FASTENAL CO MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

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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 condensed consolidated financial
statements. Dollar amounts are stated in millions except for share and per share
amounts and where otherwise noted. Throughout this document, percentage and
dollar change calculations, which are based on non-rounded dollar values, may
not be able to be recalculated using the dollar values in this document due to
the rounding of those dollar values. References to daily sales rate (DSR) change
may reflect either growth (positive) or contraction (negative) for the
applicable period.

Company

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.

Our motto is Where Industry Meets Innovation™. We are a customer and
growth-centric organization focused on identifying unique technologies,
capabilities, and supply chain solutions that get us closer to our customers and
reduce the total cost of their global supply chain. We believe this
close-to-the-customer, high touch partnership approach is differentiated in the
marketplace and allows us to gain market share in what remains a fragmented
industrial distribution market.

Executive Overview

The following table presents a performance summary of our results of operations
for the nine-month and three-month periods ended September 30, 2022 and 2021.

                                                                 Nine-month Period                                                  Three-month Period
                                                  2022                    2021                Change                  2022                    2021                Change
Net sales                                   $      5,285.0                4,479.0                18.0  %       $      1,802.4                 1,554.2                16.0  %
Business days                                          192                    191                                          64                      64
Daily sales                                 $         27.5                   23.5                17.4  %       $         28.2                    24.3                16.0  %
Gross profit                                $      2,447.4                2,064.3                18.6  %       $        826.5                   720.2                14.8  %
 % of net sales                                       46.3  %                46.1  %                                     45.9  %                 46.3  %
Operating and administrative expenses       $      1,326.7                1,147.8                15.6  %       $        447.3                   401.8                11.3  %
% of net sales                                        25.1  %                25.6  %                                     24.8  %                 25.9  %
Operating income                            $      1,120.7                  916.5                22.3  %       $        379.2                   318.4                19.1  %
 % of net sales                                       21.2  %                20.5  %                                     21.0  %                 20.5  %
Earnings before income taxes                $      1,111.8                  909.3                22.3  %       $        375.3                   316.1                18.7  %
 % of net sales                                       21.0  %                20.3  %                                     20.8  %                 20.3  %
Net earnings                                $        841.3                  693.8                21.3  %       $        284.6                   243.5                16.9  %
Diluted net earnings per share              $         1.46                   1.20                21.3  %       $         0.50                    0.42                17.4  %














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

                                                                       Change                         Change                         Change
                                                                       Since:                         Since:                         Since:
                                          Q3                Q2           Q2                Q4           Q4                Q3           Q3
                                         2022              2022         2022              2021         2021              2021         2021
In-market locations - absolute
employee headcount                      13,243            13,134          

0.8% 12,464 6.3% 12,347 7.3% Market locations – FTE headcount

                               11,897            12,039         

-1.2% 11,337 4.9% 11,104 7.1% Absolute total workforce 22,025

            21,629          1.8  %         20,507          7.4  %         20,231          8.9  %
Total FTE employee headcount            19,519            19,523          0.0  %         18,370          6.3  %         17,860          9.3  %

Number of branch locations               1,716             1,737        

-1.2% 1,793 -4.3% 1,859 -7.7% Number of assets On the site pitches 1,567

             1,501          

4.4% 1,416 10.7% 1,367 14.6% Number of locations on the market

            3,283             3,238          

1.4% 3,209 2.3% 3,226 1.8% Weighted FMI devices (number of MEUs installed) (1)

                              99,409            96,872          

2.6% 92,874 7.0% 90,493 9.9%

(1) This number excludes approximately 7,500 non-weighted devices that are part of our locker rental program.

During the last twelve months, we increased our total FTE employee headcount by
1,659. This reflects an increase in our in-market and non-in-market selling FTE
employee headcount of 1,131 to support growth in the marketplace and sales
initiatives targeting customer acquisition. We had an increase in our
distribution center FTE employee headcount of 329 to support increasing product
throughput at our facilities and to expand our local inventory fulfillment
terminals (LIFTs). We had an increase in our remaining FTE employee headcount of
199 that relates primarily to personnel investments in information technology,
manufacturing, and operational support, such as purchasing and product
development.

We opened three branches in the third quarter of 2022 and closed 24 branches,
net of conversions. We activated 92 Onsite locations in the third quarter of
2022 and closed 26, net of conversions. In any period, the number of closings
tends to reflect both 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.

THIRD QUARTER 2022 VS. THIRD QUARTER 2021

Operating results

The following table sets forth condensed consolidated statement of earnings
information (as a percentage of net sales) for the periods ended September 30:

                                                                 Three-month Period
                                                                 2022              2021
Net sales                                                            100.0  %     100.0  %
Gross profit                                                          45.9  %      46.3  %
Operating and administrative expenses                                 24.8  %      25.9  %
Operating income                                                      21.0  %      20.5  %
Net interest expense                                                  -0.2  %      -0.2  %
Earnings before income taxes                                          20.8  %      20.3  %

Note – Amounts may not be identical due to rounding differences.

