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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM
__________________________________________
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(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____ to _____
Commission File Number:
__________________________________________
(Exact name of registrant as specified in its charter)
__________________________________________
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(
(Registrant’s telephone number, including area code)
__________________________________________
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer o | Non-accelerated filer o
| Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No
As of March 15, 2022,
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of Part I and Item 1, “Legal Proceedings” and Item 1A, “Risk Factors” of Part II of this Report, as well as within this Report generally. The words “will,” “may,” “believes,” “anticipates,” “thinks,” “expects,” “estimates,” “plans,” “intends,” and similar expressions are intended to identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances, statements involving a discussion of strategy, plans or intentions, statements about management’s assumptions, projections or predictions of future events or market outlook and any other statement other than a statement of present or historical fact are forward-looking statements. We expressly disclaim any obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Report with the United States Securities and Exchange Commission (the “SEC”), except to the extent required by applicable law. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of Part I and Item 1, “Legal Proceedings” and Item 1A, “Risk Factors” of Part II of this Report, as well as in Item 1A, “Risk Factors” of Part I and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of our Annual Report on Form 10-K for the fiscal year ended August 28, 2021. In addition, new risks may emerge from time to time and it is not possible for management to predict such risks or to assess the impact of such risks on our business or financial results. Accordingly, future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
the impact of the COVID-19 pandemic on our sales, operations and supply chain;
general economic conditions in the markets in which we operate, including conditions resulting from the COVID-19 pandemic;
changing customer and product mixes;
competition, including the adoption by competitors of aggressive pricing strategies and sales methods;
industry consolidation and other changes in the industrial distribution sector;
our ability to realize the expected benefits from our investment and strategic plans, including our transition from being a spot-buy supplier to a mission-critical partner to our customers;
our ability to realize the expected cost savings and benefits from our restructuring activities and structural cost reductions;
the retention of key personnel;
volatility in commodity and energy prices, the impact of prolonged periods of low, high and rapid inflation, and fluctuations in interest rates;
the credit risk of our customers, including changes in credit risk as a result of the COVID-19 pandemic, higher inflation and fluctuations in interest rates;
the risk of customer cancellation or rescheduling of orders;
difficulties in calibrating customer demand for our products, in particular personal protective equipment or “PPE” products, which could cause an inability to sell excess products ordered from manufacturers resulting in inventory write-downs or could conversely cause inventory shortages of such products;
work stoppages, labor shortages or other business interruptions (including those due to extreme weather conditions or as a result of the COVID-19 pandemic) at transportation centers, shipping ports, our headquarters or our customer fulfillment centers;
disruptions or breaches of our information technology systems, or violations of data privacy laws;
the retention of qualified sales and customer service personnel and metalworking specialists;
the risk of loss of key suppliers or contractors or key brands or supply chain disruptions, including due to import restrictions resulting from the COVID-19 pandemic or global geopolitical conditions;
changes to governmental trade or sanctions policies, including the impact from significant import restrictions or tariffs or moratoriums on economic activity with certain countries or regions;
risks related to opening or expanding our customer fulfillment centers;
our ability to estimate the cost of healthcare claims incurred under our self-insurance plan;
litigation risk due to the nature of our business;
risks associated with the integration of acquired businesses or other strategic transactions;
financial restrictions on outstanding borrowings;
our ability to maintain our credit facilities;
the interest rate uncertainty due to the London InterBank Offered Rate (“LIBOR”) reform;
the failure to comply with applicable environmental, health and safety laws and regulations, including government action in response to the COVID-19 pandemic, and other laws applicable to our business;
the outcome of government or regulatory proceedings or future litigation;
goodwill and intangible assets recorded resulting from our acquisitions could be impaired;
our common stock price may be volatile due to factors outside of our control; and
our principal shareholders exercise significant control over us, which may result in our taking actions or failing to take actions which our other shareholders do not prefer.
MSC INDUSTRIAL DIRECT CO., INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 26, 2022
TABLE OF CONTENTS
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Item 1. |
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| Condensed Consolidated Balance Sheets as of February 26, 2022 and August 28, 2021 | 1 |
| 2 | |
| 3 | |
| 4 | |
| 5 | |
| 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
Item 3. | 26 | |
Item 4. | 26 | |
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Item 1. | 27 | |
Item 1A. | 27 | |
Item 2. | 27 | |
Item 6. | 28 | |
29 | ||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
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| February 26, |
| August 28, | ||
| 2022 |
| 2021 | ||
| (Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents | $ | |
| $ | |
Accounts receivable, net of allowance for credit losses of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Identifiable intangibles, net |
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Operating lease assets |
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Other assets |
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Total assets | $ | |
| $ | |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities: |
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Current portion of debt including obligations under finance leases | $ | |
| $ | |
Current portion of operating lease liabilities |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Long-term debt including obligations under finance leases |
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Noncurrent operating lease liabilities |
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Deferred income taxes and tax uncertainties |
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Other noncurrent liabilities |
| — |
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Total liabilities |
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Commitments and Contingencies |
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Shareholders’ Equity: |
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MSC Industrial Shareholders’ Equity: |
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Preferred Stock; $ |
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Class A Common Stock ( |
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Class B Common Stock ( |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Class A treasury stock, at cost, |
| ( |
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Total MSC Industrial shareholders’ equity |
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Noncontrolling interest |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | |
| $ | |
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See accompanying Notes to Condensed Consolidated Financial Statements. | |||||
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MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
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| February 26, |
| February 27, |
| February 26, |
| February 27, | ||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net sales |
| $ | |
| $ | |
| $ | |
| $ | |
Cost of goods sold |
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Gross profit |
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Operating expenses |
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Impairment loss |
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Restructuring and other costs |
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Income from operations |
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Other income (expense): |
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Interest expense |
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| ( |
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| ( |
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Interest income |
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Other income (expense), net |
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| ( |
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Total other expense |
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| ( |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
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Less: Net income attributable to noncontrolling interest |
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Net income attributable to MSC Industrial |
| $ | |
| $ | |
| $ | |
| $ | |
Per share data attributable to MSC Industrial: |
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Net income per common share: |
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Basic |
| $ | |
| $ | |
| $ | |
| $ | |
Diluted |
| $ | |
| $ | |
| $ | |
| $ | |
Weighted-average shares used in computing net income per common share: |
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Basic |
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Diluted |
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See accompanying Notes to Condensed Consolidated Financial Statements. | ||||||||||||
MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
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| February 26, |
| February 27, |
| February 26, |
| February 27, | ||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Net income, as reported |
| $ | |
| $ | |
| $ | |
| $ | |
Other comprehensive income, net of tax: |
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Foreign currency translation adjustments |
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Comprehensive income (1) |
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Comprehensive income attributable to noncontrolling interest: |
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Net income |
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| ( |
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| ( |
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Foreign currency translation adjustments |
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| ( |
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| ( |
Comprehensive income attributable to MSC Industrial |
| $ | |
| $ | |
| $ | |
| $ | |
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(1) | ||||||||||||
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See accompanying Notes to Condensed Consolidated Financial Statements. | ||||||||||||
MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Statements of Shareholders’ Equity
(In thousands, except per share data)
(Unaudited)
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended |
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| February 26, |
| February 27, |
| February 26, |
| February 27, |
| ||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||
Class A Common Stock |
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Beginning Balance |
| $ | |
| $ | |
| $ | |
| $ | |
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Exchange of Class B Common Stock for Class A Common Stock |
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Ending Balance |
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Class B Common Stock |
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Beginning Balance |
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Exchange of Class B Common Stock for Class A Common Stock |
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| ( |
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Ending Balance |
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Additional Paid-in Capital |
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Beginning Balance |
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Associate Incentive Plans |
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Ending Balance |
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Retained Earnings |
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Beginning Balance |
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Net Income |
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Regular cash dividends declared on Class A Common Stock |
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| ( |
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| ( |
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| ( |
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Regular cash dividends declared on Class B Common Stock |
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| ( |
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| ( |
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| ( |
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Special cash dividends declared on Class A Common Stock |
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| — |
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| — |
