FAST 10-K & 10-Q changes, risk factors and insider trading

Interruptions in the proper functioning of information systems or the inability to maintain or upgrade our information systems, or convert to alternate systems in a timely and efficient manner, could disrupt operations, cause unanticipated increases in costs and/or decreases in sales, and result in less efficient operations. The proper functioning of our information systems is critical to many aspects of our business and we could be adversely affected if we experience a disruption or data loss relating to our information systems and are unable to recover in a timely manner. Our information systems are protected with robust backup systems and processes, including physical and software safeguards and remote processing capabilities. Still, information systems are vulnerable to natural disasters, power losses, unauthorized access, cybersecurity incidents, telecommunication failures, and other problems. In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their products or services or their relationship with us. It is also possible that we are unable to improve, upgrade, maintain, and expand our information systems. Our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and maintain the security of Fastenal and customer data, as well as the success of our growth drivers, is dependent in varying degrees on the effective and timely operation and support of our information technologyIT systems. If critical information systems fail or these systems or related software or services are otherwise unavailable, if we experience extended delays or unexpected expenses in securing, developing, and otherwise implementing technology solutions to support our growth and operations, or if certain insurance coverages are limited in their capabilities or affordability, it could adversely affect our profitability and/or ability to grow.

Our ability to successfully attract, develop, and retain qualified personnel to staff our selling locations could impact labor costs, sales at existing selling locations, and the successful execution of our growth drivers. Our success depends in part on our ability to attract, motivate, and retain a sufficient number of qualified employees, including inside and outside branch associates, Onsite managers, nationalcontract account sales representatives, and logistical and administrative support personnel, who understand and appreciate our culture and are able to adequately represent this culture to our customers. Qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the industry is high, particularly for less tenured employees. If we are unable to hire and retain personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and product knowledge, our sales could be materially and adversely affected. Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees. An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned expansion of our various selling channels.

Changes in customer or product mix, downward pressure on sales prices, an inability to capture price increases in response to increased costs associated with tariffs, and changes in volume or timing of orders have caused and could continue to cause our gross profit percentage to fluctuate or decline in the future. Changes in our customer and product mix have caused our gross profit percentage to decline and could cause our gross profit percentage to further fluctuate or decline. For example, we have experienced a sustained increase in the proportion of our sales attributable to both non-fastener products and nationalcontract accounts and Onsite customers. Non-fastener products typically have a lower gross profit percentage than fasteners because in many cases non-fastener products are less technical, have shorter supply chains, and are easier to transport. Similarly, nationalcontract accounts and Onsite customers typically have a lower gross profit percentage than smaller customers by virtue of their scale, available business, and broader offering of products which typically have lower gross profit percentages. Whether and to what extent this adverse mix impact will result in a decline of our gross profit percentage in any given year or period will depend on the extent to which they are offset by positive impacts to gross profit percentage during such year or period. Setting aside the circumstances of any given year or period, however, customer and product mix have contributed to the decline of our gross profit percentage over time and, based on the anticipated sources of our future growth, will likely continue to reduce our gross profit percentage into the foreseeable future. In 2025, tariff rates increased on many of the parts we sell. Additionally, new tariffs were enacted. There are other variables that could cause our gross profit percentage to decline, including downward pressure on sales prices due to deflation, increases in overseas freight charges, the inability of freight sales to leverage the expenses associated with our captive trucking fleet, pressure from customers to reduce costs, or increased competition. We could experience reductions in the volume of purchases we make from our suppliers, which could reduce supplier volume allowances. We may not be able to pass higher product costs along to customers if those customers have ready product or supplier alternatives in the marketplace. WeIn experienced2025, a number of these variables in 2024. Athe softer manufacturing economy causedcontinued to cause relative weakness in our more cyclical and higher gross margin fastener product line versus our non-fastener product lines. Similarly, we continued to execute initiatives aimed at accelerating key account penetration, which resulted in relative growth in our lower gross margin nationalcontract account and Onsite customers.accounts. The combination of these two events produced pressure on our product gross profit percentage in 20242025 from product and customer mix.

Our SG&A expenses could grow more rapidly than net sales, which could result in failure to achieve our goals related to leveraging sales growth into higher net income. Over time, we have generally experienced an increase in our SG&A expenses, including costs related to payroll, occupancy, freight, and information technology,IT, among others, as our net sales have grown. However, historically, a portion of these expenses has not increased at the same rates as net sales, allowing us to leverage our growth and sustain or expand our operating profit margins. There are various scenarios where we may not be able to continue to achieve this leverage as we have been able to do in the past. For instance, it is typical that when demand slows or declines, most commonly from cyclical or general market factors (although it could be due to customer losses or some other company-specific event), our SG&A expenses do not fall as quickly as net sales. It is also possible that in the future we will elect to make investments in SG&A expenses that would result in costs growing faster than net sales. In addition, market variables, which include but are not exclusive of labor rates, energy costs, legal costs, and health care costs, could move in such a way as to cause us to not be able to manage our SG&A expenses so as to leverage our sales growth into higher net income. WeIn experienced2025, aour numberincentive compensation programs did not leverage during the year due to increased sales and pretax profit growth compared to contraction or very low growth in most periods of these variables in 2024. Specifically, a softer manufacturing economy and our continued investment in personnel to support Onsite growth caused our SG&A to grow faster than sales, resulting in pressure on our operating margin percentage.

Our inability to attract or transition key executive officers may divert the attention of other members of our senior leadership and adversely impact our existing operations. Our success depends on the efforts and abilities of our key executive officers and senior leadership. In the event of voluntary or involuntary vacancies in our executive team in the future, the extent to which there is disruption in the oversight and/or leadership of our business will depend on our ability to either transition internal, talented individuals or recruit suitable replacements to serve in these roles. In addition, difficulties in smoothly implementing any transition to new members of our executive team, or recruiting suitable replacements, could divert the attention of other members of our senior leadership team from our existing operations. InAs previously disclosed, on December 2024,19, 2025, Mr. Florness informed our Chiefboard Financialof Officerdirectors disclosedof his intentiondecision to voluntarily step out of his role as our chief executive officer, effective as of the CEO Transition Date, and his decision to resign from Fastenalour board of directors, effective April 16, 2025. The processas of fillingthe CEO Transition Date. On December 19, 2025, our board of directors also appointed Mr. Watts, our current president and chief sales officer, as the next chief executive officer of Fastenal, effective as of the CEO Transition Date. If we are unable to manage this roletransition iseffectively, underway.our However, failure to develop, attract, and retain a suitable replacementoperations may havebe an adverse effect on our senior leadership team and our existing operations.disrupted.

We may be unable to meet our goals regarding the growth drivers of our business. Our sales growth is dependent primarily on our ability to attract new customers and increase our activity with existing customers within North America and abroad. In recent years, we have increased the resources devoted to developing a multi-dimensional, differentiated service offering, including our Digital Footprint (which incorporates our FMI and eBusiness capabilities), Onsites, nationalcontract accounts, international capabilities, and process and consumption analytics. While we have taken steps to build momentum in the growth drivers of our business, we cannot assure you those steps will lead to sales growth. Failure to achieve any of our goals regarding our Digital Footprint, Onsites, nationalcontract accounts, international capabilities, analytics, or other growth drivers could negatively impact our long-term sales and profit growth. In addition, failure to identify appropriate targets for the growth drivers of our business or failure to persuade the appropriate targets to adopt these offerings once identified may adversely impact our internally developed and/or externally communicated deployment objectives.

We cannot provide any guaranty of future dividend payments or that we will continue to purchase shares of our common stock pursuant to our share purchase program. Although our board of directors has historically authorized the payment of quarterly cash dividends on our common stock and indicated an intention to do so in the future, there are no assurances that we will continue to pay dividends in the future or continue to increase dividends at historic rates. In addition, although our board of directors has authorized share purchase programs and we purchased shares in 2022, 2020, and prior years through these programs, we may discontinue doing so at any time. Any decision to continue to pay quarterly dividends on our common stock, to increase those dividends, or to purchase our common stock in the future will be based upon our financial condition and results of operations, the price of our common stock, credit conditions, recommendations of management, and such other factors as are deemed relevant by our board of directors.

A downturn in either the national or local economies where we operate, or in the principal markets served by us, or changes in any of the other factors described above, could negatively impact sales at our in-marketselling locations, sales through our other selling channels, and the level of profitability of those in-marketselling locations and other selling channels. TheIn primary variable affecting2025, our results incontinued 2024to wasbe aimpacted softeningby insoft manufacturing sector business conditions.

Trade policies could make sourcing product from overseas more difficult and/or more costly, and could adversely impact our gross and/or operating profit percentage. We source a significant amount of the products we sell from outside of North America, primarily Asia. We have made significant structural investments over time to be able to source both directly from Asia through our wholly-owned, Asia-based subsidiary, FASTCO Trading Co., Ltd., and indirectly from suppliers that procure product from international sources. This was initially necessary due to the absence of significant domestic fastener production, but over time we have expanded our non-fastener sourcing as well, and at this time it may be difficult to adjust our sourcing in the short term. In light of this, changes in trade policies could affect our sourcing operations, our ability to secure sufficient product to serve our customers and/or impact the cost or price of our products, with potentially adverse impacts on our gross and operating profit percentages and financial results. China represents a significant source of product for North America. In addition, we move and source products within North America. Any trading disruption (tariffs, product restrictions, etc.) between Canada, the U.S., and Mexico, or disruption in their respective trading relationships with other nations can adversely impact our business. OnSince February 1, 2025, the WhiteU.S. Housegovernment issuedhas threeimposed executiveadditional ordersduties directingand tariffs in an effort to promote U.S. production of goods and improved trade balance with our global trading partners. This environment has been very fluid, resulting in several changes to the U.S.duties toand imposetariffs anenacted increasethroughout the year. Certain of the dutyduties onand importstariffs enacted are being challenged from Canadaa andlegal Mexico and China and empowering the U.S. president to raise the tariffs further should any country retaliate. On February 3, 2025, the prospective tariffs on Canada and Mexico were deferred for 30 days, though the execution of these tariff increases remain possible beyond the current short-term reprieve. The 10% additional tariff on all imports from China went into effect, and on February 4, 2025 China retaliated with various levels of tariffs on certain products imported into that country from the U.S.perspective. We are closely monitoring these actions,developments, which could have an adverse impact on our business and financial results. There can be no assurances that these disruptions will not continue or increase in the future, with the previously mentioned countries or additional countries with which we do business. The degree to which these changes in the global marketplace affect our financial results will be influenced by the specific details of the changes in trade policies, their timing and duration, and our effectiveness in deploying tools to address these issues.