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Net sales

The table below sets forth net sales and daily sales for the periods ended
September 30, and changes in such sales from the prior period to the more recent
period:

                                                                                  Three-month Period
                                                                            2022                   2021
Net sales                                                               $  1,802.4                   1,554.2
Percentage change                                                             16.0  %                   10.0  %
Business days                                                                   64                        64
Daily sales                                                             $     28.2                      24.3
Percentage change                                                             16.0  %                   10.0  %
Daily sales impact of currency fluctuations                                   -0.6  %                    0.5  %

Note – Daily sales are defined as the total net sales for the period divided by the number of working days (in
United States) in the period.


Net sales increased $248.2, or 16.0%, in the third quarter of 2022 when compared
to the third quarter of 2021. The number of business days were the same in both
periods. We estimate adverse weather that impacted the southeastern U.S. reduced
our quarterly growth by 10 to 30 basis points. We experienced higher unit sales
in the third quarter of 2022 that contributed to the increase in net sales in
the period. This was due to good underlying demand in markets tied to industrial
capital goods and commodities, which more than offset softer markets tied to
consumer goods and relatively lower growth in construction. Foreign exchange
negatively affected sales in the third quarter of 2022 by approximately 60 basis
points.

The overall impact of product pricing on net sales in the third quarter of 2022
was 550 to 580 basis points compared to the third quarter of 2021. The increase
is from actions taken over the past twelve months intended to mitigate the
impact of marketplace inflation for our products, particularly fasteners, and
transportation services. We did not take any broad pricing actions in the third
quarter of 2022, and price levels in the market remained stable. The favorable
impact of product pricing moderated in the third quarter of 2022 relative to the
second quarter of 2022 due to comparisons against initial price events that
began in the third quarter of 2021. Spot prices in the marketplace for many
inputs, particularly fuel, transportation services, and steel, began to decline
during the period. Due to our long supply chain for fasteners and certain
non-fastener products, however, it is likely to take several quarters before
this is reflected in our cost of goods. The impact of product pricing on net
sales in the third quarter of 2021 was 230 to 260 basis points.

From a product standpoint, we have three categories: fasteners, safety supplies,
and other product lines, the latter of which includes eight smaller product
categories, such as tools, janitorial supplies, and cutting tools. The DSR
change when compared to the same period in the prior year and the percent of
sales in the period were as follows:

                           DSR Change                      % of Sales
                       Three-month Period              Three-month Period
                         2022           2021             2022           2021
Fasteners                     18.2  %  20.2  %                34.1  %  33.4  %
Safety supplies               12.4  %  -2.9  %                20.5  %  21.1  %
Other                         15.4  %   9.2  %                45.4  %  45.5  %

Our end markets include manufacturing, non-residential construction and others, the latter including dealers, government/education and transportation/warehousing. The change in DSR compared to the same period of the previous year and the percentage of sales for the period were as follows:

                                        DSR Change                 % of Sales
                                    Three-month Period         Three-month Period
                                    2022         2021           2022        2021
Manufacturing                     22.6%        20.8%          72.9%       68.9%
Non-residential construction       5.2%        10.5%          10.2%       11.3%
Other                             -1.4%       -16.2%          16.9%       19.8%


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We report our customers in two categories: national accounts, which are
customers with a multi-site contract, and non-national accounts, which include
large regional customers, small local customers, and government customers. Sales
to most of our national account customers grew in the third quarter of 2022 over
the year earlier period, as our sales grew at 83 of our Top 100 national account
customers. The DSR change when compared to the same period in the prior year and
the percent of sales in the period were as follows:

                                 DSR Change                      % of Sales
                             Three-month Period              Three-month Period
                               2022           2021             2022           2021
National Accounts                   20.8  %  16.8  %                58.0  %  56.6  %
Non-National Accounts                9.9  %   2.2  %                42.0  %  43.4  %


Growth Drivers

•We signed 86 new Onsite locations (defined as dedicated sales and service
provided from within, or in close proximity to, the customer's facility) in the
third quarter of 2022, resulting in year-to-date signings of new Onsite
locations of 294. We had 1,567 active sites on September 30, 2022, which
represented an increase of 14.6% from September 30, 2021. Daily sales through
our Onsite locations, excluding sales transferred from branches to new Onsites,
grew at a greater than 20% rate in the third quarter of 2022 over the third
quarter of 2021. This growth is due to improved business activity from our
Onsite customers and, to a lesser degree, contributions from the increase in the
number of Onsites we operate. We continue to anticipate signing 375 to 400
Onsites in 2022, though we currently expect to be in the lower half of this
range given year-to-date signings.