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Special cash dividends declared on Class B Common Stock |
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| — |
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| — |
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| — |
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| ( |
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Dividend equivalents declared, net of cancellations |
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| ( |
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| ( |
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| ( |
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Ending Balance |
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Accumulated Other Comprehensive Loss |
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Beginning Balance |
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| ( |
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| ( |
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Foreign Currency Translation Adjustment |
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| ( |
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Ending Balance |
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| ( |
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Treasury Stock |
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Beginning Balance |
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| ( |
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Associate Incentive Plans |
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Repurchases of Class A Common Stock |
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| ( |
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| ( |
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| ( |
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| ( |
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Ending Balance |
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| ( |
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| ( |
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Total Shareholders’ Equity Attributable to MSC Industrial |
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Noncontrolling Interest |
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Beginning Balance |
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Foreign Currency Translation Adjustment |
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| ( |
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Net Income |
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Ending Balance |
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Total Shareholders’ Equity |
| $ | |
| $ | |
| $ | |
| $ | |
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Dividends declared per Class A Common Share |
| $ | |
| $ | |
| $ | |
| $ | |
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Dividends declared per Class B Common Share |
| $ | |
| $ | |
| $ | |
| $ | |
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See accompanying Notes to Condensed Consolidated Financial Statements. | |||||||||||||
MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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| Twenty-Six Weeks Ended | ||||
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| February 26, |
| February 27, | ||
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| 2022 |
| 2021 | ||
Cash Flows from Operating Activities: |
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Net income |
| $ | |
| $ | |
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Non-cash operating lease cost |
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Stock-based compensation |
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Loss on disposal of property, plant and equipment |
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Inventory write-down |
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| — |
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Operating lease and fixed asset impairment due to restructuring |
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| — |
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Provision for credit losses |
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Deferred income taxes |
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| ( |
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| — |
Changes in operating assets and liabilities: |
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Accounts receivable |
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| ( |
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| ( |
Inventories |
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| ( |
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| ( |
Prepaid expenses and other current assets |
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| ( |
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| ( |
Operating lease liabilities |
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| ( |
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| ( |
Other assets |
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| ( |
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Accounts payable and accrued liabilities |
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| ( |
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Total adjustments |
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| ( |
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Net cash provided by operating activities |
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Cash Flows from Investing Activities: |
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Expenditures for property, plant and equipment |
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| ( |
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| ( |
Net cash used in investing activities |
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| ( |
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| ( |
Cash Flows from Financing Activities: |
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Repurchases of common stock |
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| ( |
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| ( |
Payments of regular cash dividends |
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| ( |
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| ( |
Payments of special cash dividends |
|
| — |
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| ( |
Proceeds from sale of Class A Common Stock in connection with associate stock purchase plan |
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Proceeds from exercise of Class A Common Stock options |
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Borrowings under credit facilities |
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Payments under credit facilities |
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| ( |
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| ( |
Borrowings under financing obligations |
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Other, net |
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| ( |
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| ( |
Net cash used in financing activities |
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| ( |
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| ( |
Effect of foreign exchange rate changes on cash and cash equivalents |
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| ( |
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Net increase (decrease) in cash and cash equivalents |
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| ( |
Cash and cash equivalents—beginning of period |
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Cash and cash equivalents—end of period |
| $ | |
| $ | |
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Supplemental Disclosure of Cash Flow Information: |
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Cash paid for income taxes |
| $ | |
| $ | |
Cash paid for interest |
| $ | |
| $ | |
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See accompanying Notes to Condensed Consolidated Financial Statements. | ||||||
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
The unaudited Condensed Consolidated Financial Statements have been prepared by the management of MSC Industrial Direct Co., Inc. (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, “MSC Industrial” or the “Company”) and in the opinion of management include all normal recurring material adjustments necessary to present fairly the Company’s financial position as of February 26, 2022 and August 28, 2021, results of operations for the thirteen and twenty-six weeks ended February 26, 2022 and February 27, 2021, and cash flows for the twenty-six weeks ended February 26, 2022 and February 27, 2021. The financial information as of August 28, 2021 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 2021.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the SEC. The Company, however, believes that the disclosures contained in this Report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 2021.
The Company operates on a 52/53-week fiscal year ending on the Saturday closest to August 31st of each year. References to “fiscal year 2022” refer to the period from August 29, 2021 to September 3, 2022, which is a 53-week fiscal year. References to “fiscal year 2021” refer to the period from August 30, 2020 to August 28, 2021, which is a 52-week fiscal year. The fiscal quarters ended February 26, 2022 and February 27, 2021 refer to the thirteen weeks ended as of those dates.
The unaudited Condensed Consolidated Financial Statements include the accounts of MSC Industrial Direct Co., Inc., its wholly owned subsidiaries and entities in which it maintains a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
The COVID-19 pandemic has impacted and may further impact the Company’s operations and the operations of the Company’s suppliers, vendors and freight carriers. However, demand from our traditional manufacturing end markets has recovered as certain restrictions implemented earlier in the pandemic have been lifted and economic and operating conditions have improved. In conjunction with the lifting of pandemic restrictions, the United States has experienced disruptions in the supply of certain products and services and constrained labor availability. These disruptions have affected the price and, at times, the availability of certain products and services necessary for the Company’s operations, including fuel, labor and certain products the Company sells or the inputs for such products. These disruptions are also impacting our customers and their ability to conduct their business or purchase our products and services. Such disruptions have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations.
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities financial reporting burdens as the market transitions from LIBOR and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and will be applied prospectively to contract modifications made on or before December 31, 2022. The adoption of this guidance did not have a material impact on the Company’s unaudited Condensed Consolidated Financial Statements for the thirteen- and twenty-six-week periods ended February 26, 2022.
Revenue Recognition
Net sales include product revenue and shipping and handling charges, net of estimated sales returns and any related sales incentives. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies its performance obligations under the contract, and invoicing occurs at approximately the same point in time. The Company recognizes revenue once the customer obtains control of the products. The Company’s product sales have standard payment terms that do not exceed
Consideration Payable to Customers
The Company offers customers sales incentives, which primarily consist of volume rebates, and upfront sign-on payments. These volume rebates and sign-on payments are not in exchange for a distinct good or service and result in a reduction of net sales from the goods transferred to the customer at the later of when the related revenue is recognized or when the Company promises to pay the consideration. The Company estimates its volume rebate accruals and records its sign-on payments based on various factors, including contract terms, historical experience, and performance levels. Total accrued sales incentives, primarily related to volume rebates, were $
Contract Assets and Liabilities
The Company records a contract asset when it has a right to payment from a customer that is conditioned on events other than the passage of time. The Company records a contract liability when customers prepay but the Company has not yet satisfied its performance obligations. The Company did
Disaggregation of Revenue
The Company operates in
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
customer end-market most reasonably depicts how the nature, amount, timing and uncertainty of Company revenue and cash flows are affected by economic and industry factors. The Company does not disclose net sales information by product category as it is impracticable to do so as a result of its numerous product offerings and the way its business is managed.
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| Thirteen Weeks Ended |
| Thirteen Weeks Ended | ||
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| February 26, 2022 |
| February 27, 2021 | ||
Manufacturing Heavy |
| % |
| % | ||
Manufacturing Light |
| % |
| % | ||
Retail/Wholesale |
| % |
| % | ||
Government |
| % |
| % | ||
Commercial Services |
| % |
| % | ||
Other (1) |
| % |
| % | ||
Total net sales |
| % |
| % | ||
(1)The Other category primarily includes individual customer and small business net sales not assigned to a specific industry classification.
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| Twenty-Six Weeks Ended |
| Twenty-Six Weeks Ended | ||
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| February 26, 2022 |
| February 27, 2021 | ||
Manufacturing Heavy |
| % |
| % | ||
Manufacturing Light |
| % |
| % | ||
Retail/Wholesale |
| % |
| % | ||
Government |
| % |
| % | ||
Commercial Services |
| % |
| % | ||
Other (1) |
| % |
| % | ||
Total net sales |
| % |
| % | ||
(1)The Other category primarily includes individual customer and small business net sales not assigned to a specific industry classification.
