Item 1. FINANCIAL STATEMENTS

FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Amounts in millions except share information)

			(Unaudited)
Assets			September 30, 2023						December 31, 2022
Current assets:
Cash and cash equivalents			$	297.5					230.1
Trade accounts receivable, net of allowance for credit losses of $6.6 and $8.3, respectively			1,171.0						1,013.2
Inventories			1,513.8						1,708.0
Prepaid income taxes			15.3						8.1
Other current assets			150.0						165.4
Total current assets			3,147.6						3,124.8
Property and equipment, net			1,011.7						1,010.0
Operating lease right-of-use assets			274.0						243.0
Other assets			163.3						170.8
Total assets			$	4,596.6					4,548.6
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of debt			$	60.0					201.8
Accounts payable			275.1						255.0
Accrued expenses			235.8						241.1
Current portion of operating lease liabilities			97.0						91.9
Total current liabilities			667.9						789.8
Long-term debt			200.0						353.2
Operating lease liabilities			181.9						155.2
Deferred income taxes			79.3						83.7
Other long-term liabilities			0.9						3.5
Stockholders' equity:
Preferred stock: $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding			—						—
Common stock: $0.01 par value, 800,000,000 shares authorized, 571,404,311 and 570,811,674 shares issued and outstanding, respectively			5.7						5.7
Additional paid-in capital			24.6						3.6
Retained earnings			3,507.8						3,218.7
Accumulated other comprehensive loss			(71.5)						(64.8)
Total stockholders' equity			3,466.6						3,163.2
Total liabilities and stockholders' equity			$	4,596.6					4,548.6

See accompanying Notes to Condensed Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(Amounts in millions except earnings per share)

			(Unaudited)												(Unaudited)
			Nine Months Ended September 30,												Three Months Ended September 30,
			2023						2022						2023						2022
Net sales			$	5,588.1					5,285.0						$	1,845.9					1,802.4
Cost of sales			3,033.0						2,837.6						998.3						975.9
Gross profit			2,555.1						2,447.4						847.6						826.5
Operating and administrative expenses			1,380.2						1,326.7						460.9						447.3
Operating income			1,174.9						1,120.7						386.7						379.2
Interest income			1.8						0.4						0.8						0.2
Interest expense			(8.9)						(9.3)						(2.1)						(4.1)
Earnings before income taxes			1,167.8						1,111.8						385.4						375.3
Income tax expense			279.2						270.5						89.9						90.7
Net earnings			$	888.6					841.3						$	295.5					284.6
Basic net earnings per share			$	1.56					1.46						$	0.52					0.50
Diluted net earnings per share			$	1.55					1.46						$	0.52					0.50
Basic weighted average shares outstanding			571.1						574.7						571.4						573.0
Diluted weighted average shares outstanding			572.9						576.6						573.1						574.7

See accompanying Notes to Condensed Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Amounts in millions)

			(Unaudited)												(Unaudited)
			Nine Months Ended September 30,												Three Months Ended September 30,
			2023						2022						2023						2022
Net earnings			$	888.6					841.3						$	295.5					284.6
Other comprehensive loss, net of tax:
Foreign currency translation adjustments (net of tax of $0.0 in 2023 and 2022)			(6.7)						(56.4)						(14.6)						(32.7)
Comprehensive income			$	881.9					784.9						$	280.9					251.9

See accompanying Notes to Condensed Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity

(Amounts in millions except per share information)

			(Unaudited)												(Unaudited)
			Nine Months Ended September 30,												Three Months Ended September 30,
			2023						2022						2023						2022
Common stock
Balance at beginning of period			$	5.7					5.8						$	5.7					5.8
Balance at end of period			5.7						5.8						5.7						5.8
Additional paid-in capital
Balance at beginning of period			3.6						96.2						19.9						55.7
Stock options exercised			15.4						7.8						2.9						2.0
Purchases of common stock			—						(105.6)						—						(56.3)
Stock-based compensation			5.6						4.4						1.8						1.4
Balance at end of period			24.6						2.8						24.6						2.8
Retained earnings
Balance at beginning of period			3,218.7						2,970.9						3,412.1						3,171.6
Net earnings			888.6						841.3						295.5						284.6
Cash dividends paid			(599.5)						(534.4)						(199.8)						(177.5)
Translation adjustment upon merger of foreign subsidiary			—						0.9						—						—
Purchases of common stock			—						(39.0)						—						(39.0)
Balance at end of period			3,507.8						3,239.7						3,507.8						3,239.7
Accumulated other comprehensive loss
Balance at beginning of period			(64.8)						(30.7)						(56.9)						(54.4)
Other comprehensive loss			(6.7)						(56.4)						(14.6)						(32.7)
Balance at end of period			(71.5)						(87.1)						(71.5)						(87.1)
Total stockholders' equity			$	3,466.6					3,161.2						$	3,466.6					3,161.2
Cash dividends paid per share of common stock			$	1.05					0.93						$	0.35					0.31