•FMI Technology is comprised of our FASTStock? (scanned stocking locations),
FASTBin® (infrared, RFID, and scaled bins), and FASTVend® (vending devices)
offering. FASTStock's fulfillment processing technology is not embedded, is
relatively less expensive and highly flexible in application, and delivered
using our proprietary mobility technology. FASTBin and FASTVend incorporate
highly efficient and powerful embedded data tracking and fulfillment processing
technologies. Prior to 2021, we reported exclusively on the signings,
installations, and sales of FASTVend. Beginning in the first quarter of 2021, we
began disclosing certain statistics around our FMI offering. The first statistic
is a weighted FMI® measure which combines the signings and installations of
FASTBin and FASTVend in a standardized machine equivalent unit (MEU) based on
the expected output of each type of device. We do not include FASTStock in this
measurement because scanned stocking locations can take many forms, such as
bins, shelves, cabinets, pallets, etc., that cannot be converted into a
standardized MEU. The second statistic is revenue through FMI Technology which
combines the sales through FASTStock, FASTBin, and FASTVend. A portion of the
growth in sales experienced by FMI, particularly FASTStock and FASTBin, reflects
the migration of products from less efficient non-digital stocking locations to
more efficient, digital stocking locations.


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

                                                                                      Three-month Period
                                                                       2022                    2021                 Change
Weighted FASTBin/FASTVend signings (MEUs)                                5,187                   4,813                  7.8  %
Signings per day                                                            81                      75
Weighted FASTBin/FASTVend installations (MEUs; end of period)           99,409                  90,493                  9.9  %

FASTStock sales                                                  $       215.9                   165.9                 30.2  %
% of sales                                                                11.8  %                 10.6  %
FASTBin/FASTVend sales                                           $       456.9                   352.4                 29.7  %
% of sales                                                                25.1  %                 22.4  %
FMI sales                                                        $       672.8                   518.3                 29.8  %
FMI daily sales                                                  $        10.5                     8.1                 29.8  %
% of sales                                                                36.9  %                 33.0  %

We continue to forecast weighted FASTBin and FASTVend device signatures in 2022 in the 21,000-23,000 MEU range.

All metrics provided above exclude approximately 7,500 unweighted vending machines that are part of a rented locker program.

•Our eCommerce business includes sales made through an electronic data interface
(EDI), or other types of technical integrations, and through our web verticals.
Daily sales through eCommerce grew 50.2% in the third quarter of 2022 and
represented 18.0% of our total revenues in the period.

Our digital products and services are comprised of sales through FMI (FASTStock,
FASTBin, and FASTVend) plus that proportion of our eCommerce sales that do not
represent billings of FMI services (collectively, our Digital Footprint). We
believe the data that is created through our digital capabilities enhances
product visibility, traceability, and control that reduces risk in operations
and creates ordering and fulfillment efficiencies for both ourselves and our
customers. As a result, we believe our opportunity to grow our business will be
enhanced through the continued development and expansion of our digital
capabilities.

Our digital footprint in Q3 2022 represented 49.5% of our sales, an increase from 43.7% of sales in Q3 2021.

Gross profit

Our gross profit, as a percentage of net sales, declined to 45.9% in the third
quarter of 2022 from 46.3% in the third quarter of 2021. The decline in our
gross profit percentage was primarily related to three factors. First, the net
impact from product and customer mix was dilutive, reflecting relatively strong
growth of our Onsite and national account customers, which tend to be larger and
have a lower gross margin percentage. Second, we experienced unfavorable
price/cost, reflecting stable pricing for our products and services but slightly
higher costs. Third, we had a $3.4 write down in the value of certain gloves in
our inventory. Demand for nitrile gloves expanded dramatically during the
pandemic, and we purchased significant quantities in 2021 to address needs from
certain industries. As market conditions normalized, some of the product had an
inventory value above current market value, a situation we did not see
reversing. These impacts were partly offset by strong freight revenue, which
narrowed our freight losses, and our ability to leverage organizational
expenses.

Operating and administrative expenses

Our operating and administrative expenses, as a percentage of net sales, fell to
24.8% in the third quarter of 2022 from 25.9% in the third quarter of 2021. This
was primarily due to a decline, as a percentage of net sales, in
occupancy-related and employee-related expenses.

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The percentage change in employee-related, occupancy-related, and all other operating and administrative expenses from the same prior year periods is shown in the table below.

                                                                 Approximate Percentage of     Three-month Period
                                                                    Total Operating and
                                                                  Administrative Expenses             2022
Employee-related expenses                                               70% to 75%                           14.1  %
Occupancy-related expenses                                              15% to 20%                            3.8  %
All other operating and administrative expenses                         10% to 15%                            5.9  %


Personnel expenses include: (1) payroll (which includes cash compensation, stock option expenses, and profit sharing), (2) health care, (3) staff development, and (4) social charges.