The Company’s net sales originating from the following geographic areas were as follows for the thirteen- and twenty-six-week periods ended February 26, 2022 and February 27, 2021:
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| Thirteen Weeks Ended |
| Thirteen Weeks Ended | ||||||||
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| February 26, 2022 |
| February 27, 2021 | ||||||||
United States |
| $ | |
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Mexico |
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United Kingdom |
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Canada |
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Total net sales |
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| Twenty-Six Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
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| February 26, 2022 |
| February 27, 2021 | ||||||||
United States |
| $ | |
| % |
| $ | |
| % | ||
Mexico |
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United Kingdom |
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| % |
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Canada |
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Total net sales |
| $ | |
| % |
| $ | |
| % | ||
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Net income per share is computed by dividing net income by the weighted-average number of shares of the Company’s Class A Common Stock, par value $
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
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| February 26, |
| February 27, |
| February 26, |
| February 27, | ||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Numerator: |
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Net income attributable to MSC Industrial as reported |
| $ | |
| $ | |
| $ | |
| $ | |
Denominator: |
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Weighted-average shares outstanding for basic net income per share |
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Effect of dilutive securities |
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Weighted-average shares outstanding for diluted net income per share |
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Net income per share: |
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Basic |
| $ | |
| $ | |
| $ | |
| $ | |
Diluted |
| $ | |
| $ | |
| $ | |
| $ | |
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Potentially dilutive securities |
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The Company accounts for all stock-based payments in accordance with Accounting Standards Codification Topic 718, “Compensation—Stock Compensation,” as amended. Stock-based compensation expense included in Operating expenses for the thirteen- and twenty-six-week periods ended February 26, 2022 and February 27, 2021 was as follows:
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
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| February 26, |
| February 27, |
| February 26, |
| February 27, | ||||
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| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Stock options |
| $ | |
| $ | |
| $ | |
| $ | |
Restricted stock units |
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Performance share units |
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Associate Stock Purchase Plan |
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Total |
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Deferred income tax benefit |
|
| ( |
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| ( |
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| ( |
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| ( |
Stock-based compensation expense, net |
| $ | |
| $ | |
| $ | |
| $ | |
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Stock Options
The Company discontinued its grants of stock options in fiscal year 2020. The fair value of each option grant in previous fiscal years was estimated on the date of grant using the Black-Scholes option pricing model.
A summary of the Company’s stock option activity for the twenty-six-week period ended February 26, 2022 is as follows:
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| Options |
| Weighted-Average Exercise Price per Share |
| Weighted-Average Remaining Contractual Term (in years) |
| Aggregate Intrinsic Value | ||
Outstanding on August 28, 2021 | |
| $ | |
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Granted |
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Exercised | ( |
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Canceled/Forfeited | ( |
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Outstanding on February 26, 2022 | |
| $ | |
| |
| $ | |
Exercisable on February 26, 2022 | |
| $ | |
| |
| $ | |
The unrecognized stock-based compensation cost related to stock option expense at February 26, 2022 was $
Performance Share Units
In fiscal year 2020, the Company began granting performance share units (“PSUs”) as part of its long-term stock-based compensation program. PSUs cliff vest after a
The following table summarizes all transactions related to PSUs under the MSC Industrial Direct Co., Inc. 2015 Omnibus Incentive Plan (the “2015 Omnibus Incentive Plan”) (based on target award amounts) for the twenty-six-week period ended February 26, 2022:
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| Shares |
| Weighted-Average Grant Date Fair Value | |
Non-vested PSUs at August 28, 2021 | |
| $ | |
Granted | |
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Vested |
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Canceled/Forfeited | ( |
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Non-vested PSUs at February 26, 2022 (1) | |
| $ | |
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(1) Excludes approximately | ||||
The fair value of each PSU is the closing stock price on the New York Stock Exchange (the “NYSE”) of Class A Common Stock on the date of grant. PSUs are expensed over the three year performance period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting PSU forfeitures and records stock-based compensation expense only for PSU awards that are expected to vest. Upon vesting, subject to the achievement of specific performance goals, a portion of the PSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining PSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying PSUs (in the form of additional stock units) based on dividends declared on Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying PSUs, subject to the same performance vesting requirements. The unrecognized stock-based compensation cost related to the PSUs at February 26, 2022 was $
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Restricted Stock Units
A summary of the Company’s non-vested restricted stock unit (“RSU”) award activity under the 2015 Omnibus Incentive Plan for the twenty-six-week period ended February 26, 2022 is as follows:
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| Shares |
| Weighted-Average Grant Date Fair Value | |
Non-vested RSUs at August 28, 2021 | |
| $ | |
Granted | |
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| |
Vested | ( |
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| |
Canceled/Forfeited | ( |
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Non-vested RSUs at February 26, 2022 (1) | |
| $ | |
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(1) Excludes approximately | ||||
The fair value of each RSU is the closing stock price on the NYSE of Class A Common Stock on the date of grant. RSUs are expensed over the vesting period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting RSU forfeitures and records stock-based compensation expense only for RSU awards that are expected to vest. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining RSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying RSUs (in the form of additional stock units) based on dividends declared on Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying RSUs. The unrecognized stock-based compensation cost related to the RSUs at February 26, 2022 was $
Fair value accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The below fair value hierarchy prioritizes the inputs used to measure fair value into three levels, with Level 1 being of the highest priority. The three levels of inputs used to measure fair value are as follows:
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| Level 1— | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
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| Level 2— | Include other inputs that are directly or indirectly observable in the marketplace. |
|
| Level 3— | Unobservable inputs which are supported by little or no market activity. |
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and outstanding indebtedness. Cash and cash equivalents include investments in a money market fund which are reported at fair value. The fair value of money market funds is determined using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs within the fair value hierarchy. The Company uses a market approach to determine the fair value of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar instruments. Therefore, the inputs used to measure the fair value of the Company’s debt instruments are classified as Level 2 within the fair value hierarchy. The reported carrying amounts of the Company’s financial instruments approximated their fair values as of February 26, 2022, and February 27, 2021.
During the thirteen- and twenty-six-week periods ended February 26, 2022 and February 27, 2021, the Company had
Assets Held for Sale
The Company classifies an asset as held for sale when management, having the authority to approve the action, commits to a plan to sell the asset, the sale is probable within one year, and the asset is available for immediate sale in its
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
present condition. The Company initially measures an asset that is classified as held for sale at the lower of its carrying amount or fair value less costs to sell. The Company assesses the fair value of an asset less costs to sell each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying amount of the asset, as long as the new carrying amount does not exceed the carrying amount of the asset at the time it was initially classified as held for sale. Assets are not depreciated or amortized while they are classified as held for sale.
In December 2020, the Company announced plans to relocate its Long Island Customer Service Center (“CSC”) to a smaller facility in Melville, New York. In connection with the announcement, the Company signed a
Debt at February 26, 2022 and August 28, 2021 consisted of the following:
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| February 26, |
| August 28, |
| ||
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| 2022 |
| 2021 |
| ||
Amended Revolving Credit Facility |
| $ | |
| $ | |
|
Uncommitted Credit Facilities |
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Long-Term Note Payable |
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Private Placement Debt: |
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Financing arrangements |
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Obligations under finance leases |
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Less: unamortized debt issuance costs |
|
| ( |
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| ( |
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Total debt, including obligations under finance leases |
| $ | |
| $ | |
|
Less: current portion |
|
| ( | (2) |
| ( | (3) |
Total long-term debt, including obligations under finance leases |
| $ | |
| $ | |
|
(1) Represents private placement debt issued under Shelf Facility Agreements (as defined below).
(2) Consists of $
(3) Consists of $
Amended Revolving Credit Facility
In April 2017, the Company entered into a $
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
is reset at the end of each interest period. The Company currently elects to have loans under the Amended Revolving Credit Facility bear interest based on LIBOR with one-month interest periods.
The Amended Revolving Credit Facility permits up to $
Uncommitted Credit Facilities
During the second quarter of fiscal year 2022, the Company extended and amended two of the three uncommitted credit facilities entered into or amended during fiscal year 2021. The third uncommitted credit facility was extended and amended in March 2022. All three of these amendments implemented the Secured Overnight Financing Rate (“SOFR”) as the replacement of the LIBOR benchmark. These facilities (collectively, the “Uncommitted Credit Facilities” and, together with the Amended Revolving Credit Facility, the “Credit Facilities”) total $
Because the interest rates on the Uncommitted Credit Facilities have recently been lower than the interest rates which are available on the Company’s other sources of financing, the Company has used, and intends to use in the future, the Uncommitted Credit Facilities for opportunistic refinancing of the Company’s existing indebtedness. The Company does not presently view the Uncommitted Credit Facilities as sources of incremental debt financing of the Company due to the uncommitted nature of the Uncommitted Credit Facilities, but reserves the right to use the Uncommitted Credit Facilities to incur additional debt where it considers it appropriate under the then-existing credit market conditions.
