The following is management's discussion and analysis of certain significant
factors which have affected our financial position and operating results during
the periods included in the accompanying consolidated financial statements and
should be read in conjunction with those consolidated financial statements. This
section of this Form 10-K generally discusses 2022 and 2021 items and
year-to-year comparisons for the current year and the prior year. Discussions of
2020 items can be found in 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' in Part II, Item 7 of our annual report on
Form 10-K for the fiscal year ended December 31, 2021.

Business and Operational Overview



Fastenal is a North American leader in the wholesale distribution of industrial
and construction supplies. We distribute these supplies through a network of
approximately 3,300 in-market locations. Most of our customers are in the
manufacturing and non-residential construction markets. The manufacturing market
includes sales of products for both original equipment manufacturing (OEM),
where our products are consumed in the final products of our customers, and
manufacturing, repair and operations (MRO), where our products are consumed to
support the facilities and ongoing operations of our customers. The
non-residential construction market includes general, electrical, plumbing,
sheet metal, and road contractors. 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. Geographically, our branches, Onsite
locations, and customers are primarily located in North America, though we
continue to grow our non-North American presence as well.

It is helpful to appreciate several aspects of our marketplace: First, it is
big. We estimate the North American marketplace for industrial supplies is in
excess of $140 billion per year (and we have expanded beyond North America) and
no company has a significant portion of this market. Second, many of the
products we sell are individually inexpensive, but the cost and time to manage,
procure, and transport these products can be quite meaningful. Third, many
customers prefer to reduce their number of MRO and OEM suppliers to simplify
their business, while also utilizing various technologies and models (including
our local branches when they need something quickly or unexpectedly) to improve
availability and reduce waste. Lastly, we believe the markets are efficient. In
our view, this means that companies that grow market share are those that
develop differentiated capabilities that provide the greatest value to the
customer.

Our approach to addressing these aspects of our marketplace is captured in our
tagline Where Industry Meets Innovation™. The concept of growth is simple: find
more customers every day and increase our activity with them. However, execution
is hard work. First, we recruit service-minded individuals to support customers
and empower them to operate in a decentralized fashion to maximize their
flexibility to solve customer problems. We support these customer-facing
resources with a supply chain capability that is speedy, efficient, and
cost-effective. This has formed the foundation of our high-touch model since
inception. Second, we invest in, develop, and deploy capabilities that allow us
to illuminate and provide greater control over a customer's supply chain. These
capabilities range from service models that take advantage of our local presence
and/or our ability to more efficiently manage complex procurement needs, to
hardware and software technologies that promote actionable data capture, improve
operating efficiencies and reduce supply chain risk. Third, we strive to
generate strong profits, which produce the cash flow necessary to support our
growth, our product and technology development, and the needs of our customers.

The ultimate aim of this 'high-tech, high-touch' approach to gaining market
share is to allow us to get closer to our customers, going so far as to be right
to the point of consumption within customers' facilities. Marrying our presence,
capabilities and technologies deepens our relationships and our understanding of
our customers' day-to-day opportunities and obstacles. This, in turn, enhances
our ability to provide innovative and comprehensive solutions to our customers'
challenges. By doing these things every day, Fastenal remains a growth-centric
organization.

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Executive Overview

The following table presents a performance summary of our results of operations for the periods ended December 31:



                                                                          YOY                         YOY
                                             2022           2021         Change         2020         Change
Net sales                                $ 6,980.6        6,010.9        16.1  %    $ 5,647.3         6.4  %
Business days                                  254            253                         255
Daily sales                              $    27.5           23.8        15.7  %    $    22.1         7.3  %
Gross profit                             $ 3,215.8        2,777.2        15.8  %    $ 2,567.8         8.2  %
% of net sales                                46.1  %        46.2  %                     45.5  %
Operating and administrative expenses    $ 1,762.2        1,559.8        13.0  %    $ 1,426.0         9.4  %
% of net sales                                25.2  %        26.0  %                     25.3  %
Operating income                         $ 1,453.6        1,217.4        19.4  %    $ 1,141.8         6.6  %
% of net sales                                20.8  %        20.3  %                     20.2  %
Earnings before income taxes             $ 1,440.0        1,207.8        19.2  %    $ 1,132.7         6.6  %
% of net sales                                20.6  %        20.1  %                     20.1  %
Net earnings                             $ 1,086.9          925.0        17.5  %    $   859.1         7.7  %
Diluted net earnings per share           $    1.89           1.60        

17.8 % $ 1.49 7.4 %




We would characterize 2022 as reflecting the normalization of the business cycle
relative to the pandemic-impacted years of 2020 and 2021. While we did
experience some slowing in business activity over the course of the year,
customer demand was generally healthy throughout, resulting in good unit growth.
Incremental pricing from actions taken at the end of 2021 and the start of 2022
further contributed to our growth, though over the course of the year we saw the
inflationary pressures and supply chain constraints that catalyzed our pricing
actions largely dissipate. This normalization in business activity also resulted
in improved signings of Onsites and FMI devices, which approached pre-pandemic
levels. These factors more than offset challenges in our smaller non-North
American markets, where the effects of the Russo-Ukrainian War and China's
evolving COVID-19 policies weighed on growth. This growth, combined with
improvements to our efficiency stemming from growth in our Digital Footprint and
changes to our go-to-market strategies, allowed us to expand our operating
margins in the period.

The table below summarizes our absolute and full-time equivalent (FTE; based on
40 hours per week) employee headcount, our investments in in-market locations
(defined as the sum of the total number of branch locations and the total number
of active Onsite locations), and weighted FMI devices at the end of the periods
presented and the percentage change compared to the end of the prior period.

                                                          Q4           Q4         Twelve-month
                                                         2022         2021 

% Change In-market locations - absolute employee headcount 13,410 12,464

            7.6  %
In-market locations - FTE employee headcount            12,017         11,337            6.0  %
Total absolute employee headcount                       22,386       20,507              9.2  %
Total FTE employee headcount (1)                        19,854         18,334            8.3  %

Number of branch locations                               1,683          1,793           -6.1  %
Number of active Onsite locations                        1,623          1,416           14.6  %
Number of in-market locations                            3,306          3,209            3.0  %

Weighted FMI devices (MEU installed count) (2) 102,151 92,874

           10.0  %


(1) Due to a calculation error, organizational support personnel was overstated by 36 FTE

in the fourth quarter of 2021, with total non-selling FTE and total FTE being

overstated by the same amount. These figures have been corrected in this Form 10-K.

Adjusting for this error, total FTE in 2021 would have been down by an additional 0.2%

for year-to-date growth.

(2) This number excludes approximately 6,500 non-weighted devices that are part of our

locker lease program.




During the last twelve months, we increased our total FTE employee headcount by
1,520. This reflects an increase in our in-market and non-in-market selling FTE
employee headcount of 1,063 to support growth in the marketplace and sales
initiatives targeting customer acquisition. We had an increase in our
distribution center FTE employee headcount of 231 to support increasing product
throughput at our facilities and to expand our local inventory fulfillment
terminals (LIFTs). We had an

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increase in our remaining FTE employee headcount of 226 that relates primarily to personnel investments in information technology, manufacturing, and operational support, such as purchasing and product development.



We opened one branch in the fourth quarter of 2022 and closed 34, net of
conversions. We activated 76 Onsite locations in the fourth quarter of 2022 and
closed 20, net of conversions. In 2022, we opened 12 branches and closed 122,
net of conversions. In 2022, we activated 306 Onsite locations and closed 99,
net of conversions. In any period, the number of closings tends to reflect
normal churn in our business, whether due to redefining or exiting customer
relationships, the shutting or relocation of customer facilities that host our
locations, or a customer decision, as well as our ongoing review of
underperforming locations. Our in-market network forms the foundation of our
business strategy, and we will continue to open or close locations as is deemed
necessary to sustain and improve our network, support our growth drivers, and
manage our operating expenses.

CURRENT YEAR RESULTS ENDED 2022

Results of Operations

The following sets forth consolidated statements of earnings information (as a percentage of net sales) for the periods ended December 31:



                                                            2022         2021
Net sales                                                  100.0  %     100.0  %
Gross profit                                                46.1  %      46.2  %
Operating and administrative expenses                       25.2  %      26.0  %
Operating income                                            20.8  %      20.3  %
Net interest expense                                        -0.2  %      -0.2  %
Earnings before income taxes                                20.6  %      20.1  %

Note - Amounts may not foot due to rounding difference.

