What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-02-06 compared with 2023-02-07 · 127 added, 126 removed, 383 unchanged (40% of the section changed)

8 unchanged sentences

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

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.

At the end of 2023, we had 3,419 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 two in Europe, and we employed 23,201 people.

We believe our success can be attributed to the high quality of our employees and their convenient proximity to our customers, and our ability to offer customers a full range of products and services to reduce their total cost of procurement.

24 unchanged sentences

3,419 3,306 3,209 3,268 3,228 3,121 2,988 2,904 2,886 2,851

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.

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.

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.

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

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 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.

7 unchanged sentences

We have two primary versions of our branch locations :

1) A 'traditional branch' typically services a wide variety of customers, including our larger national and regional accounts as well as retail customers.

Locations are selected primarily based on their proximity to our distribution network, population statistics, and employment data for manufacturing and non-residential construction companies.

We stock all branches with inventory drawn from all of our product lines, and over time, where appropriate, our district and branch personnel may tailor the inventory offering to the needs of the local customer base.

1) A 'traditional branch' typically services a wide variety of customers, ranging from the local operations of large, national account customers to smaller local businesses.

Based on the unique characteristics of certain markets, some traditional branches will be structured and stocked to service retail customers.

Locations are selected primarily based on their proximity to our distribution network and employment and production data for manufacturing and non-residential construction companies.

We stock all branches with inventory drawn from all of our product lines and tailored by our district and branch personnel to the needs of the local customer base.

Since Fastenal's founding and through 2013, traditional branch openings were a primary growth driver for the company, and we experienced net openings each year over that time span.

However, new growth drivers, business models (Onsites), and business tools (digital solutions) have emerged and diminished the direct role of traditional branch openings in our growth.

However, new growth drivers, business models, and business tools have emerged and diminished the direct role of traditional branch openings in our growth.

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

1 unchanged sentence

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 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.

Certain locations are Customer Service Branches (CSBs), which tend to feature a showroom and our standard stocking model of products designed for contractors.

CSBs often conduct some business with non-account or retail-like customers.

However, this customer set typically represents less than 10% of sales at this type of location.

Other locations operate as Customer Fulfillment Centers (CFCs), which tend to feature a limited showroom, reduced hours of access to the public, greater usage of will-call, and stock customer-specific inventory.

These tend to appear and function more like an industrial supply house and stocking location and tend not to have transactions with non-account or retail-like customers unless it is a will-call arrangement related to an online transaction.

Other locations operate as Customer Fulfillment Centers (CFCs), which tend to feature a limited showroom and stock customer-specific inventory.

These tend to appear and function more like an industrial supply house and stocking location and often have fewer transactions with non-account or retail-like customers than in a CSB branch.

The choice of operating style is made by local leadership and is based on local market considerations.

4 unchanged sentences

Mexico is the largest of these, and we also operate in Europe, Asia, and Central and South America.

Our go-to-market strategy in countries outside of the United States and Canada focuses primarily on servicing large, national account customers disproportionately concentrated in manufacturing.

From a product perspective, these customers are more heavily oriented toward planned fastener spend, though non-fastener manufacturing, repair, and operations (MRO) spend is becoming more common in these markets.

Despite strong growth in our international business in recent years, we are not as well recognized in many of our locations outside of the U.S.

and Canada as we are in the U.S.

Our go-to-market strategy in countries outside of the United States and Canada focuses primarily on servicing large, national account customers disproportionately concentrated in manufacturing and heavily oriented toward planned fastener and non-fastener product spend.

We are not as well recognized in many of our non-North American locations as we are in the U.S.

However, our ability to provide a consistent service model, including vending, bin stocks, and Onsites, on a global basis is attractive to our customer base, much of which are the foreign operations of North American-based companies.

2 unchanged sentences

Traditional and international branches sell to multiple customers.

We will continue to open traditional branches as the company sees fit.

However, in each year since 2013, the company has experienced a net decline in its total branch count including net declines of 110 branches in 2022.

In each year since 2013, we have experienced a net decline in our total branch count, primarily due to consolidations in our U.S.

market, including net declines of 86 branches in 2023.

Our total decline since 2013 is 1,090 branches.

We will continue to open traditional and international branches in accordance with our overall strategy.

We believe the strategic rationalization that has produced a significant decline in our traditional branch network in the United States and Canada since 2013 is largely completed, and expect reduced closing activity beginning in 2024.

Onsite locations may influence the trend in our traditional branch count over time, but have not been the primary reason for our traditional branch closings.

2 unchanged sentences

We have made substantial investments toward accelerating its traction in the marketplace since 2015.

In this model, we provide dedicated sales and service to a single customer from a location that is physically within the customers' facility (or, in some cases, at a strategically placed off-site location), with inventory that is specific to the customers' needs.

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.

In this model, we provide dedicated sales and service to a single customer from a location that is physically within, or strategically proximate to, the customers' facility, with inventory that is specific to the customers' needs.

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

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.

It has been our experience that the sales mix at our Onsite locations typically 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.

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.

3 unchanged sentences

We had 1,822 Onsite locations as of December 31, 2023, which represented 39.8% of net sales, and signed 326, 356, and 274 new O nsite locations (referred to herein as signings) in 2023, 2022, and 2021, respectively.

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

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:

10 unchanged sentences

Ending Branches 1,369 169 66 1,604 5 22 52 79 1,683

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

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

3 unchanged sentences

Ending Onsites 1,338 107 111 1,556 16 23 28 67 1,623

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

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

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

Starting Branches 1,369 169 66 1,604 5 22 52 79 1,683

13 unchanged sentences

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.

Beginning in 2022, 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.

4 unchanged sentences

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 branch base.

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

1 unchanged sentence

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.

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.

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 than five percent of our total selling locations.

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

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

it r emains the indispensable foundation of our business.

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

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

With the growth we anticipate in Onsite locations, we believe our total in-market locations will increase further over time.

Our Business Tools

6 unchanged sentences

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.

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, maintenance, repair, and operations (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 digital 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 customized digital plan-o-grams, which we call FASTStock and allow for the scanning of product when it is at a minimum desired level.

However, in 2019 we introduced our FASTBin technology.

2 unchanged sentences

(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.

(2) infrared (IR) 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), 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.

2 unchanged sentences

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.

For these reasons, the initiative began to gain significant traction in 2011, and we finished 2023 with approximately 111,800 FASTVend non-weighted devices in the field.

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.

6 unchanged sentences

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.

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).

Beginning in the first quarter of 2021, we began to report a weighted FMI measure which combines the signings and installations of FASTBin and FASTVend in a standardized machine equivalent unit (MEU) based on the expected output of each type of device.

We do not include FASTStock in this measurement because scanned stocking locations can take many forms, such as bins, shelves, cabinets, pallets, etc., that cannot be converted into a standardized 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.

1 unchanged sentence

An infrared bin, with target monthly revenue of $40, would be counted as '0.02' machine equivalent ($40/$2,000 = 0.02).

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

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.

18 unchanged sentences

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.

This positions us to outperform what is most typically a 24- to 48-hour fulfillment expectation.

While there is a retail component to our transactional digital services, most of the revenue attributable to this is with our traditional customer base, nearly all of which purchase digitally as a supplement to other channels and tools that it utilizes with Fastenal.

10 unchanged sentences

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.

FAST360° acts as the bridge between our FMI footprint and a

customer's view into our managed service model.

FAST360° surfaces data around these managed services as one central source of information as we manage our customers' OEM and MRO product lines.

20 unchanged sentences

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;

and Nuevo Leon, Mexico.

We also operate one distribution center in Europe, located in Dordrecht, Netherlands.

12 in the United States, two in Canada, and one in Mexico.

We also operate two distribution centers in Europe.

These distribution centers give us approximately 5.0 million square feet of distribution capacity.

Additional details on these locations can be found within the 'Item 2.

Properties' section of this Form 10-K.

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 74% 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 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).

We currently operate 11 of our North American distribution centers with automated storage and retrieval systems (ASRS).

These 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), 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.

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

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.

We also utilize a network of Local Inventory Fulfillment Terminals (LIFTs) which reside within our existing distribution centers and are intended to support areas that have a dense population of FMI devices.

Traditionally, branch personnel were solely responsible for stocking and packaging inventory, delivering to a customer's location, and refilling the customer's devices.

As our sales through 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.

We primarily utilize a 'drop-and-deliver' model wherein a LIFT is responsible for stocking and packaging FMI supplies, producing inventory and accuracy benefits, and delivering them to the business unit, where delivery and replenishment is then performed by local district or branch personnel.

In a minority of cases we deploy a 'drop-and-scatter' model, wherein delivery and replenishment is also performed by LIFT personnel.

In 2023, approximately 8% of our FMI revenue was serviced through a LIFT, but over time we believe this figure can approximate 40% of our FMI revenue.

Transportation

The ability to move product, globally and domestically, from our sources of supply to our customers is critical to the competitiveness of our business model.

We utilize multiple modes of transportation to support our business model.

We transport product from our global manufacturing and supplier partners to our distribution centers.

Related costs range from port fees, duties, costs related to container and shipper services, and inland trucking and intermodal charges.

We consider these expenses to be a part of our landed product cost, and significant fluctuations are typically addressed through product pricing.

We transport product between our distribution centers and from our distribution centers to our in-market locations.

We typically transport approximately 90% of our products on our own fleet of Class 6, 7, and 8 trucks, with the remainder being on third party shippers.

Costs range from lease charges, driver pay, fuel costs to support our captive fleet, and fees paid to third-party shippers.

These expenses are included in cost of goods sold but are not considered a part of our landed product cost, with fluctuations typically addressed by applying freight charges to customer purchases and by securing commercial back-hauls.

We primarily lease our trucks, and at December 31, 2023, we operated approximately 520 units.

We transport product from our in-market locations to our customers on a fleet of pick-up, box, and other trucks.

Expenses to maintain this fleet are considered selling-related transportation costs, which include lease charges, depreciation, and fuel, and are typically reflected in all other operating and administrative expenses.

We have a mix of leased and owned vehicles, and at December 31, 2023, we operated approximately 10,200 units.

Information Systems

4 unchanged sentences

Trademarks and Service Marks

We conduct business under various trademarks and service marks, and we utilize a variety of designs and tag lines in connection with each of these marks, including Where Industry Meets Innovation ™ .

We conduct business under various trademarks and service marks, and we utilize a variety of designs and taglines in connection with each of these marks, including Where Industry Meets Innovation ™ .

Although we do not believe our operations are substantially dependent upon any of our trademarks or service marks, we consider the 'Fastenal' name and our other trademarks and service marks to be valuable to our business.

19 unchanged sentences

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

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

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.

Prior to 2023, each of our product categories tended to have its own private label.

In 2023, we consolidated these into two labels:

Body Guard ® , which is our long-standing brand for North American safety supplies, and ORMADUS ® , which is our global brand encompassing the remainder of our product offerings.

These private label brands represented approximately 13% of our consolidated sales in 2023.

4 unchanged sentences

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.

Detailed information about our sales by product line is provided in Note 2 of the N otes to Co nsolidated Financial Statements included later in this Form 10-K.

Detailed information about our sales by product line is provided in Note 2 of the Notes t o Co nsolidated Financial Statements included later in this Form 10-K.

Each product line may contain multiple product categories.

3 unchanged sentences

It is also derived from supplier information and from customer demographic information.

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.

Our 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.

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.

8 unchanged sentences

In 2023, a pproximately 96% of our consolidated net sales were attributable to products manufactured by other companies to industry standards or to customer specific requirements.

The remaining 4% relate d to products manufactured, modified, or repaired by our manufacturing businesses or our support services.

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, tool and hoist repair, chain sling and hose fabrication, band saw blade welding, and other light manufacturing and fabrication.

The remaining 4% related to products manufactured, modified, or repaired by our manufacturing businesses or our support services.