During the twenty-six-week period ended February 26, 2022, the Company borrowed an aggregate $
Private Placement Debt
In July 2016, the Company completed the issuance and sale of $
Shelf Facility Agreements
In January 2018, the Company entered into Note Purchase and Private Shelf Agreements with MetLife Investment Advisors, LLC (the “Met Life Note Purchase Agreement”) and PGIM, Inc. (the “Prudential Note Purchase Agreement” and, together with the Met Life Note Purchase Agreement, the “Shelf Facility Agreements”). Each of the MetLife Note Purchase Agreement and the Prudential Note Purchase Agreement provides for an uncommitted facility for the issuance and sale of up to an aggregate total of $
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
including obligations under finance leases on the Companys unaudited Condensed Consolidated Balance Sheet as of February 26, 2022), and $
Covenants
Note 7. Shareholders’ Equity
Common Stock Repurchases and Treasury Stock
On June 29, 2021, the Company’s Board of Directors terminated the MSC Stock Repurchase Plan, which was established during fiscal year 1999, and authorized a new share repurchase program (the “Share Repurchase Program”) to purchase up to
During the thirteen- and twenty-six-week periods ended February 26, 2022, the Company repurchased
The Company reissued
Dividends on Common Stock
The Company paid aggregate regular cash dividends of $
On
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Optimization of Company Operations and Profitability Improvement
The Company identified opportunities for improvements in its workforce realignment, strategy and staffing, and increased its focus on performance management, to ensure it has the right skillsets and number of associates to execute its long-term vision. As such, the Company extended voluntary and involuntary severance and separation benefits to certain associates in order to facilitate its workforce realignment. In addition, the Company engaged consultants to assist in reviewing the optimization of the Company’s operations and improving profitability with executing on its Company-wide initiative, referred to as Mission Critical, through fiscal year 2023.
Enhanced Customer Support Model
In fiscal year 2021, the Company announced an enhanced customer support model, including a transition from the branch office network to virtual customer care hubs. Along with this transition, the Company closed
The following table summarizes restructuring and other costs:
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| Thirteen Weeks Ended |
| Twenty-Six Weeks Ended | ||||||||
|
| February 26, |
| February 27, |
| February 26, |
| February 27, | ||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Operating lease asset impairment loss |
| $ | — |
| $ | |
| $ | — |
| $ | |
Consulting-related costs |
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Associate severance and separation costs |
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Equity award acceleration costs associated with severance |
|
| — |
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Other exit-related costs |
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Total restructuring and other costs |
| $ | |
| $ | |
| $ | |
| $ | |
Liabilities associated with restructuring and other costs are included in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheet as of February 26, 2022. The following table summarizes activity related to liabilities associated with restructuring and other costs:
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| Consulting-related costs |
| Severance and separation costs |
| Other exit-related costs |
| Total | ||||
Balance at August 28, 2021 |
| $ | |
| $ | |
| $ | |
| $ | |
Additions |
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Payments and other adjustments |
|
| ( |
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| ( |
|
| ( |
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| ( |
Balance at February 26, 2022 |
| $ | |
| $ | |
| $ | |
| $ | |
PPE-Related Inventory Write-Down
In fiscal year 2021, the Company realized lower product margins as well as inventory write-downs, each as a result of the COVID-19 pandemic, primarily due to the increased supply of competing products from manufacturers and an expected inability to sell excess inventory of safety-related products ordered from manufacturers earlier in the COVID-19 pandemic. During the thirteen- and twenty-six-week periods ended February 27, 2021, the Company incurred PPE-related inventory write-downs of $
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
second quarter of fiscal year 2021. There were
Impairment Loss
To meet anticipated demand for PPE products during the COVID-19 pandemic, the Company purchased products from manufacturers outside its typical programs and under non-standard payment terms. Given the high demand for PPE products and related challenges in sourcing PPE products as well as the imperative to quickly obtain such products based on customer demand, the Company used a number of distributors and brokers to source PPE products. In September 2020, the Company prepaid approximately $
The Company generally offers a maximum
During the twenty-six-week period ended February 26, 2022, there were
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law, which is intended to provide economic relief to those impacted by the COVID-19 pandemic. On March 11, 2021, the American Rescue Plan Act (the “ARPA”) was signed into law. The ARPA includes several provisions, such as measures that extend and expand the Employee Retention Credit (the “ERC”) provision, previously enacted under the CARES Act, through December 31, 2021. The Company is reviewing the ERC provision of the CARES Act and of the ARPA to determine eligibility and potential impact.
The CARES Act provides for the deferral of the employer-paid portion of social security payroll taxes. The Company elected to defer the employer-paid portion of social security payroll taxes through December 31, 2020 of $
The Company’s effective tax rate was
In the ordinary course of business, there are various claims, lawsuits and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters, both individually and in aggregate, is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is intended to update the information contained in MSC Industrial Direct Co., Inc.’s (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, “MSC,” “MSC Industrial,” the “Company,” “we,” “us” or “our”) Annual Report on Form 10-K for the fiscal year ended August 28, 2021 and presumes that readers have access to, and will have read, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of such Annual Report on Form 10-K.
Overview
MSC is a leading North American distributor of a broad range of metalworking and maintenance, repair and operations (“MRO”) products and services. We help our customers drive greater productivity, profitability and growth with inventory management and other supply chain solutions and deep expertise from more than 80 years of working with customers across industries. We offer approximately 2.0 million active, saleable SKUs through our catalogs; our brochures; our eCommerce channels, including our website, www.mscdirect.com (the “MSC website”); our inventory management solutions; and our call centers, branch offices, customer fulfillment centers and regional inventory centers. We service our customers from 11 customer fulfillment centers (seven customer fulfillment centers located in the United States, including five primary customer fulfillment centers, one located in the United Kingdom and three located in Canada), seven regional inventory centers, and 25 branch offices. We continue to implement our strategies to gain market share, generate new customers, increase sales to existing customers, and diversify our customer base.
Our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our customers’ needs. Many of our products are carried in stock, and orders for these in-stock products are typically fulfilled the day on which the order is received.
We focus on offering inventory, process and procurement solutions that reduce MRO supply chain costs and improve plant floor productivity for our customers. We will seek to continue to achieve cost reductions throughout our business through cost-saving strategies and increased leverage from our existing infrastructure. Furthermore, we provide additional procurement cost-saving solutions to our customers through technology such as our Electronic Data Interchange (“EDI”) systems, vendor-managed inventory (“VMI”) systems and vending programs.
Our field sales and service associate headcount was 2,448 at February 26, 2022, compared to 2,301 at February 27, 2021. We have migrated our sales force from one designed to sell a spot-buy value proposition to one prepared to deliver upon the new, more complex and high-touch role that we play, driving value for our customers by enabling them to achieve higher levels of productivity, profitability and growth.
Highlights
Highlights during the twenty-six-week period ended February 26, 2022 include the following:
We generated $57.4 million of cash from operations, compared to $118.9 million for the same period in the prior fiscal year.
We had net borrowings of $49.5 million on our credit facilities, compared to net borrowings of $65.0 million for the same period in the prior fiscal year.
We paid out an aggregate $83.6 million in regular cash dividends, compared to an aggregate $279.0 million in cash dividends comprised of special and regular cash dividends of approximately $195.4 million and $83.7 million, respectively, in the same period in the prior fiscal year.
We incurred $8.4 million in restructuring and other costs, compared to $25.6 million for the same period in the prior fiscal year. Restructuring and other costs primarily consisted of severance and separation costs, equity award acceleration costs and consulting costs. The prior year period also included operating lease asset impairment charges, net of gains related to settlement of lease liabilities, and other exit-related costs related to the prior year internal restructuring due to our sales workforce realignment and enhanced customer support model.