Net Sales



Note - Daily sales are defined as the total net sales for the period divided by
the number of business days (in the United States) in the period. The table
below sets forth net sales and daily sales for the periods ended December 31,
and changes in such sales from the prior period to the more recent period:

                                                    2022           2021
Net sales                                       $ 6,980.6        6,010.9
Percentage change                                    16.1  %         6.4  %
Business days                                         254            253
Daily sales                                     $    27.5           23.8
Percentage change                                    15.7  %         7.3  %

Daily sales impact of currency fluctuations -0.5 % 0.6 %




The increase in net sales noted above for 2022 was due to higher unit sales of
MRO and OEM supplies to traditional manufacturing and construction customers and
higher pricing as further set forth below.

Higher unit sales in 2022 were a result of healthy economic activity throughout
the period, though we did observe some moderation in demand as the year
progressed. This moderation in demand, combined with more difficult
year-over-year comparisons as the year progressed, produced daily sales growth
of 18.1% in the first half of 2022, daily sales growth of 13.3% in the second
half of 2022, and daily sales growth of 8.0% in December 2022. Growth was led by
our manufacturing customers, with particular strength in markets involved with
commodity and capital goods production. Our non-residential construction
customers grew on an annual basis, but turned slightly negative in the fourth
quarter. We believe the relative underperformance of this customer category
reflects deliberate shifts in our branch strategy that de-emphasized walk-in and
over-the-counter transactions.

We also experienced a normalization in other aspects of the operating
environment in 2022, specifically the dissipation or moderation over the course
of the year of product and transportation inflation, supply chain disruption,
and labor market constraints. This affected two aspects of our growth during the
period.

First, price contributed 540 to 570 basis points to our net sales growth in
2022. However, as inflationary pressures eased and product availability
improved, the need for aggressive pricing actions declined. The absence of such
actions combined with more difficult year-over-year comparisons as the year
progressed resulted in the contribution from price to net sales growth
moderating, from averaging 620 to 650 basis points in the first half of 2022, to
averaging 450 to 480 basis points in the second half of 2022 and to averaging
350 to 380 basis points in the fourth quarter of 2022.

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Second, as inflationary pressures and supply chain constraints became more
predictable and manageable and then largely dissipated, it allowed our customers
to shift from short-term business management to long-term strategic planning.
This, in turn, provided us more opportunities to engage with customers over our
key growth drivers, including Onsite and FMI. As a result, while we did not
reach the signings goals we had set out at the start of the year, we saw a
meaningful increase in signings in 2022 over the prior year, and a return to
near pre-pandemic levels. We signed 356 Onsites in 2022, below our goal of 375
to 400 units but above the prior year (274 signings). Similarly, we signed
20,735 FMI MEUs, below our goal of 23,000 to 25,000 MEUs but above the prior
year (19,311 MEUs).

Sales by Product Line

The approximate mix of sales from fasteners, safety supplies, and all other
product lines was as follows:

                       2022       2021
Fasteners              34.0%      33.3%
Safety supplies        20.8%      21.2%
Other product lines    45.2%      45.5%


The shifts in product mix in 2022 compared to 2021 largely reflect the reversal
of pandemic-related activity combined with the relative growth of our more
cyclical fastener line as growth in manufacturing and construction end markets
accelerated as the post-pandemic North American economy recovered.

Annual Sales Changes, Sequential Trends, and End Market Performance



This section focuses on three distinct views of our business - annual sales
changes by month, sequential trends, and end market performance. The first
discussion regarding sales changes by month provides a good mechanical view of
our business. The second discussion provides a framework for understanding the
sequential trends (that is, comparing a month to the immediately preceding
month, and also looking at the cumulative change from an earlier benchmark
month) in our business. Finally, we believe the third discussion regarding end
market performance provides insight into activities with our various types of
customers.

Annual Sales Changes, by Month

During the months noted below, all of our selling locations, when combined, had a DSR change of (compared to the same month in the preceding year):

Jan. Feb. Mar. Apr. May June

July Aug. Sept. Oct. Nov. Dec. 2022 14.9 % 21.3 % 19.1 % 20.3 % 17.6 % 16.0 %

18.1 % 16.1 % 13.7 % 13.6 % 10.2 % 8.0 % 2021 6.5 % 1.5 % 7.5 % 1.2 % -3.2 % 1.7 %

9.7 % 9.0 % 11.1 % 14.1 % 13.2 % 16.5 %

Sequential Trends



We find it helpful to think about the monthly sequential changes in our business
using the analogy of climbing a stairway - This stairway has several predictable
landings where there is a pause in the sequential gain (i.e. April, July, and
October to December), but generally speaking, climbs from January to
October. The October landing then establishes the benchmark for the start of the
next year.

History has identified these landings in our business cycle. They generally
relate to months where certain holidays impair business days and/or seasons
impact certain end markets, particularly non-residential construction. The first
landing centers on Easter and the Good Friday holiday that precedes it, which in
any given year can fall in March or April, the second landing centers on July
4th, and the third landing centers on the approach of winter with its seasonal
impact on primarily our non-residential construction business and with the
Christmas/New Year holidays. The holidays we noted impact the trends because
they either move from month-to-month or because they move around during the
week.

The table below shows the pattern to the sequential change in our daily
sales. The line labeled 'Benchmark' is a historical average of our sequential
daily sales change for the trailing five year average that excludes 2020. We
have excluded 2020 from the average as the effects of the pandemic created
unusual sequential patterns that we do not consider representative of normal
trends. We believe this time frame serves to show the historical pattern and
could serve as a benchmark. The '2022' and '2021' lines represent our actual
sequential daily sales changes. The '22Delta' and '21Delta' lines indicate the
difference between the 'Benchmark' and the actual results in the respective
year. Under normal circumstances, the sequential trends shown below are directly
linked to fluctuations in our end markets. Further, in any given month it is
possible to get significant deviation from the benchmark.
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It is important to note that these benchmarks are historical averages. In a year
where demand is strong, our daily sales growth rates will tend to have more
months that exceed the benchmark than fall below it. In a year where demand is
weak, we will tend to have more months that fall short of the benchmark than
exceed it. In both cases, there is a random element that makes it difficult to
know how any single month will perform.

                                                                                                                                                                                                            Cumulative Change
                           Jan.(1)             Feb.              Mar.             Apr.              May              June              July              Aug.              Sept.             Oct.           from Jan. to Oct.
Benchmark (2)                 -0.1  %            0.8  %           3.4  %            0.1  %           2.2  %            1.9  %           -3.3  %            3.1  %            3.4  %           -2.1  %                   9.5  %
2022                           1.7  %            3.1  %           3.6  %           -1.2  %           3.2  %            0.2  %           -1.6  %            1.3  %            2.7  %           -0.1  %                  11.7  %
22Delta                        1.7  %            2.4  %           0.2  %           -1.3  %           1.1  %           -1.7  %            1.6  %           -1.8  %           -0.7  %            2.0  %                   2.2  %
2021                           0.9  %           -2.3  %           5.6  %           -2.2  %           5.6  %            1.6  %           -3.4  %            3.1  %            4.8  %            0.0  %                  13.0  %
21Delta                        1.0  %           -3.0  %           2.2  %           -2.3  %           3.4  %           -0.3  %           -0.2  %            0.0  %            1.5  %            2.1  %                   3.5  %

(1) The January figures represent the percentage change from the previous October, whereas

the remaining figures represent the percentage change from the previous month.

(2) The benchmark for each month is the average of the previous five years for that month. As

COVID-19-related surge sales made sequential averages in 2020 unrepresentative, the

benchmark uses a preceding five-year average that excludes 2020. We also exclude the

impact of the 2017 Mansco acquisition.

Note - Amounts may not foot due to rounding difference.



