Form 10-Q MSC INDUSTRIAL DIRECT For: Jun 01
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
______________________________
| (Mark One) | |||||
| 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: 1-14130
__________________
(Exact name of registrant as specified in its charter)
__________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
(516 ) 812-2000
(Registrant’s telephone number, including area code)
__________________
Securities registered pursuant to Section 12(b) of the Act:
| 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 x 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 x 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.
Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | Emerging growth company o | |||||||||||
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 x
As of June 17, 2024, 56,122,955 shares of Class A Common Stock of the registrant were outstanding.
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, 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” and 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 September 2, 2023. 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:
•general economic conditions in the markets in which we operate;
•changing customer and product mixes;
•volatility in commodity and energy prices, the impact of prolonged periods of low, high or rapid inflation, and fluctuations in interest rates;
•competition, including the adoption by competitors of aggressive pricing strategies or 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;
•our ability to realize the expected cost savings and benefits from our restructuring activities and structural cost reductions;
•the retention of key management personnel;
•the credit risk of our customers;
•the risk of customer cancellation or rescheduling of orders;
•difficulties in calibrating customer demand for our 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 disruptions, including those due to extreme weather conditions, 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;
•our ability to attract, train and retain qualified sales and customer service personnel and metalworking and specialty sales specialists;
•the risk of loss of key suppliers or contractors or key brands or supply chain disruptions;
•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 or incur additional borrowings on terms we deem attractive;
•the failure to comply with applicable environmental, health and safety laws and regulations and other laws and regulations applicable to our business;
•the outcome of government or regulatory proceedings;
•goodwill and other indefinite-lived intangible assets recorded as a result of our acquisitions could become impaired;
•our common stock price may be volatile due to factors outside of our control;
•the significant influence that our principal shareholders will continue to have over our decisions; and
•our ability to realize the desired benefits from the Reclassification (as defined in Note 8, “Shareholders’ Equity”).
MSC INDUSTRIAL DIRECT CO., INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 1, 2024
TABLE OF CONTENTS
| Page | ||||||||
| Item 5. | ||||||||
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| June 1, 2024 | September 2, 2023 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Identifiable intangibles, net | |||||||||||
| Operating lease assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Current portion of debt including obligations under finance leases | $ | $ | |||||||||
| Current portion of operating lease liabilities | |||||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt including obligations under finance leases | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Deferred income taxes and tax uncertainties | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies | |||||||||||
| Shareholders’ Equity: | |||||||||||
| MSC Industrial Shareholders’ Equity: | |||||||||||
Preferred Stock; $ | |||||||||||
Class A Common Stock ( | |||||||||||
Class B Common Stock ( | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Class A treasury stock, at cost, | ( | ( | |||||||||
| Total MSC Industrial shareholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Restructuring and other costs | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Total other expense | ( | ( | ( | ( | |||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less: Net (loss) income attributable to noncontrolling interest | ( | ( | ( | ||||||||||||||||||||
| Net income attributable to MSC Industrial | $ | $ | $ | $ | |||||||||||||||||||
| Per share data attributable to MSC Industrial: | |||||||||||||||||||||||
| Net income per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average shares used in computing net income per common share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| Net income, as reported | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||||||||
Comprehensive income(1) | |||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interest: | |||||||||||||||||||||||
| Net loss (income) | ( | ||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income attributable to MSC Industrial | $ | $ | $ | $ | |||||||||||||||||||
(1)There were no
See accompanying Notes to Condensed Consolidated Financial Statements.