Recent Developments
Progress on Mission Critical
As previously disclosed, we initiated a Company-wide project, which we refer to as “Mission Critical,” to accelerate market share capture and improve profitability over the period through fiscal year 2023. Among the Mission Critical initiatives to realize growth, we began and expect to continue investing in our market-leading metalworking business by adding to our metalworking specialist team, introducing value-added services to our customers, expanding our vending, VMI and in-plant solutions programs, building out our sales force, and diversifying our customers and end-markets. We also are focused on improving profitability through the implementation of various pricing strategies and critical structural cost reductions in order to improve return on invested capital. We anticipate that the cost reductions will be comprised of savings in the areas of sales and service, supply chain and general and administrative expenses, and include initiatives to optimize our distribution center network and real estate footprint, renegotiate supplier contracts, and redesign our talent acquisition and retention approach.
Relocation and Pending Sale of Long Island Customer Service Center
In December 2020, we announced plans to relocate our Long Island Customer Service Center (“CSC”) to a smaller facility in Melville, New York. In connection with the announcement, we signed a 10-year lease to occupy approximately 26,000 square feet in an office building in Melville, New York, which commenced in September 2021. In furtherance of these plans, we entered into a Purchase and Sale Agreement to sell our Long Island CSC. This transaction is currently within a permitting period as outlined within the Purchase and Sale Agreement.
Impact of COVID-19 on our Business
The COVID-19 pandemic has impacted and may further impact the Company’s operations and the operations of the Company’s suppliers, vendors and freight carriers. However, demand from our traditional manufacturing end markets has recovered as certain restrictions implemented earlier in the pandemic have been lifted and economic and operating conditions have improved. In conjunction with the lifting of pandemic restrictions, the United States has experienced disruptions in the supply of certain products and services and constrained labor availability. These disruptions have affected the price and, at times, the availability of certain products and services necessary for the Company’s operations, including fuel, labor and certain products the Company sells or the inputs for such products. These disruptions are also impacting our customers and their ability to conduct their business or purchase our products and services. Such disruptions have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations.
The extent to which the COVID-19 pandemic, including new variants of COVID-19, will continue to impact the Company’s business, financial condition and results of operations is highly uncertain. Therefore, the Company cannot reasonably estimate future impacts of the COVID-19 pandemic at this time. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state and local, and foreign authorities.
Our Strategy
Our primary objective is to grow sales profitably while offering our customers highly technical and high-touch solutions to solve their most complex challenges on the plant floor. Our strategy is to complete the transition from being a spot-buy supplier to a mission-critical partner to our customers. We will selectively pursue strategic acquisitions that expand or complement our business in new and existing markets or further enhance the value and offerings we provide.
Business Environment
We utilize various indices when evaluating the level of our business activity, including the Metalworking Business Index (the “MBI”) and the Industrial Production (“IP”) index. Approximately 68% of our revenues came from sales in the manufacturing sector during the twenty-six weeks ended February 26, 2022. Through statistical analysis, we have found that trends in our customers’ activity have correlated to changes in the MBI and the IP index. The MBI is a sentiment index developed from a monthly survey of the U.S. metalworking industry, focusing on durable goods manufacturing. For the MBI, a value below 50.0 generally indicates contraction and a value above 50.0 generally indicates expansion. The IP index measures short-term changes in industrial production. Growth in the IP index from month to month indicates growth in the manufacturing, mining and utilities industries. Note that the composition of the IP index was revised by the Federal Reserve in May 2021 which adjusted, among other factors, the base year with which the IP index is calculated. This resulted in a
lower level for the historical index in recent years, however the trend in the index continues to show growth as noted above. The MBI and the IP index over the three months ended February 2022 and the average for the three- and 12-month periods ended February 2022 were as follows:
|
|
|
|
Period |
| MBI | IP Index |
December |
| 58.3 | 101.6 |
January |
| 62.5 | 103.0 |
February |
| 60.6 | 103.6 |
|
|
|
|
Fiscal Year 2022 Q2 average |
| 60.5 | 102.7 |
12-month average |
| 61.1 | 101.0 |
During the three-month period ended February 26, 2022, the MBI average remained above 50.0, which indicated growth in manufacturing during the period. Similarly, the average IP index for the three months ended February 26, 2022 increased to 102.7. The recent trending in these indices remains in line with the first quarter of fiscal year 2022, primarily due to the recovery in economic conditions related to the gradual lifting of government-imposed restrictions on economic activity and the abatement of the COVID-19 pandemic. See “Impact of COVID-19 on our Business” above. Beginning in the second half of calendar year 2021 and continuing into calendar year 2022, the United States has seen significant levels of inflation, which has included higher prices for both labor and the products that the Company sells. The Company has sought, where possible, to implement price realization strategies that match or exceed the level of increased costs the Company faces. We will continue to monitor the current economic conditions for the impact on our customers and markets and assess both risks and opportunities that may affect our business and operations.
Thirteen-Week Period Ended February 26, 2022 Compared to the Thirteen-Week Period Ended February 27, 2021
The table below summarizes the Company’s results of operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Thirteen Weeks Ended |
|
|
|
|
| |||||||||||
|
| February 26, 2022 |
| February 27, 2021 |
| Change | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
Net sales |
| $ | 862,522 |
|
| 100.0% |
| $ | 773,995 |
|
| 100.0% |
| $ | 88,527 |
|
| 11.4% |
Cost of goods sold |
|
| 496,247 |
|
| 57.5% |
|
| 479,244 |
|
| 61.9% |
|
| 17,003 |
|
| 3.5% |
Gross profit |
|
| 366,275 |
|
| 42.5% |
|
| 294,751 |
|
| 38.1% |
|
| 71,524 |
|
| 24.3% |
Operating expenses |
|
| 265,973 |
|
| 30.8% |
|
| 245,115 |
|
| 31.7% |
|
| 20,858 |
|
| 8.5% |
Restructuring and other costs |
|
| 3,134 |
|
| 0.4% |
|
| 21,615 |
|
| 2.8% |
|
| (18,481) |
|
| (85.5)% |
Income from operations |
|
| 97,168 |
|
| 11.3% |
|
| 28,021 |
|
| 3.6% |
|
| 69,147 |
|
| 246.8% |
Total other expense |
|
| (3,505) |
|
| (0.4)% |
|
| (3,622) |
|
| (0.5)% |
|
| 117 |
|
| (3.2)% |
Income before provision for income taxes |
|
| 93,663 |
|
| 10.9% |
|
| 24,399 |
|
| 3.2% |
|
| 69,264 |
|
| 283.9% |
Provision for income taxes |
|
| 23,509 |
|
| 2.7% |
|
| 6,051 |
|
| 0.8% |
|
| 17,458 |
|
| 288.5% |
Net income |
|
| 70,154 |
|
| 8.1% |
|
| 18,348 |
|
| 2.4% |
|
| 51,806 |
|
| 282.4% |
Less: Net income attributable to noncontrolling interest |
|
| 223 |
|
| 0.0% |
|
| 263 |
|
| 0.0% |
|
| (40) |
|
| (15.2)% |
Net income attributable to MSC Industrial |
| $ | 69,931 |
|
| 8.1% |
| $ | 18,085 |
|
| 2.3% |
| $ | 51,846 |
|
| 286.7% |
Net Sales
Net sales increased 11.4%, or $88.5 million, to $862.5 million for the thirteen-week period ended February 26, 2022, as compared to $774.0 million for the same period in the prior fiscal year. The $88.5 million increase in net sales was comprised of approximately $51.6 million of higher sales volume, $32.1 million from improved pricing, inclusive of changes in customer and product mix, discounting and other items, and $4.8 million of net sales from fiscal year 2021 acquisitions. Of the $88.5 million increase in net sales during the thirteen-week period ended February 26, 2022, national account customer sales increased by approximately $41.1 million, sales to our core and other customers increased by approximately $47.1 million and sales from fiscal year 2021 acquisitions were $4.8 million, partially offset by a decrease in our government customer sales by approximately $4.5 million.