A graph of the sequential daily sales change patterns discussed above, starting
with a base of '100' in the previous October and ending with the next October,
would be as follows:

                    [[Image Removed: fast-20221231_g2.jpg]]

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End Market Performance

We estimate approximately 70% of our business is with customers engaged in some
type of manufacturing, a significant subset of which finds its way into the
heavy equipment market. The DSR change to these manufacturing customers, when
compared to the same period in the prior year, was as follows:

DSR change - manufacturing customers Q1 Q2 Q3


  Q4        Annual
2022                                    23.9  %     23.1  %     22.6  %     16.0  %     21.3  %
2021                                     5.6  %     24.5  %     20.8  %     23.8  %     18.4  %


Our manufacturing business consists of two subsets: the industrial production
business (this is business where we supply products that become part of the
finished goods produced by our customers and is sometimes referred to as OEM -
original equipment manufacturing) and the maintenance portion (this is business
where we supply products that maintain the facility or the equipment of our
customers engaged in manufacturing and is sometimes referred to as MRO -
maintenance, repair, and operations). The industrial business is more
fastener-centered, while the maintenance portion is represented by all product
categories.

The best way to understand the change in our industrial production business is
to examine the results in our fastener product line (which, under normal
business conditions, represents 30% to 35% of our business) which is heavily
influenced by changes in our business with heavy equipment manufacturers. From a
company perspective, the DSR change of fasteners, when compared to the same
period in the prior year, was as follows (note: this information includes all
end markets):

DSR change - fasteners        Q1          Q2          Q3          Q4        Annual
2022                        24.6  %     21.2  %     18.2  %      9.1  %     18.1  %
2021                         4.0  %     28.4  %     20.2  %     24.2  %     18.8  %


By contrast, the best way to understand the change in the maintenance portion of
the manufacturing business is to examine the results in our non-fastener product
lines. From a company perspective, the DSR change of non-fasteners, when
compared to the same period in the prior year, was as follows (note: this
information includes all end markets):

           DSR change - non-fasteners       Q1          Q2           Q3          Q4        Annual
           2022                           15.0  %      16.0  %     14.4  %     11.6  %     14.2  %
           2021                            6.1  %     -10.8  %      5.1  %      9.6  %      1.9  %


Two product lines, safety and janitorial, accounted for approximately 44% of
total non-fastener sales in 2022. The pattern in 2021, and particularly the
second quarter of 2021, was affected by difficult comparisons versus the prior
year, when the onset of the COVID-19 pandemic resulted in a surge of safety and
janitorial supplies that was not repeated to the same degree in 2022. Setting
aside the unique circumstances surrounding the pandemic, our non-fastener
business is not immune to the impact of industrial cycles. However, we would
typically expect it to outperform our fastener business over the course of a
cycle. This reflects three things: the non-fastener market is larger than the
fastener market, we are under penetrated in the non-fastener market relative to
the fastener market, and industrial vending lends itself to sales of
non-fastener products.

We estimate approximately 15% to 20% of our business is with customers engaged
in non-residential construction and reseller markets. The DSR change to these
customers, when compared to the same period in the prior year, was as follows:

DSR change - non-residential construction and
reseller customers                                      Q1                Q2                Q3                 Q4               Annual
2022                                                    10.3  %            8.0  %            4.6  %            -1.6  %             5.3  %
2021                                                    -6.7  %            3.5  %            7.0  %            10.3  %             3.3  %


Our non-residential construction and reseller business is heavily influenced by
manufacturing, oil and gas, and infrastructure spending. In 2022, these markets
were healthy, which contributed to growth with these customers.

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Gross Profit

The gross profit percentage during each period was as follows:



          Q1          Q2          Q3          Q4        Annual
2022    46.6  %     46.5  %     45.9  %     45.3  %     46.1  %
2021    45.4  %     46.5  %     46.3  %     46.5  %     46.2  %


Our gross profit, as a percentage of net sales, was 46.1% in 2022 and 46.2% in
2021, a decrease of 10 basis points. This decrease was primarily related to
three factors. First, in 2022 we experienced relatively higher growth from our
large and Onsite customers, which tend to have a lower gross margin percentage
than the business as a whole. This was only partly offset by favorable product
mix resulting from relatively higher growth from our fasteners products during
the year, which tend to have a higher gross margin percentage than the business
as a whole. Second, in the second half of 2022, we did not pass through pricing
sufficient to offset higher costs, which resulted in an adverse impact on our
gross margin percentage. Third, in the second half of 2022, we experienced lower
product margins for certain categories of our other products. We believe slower
demand and greater product availability in the marketplace due to supply chain
normalization has put some pressure on products that tend to be sold less
frequently by our business units. These factors were mostly offset by a
reduction in the amount of pandemic-related write-downs and narrower losses to
operate our truck fleet related to our strong freight revenue growth leveraging
relatively stable fleet costs.

Operating and Administrative Expenses



Our operating and administrative expenses, as a percentage of net sales,
decreased by approximately 80 basis points to 25.2% in 2022 from 26.0% in 2021.
Employee-related expenses, as a percentage of net sales, decreased by
approximately 20 basis points. Occupancy-related expenses, as a percentage of
net sales, decreased by approximately 60 basis points. All other operating and
administrative expenses, as a percentage of net sales, was unchanged in 2022
from 2021.

The percentage change in employee-related, occupancy-related, and all other
operating and administrative expenses (including the loss (gain) on sales of
property and equipment) compared to the same periods in the preceding year, is
outlined in the table below.


                                                         Approximate Percentage              Twelve-month Period
                                                         of Total Operating and
                                                        Administrative Expenses          2022                      2021
Employee-related expenses                                      70% to 75%                      14.7  %                11.6  %
Occupancy-related expenses                                     15% to 20%                       2.6  %                 3.9  %
All other operating and administrative expenses                10% to 15%                      18.5  %                 4.9  %


Employee-related expenses include: (1) payroll (which includes cash compensation, stock option expense, and profit sharing), (2) health care, (3) personnel development, and (4) social taxes.



Our employee-related expenses increased in 2022 from 2021. This was related to:
higher base pay and employment taxes from higher FTE during the period and
moderate wage inflation; an increase in bonuses and commissions resulting from
improved sales and profitability; and an increase in our profit sharing
contribution. This was partly offset by a decline in health insurance costs, as
the use of medical services by employees normalized following the post-pandemic
catch-up activity in 2021.

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The table below summarizes the percentage change in our FTE headcount at the end of the periods presented compared to the end of the prior period:



                                                          Twelve-month 

Period


                                                            2022            

2021


       In-market locations (branches & Onsites)                   6.0  %    

0.7 %


       Non-in-market selling (1)                                 18.4  %    

8.0 %


       Selling subtotal                                           7.9  %    

1.7 %


       Distribution/Transportation                                8.4  %    

5.8 %


       Manufacturing                                             12.4  %    

2.0 %


       Organizational support personnel (2) (3)                   9.5  %     7.4  %
       Non-selling subtotal                                       9.3  %     5.8  %
       Total                                                      8.3  %     2.8  %

(1) 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) Due to a calculation error, organizational support personnel was overstated by 36 FTE

in the fourth quarter of 2021, with total non-selling FTE and total FTE being

overstated by the same amount. These figures have been corrected in this Form 10-K.

Adjusting for this error, total FTE in 2021 would have been down by an additional 0.2%

for year-to-date growth. (3) 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.




Occupancy-related expenses include: (1) building rent and depreciation, (2)
building utility costs, (3) equipment related to our branches and distribution
locations, and (4) industrial vending equipment (we consider the vending
equipment, excluding leased locker equipment, to be a logical extension of our
in-market operations and classify the depreciation and repair costs as occupancy
expenses).

Our occupancy-related expenses increased in 2022 from 2021. This was related to:
higher costs and depreciation for the maintenance, upgrade and installation of
equipment in hub and non-hub facilities; slightly higher depreciation related to
a higher installed base of our FMI suite of technologies; and slightly higher
facility costs, with higher utility costs being only partly offset by lower
rents stemming from branch consolidations.

All other operating and administrative expenses include: (1) selling-related
transportation, (2) information technology (IT) expenses, (3) general corporate
expenses, which consists of legal expenses, general insurance expenses, travel
and marketing expenses, etc., and (4) the loss (gain) on sales of property and
equipment.

Combined, all other operating and administrative expenses increased in 2022 from
2021. This was related to: higher costs related to selling-related
transportation, including higher fuel costs; higher spending on information
technology; higher spending on travel, meals, and supplies; and higher general
insurance expense. These elements were only partly offset by lower bad debt
expense.

Net Interest Expense



Our net interest expense was $13.6 in 2022 compared to $9.6 in 2021. We carried
higher average debt balances in 2022 relative to the prior year, and
specifically higher balances of variable rate credit facility debt, as a result
of high sustained working capital needs and an increase in share buybacks. We
also incurred higher average interest rates during the year due to changes in
interest levels in the marketplace.

Income Taxes



We recorded income tax expense of $353.1 in 2022, or 24.5% of earnings before
income taxes, compared to $282.8 in 2021, or 23.4% of earnings before income
taxes. The increase in our tax rate in 2022 is due primarily to reduced benefits
associated with the exercise of stock options, an increase in state income tax
expense, and an absence of certain favorable reserve adjustments that benefited
2021.

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Net Earnings

Net earnings, net earnings per share (EPS), the percentage change in net earnings, and the percentage change in EPS, were as follows:



Dollar Amounts          2022          2021
Net earnings        $ 1,086.9        925.0
Basic EPS                1.89         1.61
Diluted EPS              1.89         1.60

Percentage Change       2022          2021
Net earnings             17.5  %       7.7  %
Basic EPS                17.7  %       7.5  %
Diluted EPS              17.8  %       7.4  %
                        2022          2021
Tax Rate                 24.5  %      23.4  %

During 2022, net earnings increased, primarily due to higher sales and our ability in the period to grow costs more slowly than we grew sales. This was only slightly offset by a higher income tax rate.

Liquidity and Capital Resources

Net Cash Provided by Operating Activities



Net cash provided by operating activities in dollars and as a percentage of net
earnings were as follows:

                        2022         2021
Net cash provided    $ 941.0        770.1
% of net earnings       86.6  %      83.3  %

In 2022, we experienced a slight increase in our operating cash flow as a percentage of net earnings, though this reflects a significant increase in our conversion percentage in the second half of 2022 which more than offset a significant decline in our conversion percentage in the first half of 2022. Taken as a whole, while our working capital needs remained elevated through 2022, they declined slightly on a year-over-year basis whereas our earnings increased on a year-over-year basis.

Trade Working Capital Assets



The following table sets forth the dollar and percentage change in accounts
receivable, net, inventories, and accounts payable for the period ended December
31:

                                                                                                                            Twelve-month
                                                                                      Twelve-month Dollar Change         Percentage Change
                                                                 2022                   2022                                    2022
Accounts receivable, net                                     $ 1,013.2                  113.0                                         12.6  %
Inventories                                                    1,708.0                  184.4                                         12.1  %
Trade working capital                                        $ 2,721.2                  297.4                                         12.3  %

Accounts payable                                             $   255.0                   21.9                                          9.4  %

Trade working capital, net                                   $ 2,466.2                  275.5                                         12.6  %

Net sales in last two months                                 $ 1,091.9                   91.7                                          9.2  %


Note - Amounts may not foot due to rounding difference.



In 2022, the annual growth in net accounts receivable reflected several factors.
First, our receivables are expanding due to improved business activity and
resulting growth in our customers' sales. Second, we continue to experience a
shift in our customer mix due to relatively stronger sales growth from national
account customers, which tend to be larger and carry longer payment terms than
our non-national account customers.

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Our inventory balances over time will respond to business activity, though
various factors produce a looser relationship to our monthly sales patterns than
we tend to experience in accounts receivable. One reason for this is because it
is cyclical. We source significant quantities of product from overseas, and the
lead time involved in procuring these products is typically longer than the
visibility we have into future monthly sales patterns. As a result, trends in
our inventory will often lag trends in economic conditions. A second reason
relates to product cost and the length of our supply chain. A significant
proportion of our products, particularly fasteners, are sourced from Asia and
transported primarily by ship and rail to our North American network for sale.
This requires us to purchase a meaningful quantity of our products months in
advance of those products being available for sale in our North American
facilities. Product that is in transit is in our inventory but is not available
for sales, which can create a lag in our ability to adjust inventory levels or
costs in response to rapid changes in economic or cost conditions. A third
reason for increases in our inventory balances is our growth drivers, including
our FMI offerings, Onsite channel, and international expansion, all of which
tend to require significant investments in inventory. In 2022, our inventories
increased, reflecting significant inflation in the value of stocked parts, the
addition of inventory to support the growth of our manufacturing and
construction customers as they expand production to meet improved business
activity, deeper inventory stocking due to disruption in supply chains, and our
efforts to sustain higher internal fulfillment rates.

In 2022, the annual growth in accounts payable reflected product purchases increasing to support the improvement in business activity at our manufacturing and construction customers.



The approximate percentage mix of inventory stocked at our selling locations
versus our distribution center and manufacturing locations was as follows at
year end:

                                                    2022       2021
Selling locations                                    58  %      57  %
Distribution center and manufacturing locations      42  %      43  %
Total                                               100  %     100  %


Lease Obligations

We have facilities, equipment, and vehicles leased under operating leases. A discussion of our lease obligations is contained in Note 8 of the Notes to Consolidated Financial Statements.

Net Cash Used in Investing Activities

Net cash used in investing activities in dollars and as a percentage of net earnings were as follows:



                       2022         2021
Net cash used       $ 163.0        148.5
% of net earnings      15.0  %      16.1  %


The changes in net cash used in investing activities in 2022 was primarily related to higher net capital expenditures.



Property and equipment expenditures typically consist primarily of:
(1) purchases related to industrial vending, (2) purchases of property and
equipment related to expansion of and enhancements to distribution centers, (3)
spending on software and hardware for our information processing systems, (4)
the addition of fleet vehicles, (5) expansion, improvement or investment in
certain owned or leased branch properties, and (6) the addition of manufacturing
and warehouse equipment. Proceeds from the sales of property and equipment,
typically for the planned disposition of pick-up trucks as well as distribution
vehicles and trailers in the normal course of business, are netted against these
purchases and additions.

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Set forth below is a recap of our 2022 and 2021 net capital expenditures in dollars and as a percentage of net sales and net earnings:



                                                                        2022                 2021

Manufacturing, warehouse and packaging equipment, industrial vending equipment, and facilities

$    97.8                    70.3

Shelving and related supplies for in-market location openings and for product expansion at existing in-market locations

                    21.5                    11.0
Data processing software and equipment                                   30.6                    28.0
Real estate and improvements to branch locations                         12.4                    37.9
Vehicles                                                                 11.5                     9.4
Purchases of property and equipment                                     173.8                   156.6
Proceeds from sale of property and equipment                            (11.4)                   (8.4)
Net capital expenditures                                                162.4                   148.2
% of net sales                                                            2.3  %                  2.5  %
% of net earnings                                                        14.9  %                 16.0  %


Our net capital expenditures increased in 2022, when compared to 2021. The most
significant area driving this increase was higher spending on FMI equipment. We
had slightly higher property spending, which reflected significant investments
in automation and upgrades at our hubs mostly offset by lower spending on a new
building in downtown Winona, which was completed in 2021. We had only modest
increases related to our vehicle fleet, manufacturing operations, and
information technology. Net capital expenditures in 2022 were below our
anticipated range of $170.0 to $190.0 due to certain equipment and project
delays related to hub projects.

We expect our net capital expenditures in 2023 to be within a range of $210.0 to
$230.0. This increase from 2022 reflects: spending on upgrades to and
investments in automation at certain hubs; the beginning of construction of a
distribution center in Utah; investment in materials to facilitate our branch
conversion projects; higher spending on information technology; and investments
in fleet equipment to support our network of heavy trucks.

Net Cash Used in Financing Activities

Net cash used in financing activities in dollars and as a percentage of net earnings were as follows:



                       2022         2021
Net cash used       $ 774.9        627.1
% of net earnings      71.3  %      67.8  %


The fluctuations in net cash used in financing activities are due to changes in
the level of our dividend payments and in the level of common stock purchases.
These amounts were partially offset by the exercise of stock options and net
payments (proceeds) from debt obligations. These items in dollars and as a
percentage of earnings were as follows:

                                                   2022          2021
Cash dividends paid                             $  711.3        643.7
% of net earnings                                   65.4  %      69.6  %
Purchases of common stock                          237.8            -
% of net earnings                                   21.9  %         -  %
Total returned to shareholders                  $  949.1        643.7
% of net earnings                                   87.3  %      69.6  %

Proceeds from the exercise of stock options $ (9.2) (31.6) % of net earnings

                                   -0.8  %      -3.4  %
Debt obligations (proceeds) payments, net       $ (165.0)        15.0
% of net earnings                                  -15.2  %       1.6  %
Net cash used                                   $  774.9        627.1
% of net earnings                                   71.3  %      67.8  %


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Stock Purchases

In 2022, we purchased 5,000,000 shares of our common stock at an average price
of approximately $47.58 per share. In 2021, we did not purchase any shares of
our common stock.

Dividends

We declared a quarterly dividend of $0.35 per share on January 18, 2023. In 2022, we paid aggregate annual dividends per share of $1.24. In 2021, we paid aggregate annual dividends per share of $1.12.

Debt



In order to fund the considerable cash needed to expand our industrial vending
business, expand capacity and increase the use of automation in our distribution
centers, pay dividends, and, in 2022, to purchase our common stock, we have
borrowed under our Credit Facility and our Master Note Agreement in recent
periods.

Our borrowings under the Credit Facility and Master Note Agreement peaked during each quarter of 2022 as follows:



                             Peak borrowings     2022
                             First quarter     $ 525.0
                             Second quarter      595.0
                             Third quarter       650.0
                             Fourth quarter      710.0


As of December 31, 2022, we had $225.0 outstanding under the Credit Facility and
had contingent obligations from letters of credit outstanding under the Credit
Facility in an aggregate face amount of $36.3. As of December 31, 2022, we had
loans outstanding under the Master Note Agreement of $330.0. Descriptions of our
Credit Facility and Master Note Agreement are contained in Note 9 of the Notes
to Consolidated Financial Statements.

Material Cash Requirements



Our material cash requirements for known contractual obligations include capital
expenditures, debt, and lease obligations, each of which are discussed in more
detail earlier in this section. We believe that net cash provided by operating
activities will be adequate to meet our liquidity and capital needs for these
items in the short-term over the next 12 months and also in the long-term beyond
the next 12 months. We also have cash requirements for purchase orders and
contracts for the purchase of inventory and other goods and services, which are
based on current distribution needs and are fulfilled by our suppliers within
short time horizons. We do not have significant agreements for the purchase of
inventory or other goods or services specifying minimum order quantities. In
addition, we may have liabilities for uncertain tax positions but we do not
believe any of these liabilities will be material. A discussion of income taxes
is contained in Note 7 of the Notes to Consolidated Financial Statements.

Unremitted Foreign Earnings



Approximately $184.4 of cash and cash equivalents are held by non-U.S.
subsidiaries. These funds may create foreign currency translation gains or
losses depending on the functional currency of the entity holding the cash. We
have considered the financial requirements of each foreign subsidiary and our
parent company and will continue to reinvest these funds to support our
expansion activities outside the U.S., even after taking into consideration the
deemed repatriation and transition tax under the Tax Cuts and Jobs Act. The
income tax impact of repatriating cash associated with investments in foreign
subsidiaries is discussed in Note 7 of the Notes to Consolidated Financial
Statements.

Effects of Inflation



In 2022, we began to observe easing in inflationary pressures for metals
(especially steel), energy, and transportation services (especially overseas
containers and shipping). However, this did not translate into a reduction in
inflationary pressures on our financial results for two reasons. First,
inflationary pressures accelerated through 2021, and many periods in 2022 were
comparing to lower cost levels in the preceding year. Second, we have a long
supply chain for many products, and it can take several quarters from when
inflationary pressures begin to recede for the effect to impact our earnings
results. In 2022, we increased prices, sought alternative sources for products
and service, and consolidated spend for products and services as a means of
mitigating inflation. However, higher product and transportation costs did have
a slightly negative effect on our gross margin percentage for the full year.

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PRIOR YEAR RESULTS ENDED 2021

Results of Operations

The following sets forth consolidated statements of earnings information (as a percentage of net sales) for the periods ended December 31:



                                                            2021         2020
Net sales                                                  100.0  %     100.0  %
Gross profit                                                46.2  %      45.5  %
Operating and administrative expenses                       26.0  %      25.3  %
Operating income                                            20.3  %      20.2  %
Net interest expense                                        -0.2  %      -0.2  %
Earnings before income taxes                                20.1  %      20.1  %

Note - Amounts may not foot due to rounding difference.

Net Sales



Note - Daily sales are defined as the total net sales for the period divided by
the number of business days (in the United States) in the period. The table
below sets forth net sales and daily sales for the periods ended December 31,
and changes in such sales from the prior period to the more recent period:

                                                    2021           2020
Net sales                                       $ 6,010.9        5,647.3
Percentage change                                     6.4  %         5.9  %
Business days                                         253            255
Daily sales                                     $    23.8           22.1
Percentage change                                     7.3  %         5.5  %
Daily sales impact of currency fluctuations           0.6  %        -0.1  %


The increase in net sales noted above for 2021 was due to higher unit sales of
industrial products to traditional manufacturing and construction customers and
higher pricing, only partly offset by lower pandemic-related personal protection
equipment (PPE) sales as the prior year's demand surge did not recur.

Higher unit sales in 2021 were a result of strong economic activity which
increased demand for our products to our traditional manufacturing and
construction customers. Although economic strength was fairly consistent
throughout the year, our growth patterns were not, primarily due to comparisons
related to the timing of pandemic-related PPE sales in the previous year. For
instance, our daily sales growth in the first half of 2021 was 2.5%. Our
cyclical product categories substantially outperformed this, as exemplified by
fastener daily sales growth of 15.4% in the first half of 2021. However, this
was mostly offset by the absence of significant spending for PPE that occurred
in the previous period, which is best illustrated by safety products' daily
sales decline of 20.2% in first half of 2021. By contrast, our daily sales
growth in the second half of 2021 was a much stronger 12.3%. Our cyclical
product categories continued to outperform with fastener daily sales having
grown 22.2% in the second half of 2021. While certain products and markets
within our business continued to face difficult PPE comparisons, they were not
as severe as what had been experienced in the first half of 2021, which allowed
our safety products to post daily growth of 0.3% in the second half of 2021.

Our growth drivers also returned to contributing meaningfully to higher unit
sales in 2021, due to strong business activity within our customer base and, to
a lesser degree, a higher installed base of FMI devices. Our number of active
Onsites increased 11.9%, for instance, while Onsite daily sales growth was
20.6%. Similarly, our installed base of FMI MEUs increased 10.6%, while FMI
daily sales growth was 41.0%.

While demand was strong throughout 2021, the year experienced certain
disruptions. The first were supply chain constraints, as the rapid recovery in
demand resulted in shortages in production and shipping capacity. The second was
labor shortages, which were particularly acute in the market for part-time
employees. The third was the ongoing COVID-19 pandemic, which continued to
produce periodic surges in infection rates. While businesses largely managed
through these events as opposed to stopping production, the instability it
created in worker availability exacerbated the pre-existing supply chain and
labor challenges. The fourth was inflation in material costs, overseas and
domestic transportation expenses, and labor wage rates. We believe the most
significant impact of these disruptions was on our growth driver signings. We
signed 274 Onsites in 2021, above the prior year (223 signings) but well below
our goal at the start of 2021 of 375 to 400 units. Similarly, we signed 19,311
FMI MEUs, above the prior year (16,503 MEUs), but well below our goal at the
start of the year of 23,000 to 25,000 MEUs.

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We believe many of our customers were diverting significant energy to managing
the effects of supply chain, labor, COVID-19, and inflation in the short term,
and it lengthened the sales cycle for our supply chain solutions.

Price contributed 200 to 230 basis points to our net sales growth in 2021. We
instituted a number of pricing events during 2021 as a means of mitigating
rising product and transportation costs. As these events fell more heavily into
the second half of the year, price contributed an increasing amount through the
period, with price in the fourth quarter of 2021 contributing 440 to 470 basis
points to net sales growth.

