2004  $_{ }$ Management’s Discussion & Analysis of Financial Condition & Results of Operations (Dollar Amounts in Millions except Per Share Information and as Otherwise Noted)  Management included the net sales (excluding  DIY Business) and the corresponding growth  rate above because we believe it provides a  consistent presentation of the growth experienced in Fastenal’s organic store-based  business and ongoing operations.  The 2004 and 2003 net sales growth rate percentages reflect the strengthening of the North American market in the period since July  2003. The increase in net sales in 2004 and 2003  came primarily from unit sales growth in existing stores more than two years old, growth  in the newer product lines, and new site openings. The 2004 growth was increased by  3.0% to 4.0% due to an inflationary increase in  pricing during the year, while the 2003 growth  was tempered by a deflationary impact to pricing  during the year. Stores sites opened in 2004 contributed approximately $31.5 (or 2.5%) to 2004 net sales. Store sites opened in 2003 contributed approximately $64.9 (or 5.2%) to 2004 net sales  and approximately $19.5 (or 2.5%) to 2003 net  sales. The rate of growth in sales of store sites  generally levels off after they have been open for  five years, and, as stated earlier, the sales of  older store sites typically vary more with the  economy than do the sales of younger store sites.  Monthly Daily Sales Growth— Our business  had daily sales growth rates of (compared to the  comparable month in the preceding year):  Note: Daily sales are defined as the sales for a  period divided by the number of business days in  a period.  The daily sales growth rates in the two tables  above represent several trends. There was a  downward trend in the first eleven months of  2001 which reflected the overall weakening of  the industrial economy we service in North  America. This trend reversed itself from December 2001 to June 2002, partly due to  changing comparisons in the prior year and  partly due to stronger month-to-month (i.e. April  to May and May to June) growth rates compared  to 2001. During July 2002, the daily sales growth  rate decreased, began to improve again in August  2002 through November 2002, and slipped in  December 2002, the final month of the year. The  first six months of 2003 continued the choppy  trend in net sales growth experienced in the  second half of 2002. The July 2003 to December 2004 time frame represents Management included the second table above  because we believe it provides a consistent  presentation of the organic store-based business  and ongoing operations before, during, and after  the period in which the DIY Business was owned  and operated.  The first table reflects daily sales growth rates of  the entire organization. The second table reflects  daily sales growth rates of Fastenal excluding the  impact of the DIY Business. As discussed earlier, the DIY Business was sold in October  2002 and represented approximately 1.9% of net  sales that year. Excluding sales related to the DIY Business,  daily sales growth rates would have been (compared to the comparable month in the preceding year):  Month  2004 2003 2002 January  16.1% 13.3% 2.7% February  20.1% 10.3% 4.8% March  19.1% 14.5% 6.0% April  22.1% 9.9% 9.3% May  25.6% 9.5% 9.4% June  25.7% 8.5% 11.0% July  27.0% 11.0%  8.7% August  24.9% 11.4% 10.4% September  26.2% 10.8% 12.5% October  27.6% 13.9% 13.3% November  25.0% 14.5% 17.9% December  27.4% 16.9% 11.6% Month  2004 2003 2002 January  16.1% 10.2% 5.6% February  20.1% 7.9% 7.1% March  19.1% 11.5% 8.9% April  22.1% 7.2% 12.0% May  25.6% 6.7% 12.3% June  25.7% 6.0% 13.7% July  27.0% 8.2% 11.6% August  24.9% 8.8% 13.1% September  26.2% 8.4% 11.0% October  27.6% 13.7% 10.2% November  25.0% 14.5% 14.3% December  27.4% 16.9% 7.8% 2004 ANNUAL REPORT – PAGE 10 