The table below shows, among other things, the change in our average daily sales (“ADS”) by total Company and by customer type for the thirteen-week period ended February 26, 2022, as compared to the same period in the prior fiscal year:
|
|
|
|
|
|
|
ADS Percentage Change | ||||||
(Unaudited) | ||||||
|
| Thirteen Weeks Ended | ||||
|
| February 26, 2022 |
| February 27, 2021 | ||
Net Sales (in thousands) |
| $ | 862,522 |
| $ | 773,995 |
Sales Days |
|
| 63 |
|
| 61 |
ADS(1) (in millions) |
| $ | 13.7 |
| $ | 12.7 |
Total Company ADS Percent Change |
|
| 7.9% |
|
| -1.5% |
|
|
|
|
|
|
|
Manufacturing Customers ADS Percent Change |
|
| 8.9% |
|
| -4.9% |
Manufacturing Customers Percent of Total Net Sales |
|
| 69% |
|
| 68% |
|
|
|
|
|
|
|
Non-Manufacturing Customers ADS Percent Change |
|
| 5.8% |
|
| 6.6% |
Non-Manufacturing Customers Percent of Total Net Sales |
|
| 31% |
|
| 32% |
|
|
|
|
|
|
|
(1) ADS is calculated using the number of business days in the United States for the periods indicated. | ||||||
We believe that our ability to transact business with our customers directly through the MSC website as well as through various other electronic portals gives us a competitive advantage over smaller suppliers. Sales made through our eCommerce platforms, including sales made through EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 60.7% of consolidated net sales for the thirteen-week period ended February 26, 2022, as compared to 59.2% of consolidated net sales for the same period in the prior fiscal year. These percentages of consolidated net sales do not include eCommerce sales from our recent acquisitions.
Gross Profit
Gross profit of $366.3 million for the thirteen-week period ended February 26, 2022 increased $71.5 million, or 24.3%, compared to the same period in the prior fiscal year. Gross profit margin was 42.5% for the thirteen-week period ended February 26, 2022, as compared to 38.1% for the same period in the prior fiscal year. The increase in gross profit margin was the result of improved price realization and positive spread between sales price and cost of goods sold. In addition, results for the thirteen-week period ended February 27, 2021 include PPE-related inventory write-downs of $30.1 million, which reduced the carrying value of certain PPE-related inventory to their estimated net realizable value. No such inventory write-downs occurred for the thirteen-week period ended February 26, 2022.
Operating Expenses
Operating expenses increased 8.5%, or $20.9 million, to $266.0 million for the thirteen-week period ended February 26, 2022, as compared to $245.1 million for the same period in the prior fiscal year. Operating expenses were 30.8% of net sales for the thirteen-week period ended February 26, 2022, as compared to 31.7% for the same period in the prior fiscal year. The increase in Operating expenses was primarily due to higher payroll and payroll-related costs as well as higher freight costs.
Payroll and payroll-related costs for the thirteen-week period ended February 26, 2022 were 57.8% of total Operating expenses, as compared to 57.1% for the same period in the prior fiscal year. All components of payroll and payroll-related costs, including salary, incentive compensation, sales commission, and fringe benefit costs, increased $13.8 million for the thirteen-week period ended February 26, 2022.
Freight expense was $36.6 million for the thirteen-week period ended February 26, 2022, as compared to $32.5 million for the same period in the prior fiscal year. The primary drivers of the increase in freight expense were increased sales volume and higher fuel-related charges due to increased commodity costs.
Restructuring and Other Costs
We incurred $3.1 million in restructuring and other costs for the thirteen-week period ended February 26, 2022, as compared to $21.6 million for the same period in the prior fiscal year. These charges include associate severance and separation costs, consulting costs and other exit-related costs. Restructuring and other costs for the same period in the prior fiscal year also include impairment charges for operating lease assets, net of gains related to settlement of lease liabilities of
$16.7 million. More specifically, in the second quarter of fiscal year 2021, the Company announced an enhanced customer support model, including a transition from the branch office network to virtual customer care hubs. This transition included the closure of 73 branch offices, all of which were under operating leases. See Note 8, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from Operations
Income from operations increased 246.8%, or $69.1 million, to $97.2 million for the thirteen-week period ended February 26, 2022, as compared to $28.0 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales increased to 11.3% for the thirteen-week period ended February 26, 2022, as compared to 3.6% for the same period in the prior fiscal year. This increase was primarily attributable to the overall increase in sales during the thirteen-week period ended February 26, 2022 and the impacts of the prior year PPE-related inventory write-down and impairment charges for operating lease assets within restructuring and other costs as discussed above.
Provision for Income Taxes
The Company’s effective tax rate for the thirteen-week period ended February 26, 2022 was 25.1%, as compared to 24.8% for the same period in the prior fiscal year. The increase in the effective tax rate was primarily due to an increase in unfavorable permanent tax items.
Net Income
The factors which affected net income for the thirteen-week period ended February 26, 2022, as compared to the same period in the prior fiscal year, have been discussed above.
Twenty-Six-Week Period Ended February 26, 2022 Compared to the Twenty-Six-Week Period Ended February 27, 2021
The table below summarizes the Company’s results of operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Twenty-Six Weeks Ended |
|
|
|
|
| |||||||||||
|
| February 26, 2022 |
| February 27, 2021 |
| Change | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| % |
|
| $ |
|
| % |
|
| $ |
|
| % |
Net sales |
| $ | 1,711,069 |
|
| 100.0% |
| $ | 1,545,899 |
|
| 100.0% |
| $ | 165,170 |
|
| 10.7% |
Cost of goods sold |
|
| 992,198 |
|
| 58.0% |
|
| 927,830 |
|
| 60.0% |
|
| 64,368 |
|
| 6.9% |
Gross profit |
|
| 718,871 |
|
| 42.0% |
|
| 618,069 |
|
| 40.0% |
|
| 100,802 |
|
| 16.3% |
Operating expenses |
|
| 522,554 |
|
| 30.5% |
|
| 483,820 |
|
| 31.3% |
|
| 38,734 |
|
| 8.0% |
Impairment loss |
|
| - |
|
| 0.0% |
|
| 26,726 |
|
| 1.7% |
|
| (26,726) |
|
| (100)% |
Restructuring and other costs |
|
| 8,417 |
|
| 0.5% |
|
| 25,594 |
|
| 1.7% |
|
| (17,177) |
|
| (67.1)% |
Income from operations |
|
| 187,900 |
|
| 11.0% |
|
| 81,929 |
|
| 5.3% |
|
| 105,971 |
|
| 129.3% |
Total other expense |
|
| (7,627) |
|
| (0.4)% |
|
| (6,306) |
|
| (0.4)% |
|
| (1,321) |
|
| 20.9% |
Income before provision for income taxes |
|
| 180,273 |
|
| 10.5% |
|
| 75,623 |
|
| 4.9% |
|
| 104,650 |
|
| 138.4% |
Provision for income taxes |
|
| 43,862 |
|
| 2.6% |
|
| 18,498 |
|
| 1.2% |
|
| 25,364 |
|
| 137.1% |
Net income |
|
| 136,411 |
|
| 8.0% |
|
| 57,125 |
|
| 3.7% |
|
| 79,286 |
|
| 138.8% |
Less: Net income attributable to noncontrolling interest |
|
| 413 |
|
| 0.0% |
|
| 586 |
|
| 0.0% |
|
| (173) |
|
| (29.5)% |
Net income attributable to MSC Industrial |
| $ | 135,998 |
|
| 7.9% |
| $ | 56,539 |
|
| 3.7% |
| $ | 79,459 |
|
| 140.5% |
Net Sales
Net sales increased 10.7%, or $165.2 million, to $1,711.1 million for the twenty-six-week period ended February 26, 2022, as compared to $1,545.9 million for the same period in the prior fiscal year. The $165.2 million increase in net sales was comprised of approximately $105.4 million of higher sales volume, $49.9 million from improved pricing, inclusive of changes in customer and product mix, discounting and other items, $8.8 million of net sales from fiscal year 2021 acquisitions, and $1.1 million of favorable foreign exchange impact. Of the $165.2 million increase in net sales during the twenty-six-week period ended February 26, 2022, national account customer sales increased by approximately $80.2 million, sales to our core and other customers increased by approximately $104.9 million and sales from fiscal year 2021 acquisitions were $8.8 million, partially offset by a decrease in our government customer sales by approximately $28.7 million.