Sales by Product Line

The approximate mix of sales from fasteners, safety supplies, and all other
product lines was as follows:

                       2021       2020
Fasteners              33.3%      29.9%
Safety supplies        21.2%      25.5%
Other product lines    45.5%      44.6%


The shifts in product mix in 2021 compared to 2020 reflect the impact of the
pandemic. In 2020, actions taken by governments and businesses to address
COVID-19 caused a significant decline in economic activity that produced sales
declines in our cyclical products, such as fasteners, but increased demand for
PPE and produced sales growth in our safety products. The effect was to reduce
our mix of sales coming from fasteners and other product lines while increasing
the mix of sales coming from safety products. In 2021, these dynamics reversed
with economic recovery generating strong growth in our cyclical product lines
while the absence of surge sales and stabilization in the supply chain for PPE
restrained growth in safety products. The effect was to increase our mix of
sales coming from fasteners and other product lines while reducing the mix of
sales coming from safety products.

Our product categories did not fully revert to pre-pandemic levels in 2021, as
our mix of safety products in 2021 of 21.2% remained meaningfully above our mix
of safety products in 2019 of 17.9%. In the short term, the pandemic created
heightened safety and sanitation protocols relative to the pre-pandemic period,
and the increased use of related products as a result increased our mix of
safety products sales.

Annual Sales Changes, Sequential Trends, and End Market Performance



This section focuses on three distinct views of our business - annual sales
changes by month, sequential trends, and end market performance. The first
discussion regarding sales changes by month provides a good mechanical view of
our business. The second discussion provides a framework for understanding the
sequential trends (that is, comparing a month to the immediately preceding
month, and also looking at the cumulative change from an earlier benchmark
month) in our business. Finally, we believe the third discussion regarding end
market performance provides insight into activities with our various types of
customers.

Annual Sales Changes, by Month

During the months noted below, all of our selling locations, when combined, had a DSR change of (compared to the same month in the preceding year):



        Jan.       Feb.       Mar.       Apr.        May        June       July       Aug.       Sept.        Oct.        Nov.        Dec.
2021    6.5  %     1.5  %     7.5  %     1.2  %     -3.2  %     1.7  %     9.7  %     9.0  %     11.1  %     14.1  %     13.2  %     16.5  %
2020    3.6  %     4.7  %     0.2  %     6.7  %     14.8  %     9.5  %     2.6  %     2.5  %      2.2  %      4.1  %      6.8  %      9.3  %


Sequential Trends

The table below shows the pattern to the sequential change in our daily
sales. The line labeled 'Benchmark' is a historical average of our sequential
daily sales change for the trailing five year average that excludes 2020. We
have excluded 2020 from the average as the effects of the pandemic created
unusual sequential patterns that we do not consider representative of normal
trends. We believe this time frame serves to show the historical pattern and
could serve as a benchmark. The '2021' and '2020' lines represent our actual
sequential daily sales changes. The '21Delta' and '20Delta' lines indicate the
difference between the 'Benchmark' and the actual results in the respective
year. Under normal circumstances, the sequential trends shown below are directly
linked to fluctuations in our end markets. Further, in any given month it is
possible to get significant deviation from the benchmark. However, we do not
believe that fully explains the exaggerated delta between the sequential rates
of change and the benchmark from March 2020 to July 2020. We believe deviation
of this duration and order of magnitude is uncharacteristic in our business and
is related to the dramatic impacts of the pandemic in that period.

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It is important to note that these benchmarks are historical averages. In a year
where demand is strong, our daily sales growth rates will tend to have more
months that exceed the benchmark than fall below it. In a year where demand is
weak, we will tend to have more months that fall short of the benchmark than
exceed it. In both cases, there is a random element that makes it difficult to
know how any single month will perform.

                                                                                                                                                                                                          Cumulative Change
                       Jan.(1)             Feb.              Mar.              Apr.               May              June               July              Aug.             Sept.             Oct.           from Jan. to Oct.
Benchmark (2)             -1.0  %            1.2  %            3.1  %            0.1  %            1.7  %            1.8  %            -3.4  %            3.3  %           2.2  %           -2.5  %                   7.5  %
2021                       0.9  %           -2.3  %            5.6  %           -2.2  %            5.6  %            1.6  %            -3.4  %            3.1  %           4.8  %            0.0  %                  13.0  %
21Delta                    1.9  %           -3.5  %            2.5  %           -2.3  %            3.9  %           -0.2  %             0.0  %           -0.2  %           2.6  %            2.5  %                   5.5  %
2020                      -1.3  %            2.5  %           -0.3  %            3.9  %           10.4  %           -3.3  %           -10.5  %            3.8  %           2.9  %           -2.6  %                   5.5  %
20Delta                   -0.3  %            1.3  %           -3.4  %            3.8  %            8.7  %           -5.1  %            -7.0  %            0.5  %           0.6  %           -0.1  %                  -2.0  %

(1) The January figures represent the percentage change from the previous October, whereas

the remaining figures represent the percentage change from the previous month. (2) The benchmark for each month is the average of the previous five years for that month. As

COVID-19-related surge sales made sequential averages in 2020 unrepresentative, the

benchmark uses a preceding five-year average that excludes 2020. We also exclude the

impact of the 2017 Mansco acquisition.

Note - Amounts may not foot due to rounding difference.



A graph of the sequential daily sales change patterns discussed above, starting
with a base of '100' in the previous October and ending with the next October,
would be as follows:

                    [[Image Removed: fast-20221231_g3.jpg]]

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End Market Performance

The DSR change to our manufacturing customers, when compared to the same period in the prior year, was as follows:

DSR change - manufacturing customers Q1 Q2 Q3


 Q4        Annual
2021                                    5.6  %     24.5  %     20.8  %     23.8  %     18.4  %
2020                                    3.0  %     -9.4  %     -4.7  %      1.7  %     -2.5  %


From a company perspective, the DSR change of fasteners, when compared to the
same period in the prior year, was as follows (note: this information includes
all end markets):

DSR change - fasteners        Q1          Q2           Q3          Q4        Annual
2021                         4.0  %      28.4  %     20.2  %     24.2  %     18.8  %
2020                        -2.6  %     -16.4  %     -6.9  %     -2.3  %     -7.2  %

From a company perspective, the DSR change of non-fasteners, when compared to the same period in the prior year, was as follows (note: this information includes all end markets):



            DSR change - non-fasteners      Q1          Q2          Q3          Q4        Annual
            2021                           6.1  %     -10.8  %     5.1  %      9.6  %      1.9  %
            2020                           6.0  %      25.6  %     7.8  %     11.2  %     12.7  %


Two product lines, safety and janitorial, accounted for approximately 44% of
total non-fastener sales in 2021. As previously disclosed, COVID-19 generated
outsized growth in these two product categories in 2020 and the subsequent
stabilization of the supply chain resulted in a reduction in orders and sales
performance in 2021 that was well below what might normally be expected given
the health of the industrial economy. As a result, the change in our
non-fastener lines in 2021 and 2020 did not provide as much insight into the
trends of our traditional manufacturing and construction customers as is
typically the case. Still, we have sold non-fastener products through multiple
cycles that do not include a pandemic and believe we can make several
observations. Generally speaking, our non-fastener business is not immune to the
impact of industrial cycles. However, we would typically expect it to outperform
our fastener business in any cycle. This reflects three things: the non-fastener
market is larger than the fastener market, we are underpenetrated in the
non-fastener market relative to the fastener market, and industrial vending
lends itself to sales of non-fastener products.

The DSR change to our non-residential construction and reseller customers, when compared to the same period in the prior year, was as follows:



DSR change - non-residential construction and
reseller customers                                      Q1                 Q2                  Q3                  Q4               Annual
2021                                                    -6.7  %              3.5  %              7.0  %            10.3  %             3.3  %
2020                                                    -1.2  %            -10.0  %            -11.5  %            -8.3  %            -7.8  %


Our non-residential construction and reseller business is heavily influenced by
manufacturing, oil and gas, and infrastructure spending. In 2021, improving
economic business conditions, high prices for commodities such as metals and
energy, and tightening facilities utilization produced improving growth rates
throughout the year. In 2020, the poor and slowing production environment,
respectively and as described above, and the accompanying worsening trends for
commodities such as metals and energy, caused the growth in our non-residential
construction and reseller customers to slow.