3
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
(Unaudited)
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| Class A Common Stock | |||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | |||||||||||||||||||
| Associate Incentive Plans | |||||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock | ( | ( | |||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | |||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Class B Common Stock | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | ( | ||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Additional Paid-in Capital | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Associate Incentive Plans | |||||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock | ( | ( | ( | ||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | |||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock | ( | ( | ( | ||||||||||||||||||||
| Regular cash dividends declared on Class A Common Stock | ( | ( | ( | ( | |||||||||||||||||||
| Regular cash dividends declared on Class B Common Stock | ( | ( | |||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | ( | ||||||||||||||||||||||
| Dividend equivalents declared, net of cancellations | ( | ( | ( | ( | |||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||
| Beginning Balance | ( | ( | ( | ( | |||||||||||||||||||
| Foreign Currency Translation Adjustment | ( | ||||||||||||||||||||||
| Ending Balance | ( | ( | ( | ( | |||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||
| Beginning Balance | ( | ( | ( | ( | |||||||||||||||||||
| Associate Incentive Plans | |||||||||||||||||||||||
| Repurchase of Class A Common Stock | ( | ( | ( | ( | |||||||||||||||||||
| Ending Balance | ( | ( | ( | ( | |||||||||||||||||||
| Total Shareholders’ Equity Attributable to MSC Industrial | |||||||||||||||||||||||
| Noncontrolling Interest | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Foreign Currency Translation Adjustment | ( | ||||||||||||||||||||||
| Net (Loss) Income | ( | ( | ( | ||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Total Shareholders’ Equity | $ | $ | $ | $ | |||||||||||||||||||
| Dividends declared per Class A Common Share | $ | $ | $ | $ | |||||||||||||||||||
| Dividends declared per Class B Common Share | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Thirty-Nine Weeks Ended | |||||||||||
| June 1, 2024 | June 3, 2023 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of cloud computing arrangements | |||||||||||
| Non-cash operating lease cost | |||||||||||
| Stock-based compensation | |||||||||||
| Loss on disposal of property, plant and equipment | |||||||||||
| Non-cash changes in fair value of estimated contingent consideration | |||||||||||
| Provision for credit losses | |||||||||||
| Expenditures for cloud computing arrangements | ( | ( | |||||||||
| Deferred income taxes and tax uncertainties | ( | ( | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ( | |||||||||
| Total adjustments | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Expenditures for property, plant and equipment | ( | ( | |||||||||
| Cash used in acquisitions, net of cash acquired | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Repurchases of Class A Common Stock | ( | ( | |||||||||
| Payments of regular cash dividends | ( | ( | |||||||||
| Proceeds from sale of Class A Common Stock in connection with Associate Stock Purchase Plan | |||||||||||
| Proceeds from exercise of Class A Common Stock options | |||||||||||
| Borrowings under credit facilities | |||||||||||
| Payments under credit facilities | ( | ( | |||||||||
| Borrowings under financing obligations | |||||||||||
| Payments under Shelf Facility Agreements and Private Placement Debt | ( | ( | |||||||||
| Proceeds from other long-term debt | |||||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | |||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents—beginning of period | |||||||||||
| Cash and cash equivalents—end of period | $ | $ | |||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 1. Basis of Presentation
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 adjustments necessary to present fairly the Company’s financial position as of June 1, 2024 and September 2, 2023, results of operations for the thirteen and thirty-nine weeks ended June 1, 2024 and June 3, 2023, and cash flows for the thirty-nine weeks ended June 1, 2024 and June 3, 2023. The financial information as of September 2, 2023 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 September 2, 2023.
Fiscal Year
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 2024” refer to the period from September 3, 2023 to August 31, 2024, which is a 52-week fiscal year. References to “fiscal year 2023” refer to the period from September 4, 2022 to September 2, 2023, which is a 52-week fiscal year. The fiscal quarters ended June 1, 2024 and June 3, 2023 refer to the thirteen weeks ended as of those dates.
Principles of Consolidation
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.
Reclassifications
Reclassifications were made to the unaudited Condensed Consolidated Statement of Cash Flows for the thirty-nine weeks ended June 3, 2023 to conform with the current year presentation.
Accounting Standards Not Yet Adopted
In March 2024, the SEC issued its final rule on the enhancement and standardization of climate-related disclosures for investors. These wide-ranging disclosures require annual disclosure of material greenhouse gas emissions as well as disclosure of governance, risk management and strategy related to material climate-related risks. Within the notes to financial statements, the final rule requires disclosure of expenditures recognized, subject to certain thresholds, attributable to severe weather. Outside of the financial statements, the final rule requires qualitative and quantitative disclosures about material Scope 1 and Scope 2 greenhouse gas emissions. Also required is disclosure of the risk management process and the oversight practices of the Board of Directors and management related to climate-related risks. The final rule follows a compliance phase-in timeline, with the first requirements required to be adopted for the Company’s fiscal year 2026, followed in later years by greenhouse gas-related requirements. In April 2024, the SEC voluntarily stayed implementation of the final rule pending completion of judicial review of consolidated challenges to the final rule by the Court of Appeals
6
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
for the Eighth Circuit. The Company is currently evaluating the final rule to determine the impact on its consolidated financial statements and disclosures.
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. The ASU primarily enhances and expands both the income tax rate reconciliation disclosure and the income taxes paid disclosure. The ASU is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the standard to determine the impact of adoption on its consolidated financial statements and disclosures.
Note 2. Revenue
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, which is determined to occur when the customer obtains control of the products, and invoicing occurs at approximately the same point in time. The Company’s product sales have standard payment terms that do not exceed one year . The Company considers shipping and handling as activities to fulfill its performance obligations. Substantially all of the Company’s contracts have a single performance obligation, to deliver products, and are short-term in nature. The Company estimates product returns based on historical return rates. Total accrued sales returns were $8,412 and $8,632 as of June 1, 2024 and September 2, 2023, respectively, and are reported as Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheets. Sales taxes and value-added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.
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 $23,202 and $31,954 as of June 1, 2024 and September 2, 2023, respectively, and are included in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheets. Sign-on payments, not yet recognized as a reduction of net sales, are recorded in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheets and were $4,297 and $3,733 as of June 1, 2024 and September 2, 2023, respectively.
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 not
7
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Disaggregation of Revenue
The Company has determined that it operates as one
The Company serves a large number of customers of various types and in diverse industries, which are subject to different economic and industry factors. The Company’s presentation of net sales by customer end-market, customer type and geography 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.
The following table presents the Company’s percentage of revenue by customer end-market for the thirteen- and thirty-nine-week periods ended June 1, 2024 and June 3, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| Manufacturing Heavy | % | % | % | % | |||||||||||||||||||
| Manufacturing Light | % | % | % | % | |||||||||||||||||||
| Public Sector | % | % | % | % | |||||||||||||||||||
| Retail/Wholesale | % | % | % | % | |||||||||||||||||||
| Commercial Services | % | % | % | % | |||||||||||||||||||
Other (1) | % | % | % | % | |||||||||||||||||||
| Total | % | % | % | % | |||||||||||||||||||
(1)The Other category primarily includes individual customer and small business net sales not assigned to a specific industry classification.
The Company groups customers into three categories by type of customer: national account, public sector and core and other. National account customers include Fortune 1000 companies, large privately held companies, and international companies doing business in North America. Public sector customers are governments and their instrumentalities such as federal agencies, state governments, and public sector healthcare providers. Federal government customers include the United States Marine Corps, the United States Coast Guard, the United States Postal Service, the United States General Services Administration, the United States Department of Defense, the United States Department of Energy, large and small military bases, Veterans Affairs hospitals, and correctional facilities. The Company has individual state and local contracts, as well as contracts through partnerships with several state co-operatives. Core and other customers are those customers that are not national account customers or public sector customers.
The following table presents the Company’s percentage of revenue by customer type for the thirteen- and thirty-nine-week periods ended June 1, 2024 and June 3, 2023:
Thirteen Weeks Ended (1) | Thirty-Nine Weeks Ended (1) | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| National Account Customers | % | % | % | % | |||||||||||||||||||
| Public Sector Customers | % | % | % | % | |||||||||||||||||||
| Core and Other Customers | % | % | % | % | |||||||||||||||||||
| Total | % | % | % | % | |||||||||||||||||||
(1)Includes reclassifications of certain customers during fiscal year 2024, primarily between national account customers and core and other customers.
8
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
The Company’s revenue originating from the following geographic areas was as follows for the thirteen- and thirty-nine-week periods ended June 1, 2024 and June 3, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| United States | % | % | % | % | |||||||||||||||||||
| Mexico | % | % | % | % | |||||||||||||||||||
| Canada | % | % | % | % | |||||||||||||||||||
| North America | % | % | % | % | |||||||||||||||||||
| Other foreign countries | % | % | % | % | |||||||||||||||||||
| Total | % | % | % | % | |||||||||||||||||||
Note 3. Net Income per Share
Basic 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 $0.001 per share (“Class A Common Stock”), and the Company’s Class B Common Stock, par value $0.001 per share (“Class B Common Stock” and, together with Class A Common Stock, “Common Stock”), outstanding during the period. In the first quarter of fiscal year 2024, all Class B Common Stock was reclassified, exchanged and converted into Class A Common Stock in connection with the Reclassification. See Note 8, “Shareholders’ Equity” for additional information. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of Common Stock outstanding during the period, including potentially dilutive shares of Common Stock equivalents outstanding during the period. The dilutive effect of potential shares of Common Stock is determined using the treasury stock method. The following table sets forth the computation of basic and diluted net income per common share under the treasury stock method for the thirteen- and thirty-nine-week periods ended June 1, 2024 and June 3, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to MSC Industrial, as reported | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares outstanding for basic net income per share | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Weighted-average shares outstanding for diluted net income per share | |||||||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Potentially dilutive securities | |||||||||||||||||||||||
Potentially dilutive securities attributable to outstanding share-based awards are excluded from the calculation of diluted net income per share when the combined exercise price and average unamortized fair value are greater than the average market price of Class A Common Stock, and, therefore, their inclusion would be anti-dilutive.
9
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 4. Stock-Based Compensation
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 thirty-nine-week periods ended June 1, 2024 and June 3, 2023 was as follows:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| Stock options | $ | $ | $ | $ | |||||||||||||||||||
Restricted stock units (1) | |||||||||||||||||||||||
Performance share units (1) | ( | ||||||||||||||||||||||
| Associate Stock Purchase Plan | |||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||
| Deferred income tax benefit | ( | ( | ( | ( | |||||||||||||||||||
| Stock-based compensation expense, net | $ | $ | $ | $ | |||||||||||||||||||
Stock Options
Subsequent to the stock option grant in fiscal year 2019, the Company discontinued its grants of stock options. 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 thirty-nine-week period ended June 1, 2024 is as follows:
| Shares | Weighted-Average Exercise Price per Share | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding on September 2, 2023 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Canceled/Forfeited/Expired | |||||||||||||||||||||||
| Outstanding on June 1, 2024 | $ | $ | |||||||||||||||||||||
| Exercisable on June 1, 2024 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value of options exercised, which represents the difference between the exercise price and the market value of Class A Common Stock measured at each individual exercise date, during the thirty-nine-week periods ended June 1, 2024 and June 3, 2023 was $1,864 and $3,044 , respectively. There were no unrecognized stock‑based compensation costs related to stock options at June 1, 2024.
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 three-year performance period based on the achievement of specific
10
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
performance goals as set forth in the applicable award agreement. Based on the extent to which the performance goals are achieved, vested shares may range from 0 % to 200 % of the target award amount.
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”) and the MSC Industrial Direct Co., Inc. 2023 Omnibus Incentive Plan (the “2023 Omnibus Incentive Plan”) (based on target award amounts) for the thirty-nine-week period ended June 1, 2024:
| Shares | Weighted-Average Grant Date Fair Value per Share | |||||||||||||
| Non-vested PSUs at September 2, 2023 | $ | |||||||||||||
| Granted | ||||||||||||||
PSU adjustment (1) | ||||||||||||||
| Vested | ( | |||||||||||||
| Canceled/Forfeited | ( | |||||||||||||
Non-vested PSUs at June 1, 2024 (2) | $ | |||||||||||||
(1)PSU adjustment represents the net PSUs awarded above or below their target grants resulting from the achievement of performance goals above or below the performance targets established at grant. One grant goal was achieved at 200 % of its target based on fiscal year 2021 through fiscal year 2023 financial results.
(2)Excludes approximately 6 shares of accrued incremental dividend equivalent rights on outstanding PSUs granted under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan.
Restricted Stock Units
A summary of the Company’s non-vested restricted stock unit (“RSU”) award activity under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan for the thirty-nine-week period ended June 1, 2024 is as follows:
| Shares | Weighted-Average Grant Date Fair Value per Share | |||||||||||||
| Non-vested RSUs at September 2, 2023 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Canceled/Forfeited | ( | |||||||||||||
Non-vested RSUs at June 1, 2024 (1) | $ | |||||||||||||
(1)Excludes approximately 32 shares of accrued incremental dividend equivalent rights on outstanding RSUs granted under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan.
The fair value of each PSU and RSU is the closing stock price on the New York Stock Exchange of Class A Common Stock on the date of grant. PSUs are expensed over the three-year performance period of each respective grant and 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 estimated forfeitures. The Company uses historical data to estimate pre-vesting PSU and RSU forfeitures and records stock-based compensation expense only for PSU and RSU awards that are expected to vest. Upon vesting, and, in the case of the PSUs, subject to the achievement of specific performance goals, a portion of the PSU and RSU awards may be withheld to satisfy the statutory income tax withholding obligation, and the remaining PSUs and RSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying PSUs and 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 PSUs and RSUs, subject, in the case of the dividend equivalents on the underlying PSUs, to the same performance vesting requirements. The
11
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
unrecognized stock-based compensation costs related to the PSUs and RSUs at June 1, 2024 were $4,122 and $30,128 , respectively, which are expected to be recognized over a weighted-average period of 1.5 and 2.7 years, respectively.
Note 5. Fair Value
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:
Level 1— Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
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 June 1, 2024 and June 3, 2023.
During the thirteen- and thirty-nine-week periods ended June 1, 2024 and June 3, 2023, the Company had no
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 present condition. The Company also considers whether an active program to locate a buyer has been initiated, whether the asset is marketed actively for sale at a price that is reasonable in relation to its current fair value and whether actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. 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. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized until the date of sale. 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 March 2024, the Company commenced its plan to sell its 468,000 square foot customer fulfillment center (“CFC”) in Columbus, Ohio. As of June 1, 2024, the related assets had a carrying value of approximately $31,758 , which is comprised of approximately $20,663 of building and building improvements, $4,097 of land assets and $6,998 of furniture, fixtures and equipment, which is included in Property, plant and equipment, net in the unaudited Condensed Consolidated Balance Sheet as of such date. As a result of the above, the Company determined that all of the criteria to classify the building as held for sale had been met as of June 1, 2024. Fair value was determined based upon the anticipated sales price of these assets based on current market conditions and assumptions made by management, which may differ from actual results and may result in an impairment if market conditions deteriorate. No impairment charge was recorded as the fair value less costs to sell was in excess of the carrying amount of the assets.
12
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 6. Accounts Receivable
Accounts receivables at June 1, 2024 and September 2, 2023 consisted of the following:
| June 1, 2024 | September 2, 2023 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Less: allowance for credit losses | |||||||||||
| Accounts receivable, net | $ | $ | |||||||||
In the second quarter of fiscal year 2023, the Company entered into a Receivables Purchase Agreement (the “RPA”), by and among MSC A/R Holding Co., LLC, a wholly owned subsidiary of the Company (the “Receivables Subsidiary”), as seller, the Company, as master servicer, certain purchasers from time to time party thereto (collectively, the “Purchasers”), and Wells Fargo Bank, National Association, as administrative agent. Under the RPA, the Receivables Subsidiary may sell receivables to the Purchasers in amounts up to $300,000 . During the second quarter of fiscal year 2023, the amount sold to the Purchasers was $300,000 , which was derecognized from the unaudited Condensed Consolidated Balance Sheet as of March 4, 2023. The RPA matures on December 19, 2025 and is subject to customary termination events related to transactions of this type.
The Company continues to be involved with the receivables sold to the Purchasers by providing collection services. As cash is collected on sold receivables, the Receivables Subsidiary continuously sells new qualifying receivables to the Purchasers so that the total principal amount outstanding of receivables sold is approximately $300,000 . The total principal amount outstanding of receivables sold was approximately $300,000 as of June 1, 2024 and September 2, 2023. The amount of receivables pledged as collateral as of June 1, 2024 and September 2, 2023 was $339,142 and $352,385 , respectively.
The following table summarizes the activity and amounts outstanding under the RPA for the thirteen- and thirty-nine-week periods ended June 1, 2024 and June 3, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| Receivables sold under the RPA | $ | $ | $ | $ | |||||||||||||||||||
| Cash collected on sold receivables under the RPA | $ | $ | $ | $ | |||||||||||||||||||
The receivables sold incurred fees due to the Purchasers of $4,605 and $13,832 during the thirteen- and thirty-nine-week periods ended June 1, 2024, respectively, and $4,317 and $7,640 during the thirteen- and thirty-nine-week periods ended June 3, 2023, respectively, which were recorded within Other expense, net in the unaudited Condensed Consolidated Statements of Income. The financial covenants under the RPA are substantially the same as those under the Credit Facilities, the Private Placement Debt and the Shelf Facility Agreements (each, as defined below). See Note 7, “Debt” for more information about these financial covenants.
13
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 7. Debt
Debt at June 1, 2024 and September 2, 2023 consisted of the following:
| June 1, 2024 | September 2, 2023 | |||||||||||||
| Amended Revolving Credit Facility | $ | $ | ||||||||||||
| Uncommitted Credit Facilities | ||||||||||||||
| Long-Term Note Payable | ||||||||||||||
| Private Placement Debt: | ||||||||||||||
| Financing arrangements | ||||||||||||||
| Obligations under finance leases | ||||||||||||||
| Less: unamortized debt issuance costs | ( | ( | ||||||||||||
| 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 the Shelf Facility Agreements.
(2)Consists of $205,000 from the Uncommitted Credit Facilities (as defined below), $1,515 from financing arrangements, $203 from obligations under finance leases and net of unamortized debt issuance costs of $383 expected to be amortized in the next 12 months.
(3)Consists of $180,000 from the Uncommitted Credit Facilities, $50,000 from the 2.40 % Series 2019A Notes, due March 5, 2024, $37 from financing arrangements, $249 351 expected to be amortized in the next 12 months.
Amended Revolving Credit Facility
In April 2017, the Company entered into a $600,000 revolving credit facility, which was subsequently amended and extended in August 2021 (as amended and extended, the “Amended Revolving Credit Facility”). The Amended Revolving Credit Facility, which matures on August 24, 2026, provides for a five-year unsecured revolving loan facility on a committed basis. The interest rate for borrowings under the Amended Revolving Credit Facility is based on either the Adjusted Term SOFR Rate (as defined in the Amended Revolving Credit Facility) or a base rate, plus a spread based on the Company’s consolidated leverage ratio at the end of each fiscal reporting quarter. The Company currently elects to have loans under the Amended Revolving Credit Facility bear interest based on the Adjusted Term SOFR Rate with one-month interest periods.
The Amended Revolving Credit Facility permits up to $50,000 to be used to fund letters of credit. The Amended Revolving Credit Facility also permits the Company to initiate one or more incremental term loan facilities and/or to increase the revolving loan commitments in an aggregate amount not to exceed $300,000 . Subject to certain limitations, each such incremental term loan facility or revolving loan commitment increase will be on terms as agreed to by the Company, the administrative agent and the lenders providing such financing. Outstanding letters of credit were $6,304 and $5,269 at June 1, 2024 and September 2, 2023, respectively.
Uncommitted Credit Facilities
During fiscal year 2024, the Company extended all three of its uncommitted credit facilities. These facilities (collectively, the “Uncommitted Credit Facilities” and, together with the Amended Revolving Credit Facility, the “Credit Facilities”) total $208,000 in aggregate maximum uncommitted availability, under which $205,000 and $180,000 were
14
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
outstanding at June 1, 2024 and September 2, 2023, respectively, and are included in Current portion of debt including obligations under finance leases in the unaudited Condensed Consolidated Balance Sheets. The interest rate on the Uncommitted Credit Facilities is based on the Secured Overnight Financing Rate. Borrowings under the Uncommitted Credit Facilities are due at the end of the applicable interest period, which is typically one month but may be up to six months and may be rolled over to a new interest period at the option of the applicable lender. The Company’s lenders have, in the past, been willing to roll over the principal amount outstanding under the Uncommitted Credit Facilities at the end of each interest period but are not obligated to do so. Each Uncommitted Credit Facility matures within one year of entering into such Uncommitted Credit Facility and contains certain limited covenants which are substantially the same as the limited covenants contained in the Amended Revolving Credit Facility. All of the Uncommitted Credit Facilities are unsecured and rank equally in right of payment with the Company’s other unsecured indebtedness.
During the thirty-nine-week period ended June 1, 2024, the Company borrowed an aggregate $359,000 and repaid an aggregate $309,000 under the Credit Facilities. As of June 1, 2024 and September 2, 2023, the weighted-average interest rates on borrowings under the Credit Facilities were 6.20 % and 6.17 %, respectively.
Private Placement Debt
In July 2016, the Company completed the issuance and sale of $100,000 aggregate principal amount of 2.90 % Senior Notes, Series B, due July 28, 2026; in June 2018, the Company completed the issuance and sale of $20,000 aggregate principal amount of 3.79 % Senior Notes, due June 11, 2025; in March 2020, the Company completed the issuance and sale of $50,000 aggregate principal amount of 2.60 % Senior Notes, due March 5, 2027; and, in April 2024, the Company completed the issuance and sale of $50,000 aggregate principal amount of 5.73 % Senior Notes, due April 18, 2027 (collectively, the “Private Placement Debt”). Interest is payable semiannually at the fixed stated interest rates. All of the Private Placement Debt is unsecured.
Shelf Facility Agreements
In January 2018, the Company entered into Note Purchase and Private Shelf Agreements with MetLife Investment Advisors, LLC (the “MetLife Note Purchase Agreement”) and PGIM, Inc. (the “Prudential Note Purchase Agreement” and, together with the MetLife 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 $250,000 of unsecured senior notes, at a fixed rate. In March 2024, the Company paid $50,000 to satisfy its obligation on the 2.40 % Series 2019A Notes, due March 5, 2024, associated with the Shelf Facility Agreements. As of June 1, 2024, there were no outstanding notes issued in private placements pursuant to the Shelf Facility Agreements. No new notes may be issued pursuant to the Shelf Facility Agreements.
Covenants
Note 8. Shareholders’ Equity
Common Stock Repurchases and Treasury Stock
In June 2021, the Board of Directors of the Company (the “Board”) terminated the existing share repurchase plan and authorized a new share repurchase plan (the “Share Repurchase Plan”) to purchase up to 5,000 shares of Class A Common Stock. There is no expiration date for the Share Repurchase Plan. As of June 1, 2024, the maximum number of shares of Class A Common Stock that were available for repurchase under the Share Repurchase Plan was 2,078 shares. The Share Repurchase Plan allows the Company to repurchase shares at any time and in any increments it deems appropriate in accordance with Rule 10b-18 under the Exchange Act.
15
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
During the thirteen- and thirty-nine-week periods ended June 1, 2024, the Company repurchased 200 shares and 1,742 shares, respectively, of Class A Common Stock for $18,489 and $167,166 , respectively. From these totals, less than 1 share and 96 shares, respectively, were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its stock-based compensation program and are reflected at cost as treasury stock in the unaudited Condensed Consolidated Financial Statements for the thirteen- and thirty-nine-week periods ended June 1, 2024 and the remainder were immediately retired. During the thirteen- and thirty-nine-week periods ended June 3, 2023, the Company repurchased 1 share and 386 shares, respectively, of Class A Common Stock for $65 and $31,072 , respectively. From these totals, 1 share and 55 shares, respectively, were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its stock-based compensation program and are reflected at cost as treasury stock in the unaudited Condensed Consolidated Financial Statements for the thirteen- and thirty-nine-week periods ended June 3, 2023 and the remainder were immediately retired.
The Company reissued 14 shares and 41 shares of treasury stock during the thirteen- and thirty-nine-week periods ended June 1, 2024, respectively, and reissued 14 shares and 45 shares of treasury stock during the thirteen- and thirty-nine-week periods ended June 3, 2023, respectively, to fund the MSC Industrial Direct Co., Inc. Amended and Restated Associate Stock Purchase Plan.
Dividends on Common Stock
The Company paid aggregate regular cash dividends of $2.49 per share totaling $140,695 for the thirty-nine-week period ended June 1, 2024. For the thirty-nine-week period ended June 3, 2023, the Company paid aggregate regular cash dividends of $2.37 per share totaling $132,484 .
On June 25, 2024, the Board declared a regular cash dividend of $0.83 per share, payable on July 23, 2024, to shareholders of record at the close of business on July 9, 2024. The dividend is expected to result in aggregate payments of $46,582 , based on the number of shares outstanding at June 17, 2024.
Reclassification
In the first quarter of fiscal year 2024, the Company completed its previously announced reclassification (the “Reclassification”) of the Common Stock to eliminate the Class B Common Stock, effective at the time that the Company’s Restated Certificate of Incorporation was duly filed with the Secretary of State of the State of New York (the “Effective Time”), as contemplated by that certain Reclassification Agreement, dated as of June 20, 2023 (the “Reclassification Agreement”), with Mitchell Jacobson, Erik Gershwind, other members of the Jacobson / Gershwind family and certain entities affiliated with the Jacobson / Gershwind family (collectively, the “Jacobson / Gershwind Family Shareholders”). Pursuant to the Reclassification, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time was reclassified, exchanged and converted into 1.225 shares of Class A Common Stock. The issuance of Class A Common Stock in connection with the Reclassification was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement on Form S‐4 (File No. 333-273418).
As contemplated by the Reclassification Agreement, a number of corporate governance changes were implemented, including the following:
•the Jacobson / Gershwind Family Shareholders have the right to designate (i) two individuals (one of whom will be Mr. Erik Gershwind so long as he is the Company’s Chief Executive Officer) for nomination for election to the Board so long as the Jacobson / Gershwind Family Shareholders own 10 % or more of the issued and outstanding shares of Class A Common Stock and (ii) one individual for nomination for election to the Board so long as the Jacobson / Gershwind Family Shareholders own less than 10 % but more than 5 % of the issued and outstanding shares of Class A Common Stock;
•the Jacobson / Gershwind Family Shareholders have each granted an irrevocable proxy authorizing the Company to vote such pro rata portion of shares of Class A Common Stock beneficially owned by the Jacobson / Gershwind Family Shareholders or their permitted transferees in excess of 15 % of the issued and outstanding shares of Class A Common Stock in proportion to the votes of other holders (i.e., excluding any Jacobson / Gershwind Family Shareholders and their permitted transferees) entitled to vote and that do in fact vote;
•certain standstill and lock-up provisions for the Jacobson / Gershwind Family Shareholders;
16
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
•the transition of the approval standard for certain significant transactions (including mergers, asset sales, share exchanges and dissolution) from a two-thirds supermajority to a majority of the issued and outstanding shares of Class A Common Stock entitled to vote thereon;
•the adoption of a “majority of the votes cast” standard for uncontested director elections; and
•the designation of (i) the New York Supreme Court as the exclusive forum for (a) certain derivative claims, (b) claims asserting breach of fiduciary duties, (c) claims pursuant to the New York Business Corporation Law, the Company’s Restated Certificate of Incorporation or the Company’s Third Amended and Restated By-Laws or (d) claims governed by the internal affairs doctrine and (ii) the U.S. federal district courts as the exclusive forum for claims under the Securities Act.
Note 9. Restructuring and Other Costs
Optimization of Company Operations and Profitability Improvement
The Company continues to identify opportunities for improvements in its workforce realignment, strategy and staffing, and its focus on performance management, to ensure it has the right skill sets and number of associates to execute its long-term vision. In the second quarter of fiscal year 2024, Restructuring and other costs principally consisted of severance and separation charges relating to an associate voluntary termination program.
As part of the Company’s strategic realignment efforts to optimize its supply chain and distribution network and enhance operational efficiency, the Company engaged consultants and, in March 2024, commenced its plan to sell its CFC in Columbus, Ohio. As such, the Company incurred consulting-related costs and extended voluntary and involuntary severance and separation benefits to certain associates in order to facilitate its network optimization and workforce realignment that qualify as exit and disposal costs under accounting principles generally accepted in the United States of America.
In addition, from time to time, the Company incurs certain expenses that are an integral component of, and directly attribute to, its restructuring activities, which do not qualify as exit and disposal costs under accounting principles generally accepted in the United States of America. These expenses include professional and consulting-related costs directly associated with the optimization of the Company’s operations and profitability improvement, which are also included in Restructuring and other costs in the unaudited Condensed Consolidated Statements of Income.
The following table summarizes Restructuring and other costs for the thirteen- and thirty-nine-week periods ended June 1, 2024 and June 3, 2023:
| Thirteen Weeks Ended | Thirty-Nine Weeks Ended | ||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | June 1, 2024 | June 3, 2023 | ||||||||||||||||||||
| Consulting-related costs | $ | $ | $ | $ | |||||||||||||||||||
| Associate severance and separation costs | |||||||||||||||||||||||
| Equity award acceleration costs associated with severance | |||||||||||||||||||||||
| Other exit-related costs | |||||||||||||||||||||||
| 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 June 1, 2024. The following table summarizes
17
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
activity related to liabilities associated with Restructuring and other costs for the thirty-nine-week period ended June 1, 2024:
| Consulting-related costs | Associate severance and separation costs | Other exit-related costs | Total | ||||||||||||||||||||
| Balance at September 2, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| Additions | |||||||||||||||||||||||
| Payments and other adjustments | ( | ( | ( | ||||||||||||||||||||
| Balance at June 1, 2024 | $ | $ | $ | $ | |||||||||||||||||||
Note 10. Income Taxes
During the thirty-nine-week period ended June 1, 2024, there were no material changes in unrecognized tax benefits.
During fiscal year 2023, the Company received funds related to Employee Retention Credit (“ERC”) claims previously submitted. As there is no authoritative guidance under accounting principles generally accepted in the United States of America on accounting for government assistance to for-profit business entities, the Company accounts for the ERC by analogy to International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance. Of the funds received in fiscal year 2023, the Company recorded $6,566 to Other income (expense) in the Consolidated Statement of Income for the fiscal year ended September 2, 2023, as the probability threshold had been met. As of June 1, 2024, the Company determined the probability threshold had not been met for $5,129 of the funds received in fiscal year 2023, and, as such, that portion of the funds remained in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheet as of such date. This amount will be recognized in the unaudited Condensed Consolidated Statement of Income when the probability threshold has been met, which the Company has determined to be the earlier of a completed audit or the lapse of the relevant statute of limitations.
Note 11. 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, the Company 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.
Note 12. Subsequent Events
In June 2024, the Company acquired 100 % of the outstanding shares of privately held ApTex, Inc., a Waukesha, Wisconsin-based metalworking distributor focusing on cutting tools and abrasives, for aggregate consideration of $5,500 , subject to customary post-closing working capital adjustments.
In June 2024, the Company also acquired certain assets and assumed certain liabilities of Premier Tool Grinding, Inc., a Goodyear, Arizona-based carbide cutting tool manufacturer, for aggregate consideration of $10,500 , subject to customary post-closing working capital adjustments.
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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 September 2, 2023 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.
Our Business
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 2.4 million active, saleable stock-keeping units through our catalogs; our brochures; our E-commerce channels, including our website, www.mscdirect.com (the “MSC website”); our inventory management solutions; and our customer care centers, customer fulfillment centers (“CFCs”), regional inventory centers and warehouses. We service our customers from six CFCs, 10 regional inventory centers, 40 warehouses, and four manufacturing locations. 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, and to continue to 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 vending machines in service totaled 26,438 as of June 1, 2024, compared to 24,038 as of June 3, 2023, and our In-Plant programs totaled 325 locations as of June 1, 2024, compared to 246 as of June 3, 2023. Our sales force, which focuses on a more complex and high-touch role, drives value for our customers by enabling them to achieve higher levels of growth, profitability and productivity. Our field sales and service associate headcount was 2,664 as of June 1, 2024, compared to 2,580 as of June 3, 2023.
Highlights
Highlights during the thirty-nine weeks ended June 1, 2024 include the following:
•We generated $303.4 million of cash from operations, compared to $567.1 million for the same period in the prior fiscal year. The decline was primarily due to the $300.0 million Receivables Purchase Agreement (the “RPA”) entered into during the second quarter of fiscal year 2023.
•We had net borrowings of $50.0 million on our credit facilities, private placement debt and shelf facility agreements, compared to net payments of $330.0 million for the same period in the prior fiscal year.
•We paid out an aggregate $140.7 million in regular cash dividends, compared to an aggregate $132.5 million in regular cash dividends for the same period in the prior fiscal year.
•We repurchased $167.2 million of MSC’s Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), compared to $31.1 million for the same period in the prior fiscal year. The higher share repurchase volume was primarily to offset the share dilution resulting from the Reclassification (as defined below).
•We incurred $11.8 million in Restructuring and other costs, compared to $5.7 million for the same period in the prior fiscal year, consisting of voluntary and involuntary associate severance and separation costs, consulting-related costs and other exit-related costs.
•We commenced our plan to sell our CFC in Columbus, