(Dollar and Share Amounts in Thousands except Per Share Information and as Otherwise Noted)  Summary of Significant Accounting Policies, continued Stockholders’ Equity and Stock-Based Compensation  During 2004, the Company had two stock option employee compensation plans. Certain employees of the  Company have been granted options to purchase Common Stock of the Company under either the Fastenal  Company Stock Option Plan (Fastenal Option Plan) or the Robert A. Kierlin Stock Option Plan (RAK  Option Plan). The Fastenal Option Plan was approved by the shareholders of the Company in April 2003.  The Company granted options under the Fastenal Option Plan in May 2003. The RAK Option Plan was  sponsored by one of the Company’s founders, Robert A. Kierlin, and does not involve a commitment by  the Company. Mr. Kierlin granted options under the RAK Option Plan in 2002, 2001, and 2000. All  options granted by Mr. Kierlin under the RAK Option Plan not previously exercised have expired, and Mr.  Kierlin has indicated that he does not intend to grant any additional options under the RAK Option Plan in  the future.  The Company accounts for both the RAK Option Plan and the Fastenal Option Plan under the recognition  and measurement principles of Accounting Principles Board (APB) Opinion No. 25,  Accounting for Stock  Issued to Employees , and related interpretations. The Company has adopted the disclosure provisions of  Statement of Financial Accounting Standards (SFAS) No. 148,  Accounting for Stock-Based Compensation  — Transition and Disclosure . SFAS No. 148 amends the disclosure requirements of SFAS No. 123,  Accounting for Stock-Based Compensation .  No stock-based employee compensation cost is reflected in net income as all options to purchase Common  Stock of the Company granted under these two plans had an exercise price equal to, or greater than, the  market value of the underlying Common Stock on the date of grant. The following table illustrates the  effect on net income and earnings per share if the Company had applied the fair value recognition  provisions of SFAS No. 123 for all awards:  The fair value of each stock option is estimated as of the grant date using the Black-Scholes option-pricing  model. The assumptions used and the estimated fair values are as follows: 2004 2003 2002 Net earnings, as reported  $ 130,989 84,120 75,542 Total stock-based employee compensation expense  determined under fair value-based method for all awards,  net of related tax effects  891 1,754  2,674  Pro forma net earnings  $ 130,098 82,366 72,868 Basic earnings per share  $ 1.73 1.11 1.00 Diluted earnings per share  $ 1.72 1.11 1.00 Pro forma basic earnings per share  $ 1.71 1.09 .96 Pro forma diluted earnings per share  $ 1.71 1.09 .96 Year of  grant  Risk-free  interest  rate  Expected life  of option in  years  Expected  dividend  yield  Expected  stock  volatility  Estimated  fair value of  stock option  2003 4.5% 3.42 0.2% 30.33% $7.56 2002 4.5% 2.66 0.2% 27.03% $6.65 2001 5.0% 2.75 0.2% 37.66% $8.07 2000 6.0% 2.75 0.2% 42.29% $5.77 2004 ANNUAL REPORT – PAGE 25  2004 Notes to Consolidated Financial Statements