What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-02-07 compared with 2022-02-07 · 158 added, 149 removed, 351 unchanged (47% of the section changed)

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We opened our first branch in 1967 in Winona, Minnesota, a city with a population today of approximately 26,000.

We began with a marketing strategy of supplying threaded fasteners to customers through a branch network in small, medium-sized, and, in subsequent years, large cities.

Over time, that mandate has expanded to a broader range of industrial and construction supplies spanning more than nine major product lines.

How we engage with our customers has similarly evolved to include Onsites, Fastenal Managed Inventory and eCommerce.

We began with a marketing strategy of supplying threaded fasteners to customers through a branch network in small, medium, and, in subsequent years, large cities.

Over time, how and where we engage our customers has expanded and evolved.

Today we sell a broader range of industrial and construction supplies spanning more than nine major product lines through a global network of in-market locations utilizing diverse technologies such as vending devices, bin stock devices, and eCommerce.

The large majority of our transactions are business-to-business.

We provide additional descriptions of our product lines and market channels later in this document.

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

At the end of 2022, we had 3,306 in-market locations (defined in the table below) in 25 countries supported by 15 distribution centers in North America (12 in the United States, two in Canada, and one in Mexico), and one in Europe, and we employed 22,386 people.

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Branches and Onsites exist very close to our customers, usually within miles in the case of the former and most often within or immediately proximate to our customers' physical locations in the case of the latter, and together constitute our 'in-market' network.

Many of our customers engage with us through eCommerce, but most of our sales through this channel are with customers that use eCommerce to supplement our service through our other channels.

The following table shows our consolidated net sales for each of the last ten fiscal years;

the number of branch, Onsite, and total in-market locations at the end of each of the last ten fiscal years;

Many of our customers engage with us through eCommerce, but in most cases these customers are utilizing eCommerce to supplement our service through our other channels.

The following table shows, as of the end of each of the last 10 fiscal years, our consolidated net sales;

the number of branch, Onsite, and total in-market locations;

their respective sales, as well as the average monthly sales per location that were generated from our branch and Onsite locations;

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$ 4,161.6 3,726.2 3,587.1 3,660.1 3,625.8 3,399.6 3,198.1 3,281.8 3,225.3 —

Average sales per

branch location (2)

Average monthly sales

per branch location (3)

$ 199.5 163.6 145.2 140.5 131.1 116.0 104.0 104.0 101.0 —

Onsite locations 1,623 1,416 1,265 1,114 894 605 401 264 214 —

1,416 1,265 1,114 894 605 401 264 214

Onsite revenue (2)

$ 2,465.5 1,898.0 1,485.6 1,391.7 1,081.7 770.2 569.2 454.3 387.7 —

Average sales per

Onsite location (2)

Average monthly sales per Onsite location (3)

$ 135.2 118.0 104.1 115.5 120.3 127.6 142.7 158.4 157.6 —

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3,306 3,209 3,268 3,228 3,121 2,988 2,904 2,886 2,851 2,687

(1) Revenues attributable to our traditional and international branch locations, and our Onsite locations, respectively.

(2) Average sales per month considers the average active base of branches and Onsites, respectively, in the given year, factoring in the beginning and ending location count, divided by total revenues attributable to our branch and Onsite locations, further divided by twelve months, respectively.

Onsite locations have existed since 1992;

however, we did not specifically track their number until we identified our Onsite program as a growth driver in 2014.

Therefore, Onsite, branch, and other revenue, and average monthly sales per location are intentionally omitted for 2013.

Revenues attributable to our traditional and international branch locations (both of which are defined below), and our Onsite locations, respectively.

Average sales per month considers the average active base of branches and Onsites, respectively, in the given year, factoring in the beginning and ending location count, divided by total revenues attributable to our branch and Onsite locations, further divided by 12 months, respectively.

This information is presented in thousands.

(3) Onsite information prior to 2014 is intentionally omitted.

While such locations have existed since 1992, we did not specifically track their number until we identified our Onsite program as a growth driver in 2014.

This portion of revenue is generated outside of our traditional in-market location presence, examples of which include revenues arising from our custom in-house manufacturing, industrial services, leased locker arrangements, and other non-traditional sources of revenue.

The significant increase in other revenue in 2020 largely reflects the onset of the COVID-19 pandemic in that period and the substantial sales of pandemic-related products that we direct-shipped (versus selling through our in-market locations) as a means of delivering critical supplies more quickly.

The decline in other revenue in 2021 largely reflects the absence of such direct-shipped revenue as the supply chain for such products stabilized.

In 2020, this included the effects of COVID-19, one response to which was substantial sales of pandemic-related products that were direct-shipped (versus sold through our in-market locations) as a means of delivering critical supplies more quickly.

'In-market locat ions' is defined as the sum of the total number of branch locations and the total number of Onsite locations.

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Traditional branches were entirely U.S.-based until 1994, when we opened our first location in Canada.

At the end of 2021, we had 1,649 traditional branches in the United States and Canada, and they represented 56.8% of total sales.

At the end of 2022, we had 1,538 traditional branches in the United States and Canada, and they represented 55.0% of net sales.

Traditional branches are also differentiated by their operating styles.

Certain locations are Customer Service Branches (CSBs), which tend to feature a showroom, regular hours during which it is open to the public, and our standard stocking model of products designed for contractors.

Certain locations are Customer Service Branches (CSBs), which tend to feature a showroom, regular hours during which they are open to the public, and our standard stocking model of products designed for contractors.

CSBs are similar in function to a hardware store and they often conduct some business with non-account or retail-like customers.

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At the end of 2022, we had 145 international branches operating outside the U.S.

and Canada, and they represented 5.2% of total sales.

and Canada, and they represented 4.6% of net sales.

Traditional and international branches sell to multiple customers.

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In many cases, we are shifting revenue with the customer from an existing branch location, though we are beginning to see more new customer opportunities arise as a result of our Onsite capabilities.

The model is best suited to larger companies, though we believe we can provide a higher degree of service at a lower level of revenue than most of our competitors.

It has been our experience that sales mix at our Onsite locations produces a lower gross profit percentage than at our branch locations, but we gain revenue with the customer and our cost to serve is lower.

We have identified over 15,000 manufacturing and construction customer locations in the United States with potential to implement the Onsite service model.

The model is best suited for larger companies, though we believe we can provide a higher degree of service at a lower level of revenue than most of our competitors.

It has been our experience that the sales mix at our Onsite locations produces a lower gross profit percentage than at our branch locations, but we gain revenue with the customer and our cost to serve is lower.

We have identified over 12,000 manufacturing and construction customer locations in North America with potential to implement the Onsite service model.

These include customers with which we have an existing national account relationship today, and potential customers we are aware of due to our local market presence with which we do not have a meaningful relationship today.

However, as awareness of our capabilities has grown, we have identified additional Onsite

potential with certain agencies of state, provincial and local government customers and academia.

However, as awareness of our capabilities has grown, we have identified additional Onsite potential with certain agencies of state, provincial, and local government customers, and academia.

We also believe as we follow our existing national account customers outside the United States, our market potential for Onsite solutions will continue to expand.

The international opportunity is substantial, but our speed is limited by the relatively underdeveloped infrastructure in comparison to the United States.

The international opportunity is substantial, but our speed is limited by our relatively underdeveloped infrastructure in comparison to the United States.

We expect revenues from Onsite arrangements to increase meaningfully over time.

We had 1,416 Onsite locations as of December 31, 2021, and they represented 31.6% of total sales, and signed 274, 223, and 362 new O nsite locations in 2021, 2020, and 2019, respectively.

We had 1,623 Onsite locations as of December 31, 2022, which represented 35.3% of net sales, and signed 356, 274, and 223 new O nsite locations (referred to herein as signings) in 2022, 2021, and 2020, respectively.

We believe the marketplace can support 375 to 400 new Onsite signings annually.

We did not achieve that level of signings in 2021, 2020, or 2019 as certain market variables, including the ongoing COVID-19 pandemic, supply chain constraints, and labor shortages created challenges in our ability to engage with key decision makers and caused many of our customers to focus on short-term crisis management rather than long-term strategic planning.

These conditions remain in force at the beginning of 2022.

It is our intention to sign 375 to 400 new Onsites in 2022, though achieving this may require some relief in the factors described above.

We did not achieve that level of signings in 2022, though we increased our signings substantially from the prior year and were just below our pre-pandemic signings in 2019.

We also did not achieve that level of signings in 2021 or 2020, which we believe was due to certain market variables, including the ongoing COVID-19 pandemic, supply chain constraints, and labor shortages having created challenges in our ability to engage with key decision makers and caused many of our customers to focus on short-term crisis management rather than long-term strategic planning.

Our goal for Onsite signings in 2023 is 375 to 400.

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

North America Outside North America

United States Canada Mexico & Caribbean (1)

Subtotal Central & South America (2)

United States (1)

Canada Mexico Subtotal Central & South America (2)

Subtotal Total

In-Market Locations - 12/31/20 (5)

2,752 260 140 3,152 20 31 65 116 3,268

Starting Branches 1,697 179 58 1,934 5 19 45 69 2,003

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Ending Branches (5)

1,484 173 63 1,720 5 20 48 73 1,793

Starting Onsites 1,055 81 82 1,218 15 12 20 47 1,265

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Ending Onsites (5)

1,184 89 89 1,362 15 17 22 54 1,416

In-Market Locations - 12/31/21 (5)

2,668 262 152 3,082 20 37 70 127 3,209

Starting Branches 1,484 173 63 1,720 5 20 48 73 1,793

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In-Market Locations - 12/31/22 2,707 276 177 3,160 21 45 80 146 3,306

(1) Mexico, Puerto Rico, and Dominican Republic

(2) Panama, Brazil, and Chile

(3) Singapore, China, Malaysia, and Thailand

(4) The Netherlands, Hungary, United Kingdom, Germany, Czech Republic, Italy, Romania, Sweden, Poland, Austria, Switzerland, Ireland, Spain, France, and Belgium

Includes the United States, the Dominican Republic, Guam, and Puerto Rico.

Includes Panama, Brazil, and Chile.

Includes Singapore, China, Malaysia, and Thailand.

Includes the Netherlands, Hungary, the United Kingdom, Germany, the Czech Republic, Italy, Romania, Sweden, Poland, Austria, Switzerland, Ireland, Spain, France, and Belgium.

The United States includes the Dominican Republic, Guam, and Puerto Rico which were previously grouped with other geographical regions.

Prior period figures in the above table may differ slightly from those previously disclosed due to this minor change in reporting.

The net impact of non-in-market locations or Onsite locations converted to branches, branches converted to Onsite locations or non-in-market locations, and closures of branches or Onsite locations.

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This ability to increase our operating profit margin is influenced by:

(1) general growth based on end market expansion and/or market share gains, (2) the age of the in-market location (new locations tend to be less profitable due to start-up costs and, in the case of a traditional branch, the time necessary to generate a customer base), and/or (3) rationalization actions, as in the past several years we have seen a net decline in our traditional

There are many reasons why local or regional management might decide to close a location.

Key customers may have migrated to a different part of the market, factories may have closed, our own supply chain capabilities in a market may have evolved to allow us to service some areas with fewer traditional branches, and/or our customers may have transitioned to our Onsite model.

An Onsite may also close because local or regional management determines that the business at the location is unlikely to scale sufficiently to justify our being on premise, in which case the relationship often reverts to being managed in a local traditional branch.

The paths to higher operating profit margins are slightly different in a traditional branch versus an Onsite location, as the former will tend to have more fixed costs to leverage while the latter will tend to have a smaller fixed cost burden but have greater leverage of its employee-related expenses.

An Onsite location may also close because local or regional management determines that the business at the location is unlikely to scale sufficiently to justify our being on premise, in which case the relationship often reverts to being managed in a local traditional branch.

smaller fixed cost burden but have greater leverage of its employee-related expenses.

In the short term, the Onsite program can hurt the profitability of our existing branch network as it can pull established revenue away from an existing branch even as its fixed expenses are largely unchanged.

We utilize additional types of selling locations within our network, but these tend to be more specialized in nature and relatively few in number, comprising less tha n five percent of our total selling locations.

We remain committed to a large, robust service network, including traditional branches;

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In any given year, it is difficult to predict whether our total branch count will rise or fall.

How ever, with the growth we anticipate in Onsite locations, we believe our total in-market locations will increase over time.

How eve r, with the growth we anticipate in Onsite locations, we believe our total in-market locations will increase over time.

Our Business Tools

Fastenal Managed Inventory (FMI ® )

Over time, we have invested in and developed various technologies that allow us to put physical product closer to the point of use in a customer location, increase the visibility of a customer's supply chain (to the customer as well our personnel), and/or improve the ability to monitor or control usage.

Over time, we have invested in and developed various technologies that allow us to put physical product closer to the point of use in a customer location, increase the visibility of a customer's supply chain (to the customer as well as our personnel), and/or improve the ability to monitor or control usage.

While there are isolated exceptions, these technologies are not themselves channels to the market but rather are utilized by our branch and Onsite channels to enhance service to our customers.

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FMI programs tend to generate a higher frequency of business transactions and, coupled with our fully integrated distribution network, foster a strong relationship with customers.

Bin stock (FASTStock ℠ and FASTBin ℠ ) programs, where product is held in bins in a customer facility, is similar to our vending business in that it involves moving product closer to the point of customer use within their facilities.

Bin stock (FASTStock ℠ and FASTBin ® ) programs, where product is held in bins in a customer facility, are similar to our vending business in that it involves moving product closer to the point of customer use within their facilities.

Such programs have existed in the industrial supply industry for a considerable time, with open bins being clustered in a racking system, each of which holds original equipment manufacturing (OEM) fasteners, MRO fasteners, and/or non-fastener products that are consumed in the customers' operations.

Historically, these bins were simply plastic and metal containers that held product and were visually inspected by our customers or Fastenal personnel to determine replenishment need.

These bins in some cases are organized and labeled into customer plan-o-grams, which we call FASTStock and allow for the scanning of product when product is at a minimum desired level.

These bins in some cases are organized and labeled into customer digital plan-o-grams, which we call FASTStock and allow for the scanning of product when product is at a minimum desired level.

However, in 2019 we introduced our FASTBin technology.

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These technologies come in three forms:

(1) Scales utilize a high-precision weight sensor system to measure the exact quantity on hand in real time, automatically sending an order to Fastenal when inventory hits an established minimum.

(2) Infrared uses infrared sensors lining individual bins to provide real-time visibility of approximate quantity and inventory values, automatically sending an order to Fastenal when inventory hits an established minimum threshold.

(3) RFID is a Kanban system that utilizes RFID tags so that when an empty bin is removed from the rack and placed in a replenishment zone (also part of the same racking system) an automatic refill order is generated.

(1) scales that utilize a high-precision weight sensor system to measure the exact quantity on hand in real time, notifying Fastenal to replenish when inventory hits an established minimum;

(2) infrared that uses infrared sensors lining individual bins to provide real-time visibility of approximate quantity and inventory values, notifying Fastenal to replenish when inventory hits an established minimum threshold;

and (3) RFID, which is a Kanban system that utilizes RFID tags so that when an empty bin is removed from the rack and placed in a replenishment zone (also part of the same racking system) and a notification is sent to Fastenal to refill the order.

These technologies provide superior monitoring capabilities and immediate visibility to consumption changes, allowing for a lean supply chain, reducing risk of stock-outs, and providing a more efficient labor model for both the customer and the supplier.

Industrial vending (FASTVend ® ) was introduced in 2008 to provide our customers with improved product monitoring and control.

Benefits include reduced consumption, reduced purchase orders, reduced product handling, and 24-hour product availability, and we believe our company has a market advantage by virtue of our extensive in-market network of inventory and local personnel.

Benefits include reduced consumption, reduced purchase orders, reduced product handling, and 24-hour product availability.

We believe our company has a market advantage by virtue of our extensive in-market network of inventory and local personnel.

For these reasons, the initiative began to gain significant traction in 2011, and we finished 2022 with approximately 106,000 FASTVend non-weighted devices in the field, which excludes approximately 6,500 non-weighted vending devices that are part of a leased locker program with a specific retail customer.

We believe industrial vending has proven its effectiveness in strengthening our relationships with customers and helped to streamline the supply chain where it has been utilized.

We also believe there remains considerable room to grow our current installed base before it begins to approach the number of units we believe the market can support.

We also believe there remains considerable room to grow our current installed base of devices before it begins to approach the number of units we believe the market can support.

We estimate the market could support as many as 1.7 million vending units and, as a result, we anticipate continued growth in installed devices over time.

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combined, these comprise approximately 67% of our installed base of devices.

These are either configurable or are available in multiple

configurations to accommodate the various sizes and forms of products that will be dispensed to match the unique needs of our customers.

These are either configurable or are available in multiple configurations to accommodate the various sizes and forms of products that will be dispensed to match the unique needs of our customers.

Target monthly revenues per device typically range from under $1,000 to in excess of $3,000, with our flagship FAST 5000 device having a targeted monthly throughput of $2,000.

Beginning in 2020, we began to report 'Weighted FMI Device' signings and installations, which is the combined activity of FASTBin and FASTVend converted into a comparable unit of measure, or 'machine equivalent unit' (MEU).

In 2020, we began to report 'Weighted FMI Device' signings and installations, which is the combined activity of FASTBin and FASTVend converted into a comparable unit of measure, or 'machine equivalent unit' (MEU).

This conversion takes the targeted monthly throughput of each FMI device signed or installed and compares it to the $2,000 target monthly throughput of our FAST 5000 vending device.

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In 2023, we anticipate weighted FMI device signings to be in a range of 23,000 to 25,000 MEUs.

Similar to Onsite, we believe the marketplace can support at least this level of signings annually, though we did not achieve it in 2021 as variables including the ongoing COVID-19 pandemic, supply chain constraints, and labor shortages created challenges in our ability to engage with key decision makers and caused many of our customers to focus on short-term crisis management rather than long-term strategic planning.

These conditions remain in force at the beginning of 2022.

We acknowledge that achieving this may require some relief in the factors that negatively impacted our efforts in the preceding two years.

Similar to Onsite, we did not achieve that level of signings in 2022, though we increased our signings substantially from the prior year and were just below our pre-pandemic signings in 2019.

The table below summarizes the signings and installations of, and sales through, our FMI devices.

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1) Transactional.

Our transactional, or eCommerce, platforms (web verticals or integrated catalogs) provides a means for our customers to effectively and efficiently procure MRO and unplanned spend.

Our transactional, or eCommerce, platforms (web verticals or integrated catalogs) provide a means for our customers to effectively and efficiently procure MRO and unplanned spend.

One of our eCommerce solutions, Fastenal EXPRESS, guides our customers to products which are locally stocked, capitalizing on our existing location footprint, in order to provide same-day or early next-day service for online orders.

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2) Digital Visibility.

Certain of our digital capabilities are intended to produce operational efficiencies for our customers and ourselves and/or to deliver strategic value by illuminating customer supply chains.

Certain of our digital capabilities are intended to produce operational efficiencies for our customers and ourselves and/or to deliver strategic value by illuminating customer supply chain operations.

For instance, we have developed, and continue to develop, 'Mobility' applications, one example of which is our Vending App, which provides a number of benefits.

It provides easy, real-time information pertaining to a customer's local inventory position within their point-of-use devices.

It incorporates customer usage data to recommend optimized parts and quantity for specific devices, improving customer inventories while reducing the risk of stock-outs.

It incorporates customer usage data to recommend optimized parts and quantity for specific devices, which improves customer inventories while reducing the risk of stock-outs.

Moving our fulfillment process from a vending device-based keypad function to a tablet or scanning interaction improves the restock process (reduced risk of product outages), reducing time consumed (greater efficiency) while improving accuracy (improved quality assurance).

We will continue to build out our suite of Mobility applications.

We also have 'eProcurement Solutions'.

Electronic Data Interchange (EDI), is the connectivity between our system and our customers' procurement systems – whether a direct integration into their Enterprise Resource Planning (ERP) system or through a third-party procurement network or marketplace.

These solutions provide system-to-system exchange of electronic

procurement documents (such as purchase orders, advanced shipping notices, and invoices for direct and indirect spend).

These solutions provide a system-to-system exchange of electronic procurement documents (such as purchase orders, advanced shipping notices, and invoices for direct and indirect spend).

Our eProcurement Solutions provide a bridge between our FMI replenishment activity and our customers' procurement systems – creating an efficient, accurate and streamlined procure-to-pay (P2P) process.

'FAST 360°' acts as the bridge between our FMI footprint and a customer's view into our managed service model.

'FAST 360°' acts as the bridge between our FMI footprint and

a customer's view into our managed service model.

FAST 360° surfaces data around these managed services as one central source of information as we manage our customers' OEM and MRO product lines.

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3) Analytics.

We provide solution-based digital platforms (e.g., web verticals or integrated catalogs) which leverages our existing strategic environment by creating a means of migrating online spend offline, which illuminates our supply chain capabilities.

We provide solutions-based digital platforms (e.g., web verticals or integrated catalogs) which leverage our existing strategic environment by creating a means of migrating online spend offline, which illuminates our supply chain capabilities.

This is marketed under the 'FAST 360° Analytics' label, as it is an enterprise-centric extension of the digital visibility capabilities of FAST 360°.

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Digital Footprint

We view our collective Digital Footprint as comprised of sales through FMI (FASTStock, FASTBin, and FASTVend) plus that proportion of our eCommerce sales that do not represent billings of FMI services.

Our d igital products and services are comprised of sales through FMI (FASTStock, FASTBin, and FASTVend) plus that proportion of our eCommerce sale s that do not represent billings of FMI services (collectively, our Digital Footprint).

We believe the data that is created through our digital capabilities enhances product visibility, traceability, and control that reduces risk in operations and creates ordering and fulfillment efficiencies for both ourselves and our customers.

As a result, we believe our opportunity to grow our business will be enhanced through the continued development and expansion of our digital capabilities.

Our Digital Footprint represented 42.7% of sales in 2021, the first year in which we explicitly measured it.

Our Digital Footprint represented 49.3% of sales in 2022.

We believe our integrated physical and virtual model, when paired with our national (and increasingly international) scope, represents a unique capability in industrial distribution when compared to eCommerce as an independent sales channel.

We expect to continue to build out and develop our digital solutions over time.

Our greatest opportunity lies with the deployment of efficient and effective supply chain programs.

We are focused on addressing the four key components of people, products, processes, and technology to support this model.

We believe our global channels to market and business tools, including those that we consider to be growth drivers (Onsites, international expansion, FMI, and digital solutions), represent alternative means to address the requirements of certain customer groups.

They get us closer to the customer and to where the product is actually consumed.

These means get us closer to the customer and to where the product is actually consumed.

This is consistent with our strategy and offers significant value by providing differentiated and 'sticky' service.

Combined with ongoing strategic investments in end market initiatives as well as selling (in-market and otherwise) and non-selling (engineering, product specialists, manufacturing, etc.) employees, we offer a range of capabilities that is difficult for large and small competitors to replicate.

Combined with ongoing strategic investments in end market initiatives as well as selling (in-market and otherwise) and non-selling (engineering, product specialists, manufacturing, etc.) employees, we offer a range of capabilities that are difficult for large and small competitors to replicate.

Distribution Network

We operate fifteen regional distribution centers in North America.

Twelve are in the United States – Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, Utah, North Carolina, Kansas, and Mississippi – and three are outside the United States – Ontario, Canada;

We operate 15 regional distribution centers in North America;

12 of which are in the United States – Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, Utah, North Carolina, Kansas, and Mississippi – and three are outside the United States – Ontario, Canada;

Alberta, Canada;

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These distribution centers are located so as to permit deliveries of two to five times per week to our in-market locations using our trucks and overnight delivery by surface common carrier, with approximately 80% of our North American in-market locations receiving service four to five times per week.

The distribution centers in Indiana and Kansas also serve as 'master' hubs, with those in California and North Carolina serving as 'secondary' hubs to support the needs of the in-market locations in their geographic regions as well as provide a broader selection of products for the in-market locations serviced by the other distribution centers.

The distribution centers in Indiana and Kansas also serve as 'master' hubs, with those in California and North Carolina serving as 'secondary' hubs to support the needs of the in-market locations in their geographic regions as well as to provide a broader selection of products for the in-market locations serviced by the other distribution centers.

We currently operate our Minnesota, Indiana, Ohio, Pennsylvania, Texas, Georgia, Washington, California, North Carolina, Kansas, and Ontario, Canada distribution centers with automated storage and retrieval systems (ASRS).

These eleven distribution centers operate with greater speed and efficiency, and currently handle approximately 95% of our picking activity.

These 11 distribution centers operate with greater speed and efficiency, and currently handle approximately 94% of our picking activity.

We expect to invest in additional automation technologies, expand existing distribution facilities, and/or add new distribution centers over time as our scale and the number of our in-market locations increases.

In 2018, we began to deploy Local Inventory Fulfillment Terminals (LIFTs).

These are small distribution facilities situated where we have a dense population of FMI devices.

Traditionally, responsibility for product fulfillment to vending devices and bin stocks have centered on individual branches, which were responsible for stocking and packaging inventory, delivering to a customer's location, and refilling the customer's devices.

In 2018, we began to deploy Local Inventory Fulfillment Terminals (LIFTs), which were once small distribution facilities situated where we had a dense population of FMI devices.

However, today, we have shifted our focus to position them into our existing distribution centers.

Traditionally, responsibility for product fulfillment to vending devices and bin stocks had centered on individual branch and Onsite locations, which were responsible for stocking and packaging inventory, delivering to a customer's location, and refilling the customer's devices.

As our sales from FMI devices have grown, this approach has resulted in redundant inventory in a territory and a greater proportion of our sales personnel's time being spent on non-sales activities.

By centralizing inventory and packaging into a LIFT and relying on dedicated LIFT fulfillment personnel for delivery and device replenishment, which we refer to as 'drop-and-scatter', we can reduce FMI-dedicated inventory, provide more consistent and predictable service to our customer's FMI devices, and free up time for our sales personnel to focus on customer penetration

and acquisition.

and predictable service to our customer's FMI devices, and free up time for our sales personnel to focus on customer penetration and acquisition.

Our transportation network allows us to expand the geographic reach of our LIFTs by deploying a 'drop-and-deliver' model.

In this case, a LIFT is responsible for stocking and packaging, with the inventory and accuracy benefits that come with that focus, but the delivery and replenishment continues to be performed by local branch personnel.

As the economics of a LIFT depend on device and sales density, there will be geographic areas, particularly in non-MSAs, where supporting an FMI platform will remain the responsibility of local branch personnel.

In 2021, less than 5% of our FMI revenue was serviced through a LIFT, but over time we believe this figure can approximate 40% of our FMI revenue.

In this model, a LIFT is responsible for stocking and packaging, with the inventory and accuracy benefits that come with that focus, but the delivery and replenishment continues to be performed by local branch personnel.

In 2022, approximately 5% of our FMI revenue was serviced through a LIFT, but over time we believe this figure can approximate 40% of our FMI revenue.

Information Systems

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This includes threaded fasteners, bolts, nuts, screws, studs, and related washers, as well as miscellaneous supplies and hardware, such as pins, machinery keys, concrete anchors, metal framing systems, wire rope, strut, rivets, and related accessories.

Our fastener product line, which is primarily sold under the Fastenal product name, represented 33.3% of our consolidated net sales in 2021.

Our fastener product line, which is primarily sold under the Fastenal product name, represented 34.0% of our consolidated sales in 2022.

Fastener distribution is complex.

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The most significant category of non-fastener products is our safety supplies product line, which accounted for 20.8% of our consolidated sales in 2022.

This product line has enjoyed dramatic sales growth in the last ten years which we believe is directly attributable to our success in industrial vending over that period.

The COVID-19 pandemic uniquely impacted our safety supplies product line.

In 2020, we saw substantial growth based on our ability to quickly source and deliver supplies, such as disposable masks, gloves, and gowns that were critical for governments, health care providers, and businesses to increase employee safety while maintaining operations.

In 2021, we experienced a decline as better industrial growth was more than offset by a decline in demand for pandemic-related supplies that reflected the stabilization of the supply chain for critical products.

Going forward, we expect traditional variables such as market performance, cross-selling, and vending adoption to be the primary drivers of performance for our safety supplies product line.

However, we also believe the net effect of the pandemic has been to increase safety products as a percentage of product sales as safety protocols at many of our customers are likely to be sustained into the future.

This product line has enjoyed dramatic sales growth in the last 10 years, which we believe is directly attributable to our success cross-selling safety supplies to customers that utilize us for non-safety products as well as our ability to market, deploy, and service industrial vending over that period.

We expect these variables to remain the primary drivers of performance for our safety supplies product line.

In the last several decades, we have added 'private label' brands (often referred to as 'Exclusive Brands', or brands sold exclusively through Fastenal) to our non-fastener offering.

These private label brands represented approximately 13% of our consolidated net sales in 2021.

These private label brands represented approximately 13% of our consolidated sales in 2022.

We believe it is also appropriate to think about our private label sales as a percentage of our non-fastener sales for two reasons:

(1) there is not a well-defined branded vs.

private label dynamic in fasteners as there is in non-

(1) there is not a well-defined branded versus private label dynamic in fasteners as there is in non-fasteners;

and (2) non-fastener data is more comparable to information reported by our peers, who do not generally have our significant mix of fastener business.

Private label brands represented approximately 20% of our total non-fastener sales in 2021.

Our private label brand sales as a percentage of our total non-fastener sales declined in 2020, reflecting strong growth of COVID-related supplies, which were not sold under a private label brand, and recession-related weak safety demand from traditional manufacturing and construction customers, many of which are marketed under a private label brand.

The performance of our private label brands in 2021 more closely resembled trends that preceded 2020, where we have typically experienced an increase in sales of private label products as a percentage of total non-fastener sales through specific sales channels such as Onsite locations, branches, and vending.

Often, these increases through specific channels are masked by the relative sales growth we experience with Onsite locations, which typically have a lower percentage of total sales being private label than is the case in branches or sales through vending devices.

Private label brand sales represented approximately 20% of our total non-fastener sales in 2022.

Over time we expect our private label sales as a percentage of our total non-fastener sales to increase, although oftentimes, these increases through specific channels are masked by the relative sales growth we experience with Onsite locations, which typically have a lower percentage of total sales of private label than in branches or sales through vending devices.

We plan to continue to add other product lines in the future.

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The computer system monitors the inventory level for all stock items and triggers replenishment, or prompts a buyer to purchase, as necessary, based on an established minimum-maximum stocking level.

All branches stock a base inventory and may expand beyond preset inventory levels as deemed appropriate by the district and branch personnel.

Non-branch selling locations (primarily Onsites) stock inventory based on customer-specific arrangements.

In the past we have utilized a base inventory model for all of our branches, and such a model still exists in a smaller subset of our locations.

Increasingly, however, branches primarily stock inventory that is deemed to be appropriate by the district and branch personnel to service the customers within their selling territory.

Similarly, non-branch selling locations (primarily Onsites) stock inventory exclusively based on customer-specific arrangements.

Inventories in distribution centers are established from computerized data for the selling locations served by the respective distribution center.

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The manufactured products consist primarily of non-standard sizes of threaded fasteners and hardware made to customers' specifications at one of our nine manufacturing locations, or standard sizes manufactured under our Holo-Krome ® , Cardinal Fasteners ® , and Spensall ® product lines.

The services provided by the support services group include, but are not limited to, the repair of tools and hoists, the fabrication of chain sling and hose, band saw blade welding, and other light manufacturing and fabrication.

The services provided by the support services group include, but are not limited to, tool and hoist repair, chain sling and hose fabrication, band saw blade welding, and other light manufacturing and fabrication.

We may add additional services in the future.

However, we engage in these activities primarily as a service to our customers and expect them to continue to contribute in the range of 4% to 6% of our consolidated net sales in the future.

However, we engage in these activities primarily as a service to our customers and expect the services to continue to contribute in the range of 4% to 6% of our consolidated net sales in the future.

Sources of Supply

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Most items distributed by our network can be purchased from several sources, although preferred sourcing is used for some stock items to facilitate quality control.

No single supplier accounted for more than 5% of our inventory purchases in 2021.

During 2022, we had a single supplier that accounted for 5% of our inventory purchases, whereas all remaining suppliers fell below that threshold.

In the case of fasteners and our private label non-fastener products, we have a large number of suppliers but these suppliers are heavily concentrated in a single geographic area, Asia.

Within Asia, suppliers in China represent a significant source of product.

Within Asia, suppliers in China and Taiwan represent a significant source of product.

Further, in many cases where we source directly from a North American supplier, the original country of origin of the acquired parts is the supplier's Asian facilities.

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Most of our customers are in the manufacturing and non-residential construction markets.

The manufacturing market includes both OEM and MRO customers and historically has represented approximately 65% of our business.

The non-residential construction market includes general, electrical, plumbing, sheet metal, and road contractors and historically has represented approximately 10-15% of our business.

The manufacturing market includes both OEM and MRO customers and represents approximately 70% of our business.

The non-residential construction market includes general, electrical, plumbing, sheet metal, and road contractors and represents approximately 10% of our business.

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

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This latter source of revenue tends to be directly influenced by cyclical changes, but its rate of change tends to be less dramatic.

In 1995, we developed a national accounts program aimed at making our products and services more competitive with customers that operate multiple facilities.

These customers tend to have more complex supply chains and structures for managing the OEM and MRO products we provide while at the same time, by virtue of their size and opportunity, have more negotiating power.

We believe our local presence as part of a national, and increasingly international, footprint, our ability to provide a consistent level of high-touch service and broad product availability, and our ancillary capabilities around manufacturing, quality control, and product knowledge, are attractive to these larger customers.

Our national accounts program is aimed at creating contractual partnerships that are dedicated to curating supply chain solutions in the OEM and MRO space.

These contractual programs are intended for multi-site companies and are created to drive value in the form of greater efficiency and productivity for them.

The scale and scope of the OEM and MRO products that these companies need to manage is very complex and costly.

We believe that our broad product offering coupled with our ability to execute and curate a dedicated service model for each of their sites provides us with a unique advantage and allows us to provide them with a total cost of ownership benefit.

Additionally, our local presence as part of a national, and increasingly international, footprint, our ability to provide a consistent level of high-touch service, and our ancillary capabilities around manufacturing, quality control, and product knowledge, are attractive to these multi-site customers.

We believe our advantage with these customers has only been strengthened as we have added other channels, such as Onsite, FMI, digital solutions, and resources to serve these customers' unique demands.

As a result, in 2021, national accounts represented 56.6% of our sales, compared to 55.0% and 53.6% in 2020 and 2019, respectively.

We believe sales to national accounts customers will continue to increase as a percent of our total sales over time.

In an in-market location, our customers' business activity is tracked through 'active accounts'.

As a result, in 2022, national accounts represented 57.8% of our consolidated sales, compared to 56.6% and 55.0% in 2021 and 2020, respectively.

We believe sales to national accounts customers will continue to increase as a percentage of our total sales over time.

In an in-market location, we track our customers' business activity through 'active accounts', which is defined as any customer account with purchase activity of at least $100 per month.

Customers often have more than one active account at a single in-market location, reflecting their utilization of different Fastenal services, and frequently have active accounts at many in-market locations across our global network.

During 2021, our total number of active customer accounts (defined as the average number of accounts per month with purchase activity of at least $100) was approximately 132,000, while our total 'core accounts' (defined as the average number of accounts per month with purchase activity of at least $500) was approximately 77,000.

During 2021, no single customer represented 5% or more of our consolidated net sales.

In 202 2, we averaged 119,583 active accounts per month and approximately 99.2% of the sales in our in-market locations are derived from our active accounts (the remainder was from walk-in or infrequent, non-account, and small account customers).

Traditionally, our in-market locations, which until recently consisted primarily of traditional and international branches, prioritized acquiring additional active accounts and expanding the products and services sold to new and existing active accounts as a means of growing sales.

Over time it became clear that the pursuit of smaller accounts consumed significant organizational energy and the large majority of new active accounts did not meaningfully increase in size.

Since 2020, our in-market locations have prioritized ‘key accounts’, which is defined as any customer account with purchase activity of at least $2,000 per month.

Key account customers have typically been able to utilize a wider range of our products and services, and as a result have exhibited greater potential to increase in size while being more efficient to pursue and support.

We also believe we can provide better and more efficient service to these customers.

In 2022, we averaged 39,151 key accounts per month and approximately 90.8% of the sales in our in-market locations are derived from our key accounts.

2022 2021 2020 2019 2018 2017

Active Accounts 119,583 130,020 137,380 152,491 156,069 156,464

Key Accounts 39,151 36,190 33,794 34,621 32,895 30,040

During 2022, no single customer represented 5% or more of our consolidated sales.

Direct marketing continues to be the backbone of our business through our local in-market selling personnel, as well as our non-branch selling personnel.

We support our sales team with multi-channel marketing including direct mail and digital marketing, print and radio advertising, targeted campaigns, promotional flyers, and events.

We support our sales team with multi-channel marketing including direct mail and digital marketing, print and rad io advertising, targeted campaigns, promotional flyers, and events.

In recent years, our national advertising has been focused on a NASCAR® sponsorship through our partnership with Roush Fenway Keselowski Racing® as the primary sponsor of the No.

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Seasonality has some impact on our sales.

The first and fourth quarters are typically our lowest volume periods, given their overlap with winter months in North America during which our direct and indirect sales to customers in the non-residential construction market typically slow due to inclement weather.

The first and fourth quarters of each year are typically our lowest volume periods, given their overlap with winter months in North America during which our direct and indirect sales to customers in the non-residential construction market typically slow due to inclement weather.