In the third quarter of 2022, our employee-related expenses increased when
compared to the third quarter of 2021. We experienced an increase in employee
base pay, albeit at a rate below the growth in sales, due to higher average FTE
during the period and, to a lesser degree, higher average wages. Bonus and
commission payments increased at a rate greater than sales, reflecting improved
business activity and financial performance versus the year-ago period. We also
had higher profit sharing expense. These costs were partly offset by lower
healthcare expenses reflecting post-COVID normalization of the healthcare
environment.

The table below summarizes our FTE headcount at the end of the periods presented and the percentage change compared to the end of previous periods:

                                                                    Change                 Change
                                                                    Since:                 Since:
                                                 Q3         Q2        Q2           Q3        Q3
                                                2022       2022      2022         2021      2021
In-market locations (branches & Onsites)       11,897     12,039    -1.2  %      11,104     7.1  %
Non-in-market selling                           2,387      2,299     3.8  %       2,049    16.5  %
Selling subtotal                               14,284     14,338    -0.4  %      13,153     8.6  %
Distribution/Transportation                     2,889      2,872     0.6  %       2,560    12.9  %
Manufacturing                                     671        672    -0.1  %         616     8.9  %
Organizational support personnel (1)            1,675      1,641     2.1  %       1,531     9.4  %
Non-selling subtotal                            5,235      5,185     1.0  %       4,707    11.2  %
Total                                          19,519     19,523     0.0  %      17,860     9.3  %


(1) Organizational support personnel consists of: (1) Sales & Growth Driver
Support personnel (35%-40% of category), which includes sourcing, purchasing,
supply chain, product development, etc.; (2) Information Technology personnel
(30%-35% of category); and (3) Administrative Support personnel (25%-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).

In the third quarter of 2022, our occupancy expenses increased compared to the third quarter of 2021. Costs increased due to investment in materials and equipment, including appliances and materials and l IMF equipment needed to maintain and upgrade our branches and centers. Total construction costs remained essentially flat over the period.

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 the third
quarter of 2022 when compared to the third quarter of 2021. The increase in
other operating and administrative expenses relates primarily to higher product
movement and fuel costs for our local truck fleet, increased spending on
information technology services, and increased spending for travel and supplies.
This was only partly offset by reduced spending for general insurance.

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Net debit interest

Our net interest expense was $3.9 in the third quarter of 2022, compared to $2.3
in the third quarter of 2021. This increase is explained by higher average debt balances and higher average interest rates during the period.

Income taxes

We recorded income tax expense of $90.7 in the third quarter of 2022, or 24.2%
of earnings before income taxes. Income tax expense was $72.6 in the third
quarter of 2021, or 23.0% of earnings before income taxes. We believe our
ongoing tax rate, absent any discrete tax items or broader changes to tax law,
will be approximately 24.5%.

Net Earnings

Our net earnings during the third quarter of 2022 were $284.6, an increase of
16.9% compared to the third quarter of 2021. Our diluted net earnings per share
were $0.50 during the third quarter of 2022, which increased from $0.42 during
the third quarter of 2021.

Cash and capital resources

The cash flow activity was as follows for the periods ended September 30:

                                                   Three-month Period
                                                   2022              2021
Net cash provided by operating activities              257.9        167.4
Percentage of net earnings                              90.6  %      68.8  %
Net cash used in investing activities                   44.5         45.6
Percentage of net earnings                              15.6  %      18.7  %
Net cash used in financing activities                  220.8        190.2
Percentage of net earnings                              77.6  %      78.1  %


Net cash from operating activities

We produced operating cash flow of $257.9 in the third quarter of 2022, an
increase of 54.1% from the third quarter of 2021, representing 90.6% of the
period's net earnings versus 68.8% in the third quarter of 2021. While the
conversion rate in the third quarter of 2022 remains below historical norms for
the period, it also represents the first year-over-year improvement in the
metric since the first quarter of 2021. The resources required for operating
working capital eased relative to prior periods.

The dollar and percentage change in accounts receivable, net, inventories, and
accounts payable as of September 30, 2022 when compared to September 30, 2021
were as follows:

                                                                                                     Twelve-month Dollar         Twelve-month
                                                                       September 30                         Change            Percentage Change
                                                              2022                 2021                   2022                       2022
Accounts receivable, net                                $     1,110.6               949.4          $         161.2                         17.0  %
Inventories                                                   1,678.1             1,401.1                    277.0                         19.8  %
Trade working capital                                   $     2,788.7             2,350.5          $         438.3                         18.6  %

Accounts payable                                        $       277.2               256.9          $          20.3                          7.9  %

Trade working capital, net                              $     2,511.5             2,093.6          $         418.0                         20.0  %

Net sales in last two months                            $     1,249.1             1,062.5          $         186.6                         17.6  %

Note – Amounts may not be identical due to rounding differences.