The table below shows, among other things, the change in our ADS by total Company and by customer type for the twenty-six-week period ended February 26, 2022, as compared to the same period in the prior fiscal year:
|
|
|
|
|
|
|
|
ADS Percentage Change |
| ||||||
(Unaudited) |
| ||||||
|
| Twenty-Six Weeks Ended |
| ||||
|
| February 26, 2022 |
| February 27, 2021 |
| ||
Net Sales (in thousands) |
| $ | 1,711,069 |
| $ | 1,545,899 |
|
Sales Days |
|
| 125 |
|
| 123 |
|
ADS(1) (in millions) |
| $ | 13.7 |
| $ | 12.6 |
|
Total Company ADS Percent Change |
|
| 8.9% |
|
| -4.0% |
|
|
|
|
|
|
|
|
|
Manufacturing Customers ADS Percent Change |
|
| 12.2% |
|
| -9.3% |
|
Manufacturing Customers Percent of Total Net Sales |
|
| 68% |
|
| 67% |
|
|
|
|
|
|
|
|
|
Non-Manufacturing Customers ADS Percent Change |
|
| 2.5% |
|
| 9.0% |
|
Non-Manufacturing Customers Percent of Total Net Sales |
|
| 32% |
|
| 33% |
|
|
|
|
|
|
|
|
|
(1) ADS is calculated using the number of business days in the United States for the periods indicated. |
| ||||||
We believe that our ability to transact business with our customers directly through the MSC website as well as through various other electronic portals gives us a competitive advantage over smaller suppliers. Sales made through our eCommerce platforms, including sales made through EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 60.6% of consolidated net sales for the twenty-six-week period ended February 26, 2022, as compared to 60.0% of consolidated net sales for the same period in the prior fiscal year. These percentages of consolidated net sales do not include eCommerce sales from our recent acquisitions.
Gross Profit
Gross profit of $718.9 million for the twenty-six-week period ended February 26, 2022 increased $100.8 million, or 16.3%, compared to the same period in the prior fiscal year. Gross profit margin was 42.0% for the twenty-six-week period ended February 26, 2022, as compared to 40.0% for the same period in the prior fiscal year. The increase in gross profit margin was the result of improved price realization and positive spread between sales price and cost of goods sold. In addition, results for the twenty-six-week period ended February 27, 2021 include the prior year PPE-related inventory write-downs of $30.1 million, which reduced the carrying value of certain PPE-related inventory to their estimated net realizable value. No such inventory write-downs occurred for the twenty-six-week period ended February 26, 2022.
Operating Expenses
Operating expenses increased 8.0%, or $38.7 million, to $522.6 million for the twenty-six-week period ended February 26, 2022, as compared to $483.8 million for the same period in the prior fiscal year. Operating expenses were 30.5% of net sales for the twenty-six-week period ended February 26, 2022, as compared to 31.3% for the same period in the prior fiscal year. The increase in Operating expenses was primarily due to higher payroll and payroll-related costs as well as higher freight costs.
Payroll and payroll-related costs for the twenty-six-week period ended February 26, 2022 were 57.4% of total Operating expenses, as compared to 56.7% for the same period in the prior fiscal year. All components of payroll and payroll-related costs, including salary, incentive compensation, sales commission, and fringe benefit costs, increased $25.6 million for the twenty-six-week period ended February 26, 2022.
Freight expense was $72.8 million for the twenty-six-week period ended February 26, 2022, as compared to $64.3 million for the same period in the prior fiscal year. The primary drivers of the increase in freight expense were increased sales volume and higher fuel-related charges due to increased commodity costs.
Impairment Loss
In September 2020, the Company prepaid approximately $26.7 million for the purchase of nitrile gloves to be sourced from manufacturers in Asia and experienced significant delays in obtaining possession of this PPE. The Company evaluated the potential recoverability of these assets and, as a result, recorded an impairment charge of $26.7 million in the first quarter of fiscal year 2021 to reflect the fact that the Company would not ultimately obtain this PPE or recover its related prepayment. This impairment charge was reflected in the unaudited Condensed Consolidated Statement of Income during the first quarter of fiscal year 2021. In the second half of fiscal year 2021, the Company entered into a legal settlement agreement with a vendor and, as a result, received $20.8 million of loss recovery related to this prepayment. The Company continues to pursue its legal avenues for recovery of the remaining loss.
Restructuring and Other Costs
We incurred $8.4 million in restructuring and other costs for the twenty-six-week period ended February 26, 2022, as compared to $25.6 million for the same period in the prior fiscal year. These charges include associate severance and separation costs, equity award acceleration costs, consulting costs and other exit-related costs. Restructuring and other costs for the same period in the prior fiscal year also include impairment charges for operating lease assets, net of gains related to settlement of lease liabilities of $16.7 million. More specifically, in the second quarter of fiscal year 2021, the Company announced an enhanced customer support model, including a transition from the branch office network to virtual customer care hubs. This transition included the closure of 73 branch offices, all of which were under operating leases. See Note 8, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from Operations
Income from operations increased 129.3%, or $106.0 million, to $187.9 million for the twenty-six-week period ended February 26, 2022, as compared to $81.9 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales increased to 11.0% for the twenty-six-week period ended February 26, 2022, as compared to 5.3% for the same period in the prior fiscal year. This increase was primarily attributable to the increase in sales during the twenty-six-week period ended February 26, 2022 and the impacts of the prior year impairment loss, PPE-related inventory write-down within gross margin and impairment charges for operating lease assets within restructuring and other costs as discussed above.
Provision for Income Taxes
The Company’s effective tax rate for the twenty-six-week period ended February 26, 2022 was 24.3%, as compared to 24.5% for the same period in the prior fiscal year. The decrease in the effective tax rate was primarily due to a higher tax benefit from stock-based compensation.
Net Income
The factors which affected net income for the twenty-six-week period ended February 26, 2022, as compared to the same period in the prior fiscal year, have been discussed above.
Liquidity and Capital Resources
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| February 26, |
| August 28, |
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| 2022 |
| 2021 |
| $ Change | |||
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| (Dollars in thousands) | |||||||
Total debt |
| $ | 835,451 |
| $ | 786,049 |
| $ | 49,402 |
Less: Cash and cash equivalents |
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| 41,754 |
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| 40,536 |
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| 1,218 |
Net debt |
| $ | 793,697 |
| $ | 745,513 |
| $ | 48,184 |
Equity |
| $ | 1,235,301 |
| $ | 1,161,872 |
| $ | 73,429 |
As of February 26, 2022, we had $41.8 million in cash and cash equivalents, substantially all with well-known financial institutions. Historically, our primary financing needs have been to fund our working capital requirements necessitated by our sales growth and the costs of acquisitions, new products, new facilities, facility expansions, investments in vending solutions, technology investments, and productivity investments. Cash generated from operations, together with borrowings under our credit facilities and net proceeds from the private placement notes, have been used to fund these needs,
to repurchase shares of the Company’s Class A Common Stock, par value $0.001 per share (“Class A Common Stock”) from time to time, and to pay dividends to our shareholders.
As of February 26, 2022, total borrowings outstanding, representing amounts due under our credit facilities and notes, as well as all finance leases and financing arrangements, were $835.5 million, net of unamortized debt issuance costs of $1.6 million, as compared to total borrowings of $786.0 million, net of unamortized debt issuance costs of $1.9 million, as of the end of fiscal year 2021. The increase was driven by higher net borrowings under our committed credit facility. See Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these balances.
We believe, based on our current business plan, that our existing cash, financial resources and cash flow from operations will be sufficient to fund necessary capital expenditures and operating cash requirements for at least the next 12 months. The Company further believes that its financial resources, along with managing discretionary expenses, will allow us to manage the anticipated further impact of the COVID-19 pandemic on our business operations for the foreseeable future, which will include reduced sales and net income levels for the Company. We will continue to evaluate our financial position in light of future developments, particularly those relating to the COVID-19 pandemic, and to take appropriate action as it is warranted.