The fourth quarter also tends to be more greatly affected by the Thanksgiving (October in Canada and November in the United States), Christmas, and New Year holiday periods, due to plant shut downs.

In contrast, the second and third quarters typically have higher revenues due to stronger non-residential construction activity and relatively fewer holidays (although Good Friday will sometimes fall in the second quarter and the 4th of July will always fall in the third quarter).

In contrast, the second and third quarters of each year typically have higher revenues due to

stronger non-residential construction activity and relatively fewer holidays (although Good Friday will sometimes fall in the second quarter and the 4th of July will always fall in the third quarter).

Our business is highly competitive and includes large national distributors whose strongest presence tends to be in more densely populated areas, and smaller regional or local distributors, which compete in many of the smaller markets in which we have branches.

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The diversity of product and service models supported in the marketplace is a reflection of the equally diverse product and service needs of the customer base.

The large majority of our customers utilize multiple channels, from a single distributor or from a range of distributors, to procure the products they need in their operations.

The large majority of our customers utilize multiple channels, from a single distributor or a range of distributors, to procure the products they need in their operations.

We believe that better service, and a competitive selling advantage, can be provided by maintaining a physical selling and stocking presence closer to the customers' location(s).

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The convenience of a large number of branches in a given area, combined with our ability to provide frequent deliveries to such branches from centrally located distribution centers, facilitates the prompt and efficient distribution of products.

We also believe our FMI solutions, supported by an in-market location, provides a unique way to provide our customers convenient access to products and cost saving solutions using a business model not easily replicated by our competitors.

We also believe our FMI solutions, supported by an in-market location, provide a unique way to provide our customers convenient access to products and cost saving solutions using a business model not easily replicated by our competitors.

Having trained personnel at each in-market location also enhances our ability to compete (see 'Employees' below).

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Manufacturing 733 3.3 % 649 3.2 %

Administrative (2)

Organizational support personnel (2)

1,781 8.0 % 1,613 7.9 %

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Our non-in-market selling employee count has grown in recent years due to an increased focus on resources to support our growth drivers, particularly Onsite and national account growth.

(2) Administrative primarily includes our Sales Support, Information Technology, Finance and Accounting, Human Resources, and senior leadership roles and functions.

Our administrative employee count has also grown in recent years due to increased personnel investments in information technology and operational support, such as purchasing and product development.

Organizational support personnel consists of:

(1) Sales & Growth Driver Support personnel (35% to 40% of category), which includes sourcing, purchasing, supply chain, product development, etc.;

(2) Information Technology personnel (30% to 35% of category);

and (3) Administrative Support personnel (25% to 30% of category), which includes human resources, Fastenal School of Business, accounting and finance, senior management, etc.

Employee Profile

As of December 31, 2021, we had 20,507 employees worldwide, with 16,548 of those employees located within the United States (U.S.), 2,568 employees located in Canada and Mexico, and 1,391 employees located overseas in 22 other countries throughout the world.

Based on our EEO-1 data for 2020, which is the most recent period for which data is available and our most recently filed information, in the United States females and minorities constitute 24.4% and 20.5% of our workforce, respectively.

As of December 31, 2022, we had 22,386 employees worldwide, with 17,919 of those employees located in the United States (U.S.), 2,898 employees located in Canada and Mexico, and 1,569 employees located overseas in 22 other countries throughout the world.

Based on our EEO-1 data for 2021, which is the most recent period for which data is available and our most recently filed information, in the U.S., females and minorities constitute 24.2% and 21.0% of our workforce, respectively.

Based on U.S.

Bureau of Labor Statistics data, we believe Fastenal's mix of female and minority employees is generally consistent with the proportion of females and minorities working in manufacturing and construction, which is representative of the pool of employees from which we might draw candidates.

The proportion of females and minorities in our workforce declined slightly in 2020.

It is difficult to know what the impact was from the severe social disruption in the period caused by COVID-19.

The proportion of females in our workforce declined slightly in 2021.

This occurred in the broader manufacturing sector as well and likely reflected a larger trend:

much of the impact of the severe social disruption caused by COVID-19 has fallen on women and mothers in our society, and that impact has been slow to reverse.

Generally, though, we believe this data is best viewed over time rather than year-to-year.

On this basis, there is a clear trend toward greater diversity in our business.

In the eight years since 2012, our female and minority workforces have grown 2.7x and 3.8x faster, respectively, than our overall U.S.

In the nine years since 2012, our female and minority workforces have grown 2.8x and 4.2x faster, respectively, than our overall U.S.

This trend reflects multiple dynamics in our business evolution, including the natural progression of our geographic expansion, the cycle of our promote-from-within philosophy, and efforts to improve hiring processes over time.

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Employee health and safety continues to be a priority in every aspect of our business.

We've taken a multi-faceted approach to safety that helps us understand and reduce hazards in our business.

We have taken a multi-faceted approach to safety that helps us understand and reduce hazards in our business.

Today, our health and safety programs span all operations including manufacturing, distribution centers, fleet and auto, and our branch network.

These key business units play a dynamic role in defining how we engage with our employees on health and safety.

Trainings, audits, inspections, risk assessments, safety coaching, and employee engagement are all programs that help us consistently manage our facility and employee safety.

In 2022, there were over 199,000 completed health and safety programs, which is an increase of 30% compared to 2021.

Our internal scorecard system and safety management system ensures we maintain focus on a variety of risks while we sustain an inclusive safety environment that contributes to innovation and improved performance.

We continue to expand and evolve our safety programs to better meet our employee needs and workplace conditions as our business grows.

This commitment to, and continuous improvement towards, a safer work environment for our employees has generated excellent results.

This commitment to, and continuous improvement toward, a safer work environment for our employees has generated excellent results.

A widely accepted measure of organizational health and safety is the Experience Modification Rate (EMR).

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In 2022, the most recent year for which this figure has been calculated, Fastenal had an EMR of 0.52, which is 48% better than the average performance rate for our industry.

In 2021, EHS Today , a health and safety trade organization, recognized Fastenal as one of 'America's Safest Companies', an award received by just over 250 companies since 2002.

According to EHS, this honor reflects:

support from leadership for health and safety efforts;

employee involvement in health and safety processes;

innovative solutions to safety challenges;

comprehensive training programs;

evidence that incident prevention is the cornerstone of the safety process;

good communication about the value of safety;

a way to substantiate the benefits of the safety process;

and injury and illness rates below the industry average.

This recognition reflects the priority that members of our organization place on health and safety.