The increase in our accounts receivable balance in the third quarter of 2022 is
primarily attributable to two factors. First, our receivables increased as a
result of improved business activity and resulting growth in our customers'
sales. Second, we continue to experience a shift in our mix due to relatively
stronger 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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The increase in our inventory balance in the third quarter of 2022 is primarily
attributable to three factors. First, our inventory increased to support
improved business activity by our customers. Second, over the past twelve months
we have aggressively imported product to deepen our inventory as a means of
addressing supply disruptions and provide our customers with resilient and
robust product availability. In the third quarter of 2022, we achieved target
product availability in our hubs and experienced easing constraints in our
supply chain, which allowed us to slightly shorten our product ordering cycle.
Third, inflation was responsible for slightly less than half of the overall
increase. The impact of inflation remains significant but continues to moderate,
with the third quarter being the first quarter in 2022 where inflation was not
the primary driver of inventory growth in the period.

Our accounts payable balance increased due to increased product purchases to support our customers’ growth and, to a lesser extent, the favorable timing impact on certain credit balances.

Net cash used in investment activities

Net cash used in investing activities decreased by $1.1 in the third quarter of
2022 when compared to the third quarter of 2021. This was primarily due to an
increase in our proceeds from sales of property and equipment in the third
quarter of 2022 compared to the third quarter of 2021.

Our capital spending will typically fall into six categories: (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. During the third quarter of 2022, our net capital expenditures
(purchases of property and equipment net of proceeds from sales of property and
equipment) were $44.4, which is a decrease of 2.4% from the third quarter of
2021. We had higher spending for FMI equipment, information technology, and hub
safety and automation upgrades, which was more than offset by lower spending on
a new building in downtown Winona, completed in 2021.

Cash requirements for capital expenditures were satisfied from cash generated
from operations, available cash and cash equivalents, our borrowing capacity,
and the proceeds of disposals. We now expect our investment in property and
equipment, net of proceeds of sales, to be within a range of $170.0 to $190.0
(versus our prior $180.0 to $200.0), an increase from $148.2 in 2021. This
annual increase reflects primarily: (1) higher spending on FMI equipment in
anticipation of higher signings, a deepening of FMI unit inventory to address
supply chain risks, and higher unit costs; (2) an increase in spending on hub
properties to reflect upgrades to and investments in automation, as well as
facility upgrades; and (3) an increase in manufacturing capacity to support
demand and expand capabilities. We reduced our range for the full year of 2022
due to slightly lower purchases of FMI devices deriving from our lower signings
activity, slightly lower vehicle purchases due to availability constraints, and
higher asset sales. In addition to capital expenditures, material cash
requirements for known contractual obligations include debt and lease
obligations which are discussed in more detail earlier in this report in the
Notes to Condensed Consolidated Financial Statements and in our 2021 annual
report on Form 10-K.

Net cash used in fundraising activities

Net cash used in financing activities increased $30.6 in the third quarter of
2022 when compared to the third quarter of 2021. This is primarily due to an
increase in cash used for dividend payments and to purchase our common stock,
which exceeded the increase in our debt obligations.

During the third quarter of 2022, we returned $272.8 to our shareholders in the
form of dividends ($177.5) and purchases of our common stock ($95.3), compared
to $161.0 in the third quarter of 2021, all in the form of dividends. During the
third quarter of 2022, we purchased 2,000,000 shares of our common stock at an
average price of approximately $47.68 per share. We did not purchase any shares
of our common stock in the third quarter of 2021.

We have authority to purchase up to 200,000 additional shares of our common
stock under the July 11, 2017 authorization and 8,000,000 additional shares of
our common stock under the July 12, 2022 authorization. These authorizations do
not have an expiration date.

An overview of our cash dividends paid or declared in 2022 and 2021 can be found in Note 3 of the Notes to the Condensed Consolidated Financial Statements.

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NINE MONTHS ENDED SEPTEMBER 30, 2022 AGAINST NINE MONTHS ENDED SEPTEMBER 30, 2021

Operating results

The following table sets forth condensed consolidated statement of earnings
information (as a percentage of net sales) for the periods ended September 30:

                                                                 Nine-month Period
                                                                 2022             2021
Net sales                                                           100.0  %     100.0  %
Gross profit                                                         46.3  %      46.1  %
Operating and administrative expenses                                25.1  %      25.6  %
Operating income                                                     21.2  %      20.5  %
Net interest expense                                                 -0.2  %      -0.2  %
Earnings before income taxes                                         21.0  %      20.3  %

Note – Amounts may not be identical due to rounding differences.

