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Fastenal Company Reports 2010 Third Quarter Earnings

The remaining costs within our operating and administrative expenses, in the third quarter of 2010, decreased 5.1% from the third quarter of 2009 and decreased 3.3% from the second quarter of 2010. Occupancy expenses increased 7.9% from the third quarter of 2009 and increased 4.5% from the second quarter of 2010. The annual and sequential changes in occupancy expense were driven by increases in (1) utilities, (2) taxes, and (3) our new Holo-Krome facilities as our rent paid increased by 2.3% and 0.4%, respectively. Net transportation costs included in operating and administrative expenses decreased 7.0% from the third quarter of 2009 and 8.8% from the second quarter of 2010. 

The last several years have seen meaningful swings in the cost of diesel fuel and gasoline – During the first, second, and third quarters of 2010, our total vehicle fuel costs were approximately $6.4 million, $6.8 million, and $6.6 million, respectively. During the first, second, third, and fourth quarters of 2009, our total vehicle fuel costs were approximately $5.2 million, $5.7 million, $6.2 million, and $6.1 million, respectively. The changes resulted from variations in fuel costs, variations in the service levels provided to our stores from our distribution centers, and changes in the number of vehicles at our store locations. These fuel costs include the fuel utilized in our distribution vehicles (semi-tractors, straight trucks, and sprinter trucks) which is recorded in cost of goods and the fuel utilized in our store delivery vehicles which is included in operating and administrative expenses (the split in the last several years has been approximately 50:50 between distribution and store use). 

The average per gallon fuel costs and the percentage change (on a year-over-year basis) for the last three years was as follows:
Per gallon average price 1st 2nd 3rd 4th
  2010 - Quarter
Diesel fuel $2.89 3.06 2.96  
Gasoline $2.68 2.80 2.71  
  2009 - Quarter
Diesel fuel $2.19 2.29 2.61 2.70
Gasoline $1.86 2.25 2.55 2.54
  2008 - Quarter
Diesel fuel $3.47 4.30 4.38 3.11
Gasoline $3.07 3.65 3.85 2.49
Per gallon price change 1st 2nd 3rd 4th
  2010 - Quarter
Diesel fuel 32.0% 33.6% 13.4%  
Gasoline 44.1% 24.4% 6.3%  
  2009 - Quarter
Diesel fuel -36.9% -46.7% -40.4% -13.2%
Gasoline -39.4% -38.4% -33.8% 2.0%

Income taxes, as a percentage of earnings before income taxes, were approximately 38.1% for the first nine months of 2010 and 2009.


The year-over-year comparison and the related dollar and percentage changes related to accounts receivable and inventories were as follows:
  Balance at September 30, Twelve Month Dollar Change Twelve Month Percentage Change
    2010 2009 2008 2010 2009 2010 2009
Accounts receivable, net $ 301,721 239,323 309,184 62,398 (69,861) 26.1% -22.6%
Inventories   546,063 498,106 537,643 47,957 (39,537) 9.6% -7.4%

The accounts receivable increase of 26.1% from September 2009 to September 2010 was created by a daily sales increase of 22.1% and 23.5% in August and September 2010, respectively. The accounts receivable decrease of 22.6% from September 2008 to September 2009 relates to a daily sales decrease of 21.4% and 20.8% in August and September 2009, respectively. A portion of our inventory procurement has a longer lead time than our ability to foresee sales trends; therefore, the drop in sales growth activity in the fourth quarter of 2008 and during the first two months of 2009 continued to result in inventory consumption that was less than the amount of inbound product. The inventory decrease began in March 2009 and continued through most of 2009. Our inventory dropped approximately $9,000, $36,000, and $21,000 during the first, second, and third quarters of 2009, respectively. The inventory grew by approximately $10,000 in the fourth quarter of 2009; approximately half of this increase related to our December 2009 acquisition of Holo-Krome and the balance related to an increase in inventory stocking at our distribution centers to support the improving sales trends we have seen since August 2009. At the beginning of the year, our goal was to hold inventory flat in 2010; based on the first nine months of the year, we believe this goal will not be achieved in 2010. During 2010, our inventory decreased approximately $1,000 in the first quarter, increased approximately $15,000 in the second quarter, and increased approximately $23,000 in the third quarter; or a $37,000 increase year-to-date. This is disappointing to us; however, the expanding sales trends noted earlier in this discussion overshadow the disappointment. In its most simplified view, our expanding inventories are directly related to (1) the expanding sales growth trends (with emphasis on our large account business – both OEM & MRO), (2) our confidence in their sustainability, and (3) an increase in the rate of store openings. 

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