In 2022, we achieved third-party certification for the 45001 Occupational Health and Safety Management System.

This certification illustrates the strength of our health and safety programs, as well as our commitment to continual improvement to better support our growing workforce.

As our business model continues to grow through our branch and Onsite network, our customer critical programs have evolved to mitigate risk and incidents, while meeting customer specific needs.

This partnership with our customers allows us to collaborate and expand our health and safety programs to improve our business and our customers.

Employment and Compensation Philosophy

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Several principles underpin our employment philosophy.

One is decentralization:

One principle is decentralization:

placing employees close to our customers' operations and trusting these employees to independently make local decisions to provide differentiated local service.

A second is that we are a passionately promote-from-within company, guided by a belief that if you work hard, make great decisions, learn from mistakes, and exemplify our cultural values, you should receive greater opportunity and responsibility.

A second principle is that we are a passionately promote-from-within company, guided by a belief that if you work hard, make great decisions, learn from mistakes, and exemplify our cultural values, you should receive greater opportunity and responsibility.

We believe these principles cultivate an entrepreneurial mindset and foster an environment of trust and empowerment.

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We are guided by simple principles.

(1) Programs should be easy to understand, with goals and objectives that are clearly communicated and resources for success that are provided.

First, compensation programs should be easy to understand, with goals and objectives that are clearly communicated and resources for success that are provided.

They should be calculable by the employee and numbers-driven (e.g., not subjective).

(2) Total compensation should have a significant component that is based on how well the employee has grown their piece of the business and served our customers.

(3) Employees should receive incentives as soon as practical upon attainment of the goal.

Second, total compensation should have a significant component that is based on how well the employee has grown their piece of the business and served our customers.

Third, employees should receive incentives as soon as practical upon attainment of the goal.

Approximately 71% of our employees interface directly with customers on a daily or frequent basis, with the remainder supporting the selling efforts of our customer-facing employees.

Typical pay arrangements provide a base amount paid periodically during the month, along with a major opportunity to earn bonus amounts, paid monthly, based on growth in sales, gross or pre-tax profit achieved, and prudent management of working capital.

In certain roles, there may also be a portion of compensation based on contribution to attaining predetermined departmental or project and cost containment goals, most focused on either customer service or better execution of company-wide activities.

In certain roles, there may also be a portion of compensation based on contribution to attaining predetermined departmental or project and cost containment goals, most of which are focused on either customer service or better execution of company-wide activities.

Because we believe the growth in the company's stock value should be the reward for achieving long-term success consistent with being an owner, we have a stock option plan.

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All of our employees are eligible to receive stock option grants or stock appreciation rights.

We believe our combination of short and long-term rewards and incentives has proven successful as reflected in our historic performance and acceptable levels of employee retention and turnover.

We believe our combination of short- and long-term rewards and incentives has proven successful as reflected in our historic performance and levels of employee retention and turnover.

Our employees are not subject to any collective bargaining agreements, and we have experienced no work stoppages.

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Our Human Resources department develops efficient processes to expand our reach and pool of diverse talent while balancing the needs and requirements of data collection and storage.

We have created a standardized framework for posting jobs and interviewing for positions, supplemented with training through the Fastenal School of Business.

We have created a standardized framework for posting jobs and interviewing for positions, supplemented with training through the Fastenal School of Business (FSB).

We have a Diversity and Compliance team that is heavily involved in developing this standardized framework, which ensures its integrity.

Not only is this process followed for all new hires, we replicate the same procedures for any internal transfers and promotions.

The Fastenal School of Business (our internal corporate university program, known as FSB) develops and delivers a comprehensive array of industry and company-specific training and development programs that are offered to our employees.

The FSB (our internal corporate university program) develops and delivers a comprehensive array of industry and company-specific training and development programs that are offered to our employees.

The programs are offered through a combination of classroom instructor-led training, virtual instructor-led training, and online learning.

FSB provides core curricula focused on key competencies determined to be critical to the success of our employees' performance.

In addition, we provide specialized educational tracks within various institutes of learning.

In addition, we provide specialized educational tracks within various institutes of learning, as well as training plans based on roles within the company.

These institutes of learning are advanced levels that provide specific concentrations of education and development and have been designed to focus on critical aspects of our business, such as leadership, effective branch best practices, sales and marketing, products, supply chain, and distribution.

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Sourcing from suppliers with good standing is the foundation of an ethical supply chain.

We expect our suppliers to comply with all regulations and standards, and we conduct risk analysis for suppliers who want to do business with us to obtain additional supporting documentation affirming their ethics, quality, and reliability, so we can be certain they meet our standards in these areas, and to ensure that they are complying with Fastenal's Supplier Terms & Code of Conduct, and Global Supplier Purchase Order Terms & Conditions, as we are subject to the conflict minerals rules.

With the help of third-party resources and global databases scanning over 100 lists of agencies, known risk, adverse media, and financial status, Fastenal monitors key areas of trade-related risk, including dual-use goods and utilization of sanctioned countries (or entities), as these are common ways that international trade might provide capital and restricted goods to sanctioned parties, launder funds of drug traffickers, and otherwise support criminals.

We expect our suppliers to comply with all regulations and standards, and we conduct risk analysis for suppliers who want to do business with us and require them to provide additional supporting documentation affirming their ethics, quality, and reliability, so we can be certain they meet our standards in these areas and to ensure that they are complying with Fastenal's Global Supplier Purchase Order Terms & Conditions and Supplier Code of Conduct.

Utilizing third-party tools and global databases, Fastenal scans and monitors over 1,000 sanction listings and over 500 other official and/or exclusion lists that provide information on any known risk, adverse media, and financial status of our suppliers.

Additionally, we monitor key areas of trade-related risk, including dual-use goods and utilization of sanctioned countries (or entities), as these are common ways that international trade might provide capital and restricted goods to sanctioned parties, launder funds of drug traffickers, and otherwise support criminals.

We also evaluate our suppliers' approach to labor to ensure that they are using appropriate, and appropriately compensated, employees.

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This is performed not only at the time of supplier vetting and onboarding, but for the life of the relationship with the supplier.

This process promotes a supply chain that is supportive of Fastenal's Supplier Terms & Code of Conduct and Global Supplier Purchase Order Terms & Conditions.

This process promotes a supply chain that is supportive of Fastenal's Global Supplier Purchase Order Terms & Conditions and Supplier Code of Conduct.

In the event of non-compliance or potential risk, we work with the supplier to correct the situation.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business