The manufactured products c onsist 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, tool and hoist repair, chain sling and hose fabrication, band saw blade welding, packaging, 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 the services to continue to contribute in the range of 4% to 6% of our consolidated net sales in the future.

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

1 unchanged sentence

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.

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

During 2023, we had a single supplier that accounted for more than 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.

7 unchanged sentences

We believe our success can be attributed to our ability to offer customers a full line of quality products, our convenient locations and diverse methods of providing those products, and the superior service orientation and expertise of our employees.

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

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.

Based on our customer profile being oriented toward manufacturing and non-residential construction, our business has historically been cyclical.

Approximately 70% to 75% of our customers are in manufacturing end markets, which encompasses fabricated products, heavy machinery, petrochemical, mining and aerospace and includes both OEM and MRO customers.

The remaining 25% to 30% of our customers fall primarily into non-residential construction (general and commercial contractors), reseller (retail and wholesale trades, dealers, and rental businesses), transportation (transportation services, such as air, train, maritime or truck transport, as well as fulfillment centers) and state and local government entities, including schools, school districts and universities.

Based on our customer profile being oriented toward manufacturing, our business has historically been cyclical.

However, we believe our model has certain features that moderate the volatility of our results around cyclical changes.

First, we have a large number of customers that serve a wide range of segments within the broader manufacturing and non-residential construction market.

First, we have a large number of customers that serve a wide range of segments within the broader manufacturing market.

While slumps in one industry served by us can rapidly spread to other, interrelated industries, locally or globally, we still believe this customer and market segment diversity provides some insulation from economic changes that are not across multiple industries and geographic regions.

Second, while a meaningful part of our revenue is derived from products that are incorporated into final products, we also have a significant portion of revenue that is derived from products used to maintain facilities.

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

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.

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

Our national accounts program is aimed at creating contractual agreements with single or multi-location customers.

These contractual programs are intended to help improve our customers' supply chains by identifying productivity and efficiency gains throughout their organization.

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

4 unchanged sentences

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.

In an in-market location, we track our customers' business activity through 'active accounts', which is defined as any customer account with purchase ac tivity 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.

In 2023 , we averaged 105,448 active accounts per month and approximately 99.4% 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.

Traditionally, our in-market locations, particularly our 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.

Further, the development of our web capabilities provided us with an alternative means of more efficiently servicing these smaller customers.

Since 2020, our in-market locations have sought to shift our smallest customers to our web channel while shifting

their selling focus to '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.

In 2023, we averaged 39,266 key accounts per month and approximately 92.4% of the sales in our in-market locations were derived from our key accounts.

2023 2022 2021 2020 2019 2018 2017

1 unchanged sentence

Key Accounts 39,266 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.

During 2023, no single customer represented 5% or more of our consolidated net 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.

6 unchanged sentences

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 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).

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.

10 unchanged sentences

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).

As a result, we maintain branches in small, medium, and large markets, each offering a wide variety of products.

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.

As a result, we maintain in-market locations in small, medium, and large markets, each offering a wide variety of products.

The convenience of a large number of in-market locations in a given area, combined with our ability to provide them with 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, 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.

4 unchanged sentences

At the end of 2023, we employed 23,201 full- and part-time employees.

Of these, approximately 71% held an in-market or non-branch selling role.

Of these, approximately 71% held a selling role.

We characterize these personnel as follows:

2023 % of Total 2022 % of Total

In-market locations (branches & Onsites) 13,410 59.9 % 12,464 60.8 %

Non-in-market selling (1)

Selling personnel (1)

16,512 71.2 % 15,898 71.0 %

Selling subtotal 15,898 71.0 % 14,570 71.0 %

Distribution/Transportation 3,974 17.8 % 3,675 17.9 %

Manufacturing 733 3.3 % 649 3.2 %

Distribution/Transportation personnel 4,042 17.4 % 3,974 17.8 %

Manufacturing personnel 733 3.2 % 733 3.3 %

Organizational support personnel (2)

1,914 8.2 % 1,781 8.0 %

Non-selling subtotal 6,488 29.0 % 5,937 29.0 %

Total 22,386 100.0 % 20,507 100.0 %

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.