Tax laws and regulations require compliance efforts that can increase our cost of doing business and changes to these laws and regulations could impact financial results. We are subject to a variety of tax laws and regulation in the jurisdictions in which we operate. Maintaining compliance with these laws can increase our cost of doing business and failure to comply could result in audits or the imposition of fines or penalties. Further, our future effective tax rates in any of these jurisdictions could be affected, positively or negatively, by changing tax priorities, changes in statutory rates, and/or changes in tax laws or the interpretation thereof, including any changes resulting from the new presidential administration in the U.S. In 2022,2025, the InflationOne ReductionBig Beautiful Bill Act was passed, which contained tax-related provisions. We did not experience, and do not anticipate experiencing in the near future, any meaningful impact to our tax rates from the legislation.

Tight credit markets could impact our ability to obtain financing on reasonable terms or increase the cost of existing or future financing and interest rate fluctuations could adversely impact our results. As of December 31, 2024,2025, we had $200.0$125.0 of outstanding debt obligations, all in the form of senior unsecured promissory notes issued under our master note agreement (the Master Note Agreement). The notes issued under our Master Note Agreement carry a fixed interest rate and consist of fourthree series and are described in further detail in Note 9 of the Notes to Consolidated Financial Statements in this Form 10-K. We also have borrowing capacity under our revolving credit facility (the Credit Facility) of $835.0, but no loans were outstanding as of December 31, 2024.2025. Loans under the Credit Facility generally bear interest at a rate per annum equal to Daily Simple Secured Overnight Financing Rate (SOFR), the rate on which may vary daily, and mature on September 28, 2027.

We currently have the capacity under ourthe Credit Facility and Master Note Agreement to increase borrowings in the future to finance stock purchases, dividends, capital expenditures, working capital additions, acquisitions, or other investments. Should we seek to increase our borrowings during periods of volatility and disruption in the U.S.financial and credit markets, financing may become more costly and more difficult to obtain. This was not a material consideration in 2024.2025. The cost of servicing any existing balances on ourthe Credit Facility could increase if interest rates increase due to the SOFR-based interest rate provided for under ourthe Credit Facility.

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 thisthe Form 10-K generally discusses 20242025 and 20232024 items and year-to-year comparisons forbetween the current year and the prior year.years. Discussions of 20222023 itemscomparisons can be found in 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in Part II, Item 7 of our annual2024 reportAnnual onReport Formfiled 10-K forwith the fiscal year ended December 31, 2023.SEC.

Fastenal is a North Americanglobal leader in the wholesale distribution of industrial and construction supplies. We distribute these supplies through a network of moreapproximately than1,600 3,600 in-marketbranch locations. Our largest end market is manufacturing. Sales to these customers include products for both OEM,direct materials, where our products are consumed in the final products of our customers, and MRO,indirect materials, where our products are consumed to support the facilities and ongoing operations of our customers. We also service general and commercial contractors in non-residential end markets as well as farmers, truckers, railroads, oil exploration companies, oil production and refinement companies, mining companies, federal, state, and local governmentalgovernment entities, schools, warehouse and storage, data centers, and certain retail trades. Geographically, our branches,selling Onsite locations,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 and fragmented. 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 MROindirect and OEMdirect 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 who grow market share are those that develop differentiated capabilities that provide the greatest value to the customer.

WeMarket sawconditions modestwere economic contractionsluggish in our key markets in 2024.2025. The Institute for Supply Management's Purchasing Manager's Index (PMI) for the U.S. averaged 48.348.9 for the full year and remained below 50, the threshold demarcating manufacturing growth or contraction, in 1110 out of 12 months. Business activity as measured by U.S. Industrial Production declinedincreased 0.4%1.2% in the first 11 months of 20242025 over 20232024. withIn markets2025, thatthe aremarket mostprovided relevantminimal contribution, tariff related pricing contributed 170 to us,200 suchbasis as Primary Metal (-1.5%), Fabricated Metals (-0.8%),points, and Machinery (-2.2%) declining more rapidly than the broad index. This was the primary factor contributing to our daily sales growth of 1.9%,9.1% slowingwas fromshare thegains. precedingIn year. The overall profile of2025, our growth was consistentthe result of improved customer contract signings with 2023: growth was driven by larger,large key accounts and Onsiteaccount customers and byfastener non-fastener products, particularly safety.products. We continued to expand our installed base of Onsites and FMI technology and lift the proportion of sales that run through our Digital Footprint. However,In thea effectfluid oftariff environment, our continuedgross investmentprofit inwas keywell areasmanaged. weWe view as critical to accelerate future growth and the slow growth in sales volume combined to pressureimproved our profitability, reducingwhich resulted in higher incentive compensation and we invested in technology solutions to drive efficiency; however, we leveraged our SG&A expenses resulting in a 20 basis point improvement in operating margin. On the other hand, assetAsset efficiency remained stableimproved from the preceding year and we generated good cash flow.