See accompanying Notes to Condensed Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Amounts in millions)

			(Unaudited)												(Unaudited)
			Nine Months Ended September 30,												Three Months Ended September 30,
			2023						2022						2023						2022
Cash flows from operating activities:
Net earnings			$	888.6					841.3						$	295.5					284.6
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of property and equipment			126.1						123.8						42.1						41.4
(Gain) loss on sale of property and equipment			(2.7)						1.2						(1.5)						(1.1)
Bad debt expense (recoveries)			1.4						(0.9)						1.2						(1.3)
Deferred income taxes			(4.4)						4.3						(5.0)						3.8
Stock-based compensation			5.6						4.4						1.8						1.4
Amortization of intangible assets			8.0						8.1						2.6						2.7
Changes in operating assets and liabilities:
Trade accounts receivable			(159.5)						(222.9)						(4.5)						(13.6)
Inventories			191.7						(176.9)						46.1						(26.3)
Other current assets			15.4						15.9						(8.3)						(43.0)
Accounts payable			21.7						44.1						11.8						(14.6)
Accrued expenses			(4.7)						(15.9)						6.6						13.7
Income taxes			(7.2)						5.3						(0.6)						3.3
Other			(1.3)						7.3						0.3						6.9
Net cash provided by operating activities			1,078.7						639.1						388.1						257.9
Cash flows from investing activities:
Purchases of property and equipment			(136.5)						(131.0)						(46.9)						(48.0)
Proceeds from sale of property and equipment			8.8						10.1						4.0						3.6
Other			(0.5)						(0.7)						(0.1)						(0.1)
Net cash used in investing activities			(128.2)						(121.6)						(43.0)						(44.5)
Cash flows from financing activities:
Proceeds from debt obligations			790.0						1,390.0						155.0						695.0
Payments against debt obligations			(1,085.0)						(1,225.0)						(245.0)						(645.0)
Proceeds from exercise of stock options			15.4						7.8						2.9						2.0
Purchases of common stock			—						(144.6)						—						(95.3)
Cash dividends paid			(599.5)						(534.4)						(199.8)						(177.5)
Net cash used in financing activities			(879.1)						(506.2)						(286.9)						(220.8)
Effect of exchange rate changes on cash and cash equivalents			(4.0)						(16.0)						(4.3)						(9.0)
Net increase (decrease) in cash and cash equivalents			67.4						(4.7)						53.9						(16.4)
Cash and cash equivalents at beginning of period			230.1						236.2						243.6						247.9
Cash and cash equivalents at end of period			$	297.5					231.5						$	297.5					231.5
Supplemental information:
Cash paid for interest			$	10.3					9.2						$	2.1					4.2
Net cash paid for income taxes			$	288.0					257.3						$	94.3					81.9
Leased assets obtained in exchange for new operating lease liabilities			$	96.3					74.0						$	32.0					18.4

See accompanying Notes to Condensed Consolidated Financial Statements.

FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

September 30, 2023 and 2022

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Fastenal Company and subsidiaries (collectively referred to as 'the company', 'Fastenal', or by terms such as 'we', 'our', or 'us') have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. They do not include all information and footnotes required by U.S. GAAP for complete financial statements. However, except as described herein, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in our consolidated financial statements as of and for the year ended December 31, 2022. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Recently Issued Accounting Pronouncements

We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements and do not believe that there are any other new pronouncements that have been issued that might have a material impact on our financial position or results of operations.

(2) Revenue

Revenue Recognition

Net sales include products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. All revenue is recognized when or as we satisfy our performance obligations under the contract. We recognize revenue by transferring control of the promised products to the customer, with the majority of revenue recognized at the point in time the customer obtains control of the products. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. We estimate product returns based on historical return rates. Using probability assessments, we estimate sales incentives expected to be paid over the term of the contract. The majority of our contracts have a single performance obligation and are short term in nature. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Revenues are attributable to countries based on the selling location from which the sale occurred.

Disaggregation of Revenue

Our revenues related to the following geographic areas were as follows for the periods ended September 30:

			Nine-month Period												Three-month Period
			2023						2022						2023						2022
United States			$	4,675.0					4,445.1						$	1,544.6					1,516.7
% of revenues			83.7		%				84.1		%				83.7		%				84.1		%
Canada and Mexico			744.5						666.5						245.7						228.1
% of revenues			13.3		%				12.6		%				13.3		%				12.7		%
North America			5,419.5						5,111.6						1,790.3						1,744.8
% of revenues			97.0		%				96.7		%				97.0		%				96.8		%
All other foreign countries			168.6						173.4						55.6						57.6
% of revenues			3.0		%				3.3		%				3.0		%				3.2		%
Total revenues			$	5,588.1					5,285.0						$	1,845.9					1,802.4

FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

September 30, 2023 and 2022

(Unaudited)

The percentages of our sales by end market were as follows for the periods ended September 30:

			Nine-month Period												Three-month Period
			2023						2022						2023						2022
Manufacturing			74.6		%				72.0		%				74.3		%				72.9		%
Non-residential construction			9.2		%				10.4		%				9.1		%				10.2		%
Other			16.2		%				17.6		%				16.6		%				16.9		%
			100.0		%				100.0		%				100.0		%				100.0		%

The percentages of our sales by product line were as follows for the periods ended September 30:

						Nine-month Period												Three-month Period
Type			Introduced			2023						2022						2023						2022
Fasteners (1)			1967			32.8		%				34.3		%				32.1		%				34.1		%
Tools			1993			8.5		%				8.3		%				8.5		%				8.4		%
Cutting tools			1996			5.3		%				5.0		%				5.2		%				5.0		%
Hydraulics & pneumatics			1996			6.7		%				6.6		%				6.7		%				6.6		%
Material handling			1996			5.6		%				5.7		%				5.6		%				5.6		%
Janitorial supplies			1996			8.3		%				8.0		%				8.5		%				8.1		%
Electrical supplies			1997			4.6		%				4.4		%				4.6		%				4.5		%
Welding supplies			1997			4.1		%				3.8		%				4.0		%				3.9		%
Safety supplies			1999			20.8		%				20.6		%				21.4		%				20.5		%
Other						3.3		%				3.3		%				3.4		%				3.3		%
						100.0		%				100.0		%				100.0		%				100.0		%

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

(3) Stockholders' Equity

Dividends

On October 11, 2023, our board of directors declared a quarterly dividend of $0.35 per share of common stock to be paid in cash on November 24, 2023 to shareholders of record at the close of business on October 26, 2023.

The following table presents the cash dividends either paid previously or declared by our board of directors for future payment on a per share basis:

			2023						2022
First quarter			$	0.35					$	0.31
Second quarter			0.35						0.31
Third quarter			0.35						0.31
Fourth quarter			0.35						0.31
Total			$	1.40					$	1.24

FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

September 30, 2023 and 2022

(Unaudited)

Stock Options

The following tables summarize the details of options granted under our stock option plans that were outstanding as of September 30, 2023, 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 Price						Closing Stock Price on Date of Grant						September 30, 2023
Date of Grant												Options Outstanding						Options Exercisable
January 3, 2023			1,071,943						$	48.00					$	47.400					1,023,837						70,562
January 3, 2022			713,438						$	62.00					$	61.980					630,718						53,355
January 4, 2021			741,510						$	48.00					$	47.650					623,549						228,275
January 2, 2020			902,263						$	38.00					$	37.230					709,736						361,582
January 2, 2019			1,316,924						$	26.00					$	25.705					836,512						520,618
January 2, 2018			1,087,936						$	27.50					$	27.270					614,407						491,475
January 3, 2017			1,529,578						$	23.50					$	23.475					615,307						515,809
April 19, 2016			1,690,880						$	23.00					$	22.870					401,641						343,901
April 21, 2015			1,786,440						$	21.00					$	20.630					189,501						189,501
Total			10,840,912																		5,645,208						2,775,078

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, 2023			4.0		%				5.00						2.6		%				29.58		%				$	11.62
January 3, 2022			1.3		%				5.00						1.7		%				28.52		%				$	13.68
January 4, 2021			0.4		%				5.00						2.0		%				29.17		%				$	9.57
January 2, 2020			1.7		%				5.00						2.4		%				25.70		%				$	6.81
January 2, 2019			2.5		%				5.00						2.9		%				23.96		%				$	4.40
January 2, 2018			2.2		%				5.00						2.3		%				23.45		%				$	5.02
January 3, 2017			1.9		%				5.00						2.6		%				24.49		%				$	4.20
April 19, 2016			1.3		%				5.00						2.6		%				26.34		%				$	4.09
April 21, 2015			1.3		%				5.00						2.7		%				26.84		%				$	3.68

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 10 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, net of forfeitures, 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.