Net sales

The table below sets forth net sales and daily sales for the periods ended
September 30, and changes in such sales from the prior period to the more recent
period:

                                                                                     Nine-month Period
                                                                               2022                     2021
Net sales                                                               $       5,285.0                   4,479.0
Percentage change                                                                  18.0  %                    4.4  %
Business days                                                                       192                       191
Daily sales                                                             $          27.5                      23.5
Percentage change                                                                  17.4  %                    5.0  %
Daily sales impact of currency fluctuations                                        -0.4  %                    0.8  %

Note – Daily sales are defined as the total net sales for the period divided by the number of working days (in United States) in the period.


Net sales increased $806.0, or 18.0%, in the first nine months of 2022 when
compared to the first nine months of 2021. Adjusted for an extra selling day in
the first nine months of 2022, our net daily sales increased 17.4%. This
increase is due to improved unit sales across all major product categories,
resulting from continued strength in business activity. Foreign exchange
negatively affected sales in the first nine months of 2022 by approximately 40
basis points. We estimate that adverse weather reduced our growth by
approximately 10 basis points during the nine-month period.

The overall impact of product pricing on net sales was 600 to 630 basis points
during the first nine months of 2022. This increase reflects actions taken as
part of our strategy to mitigate the impact of marketplace inflation for our
products and services, particularly fasteners, and transportation services.
During the first nine months of 2022, material costs remained elevated while
costs for fuel and transportation services accelerated in their inflationary
impact. However, during the third quarter of 2022 we began to see costs for key
inputs, such as steel and fuel, decline. Should that trend be sustained, it
could eventually benefit our cost of goods, although given our long supply chain
it would likely take several quarters to see such an impact. The impact of
product pricing on net sales was 120 to 150 basis points during the first nine
months of 2021.

From a product standpoint, we have three categories: fasteners, safety supplies,
and other product lines, the latter of which includes eight smaller product
categories, such as tools, janitorial supplies, and cutting tools. The DSR
change when compared to the same period in the prior year and the percent of
sales in the period were as follows:

                           DSR Change                     % of Sales
                       Nine-month Period               Nine-month Period
                         2022          2021              2022          2021
Fasteners                    21.2  %   17.1  %               34.3  %  33.2  %
Safety supplies              13.8  %  -15.0  %               20.6  %  21.2  %
Other                        15.7  %    8.1  %               45.1  %  45.6  %


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Our end markets include manufacturing, non-residential construction and others, the latter including dealers, government/education and transportation/warehousing. The change in DSR compared to the same period of the previous year and the percentage of sales for the period were as follows:

                                        DSR Change                 % of Sales
                                    Nine-month Period           Nine-month Period
                                    2022         2021           2022        2021
Manufacturing                       23.2%      16.7%            72.0%     68.6%
Non-residential construction        9.8%        2.9%            10.4%     11.2%
Other                               2.1%      -21.1%            17.6%     20.2%


We report our customers in two categories: national accounts, which are
customers with a multi-site contract, and non-national accounts, which include
large regional customers, small local customers, and government customers. Sales
to most of our national account customers grew in the first nine months of 2022
over the year earlier period, as our sales grew at 92 of our Top 100 national
account customers. The DSR change when compared to the same period in the prior
year and the percent of sales in the period were as follows:

                                DSR Change                    % of Sales
                            Nine-month Period              Nine-month Period
                               2022         2021             2022          2021
National Accounts                  22.1  %  8.2  %               57.5  %  56.2  %
Non-National Accounts              11.6  %  1.0  %               42.5  %  43.8  %

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

                                                                                        Nine-month Period
                                                                        2022                    2021                  Change
Weighted FASTBin/FASTVend signings (MEUs)                                 16,005                  15,339                  4.3  %
Signings per day                                                              83                      80
Weighted FASTBin/FASTVend installations (MEUs; end of period)             99,409                  90,493                  9.9  %

FASTStock sales                                                   $        621.7                   416.9                 49.1  %
% of sales                                                                  11.6  %                  9.2  %
FASTBin/FASTVend sales                                            $      1,302.2                   981.1                 32.7  %
% of sales                                                                  24.4  %                 21.7  %
FMI sales                                                         $      1,923.9                 1,398.0                 37.6  %
FMI daily sales                                                   $         10.0                     7.3                 36.9  %
% of sales                                                                  36.0  %                 30.9  %

All metrics provided above exclude approximately 7,500 unweighted vending machines that are part of a rented locker program.

Daily sales via e-commerce increased by 52.6% in the first nine months of 2022 and represented 17.1% of our total revenue during the period.

Our digital footprint in the first nine months of 2022 represented 48.2% of our sales, an increase from 41.5% of sales in the first nine months of 2021.