The table below summarizes our absolute and full-timefull time equivalent (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 totallocations, number of activecustomer Onsitesites locations),summarized by monthly spend band, and weighted FMI devices at the end of the periods presented and the percentage change compared to the end of the prior period.

During the last twelve months, we increased our total FTE employee headcount by 237.644. Our total FTE selling and sales support personnel decreasedincreased by 15. While we added FTE425 to support growth inand oursales Onsite locations, we reduced personnel at our branch locations, reflecting both shiftsinitiatives to Onsitetarget locationscustomer and tight management of headcount given challenging business conditions.acquisition. We had an increase in our distribution and transportation FTE personnel of 11559 to support increased product throughput at our distribution facilities. We had an increase in our remaining FTE personnel of 137,160, which related primarily to personnel investments in manufacturing,IT, quality control, IT, and businesssupply analytics.chain support.

The increase in net sales noted above for 20242025 was primarily due to higher unit sales of MRO,Direct OEM,(OEM/Production) materials, Indirect (MRO/Facilities Maintenance) materials, and construction supplies. We believe higher unit sales in 20242025 were primarily a result of our ability to gain market share, as most measures of industrial activity were flat to downslightly up throughout the period. Despite this challenging environment, in 20242025 we produced net sales growth of 2.7%8.7% and, owing to twoone moreless selling daysday in the period, daily sales growth of 1.9%.9.1%.

We estimate the disruption to operations and logistics from severe winter weather in January 2024 and hurricanes in September 2024,2025, while meaningful in the monthsmonth inof whichJanuary, they occurred, werewas not material to net sales for the full year of 2024.2025.

Changes in product pricing didresulted notin have170 ato material200 impactbasis onpoints of growth in net sales in 2024.2025.

We effectively increased the penetration of key growth initiatives in 2024,2025, as judged by installations and adoption, which enhanced the value we provide to our customers and supported our growth and efficiency. This was achieved through three areas. First, we signed 358 Onsites in 2024, below our goal of 375 to 400 units but constituting expansion from 2023 (326 signings) and consistent with previous peak signing years in 2019 (362 signings) and 2022 (356 signings). Our installed base of Onsites was 2,031 at the end of December 2024, +11.5% over the preceding year. Second, we signed 27,98425,892 FMI MEUs, meeting our goal at the start of 202425,000 ofto 26,000 to 28,000 MEUs and meaningfully above prior year signings of 24,126 MEUs.MEU. Our installed base of FMI MEUs was 126,957136,638 at the end of December,2025, +12.2%an increase of 7.6% over the end of December2024. 2023. Third,Second, we expanded the proportion of our sales running through our Digital Footprint. This measure reached 62.5% in November 2024 before easing modestly to 62.1%62.4% in December 2024.2025. This was below our goal at the start of 20242025, ofwhich 66.0%,was between 66% and 68%, attributable to lower volume through our FMI devices due to weakerthe business activity.disruption associated with a rapidly changing tariff environment. Even so, it wasimproved meaningfully abovefrom the prior year level of 56.1%60.4% reflecting increasing internal and external adoption of our digital resources. We expect that at some point during 20252026 we will achieve having 66% to 68% of our sales volume running through our Digital Footprint. Lastly, we achieved meaningful growth in both our average spend per customer site and the number of customer sites spending $5k or more per month.

From a product portfolio standpoint, we haveclassify our offerings into three primary categories: fasteners (including fasteners used in OEM and MRO),fasteners, safety supplies, and other product lines,lines. theThe latter'other ofproduct whichlines' includescategory encompasses eight smaller product categories,segments, such asincluding tools, janitorial supplies, and cutting tools. The percent of sales in the periods below were as follows:

We estimate approximately 70%71% to 75%76% 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. AsThe previouslymanufacturing addressed,environment weremained believe these markets contracted slightlysluggish in 2024.2025. Our manufacturing end markets outperformed primarily due to the relative strength we are experiencing with key account customers with significant managed spend where our service model and technology is particularly impactful. This disproportionately benefits manufacturing customers. The DSR changes to our manufacturing customers, when compared to the same periods in the prior year, were as follows:

We estimate approximately 25%24% to 30%29% of our business is with customers engaged in a wide range of activities, none of which individually constitute 10% of sales. This includes non-residential construction, reseller, transportation, warehouse and storage, data centers, and government/education customers. Weakness within ourOur construction end market reflectedexperienced growth starting in the ongoingsecond effectquarter of 2025 and reflected increased adoption of our reduced physical footprint and reduced local inventory tailored to smaller, local contractors.solutions. Weakness within our reseller end market reflected efforts in many industries to reduce channel inventories. Strength in ourOur transportation end market reflectedgrowth strongmoderated growthduring the year but continued to reflect share gains with customers who manage large networks or warehouses, who have increased spend with us due to our ability to meet their needs for rapid fulfillment on a large scale.warehouses. The DSR changes to our non-manufacturing customers, when compared to the same periods in the prior year, was as follows:

SG&A expenses, as a percentage of net sales, increaseddecreased to 24.8% in 2025 from 25.1% in 2024 from 24.9% in 2023.2024. We continued to invest in areas,areas such as Onsite,role technologyspecialization, andtechnology, analytics personnel, and sales-related travel that we view as critical to supporting future growth. We managed expenses not directly related to customer acquisition and growthgrowth, morewhich tightly,allowed butus the overall level of investment produced negativeto leverage atSG&A the growth rates experiencedexpenses in 2024.2025.

