2004 President’s Letter to Shareholders 2004 ANNUAL REPORT – PAGE 3  tested, 11 were dropped and 17 were left in the  test for one more year to get more information. The remaining 16 product groups are being  added as standard stock in the CSP stores.  The product development managers have selected a second group of products that will be  tested using the same process and same test  stores in 2005.  people working at the base, I was not only  excited but also very proud of our people and  what they had accomplished. Our sales to the  government grew by 74% in 2004 and contributed $47 million to our total sales.  The inventory investment for CSP continues to  be high. Our inventory grew 32% in 2004. This  is one area we did not do as well as we had  planned in 2004. One factor we had not fully  anticipated was the impact inflation would have  on our ending inventory. This was caused by  replacing our existing import fastener inventory  with new inventory at a higher cost. We also  made a decision to buy import fasteners more  heavily in an effort to reduce the fill-in buys  caused by stock outs. This decision increased  our inventory of fasteners but also contributed to  our higher gross margins. I still believe it was a  good decision. The rest of the growth had been  planned for new stores and CSP conversions. Our national construction team also saw strong  growth in 2004. They signed 24 new supply  contracts and contributed approximately $19.8  million to our total sales, nearly doubling their  sales over 2003. Our national accounts team,  which concentrates on the large industrial accounts, signed 60 new agreements and contributed $270 million to our total sales. This  represents 22% of our 2004 sales. Our national  accounts team continues to identify market opportunities that creates opportunities for our  local stores. Fastenal’s manufacturing division also had a  very good year in 2004. They continue to meet  the needs of our customers and produce the  special parts that many of our competitors would  walk away from.  They produce parts in hundreds of different material types and thousands of different shapes. Almost every day  they receive orders from customers who need the  part before it was ordered, and in most cases they  produce and ship the part the same day so that  the customer can get their plant or construction  site back on track. We currently have 219 highly  trained and dedicated people working four shifts  to meet customer needs.  Sourcing products continues to be a major focus  for our Company. Our Asian trading company  (FASTCO) is growing very rapidly.  The FASTCO team has identified several new suppliers for products we are currently sourcing  through other trading companies. We have  experienced significant savings, and in many  cases improved quality. Our purchasing volume  through this company grew 54% from 2003 to  2004. We currently have 28 employees in Asia.  Distribution continues to be an important part of  our business model.  We have a strong commitment to giving our customer the best  service possible.  Without great distribution, meeting that commitment is not possible. Our  distribution and transportation managers are using the latest technology to improve the  movement of product from our suppliers to the  customer. Over 50% of our product is processed  steel. This creates a challenge of high shipping  costs relative to the selling price. Our distribution model is efficient and provides us  with a competitive advantage.  On the sales front, all of our sales personnel did  a great job.  The government sales team, however, should get the MVP award this year. Because of their hard work and persistence,  Fastenal was awarded a five year $89 million  contract to supply the United States Air Force  with maintenance and shop supplies. I was very  excited when we received the contract, but once I  visited Hill Air Force Base and was able to see  the enthusiasm from both our people and the 