Gross profit

In the first nine months of 2022, our gross profit, as a percentage of net
sales, improved to 46.3%, or 20 basis points from 46.1% in the first nine months
of 2021. This was driven by relatively modest changes in a number of variables.
The net effect of write-downs was favorable, as the absence of the $7.8 mask
write-down we had in the first quarter of 2021 was more favorable than the $3.4
glove write-down we had in the third quarter of 2022. We also achieved good
leverage over organizational expenses as a result of strong business activity.
These factors more than offset the dilutive impact of customer and product mix
and slightly lower product margin as the impact of weaker price/cost for
fasteners more than offset strong safety product margins. The impact of
price/cost was largely neutral to our gross profit percentage in the first nine
months of 2022.

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Operating and administrative expenses

Our operating and administrative expenses, as a percentage of net sales, fell to
25.1% compared to 25.6% in the first nine months of 2021. This is almost
entirely due to a decline, as a percentage of net sales, in occupancy-related
expenses.

The percentage change in employee-related, occupancy-related, and all other operating and administrative expenses from the same prior year periods is shown in the table below.

                                                                 Approximate Percentage of     Nine-month Period
                                                                    Total Operating and
                                                                  Administrative Expenses            2022
Employee-related expenses                                               70% to 75%                          17.8  %
Occupancy-related expenses                                              15% to 20%                           3.5  %
All other operating and administrative expenses                         10% to 15%                          20.8  %


In the first nine months of 2022, our employee-related expenses increased when
compared to the first nine months of 2021. We experienced a significant increase
in bonus and commission payments, including as a percentage of net sales, based
on our improved operating and financial performance over the period. We also
experienced an increase in base pay, although at a rate below our growth in net
sales, related to higher average FTE over the period, a shift in mix toward
full-time labor, and higher wages.

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

                                                                       Change
                                                                       Since:
                                                 Q3            Q4        Q4
                                                2022          2021      2021

Market locations (branches and Onsite) 11,897 11,337 4.9

 %
Non-in-market selling                           2,387         2,076    15.0  %
Selling subtotal                               14,284        13,413     6.5  %
Distribution/Transportation                     2,889         2,740     5.4  %
Manufacturing                                     671           619     8.4  %
Organizational support personnel (1)            1,675         1,598     4.8  %
Non-selling subtotal                            5,235         4,957     5.6  %
Total                                          19,519        18,370     6.3  %


(1) Organizational support personnel consists of: (1) Sales & Growth Driver
Support personnel (35%-40% of category), which includes sourcing, purchasing,
supply chain, product development, etc.; (2) Information Technology personnel
(30%-35% of category); and (3) Administrative Support personnel (25%-30% of
category), which includes human resources, Fastenal School of Business,
accounting and finance, senior management, etc.

In the first nine months of 2022, our occupancy-related expenses increased when
compared to the first nine months of 2021. This was primarily related to an
increase in expenses for FMI technology to support growth in our business as
well as higher costs to maintain and upgrade facility equipment. Total facility
costs were flat, with lower costs related to branch rationalization being offset
by higher utility expenses.

Combined, all other operating and administrative expenses increased in the first
nine months of 2022 when compared to the first nine months of 2021. The most
significant contributors to this increase were higher selling-related
transportation expenses to support growth and as a result of higher fuel costs,
higher costs related to travel and supplies, higher spending on information
technology, and higher general insurance costs.

Net debit interest

Our net interest expense was $8.9 in the first nine months of 2022, compared to
$7.2 in the first nine months of 2021.

Income taxes

We recorded an income tax expense of $270.5 in the first nine months of 2022, or 24.3% of profit before income taxes. The income tax expense was $215.5 in the first nine months of 2021, or 23.7% of profit before income taxes.

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Net gains

Our net profit in the first nine months of 2022 was $841.3an increase of 21.3% compared to the first nine months of 2021. Our diluted net earnings per share where $1.46 in the first nine months of 2022, which went from $1.20 in the first nine months of 2021.

Cash and capital resources

The cash flow activity was as follows for the periods ended September 30:

                                                   Nine-month Period
                                                   2022             2021

Net cash flow generated by operating activities $639.1 613.7 Percentage of Net Earnings

                            76.0  %       88.5  %

Net cash used in investing activities $121.6 107.0 Percentage of net winnings

                            14.5  %       15.4  %

Net cash used in financing activities $506.2 498.2 Percentage of net winnings

                            60.2  %       71.8  %


Net cash from operating activities

We produced operating cash flow of $639.1 in the first nine months of 2022, an
increase of 4.1% from the first nine months of 2021, representing 76.0% of the
period's net earnings versus 88.5% in the first nine months of 2021. Growth in
operating cash flow was due to higher net income, which more than offset an
increased need for working capital to support our customer's growth as well as
inflation in inventory. The working capital effects were more impactful to our
conversion ratio, however, causing that metric to decline over the nine-month
period.