Our employee-related expenses increased in 20242025 from 2023.2024. This was related to: improvement in our sales and profitability generating significantly higher bonuses and commissions; higher base pay and employment taxes as a result of increased FTE during the period and moderate wage inflation; andhigher employment taxes; higher healthcare costs due to growth in the number and size of claims. These factors were partly offset by a decline in bonusesclaims; and aan declineincrease in profit sharing expense reflecting slowerimproved sales and profit growth versus the prior year.

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 and bins utilized as part of FMI services (we consider this hardware 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 20242025 from 2023.2024. This was related to: moderatelyinflation in branch rent expense, increased FMI depreciation as the number of installed devices increased; higher costs and depreciation for the maintenance, upgrade, and installation of equipment in hub and non-hub facilities; and aan slight riseincrease in branchproperty rents, which was more evident in 2024 than in preceding years as we are no longer actively reducing our branch locations and the associated costs.taxes.

Combined, all other SG&A expenses increased in 20242025 from 2023.2024. This was related to the following increases: higher spending on IT, increased sales expense associated with signing and implementing customer sites, and selling-related transportation costs increased and were higheronly reflecting higher lease costs as we refreshed our fleet of pick-ups, which more thanpartially offset by lower fuel expense;expense. higherThe expensesincreases relatedwere topartially Fastenal-sponsoredoffset tradeby events,increases suchin asshared marketing initiatives with our Customer Expo held in April,suppliers and general marketing costs; higher spending on IT; and higherlower general insurance costs.

We had higher interestInterest income reflectingslightly the investment of cash balances into higher earning short-term instruments throughout 2024 as part of a program we beganincreased in the2025 fourthand quarter of 2023. Wewe had lower interest expense in 2024.2025. We carried lower average borrowings relative to 20232024 primarily from cash generated from workinghigher capitalnet reductionsearnings enabling us to reduce outstanding revolver debt under ourthe Credit Facility. The slight increase in interest income and the reduction in interest expense resulted in net interest expense of $1.9$0.7 in 20242025 compared to $6.7$1.9 in 2023.2024.

We recorded income tax expense of $396.6 in 2025, or 24.0% of income before income taxes. Income tax expense was $357.5 in 2024, or 23.7% of income before income taxes, compared to $367.0 in 2023, or 24.1% of income 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%. Our tax rate in 2024 was below our expected ongoing tax rate due to the tax benefits associated with (1) the exercise of stock options during the period and (2) return to provision adjustments processed during the year.

During 2024,2025, net income per share decreased.increased. Volume growth in 20242025 was not sufficient to produce SG&A leverage that could offset mix-related gross margin contraction, resulting in operating margin contraction that was only partially offset by our modest growth in sales, lower net interest expense, and a more favorable tax rate.expansion.

In 2024,2025, we experienced a decreaseslight increase in our operating cash flow as a percentage of net income. The decreaseincrease in operating cash flow, as a percent of net income, primarily reflects our operating assets and liabilities being a slightly less use of cash in 20242025 as compared to a source of cash in 2023.2024. This was primarily attributable to investingan increase in accounts receivable reflecting increased sales activity, partially offset by a lower investment in inventory inat 2024the asend opposedof tothe reducing inventory in 2023.period.

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.facilities and the cost of these products can be meaningfully impacted by changes in tariffs. Product that is in transit is in our inventory but is not available for sale, 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 factor that tends to require incremental inventory increases over time is our growth drivers, including our FMI offerings, Onsitecustomer channel,contract signings, and international expansion, all of which tend to require significant investments in inventory.

The increase in our inventory balance in 20242025 was primarily attributable to threefour factors. First, our inventory increased as a result of growth in sales to our customers and the addition of stock to ensure we can support our customers' future growth. Second, we added $30.0 to $35.0 in stock to improve service to our in-marketselling locations and generate efficiencies in our hubs. Third, we took advantage of year-end opportunities arising from our suppliers' desire to reduce inventory at year-end. TheseFourth, factorsincremental weretariffs partiallyenacted offsetin by2025 meaningfully increased the effectscost of softcertain underlying business activity and modest product cost deflation.inventory.

PropertyOur andcapital equipment expendituresspending typically consistfalls primarilyinto offive categories: (1) purchases related to FMI hardware, (2) purchases of property and equipment related to expansion of and enhancements to distribution centers, owned or leased branch properties, and other company facilities, (3) spending on software and hardware for our information processing systems, (4) the addition of fleet vehicles, and (5) the addition of manufacturing 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.

