approximately $128.1, and our basic and diluted net earnings per share would have each been $0.45.

(3) Absent the impact of the Tax Act, our net earnings for 2017 would have been approximately $554.2, and our basic and diluted net earnings per share would have each been $1.92.

End of Notes to Consolidated Financial Statements