Gross Profit

The gross profit percentage during each period was as follows:



          Q1          Q2          Q3          Q4        Annual
2021    45.4  %     46.5  %     46.3  %     46.5  %     46.2  %
2020    46.6  %     44.5  %     45.3  %     45.6  %     45.5  %


Our gross profit, as a percentage of net sales, was 46.2% in 2021 and 45.5% in
2020. The gross profit percentage for 2021 increased by 70 basis points based on
higher product margins, primarily for safety products and
overhead/organizational leverage related to higher volumes.

During 2021, our gross profit percentage increased when compared to the prior
year. This was largely due to three factors. (1) We were able to leverage
overhead/organizational expenses, absorbing certain fixed and period costs
related to cyclical strength in our traditional manufacturing and construction
markets. (2) An improvement in product margins, particularly for safety
products. In response to the pandemic in 2020, we experienced a substantial
surge in demand for COVID-related safety supplies, such that these products
accounted for approximately 47% of total safety product sales in 2020, up from

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approximately 25% of total safety product sales in 2019. As these products
tended to carry a lower gross margin than non-COVID-related products, their
substantial expansion in our safety product mix in 2020 caused a decline in the
gross profit percentage of our safety product line. In 2021, we experienced
higher demand for non-COVID-related products as the industrial economy improved
and lower demand for COVID-related products as the supply chain steadied. This
caused our mix of lower margin COVID-related products to decline to
approximately 31% of total safety product sales, improving our overall safety
product margin. (3) Our net rebates were favorable in 2021. As supply chains
normalized and demand improved, we purchased more products through our
traditional partners increasing our supplier rebates. At the same time, customer
rebates moderated as spending from several key customers that purchased
significant COVID-related products declined.

These variables were only partly offset by a $7.8 write-down of masks in the
first quarter of 2021. The impact of price/cost was neutral for 2021, as we were
able to lift prices in response to higher costs for products and transportation
services. The net impact of product and customer mix was also neutral for 2021,
as the benefit of relatively stronger fastener sales to product mix was
negatively impacted by relatively stronger growth from larger and Onsite
customers.

Operating and Administrative Expenses



Our operating and administrative expenses, as a percentage of net sales,
increased by approximately 70 basis points to 26.0% in 2021 from 25.3% in 2020.
Employee-related expenses, as a percentage of net sales, increased by
approximately 80 basis points. Occupancy-related expenses, as a percentage of
net sales, decreased by approximately 10 basis points. All other operating and
administrative expenses, as a percentage of net sales, was largely unchanged in
2021 from 2020.

The percentage change in employee-related, occupancy-related, and all other
operating and administrative expenses (including the loss (gain) on sales of
property and equipment) compared to the same periods in the preceding year, is
outlined in the table below.


                                                         Approximate Percentage              Twelve-month Period
                                                         of Total Operating and
                                                        Administrative Expenses          2021                      2020
Employee-related expenses                                         70%                          11.6  %                -2.0  %
Occupancy-related expenses                                     15% to 20%                       3.9  %                 0.3  %
All other operating and administrative expenses                10% to 15%                       4.9  %                -7.2  %


Our employee-related expenses increased in 2021 from 2020. This was related to:
improvement in our sales and profitability generating significantly higher
bonuses and commissions; higher health insurance costs as employees became
comfortable again in seeking non-COVID-related health care; an increase in our
profit sharing contribution; and higher full-time and part-time wages producing
an increase in base pay.

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The table below summarizes the percentage change in our FTE headcount at the end of the periods presented compared to the end of the prior period:



                                                          Twelve-month 

Period


                                                           2021             

2020


      In-market locations (branches & Onsites)                   0.7  %    

-8.0 %


      Non-in-market selling (1)                                  8.0  %    

5.4 %


      Selling subtotal                                           1.7  %    

-6.2 %


      Distribution/Transportation                                5.8  %    

-10.5 %


      Manufacturing                                              2.0  %    

-9.9 %


      Organizational support personnel (2) (3)                   7.4  %    

  8.7  %
      Non-selling subtotal                                       5.8  %      -5.2  %
      Total                                                      2.8  %      -6.0  %

(1) 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) Due to a calculation error, organizational support personnel was overstated by 36 FTE

in the fourth quarter of 2021, with total non-selling FTE and total FTE being

overstated by the same amount. These figures have been corrected in this Form 10-K.

Adjusting for this error, total FTE in 2021 would have been down by an additional 0.2%

for year-to-date growth. (3) 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.




Our occupancy-related expenses increased in 2021 from 2020. This was related to:
the timing of development costs related to equipment utilized as part of our FMI
suite of technologies; depreciation related to a higher installed base of FMI
devices; and higher facility costs, with higher costs for non-branch facilities
and utilities being only partly offset by slightly lower costs for branch
facilities from branch closings.

Combined, all other operating and administrative expenses increased in 2021 from
2020. This was related to: higher spending on information technology; higher
spending on travel, meals, and supplies as business activity recovered from the
COVID-related travel restrictions of 2020; and higher costs for legal
settlements. These elements were partly offset by lower bad debt expenses and
lower general insurance costs.

Net Interest Expense



Our net interest expense was $9.6 in 2021 compared to $9.1 in 2020. This was
related to: lower interest income, as the special dividend paid in December 2020
resulted in lower interest-earning cash balances in 2021; slightly higher
interest expense which was the net result of slightly higher average interest
rates and slightly lower average debt. During 2021, we repaid one tranche under
our Master Note Agreement, reducing the balance from $405.0 to $390.0. However,
in the fourth quarter of 2021 we increased our balance outstanding under our
revolver by $25.0 to support working capital growth.

Income Taxes



We recorded income tax expense of $282.8 in 2021, or 23.4% of earnings before
income taxes, compared to $273.6 in 2020, or 24.2% of earnings before income
taxes. Our effective tax rate reflects an $8.7 reduction in income tax expense
due to discrete items mainly relating to benefits associated with the exercise
of stock options and changes in the reserve for uncertain tax positions.

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Net Earnings

Net earnings, net earnings per share (EPS), the percentage change in net earnings, and the percentage change in EPS, were as follows:



Dollar Amounts         2021         2020
Net earnings        $ 925.0        859.1
Basic EPS              1.61         1.50
Diluted EPS            1.60         1.49

Percentage Change      2021         2020
Net earnings            7.7  %       8.6  %
Basic EPS               7.5  %       8.5  %
Diluted EPS             7.4  %       8.4  %
                       2021         2020
Tax Rate               23.4  %      24.2  %

During 2021, net earnings increased, primarily due to stronger sales translating into higher pre-tax profits, as well as a lower income tax rate.

Liquidity and Capital Resources

Net Cash Provided by Operating Activities

Net cash provided by operating activities in dollars and as a percentage of net earnings were as follows:



                        2021          2020
Net cash provided    $ 770.1        1,101.8
% of net earnings       83.3  %       128.3  %


In 2021, the decrease in our operating cash flow as a percentage of net earnings
was due to significant growth in working capital as we supported growth in our
customers' operations as well as, in the case of inventory, significant product
inflation. This was only slightly mitigated by ongoing efforts to improve the
efficiency of our working capital and contrasts sharply with 2020 when weaker
demand from our customers resulted in working capital being a net source of
operating cash.

Trade Working Capital Assets



The following table sets forth the dollar and percentage change in accounts
receivable, net, inventories, and accounts payable for the period ended December
31:

                                                                                                                            Twelve-month
                                                                                      Twelve-month Dollar Change         Percentage Change
                                                                 2021                   2021                                    2021
Accounts receivable, net                                     $   900.2                  130.8                                         17.0  %
Inventories                                                    1,523.6                  186.1                                         13.9  %
Trade working capital                                        $ 2,423.8                  316.9                                         15.0  %

Accounts payable                                             $   233.1                   26.1                                         12.6  %

Trade working capital, net                                   $ 2,190.7                  290.8                                         15.3  %

Net sales in last two months                                 $ 1,000.1                  130.3                                         15.0  %


Note - Amounts may not foot due to rounding difference.



In 2021, the annual growth in net accounts receivable reflected several factors.
First, our receivables were expanding as a result of improved business activity
and resulting growth in our customers' sales. Second, in response to the
COVID-19 pandemic, customers that traditionally have shorter payment terms
represented a smaller proportion of our sales mix at the end of 2021 than was
the case at the end of 2020.