Our net capital expenditures in 20242025 increased when compared to 2023,2024, though they were below our anticipated range of $235.0 to $255.0 for the year. ThisThe wasincrease in capital spend from 2024 primarily related to twoan factors.increase First,in therespending wasfor lessFMI demandhardware to installsupport incremental picking modulesgrowth in our in-marketinstalled locationsbase thanand weIT. anticipated.We Second,were spendingbelow onour FMIanticipated hardwarerange wasdue lower,to primarilydelayed projects that are expected to resume in 2026. Our five-year average of investment in property and equipment, as a resultpercentage of lowernet FASTBinsales signingsis and installations than anticipated.2.5%.

For 2025,2026, we expect our investment in property and equipment, net of proceeds from sales, to be within a range of $265.0$310.0 to $285.0,$330.0, an increase from $214.1$230.6 in 2024.2025. ThisThe increaseexpected growth on a year-to-year basis reflects three items. First, we expect elevated IT spending as projects that were planned in 2024, but experienced delays, are now expected to occur in 2025. Second, we expect higher distribution centerincreased spending to completereplace our upgraded Utah hub, begin construction on a new Atlanta hub,hub facility and improve our picking capacity and efficiency across our hub network. Second, we expect increased trucking spend. Third, we expect greaterelevated outlaysIT forspending FMIas hardwareprojects reflectingthat anwere increaseexpected in our2025 targetedexperienced signings.delays and are expected to continue throughout 2026.

The decreaseincrease in net cash used in financing activities reflects two factors. First, we had lowerhigher dividend payments. While weWe increased regular dividend payments in 20242025 by 11.7%, in the fourth quarter of 2023 we paid a special fifth dividend that did not recur in 2024.12.4%. Second, we used lessmore cash to reduce outstanding debt obligations in 20242025 than we did in 2023, primarily because we carried lower balances on our Credit Facility throughout 2024. These uses of cash were only partly offset by ana increasedecrease in the exercise of stock options.

We declared a quarterly dividend of $0.43$0.240 per share on January 16, 2025.2026. In 2025, we paid aggregate annual dividends per share of $0.875. In 2024, we paid aggregate annual dividends per share of $1.56. In 2023, we paid aggregate annual dividends per share of $1.78, which included $1.40 per share in regular quarterly dividends and a $0.38 per share special dividend paid in December 2023.$0.780.

We have authority to purchase up to 6,200,000 additional12,400,000 shares of our common stock under the July 12, 2022 authorization. This authorization does not have an expiration date.

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, and pay dividends, we have borrowed under ourthe Credit Facility and our Master Note Agreement in recent periods.historically.

As of December 31, 2024,2025, we had $0.0 outstanding under the Credit Facility and had contingent obligations from letters of credit outstanding under the Credit Facility in an aggregate face amount of $31.2.$29.7. As of December 31, 2024,2025, we had loans outstanding under the Master Note Agreement of $200.0.$125.0. Descriptions of ourthe Credit Facility and Master Note Agreement are contained in Note 9 of the Notes to Consolidated Financial Statements.

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 and should be read in conjunction with those condensed consolidated financial statements. Dollar amounts are stated in millions except for share and per share amounts and where otherwise noted. All historical common stock share and per share information in this quarterly report on Form 10-Q have been retroactively adjusted to reflect the two-for-one stock split effective at the close of business on May 21, 2025. Percentages, values, and dollar change calculations, which are based on non-rounded dollar values, may not be able to be recalculated or footed 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.

OnFollowing Februarythe 20,Supreme 2026,Court's ruling on IEEPA tariffs, the United States SupremeExecutive CourtBranch issuedintroduced tariffs under a decisiondifferent invalidatingstatutory the broad-based tariffs imposed under the International Emergency Economic Powers Act (IEEPA).authority. Significant uncertainty existsremains regarding the timingscope and amountduration of anycurrent and potential tariff refunds.tariffs. We will continue to assessmonitor and evaluate these developments asand additionalassess informationtheir becomespotential available.impact on our business, financial condition, and results of operations.

The following table presents a performance summary of our results of operations for the six- and three-month periods ended MarchJune 31,30, 2026 and 2025.

During the last twelve months, we increased our total full-time equivalent (FTE; based on 40 hours per week) employee headcount by 424.423. Our total FTE selling personnel increased by 214136 to support growth and sales initiatives to target customer acquisition.initiatives. We had an increase inincreased our distribution and transportation FTE personnel ofby 1498 to support increased product throughput at our distribution facilities. We had an increase inincreased our remaining FTE personnel ofby 196,189, which related primarily to personnel investments in information technology (IT), finance, and supply chain support.

FIRSTSECOND QUARTER OF 2026 VERSUS FIRSTSECOND QUARTER OF 2025

The following table sets forth condensed consolidated statements of income information (as a percentage of net sales) for the periods ended MarchJune 3130:

The table below sets forth net sales and daily sales for the periods ended MarchJune 31,30, and changes in such sales from the prior period to the more recent period:

Net sales increased $242.2,$306.6, or 12.4%,14.7%, in the firstsecond quarter of 2026 when compared to the firstsecond quarter of 2025 (both periods had the same number of selling days.days). Sales performance reflects the contribution from improved customer contract signings since the first quarter of 2024, asproduct wellpricing, asand a slightmodest improvement in industrial production in the first quarterhalf of 2026. Foreign exchange rates positivelycontributed affectedapproximately 10 basis points to sales in the first quarter of 2026 by approximately 60 basis points, compared to a negative impactgrowth in theboth first quarter of 2025 of approximately 50 basis points.periods. The impact of product pricing on net sales in the firstsecond quarter of 2026 was an increase of approximately 350290 basis points, compared to beingan immaterialincrease of 140 to 170 basis points in the firstsecond quarter of 2025.