Net cash used in investment activities

Net cash used in investing activities increased by $14.6 in the first nine months of 2022 compared to the first nine months of 2021. This is primarily due to an increase in our net capital expenditures (purchases of property, plant and equipment net of proceeds from the sale of property, plant and equipment) over the first nine months of 2022 compared to the first nine months of 2021.

During the first nine months of 2022, our net capital expenditures were $120.9,
which is an increase of 13.0% from the first nine months of 2021. The most
significant areas driving this increase are higher spending on hub safety and
automation upgrades, FMI equipment, and information technology, only partly
offset by lower spending on a new building in downtown Winona, completed in
2021.

Net cash used in fundraising activities

Net cash used in financing activities increased by $8.0 in the first nine months
of 2022 when compared to the first nine months of 2021. This is primarily due to
an increase in cash used for dividend payments and to purchase our common stock,
which exceeded the increase in our debt obligations.

During the first nine months of 2022, we returned $679.0 to our shareholders in
the form of dividends ($534.4) and purchases of our common stock ($144.6),
compared to $482.6 in the first nine months of 2021, all in the form of
dividends. During the first nine months of 2022, we purchased 3,000,000 shares
of our common stock at an average price of approximately $48.22 per share. We
did not purchase any shares of our common stock in the first nine months of
2021.

Critical Accounting Policies and Estimates – A discussion of our critical accounting policies and estimates is contained in our 2021 Annual Report on Form 10-K.

Recently Issued and Adopted Accounting Pronouncements – A description of recently issued and adopted accounting pronouncements, if any, is provided in Note 1 of the Notes to the Condensed Consolidated Financial Statements.

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Certain Risks and Uncertainties - Certain statements contained in this document
do not relate strictly to historical or current facts. As such, they are
considered 'forward-looking statements' that provide current expectations or
forecasts of future events. These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such statements can be identified by the use of terminology such as
anticipate, believe, should, estimate, expect, intend, may, will, plan, goal,
project, hope, trend, target, opportunity, and similar words or expressions, or
by references to typical outcomes. Any statement that is not a purely historical
fact, including estimates, projections, trends, and the outcome of events that
have not yet occurred, is a forward-looking statement. Our forward-looking
statements generally relate to our expectations and beliefs regarding the
business environment in which we operate, our projections of future performance,
our perceived marketplace opportunities, our strategies, goals, mission and
vision, and our expectations related to future capital expenditures, future tax
rates, future inventory levels, pricing, Onsite and weighted FMI device
signings, the impact of inflation on our cost of goods or operating costs, and
the impact of price increases and surge sales on overall sales growth or margin
performance. You should understand that forward-looking statements involve a
variety of risks and uncertainties, known and unknown, and may be affected by
inaccurate assumptions. Consequently, no forward-looking statement can be
guaranteed and actual results may vary materially. Factors that could cause our
actual results to differ from those discussed in the forward-looking statements
include, but are not limited to, the impact of the COVID-19 pandemic, economic
downturns, weakness in the manufacturing or commercial construction industries,
competitive pressure on selling prices, changes in our current mix of products,
customers, or geographic locations, changes in our average branch size, changes
in our purchasing patterns, changes in customer needs, changes in fuel or
commodity prices, inclement weather, changes in foreign currency exchange rates,
difficulty in adapting our business model to different foreign business
environments, failure to accurately predict the market potential of our business
strategies, the introduction or expansion of new business strategies, weak
acceptance or adoption of our FMI offering or Onsite business models, increased
competition in FMI or Onsite, difficulty in maintaining installation quality as
our FMI business expands, the leasing to customers of a significant number of
additional FMI devices, the failure to meet our goals and expectations regarding
branch openings, branch closings, or expansion of our FMI offering or Onsite
operations, changes in the implementation objectives of our business strategies,
our ability to retain certain government and other types of customers that
bought product from us for the first time during the pandemic, difficulty in
hiring, relocating, training, or retaining qualified personnel, difficulty in
controlling operating expenses, difficulty in collecting receivables or
accurately predicting future inventory needs, dramatic changes in sales trends,
changes in supplier production lead times, changes in our cash position or our
need to make capital expenditures, credit market volatility, changes in tax law
or the impact of any such changes on future tax rates, changes in tariffs or the
impact of any such changes on our financial results, changes in the availability
or price of commercial real estate, changes in the nature, price, or
availability of distribution, supply chain, or other technology (including
software licensed from third parties) and services related to that technology,
cyber-security incidents, potential liability and reputational damage that can
arise if our products are defective, difficulties measuring the contribution of
price increases on sales growth, acts of war, and other risks and uncertainties
detailed in our filings with the Securities and Exchange Commission, including
our most recent annual and quarterly reports. Each forward-looking statement
speaks only as of the date on which such statement is made, and we undertake no
obligation to update any such statement to reflect events or circumstances
arising after such date.

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