Total personnel 23,201 100.0 % 22,386 100.0 %

Of our Selling Personnel, 80%-85% are attached to a specific in-market location.

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.;

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

(2) Information Technology personnel (35% to 40% of category);

2 unchanged sentences

As of December 31, 2023, we had 23,201 employees worldwide, with 18,539 of those employees located in the United States (U.S.), 3,038 employees located in Canada and Mexico, and 1,624 employees located overseas in 24 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 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 nine years since 2012, our female and minority workforces have grown 2.8x and 4.2x faster, respectively, than our overall U.S.

Based on our EEO-1 data for 2023, in the U.S., females and minorities constitute 24.0% and 23.6% of our workforce, respectively.

We believe these absolute figures gain further context when viewed against two additional data sets.

First, over the past ten years there is a clear trend toward greater diversity in our business.

Since 2013, our female and minority workforces have grown 2.2x and 3.8x 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.

Second, based on the U.S.

For instance, relative to the 24.0% of our U.S.

workforce that is female, the proportion of females in the U.S.

manufacturing and construction workforces are 29.5% and 10.8%, respectively.

Similarly, relative to the 23.6% of our U.S.

workforce that are minorities, the proportion of non-white (a definition utilized by the U.S.

Census Bureau) individuals in the U.S.

manufacturing and construction workforces are 21.6% and 12.5%, respectively.

Health and Safety

1 unchanged sentence

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.

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

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

In 2023, there were over 214,000 completed health and safety engagements, which is an increase of 7% compared to 2022.

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.

4 unchanged sentences

Industry averages are benchmarked at a 1.00 EMR, with a reduction in the rate being reflective of an organization's ability to implement superior safety procedures and protocols, resulting in a safer environment and reducing both personnel and financial risk.

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

In 2023, Fastenal had an EMR of 0.49, which is 51% better than the average performance rate for our industry.

In 2023, we achieved third-party re-certification for the ISO 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.

This partnership with our customers allows us to collaborate and expand our health and safety programs to enhance our customers' workplace safety performance.

Employment and Compensation Philosophy

37 unchanged sentences

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.

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 best practices, sales and marketing, products, supply chain, and distribution.

Product Sourcing Endeavors

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 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.

With a local and global supplier base, continuous monitoring and local representation is a necessity to ensure protocols are triggered when risk may be evident, ensuring a safeguard against poor and/or impaired quality and regulatory violations that may otherwise impact our reputation in the marketplace.

We expect our suppliers to comply with all relevant regulations and applicable standards.

Our teams 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.

This ensures they meet our standards in these areas and are complying with Fastenal's Global Supplier Purchase Order Terms & Conditions and Supplier Code of Conduct.

Utilizing third-party tools and global databases, Fastenal actively monitors government sanctions, denied party listings, withhold release orders, export restriction updates, financial status, adverse media, and multiple other official exclusion lists that provide information on any known risk of any entities and locations with which Fastenal engages, and screens all business partners against those lists.

Additionally, we monitor key areas of trade-related risk, including dual-use goods, trade cases, anti-dumping and counter-vailing cases, and other protectionist trade measures for all countries that products are traded in.

As part of our comprehensive Supply Chain Security program, we also evaluate our suppliers' approach to labor to ensure that they are using appropriate, and appropriately compensated, employees and ensure upstream supply chain visibility on globally sourced products.

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

1 unchanged sentence

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

If remediation efforts are not undertaken to ensure the supplier remains in compliance with Fastenal's standards and code of conduct, alternative sources for supply may be considered to ensure the integrity of our supply chain.

If remediation efforts are not undertaken to ensure the supplier remains in compliance with Fastenal's standards and code of conduct, alternative sources of supply may be considered to ensure the integrity of our supply chain.

Supply chain compliance representatives are placed in international corporate offices to ensure global coverage and governance, ensuring that no matter where a customers' operations may take them, Fastenal has the infrastructure, resources, and internal processes established to perform its supply chain governance obligations.

6 unchanged sentences

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