The table below summarizes certain information regarding the Company’s cash flows for the periods indicated:
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| Twenty-Six Weeks Ended | ||||
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| February 26, |
| February 27, | ||
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| 2022 |
| 2021 | ||
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| (Dollars in thousands) | ||||
Net cash provided by operating activities |
| $ | 57,421 |
| $ | 118,934 |
Net cash used in investing activities |
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| (31,179) |
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| (19,954) |
Net cash used in financing activities |
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| (24,916) |
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| (204,804) |
Effect of foreign exchange rate changes on cash and cash equivalents |
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| (108) |
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| 855 |
Net increase (decrease) in cash and cash equivalents |
| $ | 1,218 |
| $ | (104,969) |
Cash Flows from Operating Activities
Net cash provided by operating activities was $57.4 million for the twenty-six weeks ended February 26, 2022 compared to $118.9 million for the twenty-six weeks ended February 27, 2021. The decrease was primarily due to the following:
an increase in the change in accounts receivable and inventories primarily attributable to higher sales volume, and a decrease in the change in accounts payable and accrued liabilities due to a greater increase in accounts payable in the prior year primarily as a result of the impact of the COVID-19 pandemic;
partially offset by an increase in net income as described above.
The table below summarizes certain information regarding the Company’s operations as of the periods indicated:
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| February 26, |
| August 28, |
| February 27, | |||
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| 2022 |
| 2021 |
| 2021 | |||
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| (Dollars in thousands) | |||||||
Working Capital (1) |
| $ | 819,641 |
| $ | 752,317 |
| $ | 632,139 |
Current Ratio (2) |
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| 2.4 |
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| 2.3 |
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| 2.1 |
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Days’ Sales Outstanding (3) |
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| 60.9 |
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| 61.1 |
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| 57.4 |
Inventory Turnover (4) |
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| 3.2 |
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| 3.4 |
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| 3.4 |
(1) Working Capital is calculated as current assets less current liabilities.
(2) Current Ratio is calculated as dividing total current assets by total current liabilities.
(3) Days’ Sales Outstanding is calculated as accounts receivable divided by net sales.
(4) Inventory Turnover is calculated as total cost of goods sold divided by inventory using a 13-month trailing average inventory.
Working capital and the current ratio both increased relative to both August 28, 2021 and February 27, 2021. The increases from both periods presented in the table above were primarily due to increases in both accounts receivable and inventories, partially offset by an increase in the current portion of debt.
The decrease in Accrued expenses and other current liabilities from August 28, 2021 to February 26, 2022 was due to income tax payments primarily made during the second quarter of fiscal year 2022.
Days’ sales outstanding remained largely consistent with August 28, 2021. The increase in days’ sales outstanding as of February 26, 2022 as compared to February 27, 2021 was primarily due to the receivables portfolio consisting of a greater percentage of our national account program sales, which typically have longer payment terms.
Inventory turnover as of February 26, 2022 declined relative to both August 28, 2021 and February 27, 2021 due to increasing inventory levels as a result of ongoing challenges in the supply chain and to meet customer demand.
Cash Flows from Investing Activities
Net cash used in investing activities for the twenty-six-week periods ended February 26, 2022 and February 27, 2021 was $31.2 million and $20.0 million, respectively. The use of cash for both periods was primarily due to expenditures for property, plant and equipment primarily related to vending programs and Mission Critical projects.
Cash Flows from Financing Activities
Net cash used in financing activities was $24.9 million for the twenty-six weeks ended February 26, 2022 compared to $204.8 million for the twenty-six weeks ended February 27, 2021, primarily due to the following:
$83.6 million of regular dividends paid during the twenty-six weeks ended February 26, 2022 compared to $279.0 million of regular and special dividends paid during the twenty-six weeks ended February 27, 2021; and
net borrowings under our credit facilities of $49.5 million during the twenty-six weeks ended February 26, 2022 compared to net borrowings of $65.0 million during the twenty-six weeks ended February 27, 2021.
Capital Expenditures
We continue to invest in sales productivity initiatives, eCommerce and vending platforms, customer fulfillment centers and distribution network, and other infrastructure and technology.
Long-Term Debt
Credit Facilities
In April 2017, the Company entered into a $600.0 million revolving credit facility which was subsequently amended and extended in August 2021. As of February 26, 2022, the Company also had three uncommitted credit facilities, totaling $208.0 million of aggregate maximum uncommitted availability. See Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about our credit facilities. As of February 26, 2022, we were in compliance with the operating and financial covenants of our credit facilities. The current unused balance of $339.6 million from the revolving credit facility, which is reduced by outstanding letters of credit, is available for working capital purposes if necessary. See Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these balances.
Private Placement Debt and Shelf Facility Agreements
In July 2016, we completed the issuance and sale of unsecured senior notes. In January 2018, we entered into two note purchase and private shelf facility agreements (together, the “Shelf Facility Agreements”). In June 2018 and March 2020, we entered into additional note purchase agreements. Pursuant to the terms of the Shelf Facility Agreements, no new unsecured senior notes may be issued and sold after January 12, 2021. See Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these transactions.
Leases and Financing Arrangements
As of February 26, 2022, certain of our operations were conducted on leased premises. These leases are for varying periods, the longest extending to fiscal year 2031. In addition, we are obligated under certain equipment and automobile operating and finance leases, which expire on varying dates through fiscal year 2026.
From time to time, we enter into financing arrangements with vendors to purchase certain information technology equipment or software.
Critical Accounting Estimates
On an ongoing basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition, inventory valuation, allowance for credit losses, warranty reserves, contingencies and litigation, income taxes, and accounting for goodwill and long-lived assets. We make estimates, judgments and assumptions in determining the amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying Notes. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The estimates are used to form the basis for making judgments about the carrying values of assets and liabilities and the amount of revenues and expenses reported that are not readily apparent from other sources. Actual results may differ from these estimates.
There have been no material changes outside the ordinary course of business in the Company’s critical accounting policies, as disclosed in its Annual Report on Form 10-K for the fiscal year ended August 28, 2021.
Recently Issued Accounting Standards
See Note 1, “Basis of Presentation” in the Notes to Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposure to certain market risks, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Interest Rate Risks” under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of Part II of our Annual Report on Form 10-K for the fiscal year ended August 28, 2021. Except as described in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this Report, there have been no significant changes in our financial instrument portfolio or interest rate risk since our August 28, 2021 fiscal year-end.
Item 4. Controls and Procedures
Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, as well as other key members of our management, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this Report, to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act) during the fiscal quarter ended February 26, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, there are various claims, lawsuits and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters, both individually and in aggregate, is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
Item 1A. Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the risks and the uncertainties discussed in Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K for the fiscal year ended August 28, 2021, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be not material also may materially and adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth repurchases by the Company of its outstanding shares of Class A Common Stock, which are listed on the New York Stock Exchange, during the thirteen-week period ended February 26, 2022:
Issuer Purchases of Equity Securities
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Period |
| Total Number of Shares Purchased(1) |
| Average Price Paid Per Share(2) |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
| Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(3) | |
11/28/21-12/28/21 |
| 4,067 |
| $ | 83.35 |
| — |
| 5,000,000 |
12/29/21-1/27/22 |
| 334 |
| $ | 84.32 |
| — |
| 5,000,000 |
1/28/22-2/26/22 |
| 113 |
| $ | 79.40 |
| — |
| 5,000,000 |
Total |
| 4,514 |
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| — |
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(1)During the thirteen weeks ended February 26, 2022, 4,514 shares of Class A Common Stock were withheld by the Company as payment to satisfy our associates’ tax withholding liability associated with our stock-based compensation program and are included in the total number of shares purchased.
(2)Activity is reported on a trade date basis.
(3)On June 29, 2021, the Company’s Board of Directors terminated the MSC Stock Repurchase Plan, which was established during fiscal year 1999, and authorized a new share repurchase program (the “Share Repurchase Program”) to purchase up to 5,000,000 shares of Class A Common Stock. There is no expiration date for the Share Repurchase Program. As of February 26, 2022, the maximum number of shares that may yet be repurchased under the Share Repurchase Program was 5,000,000 shares of Class A Common Stock.
Item 6. Exhibits
EXHIBIT INDEX
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Exhibit No. |
Description | |
101.INS | Inline XBRL Instance Document.* | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* | |
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* |
Filed herewith. |
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** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| MSC Industrial Direct Co., Inc. (Registrant)
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Dated: March 30, 2022 | By: | /s/ ERIK GERSHWIND Erik Gershwind President and Chief Executive Officer
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Dated: March 30, 2022 | By: | /s/ KRISTEN ACTIS-GRANDE Kristen Actis-Grande Executive Vice President and Chief Financial Officer |