Compensation expense equal to the grant date fair value is recognized for all of these awards over the vesting period. The stock-based compensation expense for the nine-month periods ended September 30, 2023 and 2022 was $5.6 and $4.4, respectively, while the third quarter of 2023 and 2022 was $1.8 and $1.4, respectively. Unrecognized stock-based compensation expense related to outstanding unvested stock options as of September 30, 2023 was $18.6 and is expected to be recognized over a weighted average period of 4.31 years. Any future changes in estimated forfeitures will impact this amount.

FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

September 30, 2023 and 2022

(Unaudited)

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 per share calculation because they were anti-dilutive:

			Nine-month Period												Three-month Period
Reconciliation			2023						2022						2023						2022
Basic weighted average shares outstanding			571,145,110						574,667,188						571,368,442						573,019,381
Weighted shares assumed upon exercise of stock options			1,726,310						1,912,011						1,731,267						1,724,550
Diluted weighted average shares outstanding			572,871,420						576,579,199						573,099,709						574,743,931

			Nine-month Period												Three-month Period
Summary of Anti-dilutive Options Excluded			2023						2022						2023						2022
Options to purchase shares of common stock			1,831,551						1,343,160						1,598,463						1,340,567
Weighted average exercise prices of options			$	53.05					55.23						$	53.65					55.22

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.

(4) Income Taxes

We file income tax returns in the United States federal jurisdiction, all states, and various local and foreign jurisdictions. We are no longer subject to income tax examinations by taxing authorities for taxable years before 2020 in the case of United States federal examinations, and with limited exception, before 2017 in the case of foreign, state, and local examinations. During the third quarter of 2023, the liability for unrecognized tax benefits decreased $3.9 due to the lapse of statute of limitations, of which, $3.8 impacted the effective tax rate. There were no material changes in unrecognized tax benefits during the first half of 2023.

(5) Operating Leases

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 $109.0. We believe the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remote.

FASTENAL COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

September 30, 2023 and 2022

(Unaudited)

(6) Debt Commitments

Credit Facility, Notes Payable, and Commitments

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

			Average Interest Rate at September 30, 2023												Debt Outstanding
						Maturity Date						September 30, 2023						December 31, 2022
Unsecured revolving credit facility			6.35		%				September 28, 2027						$	—					225.0
Senior unsecured promissory notes payable, Series C			3.22		%				March 1, 2024						60.0						60.0
Senior unsecured promissory notes payable, Series D			2.66		%				May 15, 2025						75.0						75.0
Senior unsecured promissory notes payable, Series E			2.72		%				May 15, 2027						50.0						50.0
Senior unsecured promissory notes payable, Series F			1.69		%				June 24, 2023						—						70.0
Senior unsecured promissory notes payable, Series G			2.13		%				June 24, 2026						25.0						25.0
Senior unsecured promissory notes payable, Series H			2.50		%				June 24, 2030						50.0						50.0
Total															260.0						555.0
Less: Current portion of debt															(60.0)						(201.8)
Long-term debt															$	200.0					353.2
Outstanding letters of credit under unsecured revolving credit facility - contingent obligation															$	32.7					36.3

Unsecured Revolving Credit Facility

We have an $835.0 committed unsecured revolving credit facility (Credit Facility) with an uncommitted accordion option to increase the aggregate revolving commitment by an additional $365.0 for a total amount of $1,200.0. The Credit Facility includes a committed letter of credit subfacility of $55.0. Any borrowings outstanding under the Credit Facility for which we have the ability and intent to pay using cash within the next 12 months will be classified 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 Daily Simple SOFR plus a 0.10% spread adjustment plus 0.95%. 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

We have issued senior unsecured promissory notes under our master note agreement (the Master Note Agreement) in the aggregate principal amount of $260.0 as of September 30, 2023. Our aggregate borrowing capacity under the Master Note Agreement is $900.0; however, none of the institutional investors party to that agreement are committed to purchase notes thereunder. There is no amortization of these notes prior to their maturity date and interest is payable quarterly. The notes currently issued under our Master Note Agreement, including the maturity date and fixed interest rate per annum of each series of note, are contained in the table above. The Master Note Agreement contains certain financial and other covenants and we are currently in compliance with these covenants.

(7) Legal Contingencies

The nature of our potential exposure to legal contingencies is described in our 2022 annual report on Form 10-K in Note 10 of the Notes to Consolidated Financial Statements. As of September 30, 2023, 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 Condensed Consolidated Financial Statements

(Amounts in millions except share and per share information and where otherwise noted)

September 30, 2023 and 2022

(Unaudited)

(8) Subsequent Events

We evaluated all subsequent event activity and concluded that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the Notes to Condensed Consolidated Financial Statements, with the exception of the dividend declaration disclosed in Note 3 'Stockholders' Equity'.