Beginning in the fourth quarter of 2025, we expanded our reporting to provide a more comprehensive view of direct (original equipment manufacturing/production) and indirect (maintenance, repair, and operations/facilities maintenance) business across product categories. Direct materials generally include products incorporated into finished goods or that directly support customers' production processes, while indirect materials support customers' facility operations, maintenance, and safety needs. During the firstsecond quarter of 2026, direct materials slightly outpaced indirect materials, reflecting greater contribution from fastener sales and continued strength with manufacturing customers.

From an end market standpoint, we have four categories: heavy manufacturing, other manufacturing, non-residential construction, and other, the latter of which includes reseller, government/education, transportation, warehousing and storage, and data centers. Our manufacturing end marketsmarket growth was mainly due to the relative strength we are experiencing with key account customers with significant managed spend, where our service model and technology are particularly impactful. The non-residential construction end market experienced continued growth for the fourthfifth time in fourteenfifteen consecutive quarters. Other end market sales were favorably impacted by growth with transportation and warehousing customers.

We engage customers in the local market by delivering services and solutions within or near the customer's business (Sites). Sites represent distinct customer locations where we maintain inventory tailored to local demand, supported by our regional distribution networks. Our strategy prioritizes customer Sites with monthly sales potential of $50,000 or more. Segmentation by spend level provides insight into the scale and potential of customer relationships served through our network. The following table summarizes average customer SitesSite averagedcounts by monthly spend band and related monthly sales metrics.

(3)Monthly sales per Site totals are not rounded to the millions and representsrepresent the exact dollar amount.

(5)Other sales represent sales to Sites under $5k+ per month and sales that are not tied to a specific Site. This includes certain service fees, cash sales, direct materialship sales, etc.

FMI Technology comprises our FASTStock℠ (scanned stocking locations), FASTBin® (infrared, RFID, scaled bins, and scaledFASTBin® bins- Click), and FASTVend® (vending devices) offerings. FASTStock's fulfillment processing technology is not embedded, is relatively less expensive to deploy and highly flexible in application, and is delivered using our proprietary mobility technology. FASTBin and FASTVend incorporate highly efficient and powerful embedded data tracking and fulfillment processing technologies. The first statistic below 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.

We signed 6,9506,993 weighted FASTBin and FASTVend devices in the firstsecond quarter of 2026. Our goal for weighted FASTBin and FASTVend device signings in 2026 remainsis between 27,000 and 29,000 MEUs (our previous goal was between 28,000 and 30,000 MEUs.MEUs).

(3)Weighted FASTBin/FASTVend signings and installations reflectsreflect the percent change compared to the same period in the prior year.

Gross profit, as a percentage of net sales, decreased 75 basis points to 44.6% in the firstsecond quarter of 2026 from 45.1%45.3% in the firstsecond quarter of 2025, driven primarily by unfavorable net price/cost of approximately 5040 basis points, and smaller headwinds from customer mix, transportation costs, and certain customer rebates.rebate activity. Customer mix remained a structural headwindcontinued to gross margin, as growth skewedshift toward larger customerscustomers, thatconsistent with our strategic focus. While these relationships typically carry lower gross marginsmargins, butthey remaingenerate positivehigher absolute profit dollars and are accretive to operating margin through fixed-cost leverage, higher volumes, and operating efficiencies. Transportation costs were up modestly, driven by fuel inflation, while customer rebates increased slightly due largely to strongtiming-related fixed-cost leverage. Our fastener expansion project benefits continued to provide a meaningful offset, mitigating some underlying gross margin pressure; these benefits will anniversary early in the second quarter of 2026.factors.

SG&A expenses, as a percentage of net sales, were 24.3%23.5% in the firstsecond quarter of 2026 versus 25.0%24.4% in the firstsecond quarter of 2025.2025, an improvement of 80 basis points.

In the firstsecond quarter of 2026, our employee-related expenses remainedimproved stable70 basis points as a percentage of net sales when compared to the firstsecond quarter of 2025. WeBase realizedpay aboutleveraged 60due basisto pointsincreased oflabor leverageproductivity, fromwhile improved FTE productivity. Bonusesbonuses and commissions increasedgrew 55faster basisthan pointssales as a result of improved business activity and financial performance versus the same period in the prior year.

In the firstsecond quarter of 2026, our occupancy-related expenses improved 3040 basis points as a percentage of net sales when compared to the firstsecond quarter of 2025, driven mainly by fixed cost leverage.

Combined, all other SG&A expenses improvedincreased 4030 basis points as a percentage of net sales in the firstsecond quarter of 2026 when compared to the firstsecond quarter of 2025. The improvementincrease was mainly driven by reductionsselling-related in expense related to currency revaluation of certain assetstransportation and increasesfuel incosts jointand marketingincreased effortssales-related withtravel our suppliers.expense.