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Our inventory balances over time will respond to business activity, though
various factors produce a looser relationship to our monthly sales patterns than
we tend to experience in accounts receivable. One reason for this is cyclical.
We source significant quantities of product from overseas, and the lead time
involved in procuring these products is typically longer than the visibility we
have into future monthly sales patterns. As a result, trends in our inventory
will often lag trends in economic conditions. A second reason is our growth
drivers, including our FMI offerings, Onsite channel, and international
expansion, all of which tend to require significant investments in inventory. In
2021, our inventories increased, reflecting significant inflation in the value
of stocked parts, and the addition of inventory to support the growth of our
manufacturing and construction customers as they expanded production to meet
improved business activity, and deeper inventory stocking due to disruption in
supply chains.

In 2021, the annual growth in accounts payable reflected product purchases increasing to support the improvement in business activity at our manufacturing and construction customers.



The approximate percentage mix of inventory stocked at our selling locations
versus our distribution center and manufacturing locations was as follows at
year end:

                                                    2021       2020
Selling locations                                    57  %      59  %

Distribution center and manufacturing locations 43 % 41 % Total

                                               100  %     100  %


Net Cash Used in Investing Activities

Net cash used in investing activities in dollars and as a percentage of net earnings were as follows:



                       2021         2020
Net cash used       $ 148.5        281.7
% of net earnings      16.1  %      32.8  %


The changes in net cash used in investing activities in 2021 were primarily related to the absence of an acquisition, in contrast to the $125.0 spent in 2020 for the purchase of certain assets of Apex Industrial Technologies LLC (Apex), as well as lower net capital expenditures.

Set forth below is a recap of our 2021 and 2020 net capital expenditures in dollars and as a percentage of net sales and net earnings:



                                                                        2021                 2020

Manufacturing, warehouse and packaging equipment, industrial vending equipment, and facilities

$    70.3                    91.5

Shelving and related supplies for in-market location openings and for product expansion at existing in-market locations

                    11.0                    15.7
Data processing software and equipment                                   28.0                    31.4
Real estate and improvements to branch locations                         37.9                    16.1
Vehicles                                                                  9.4                    13.4
Purchases of property and equipment                                     156.6                   168.1
Proceeds from sale of property and equipment                             (8.4)                  (10.6)
Net capital expenditures                                                148.2                   157.5
% of net sales                                                            2.5  %                  2.8  %
% of net earnings                                                        16.0  %                 18.3  %


Our net capital expenditures decreased in 2021, when compared to 2020. We had
higher spending on an office building construction project in Winona, Minnesota
intended to support growth in our business. This was more than offset by reduced
spending in other areas. We saw a significant decline in spending on FMI
equipment due to slower hardware signings, lower vending equipment costs
following the March 2020 acquisition of certain industrial vending assets of
Apex, and an increase in the refurbishment and redeployment of FMI hardware as
an alternative to buying new devices. We also had lower capital investment in
our hub properties following a period of heavier investment in 2018 and 2019,
and reduced spending on selling-related vehicles as challenges in the supply
chain reduced availability.

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Net Cash Used in Financing Activities

Net cash used in financing activities in dollars and as a percentage of net earnings were as follows:



                       2021         2020
Net cash used       $ 627.1        754.4
% of net earnings      67.8  %      87.8  %


The fluctuations in net cash used in financing activities were due to changes in
the level of our dividend payments and in the level of common stock purchases.
These amounts were partially offset by the exercise of stock options and net
payments (proceeds) from debt obligations. These items in dollars and as a
percentage of earnings were as follows:

                                                   2021         2020
Cash dividends paid                             $ 643.7        803.4
% of net earnings                                  69.6  %      93.5  %
Purchases of common stock                             -         52.0
% of net earnings                                     -  %       6.1  %
Total returned to shareholders                  $ 643.7        855.4
% of net earnings                                  69.6  %      99.6  %

Proceeds from the exercise of stock options $ (31.6) (41.0) % of net earnings

                                  -3.4  %      -4.8  %
Debt obligations payments (proceeds), net       $  15.0        (60.0)
% of net earnings                                   1.6  %      -7.0  %
Net cash used                                   $ 627.1        754.4
% of net earnings                                  67.8  %      87.8  %


Stock Purchases

In 2021, we did not purchase any shares of our common stock. In 2020, we purchased 1,600,000 shares of our common stock at an average price of approximately $32.54.

Dividends



In 2021, we paid aggregate annual dividends per share of $1.12. In 2020, we paid
aggregate annual dividends per share of $1.40, which included $1.00 in regular
quarterly dividends and a $0.40 special dividend paid in December 2020 as a
result of our high cash balances and favorable financial outlook.

Debt

Our borrowings under the Credit Facility and Master Note Agreement peaked during each quarter of 2021 as follows:



                             Peak borrowings     2021
                             First quarter     $ 485.0
                             Second quarter      430.0
                             Third quarter       455.0
                             Fourth quarter      470.0


Effects of Inflation

In 2021, we experienced significant increases in the cost of metals (especially
steel), energy, and transportation (especially overseas containers and
shipping). These inflationary trends meaningfully increased the cost of many of
the products we purchase. We were able to mitigate the adverse effects of higher
costs on our gross profit percentage in 2021 by increasing prices, seeking
alternative sources for products and services, and consolidating spend for
products and services. While the effects of inflation in 2021 were broad-based,
we did experience deflation for certain COVID-related products that had inflated
in 2020 when the supply chain was disrupted. This did require us to write down
the value of these products in 2021, which negatively impacted our gross profit
percentage in the first quarter of 2021 and, to a lesser extent, throughout the
balance of the year.

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Critical Accounting Estimates



In preparing our consolidated financial statements in conformity with U.S. GAAP,
we must make decisions that impact the reported amounts of assets, liabilities,
revenues and expenses, and the related disclosures. Such decisions include the
selection of the appropriate accounting principles to be applied and the
assumptions on which to base accounting estimates. In reaching such decisions,
we apply judgments based on our understanding and analysis of relevant
circumstances, historical experience, and actuarial valuations. Actual amounts
could differ from those estimated at the time the consolidated financial
statements are prepared.

Our most significant accounting policies, including Revenue Recognition and
Inventories, are described in Note 1 of the Notes to Consolidated Financial
Statements. Some of those significant accounting policies require us to make
difficult, subjective, or complex judgments, or estimates. An accounting
estimate is considered to be critical if it meets both of the following
criteria: (i) the estimate requires assumptions about matters that are highly
uncertain at the time the accounting estimate is made, and (ii) different
estimates reasonably could have been used, or changes in the estimate that are
reasonably likely to occur from period to period may have a material impact on
the presentation of our financial condition, changes in financial condition, or
results of operations. Our most critical accounting estimates include the
following:

Allowance for Credit Losses - This reserve is for accounts receivable balances
that are potentially uncollectible. The allowance for credit losses is based on
an income statement approach which adjusts the ending balance sheet to take into
consideration expected losses over the contractual lives of the receivables,
considering factors such as historical data as a basis for future expected
losses. If business or economic conditions change, our estimates and assumptions
may be adjusted as deemed appropriate. Historically, actual required reserves
have not varied materially from estimated amounts.

Inventory valuation - Adjustments to the valuation of inventory are based on an
analysis of inventory trends including reviews of inventory levels, sales
information, and the on-hand quantities relative to the sales history for the
product. Our methodology for estimating whether adjustments are necessary is
continually evaluated for factors including significant changes in product
demand, market conditions, condition of the inventory, or liquidation value. If
business or economic conditions change, our estimates and assumptions may be
adjusted as deemed appropriate. Historically, actual required adjustments have
not varied materially from estimated amounts.

General insurance reserves - These reserves are for general claims related to
workers' compensation, property and casualty losses, and other general liability
self-insured losses. The reserves are based on an analysis of reported claims
and claims incurred but not yet reported related to our historical claim trends.
We perform ongoing reviews of our insured and uninsured risks and use this
information to establish appropriate reserve levels. We analyze historical
trends, claims experience, and loss development patterns to ensure the
appropriate loss development factors are applied to the incurred costs
associated with the claims made. Historically, actual required reserves have not
varied materially from estimated amounts.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued and adopted accounting pronouncements, if any, is contained in Note 1 of the Notes to Consolidated Financial Statements.


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