Operating income,income as a percentage of net sales,sales increasedwas to 20.3%21.0% in the firstsecond quarter of 20262026, fromremaining 20.1%consistent inyear-over-year theas firstSG&A quarterleverage offully 2025.offset gross margin pressure.

Net interest income was $0.8$0.2 in the firstsecond quarter of 2026, compared to net interest expenseincome of $0.8$0.5 in the firstsecond quarter of 2025, reflecting slightly lower cash investments and debt balances and higher interest income.balances.

We recorded income tax expense of $108.6$119.3 in the firstsecond quarter of 2026, or 24.2%23.8% of income before income taxes. Income tax expense was $94.4$106.3 in the firstsecond quarter of 2025, or 24.0%24.4% of income before income taxes. We believe our ongoing tax rate, absent any discrete tax items or broader changes to tax law, will be approximately 24.6%. Our tax rate in the second quarter of 2026 was below our expected ongoing rate due to return-to-provision adjustments recognized in the quarter and the tax benefits associated with the exercise of employee stock options during the period.

Net income was $339.8$382.8 in the firstsecond quarter of 2026, an increase of 13.8%15.9% compared to the firstsecond quarter of 2025. Diluted net income per share was $0.30$0.33 compared to $0.26$0.29 in the firstsecond quarter of 2025.

Cash flow activity was as follows for the periods ended MarchJune 3130:

(1) Five-year average includes firstsecond quarter average for 2021 to 2025.

The dollar and percentage change in accounts receivable, net, inventories, and accounts payable as of MarchJune 31,30, 2026 when compared to MarchJune 31,30, 2025 were as follows:

The increase in our accounts receivable balance in the firstsecond quarter of 2026 was mainly attributable to growth in sales with our customers,growth, including relative growth with larger customers that tend to carry longer payment terms.

The slight increase in our inventory balance in the firstsecond quarter of 2026 reflects disciplined inventory management and optimization during the period.

The increase in our accounts payable balance in the firstsecond quarter of 2026 was mainly attributable to an increase in inventory spending to support growth whichlater wasin partiallythe offset by timing associated with capital expenditures and general insurance payment activity.quarter.

Net cash used in investing activities increaseddecreased $3.8$1.9 in the firstsecond quarter of 2026 when compared to the firstsecond quarter of 2025. ThisOur wasinvestments mainlywere relateddirected to an increase in spending fortoward facility construction and upgrades, IT,IT spend, and vehicles.industrial vending equipment.

Our capital spending typically falls into five categories: (1) purchases related to FMI hardware, (2) purchases of property and equipment related to expansion of and enhancements to distribution centers, owned or leased branch properties, and other company facilities, (3) spending on software and hardware for our information processing systems, (4) the addition of fleet vehicles, and (5) the addition of manufacturing 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 firstsecond quarter of 2026, our net capital expenditures (purchases of property and equipment, net of proceeds from sales of property and equipment) were $57.6,$60.5 (2.5% of net sales) which was a slight increasedecrease from $53.8$64.3 (3.1% of net sales) in the firstsecond quarter of 2025. Our five- and ten-year annual average as a percent of net sales was 2.5% and 3.1%, respectively.

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. For 2026, we continue to expect our net capital expenditures to be within a range ofbetween $310.0 toand $330.0, an increase from $230.6 in 2025. The expected growth on a year-to-yearyear-over-year basis reflects three items. First, we expect increased spending to replace our Atlanta hub facility and improve our picking capacity and efficiency across our hub network. Second, we expect increased trucking spend. Third, we expect elevated IT spending as projects that were expected in 2025 experienced delays and are expected to continue throughout 2026.

Net cash used in financing activities increased $52.8$91.3 in the firstsecond quarter of 2026 when compared to the firstsecond quarter of 2025. In the firstsecond quarter of 2026, we had lower average borrowings and a smaller proportion of those balances were part of a facility that was eligible for repayment. In contrast, during the firstsecond quarter of 2025, we had higher average borrowings outstanding and were using capital to reduce those balances. As a result, we usedallocated significantly less capital to reduce debt balancesreduction in the firstsecond quarter of 2026 relative to the firstsecond quarter of 2025. We also increased capital returned to shareholders through dividends and share repurchases in the period.

During the firstsecond quarter of 2026, we returned $295.7,$305.1, or 87.0%79.7% of net income, to our shareholders in the form of dividends ($275.6$275.4) and share repurchases ($20.1$29.7), compared to the firstsecond quarter of 2025 when we returned $246.7,$252.5, or 82.6%76.4% of net income, to our shareholders in the form of dividends. OurOver five-yearthe past five years, we have returned an average returnedof to our shareholders as a percentage73.2% of net income isto 73.6%.shareholders. During the firstsecond quarter of 2026, we purchased 425,000650,000 shares of our common stock at an average price of approximately $47.27$45.72 per share. We did not purchase any shares of our common stock in the firstsecond quarter of 2025.

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 report in the Notes to Condensed Consolidated Financial Statements and in our 2025 annual report on Form 10-K. We believe that cash generated from operations, together with our available cash and cash equivalents and borrowing capacity under our Credit Facility, will be sufficient to meet our working capital, capital expenditure, debt service, dividend, and share repurchase requirements for the foreseeable future.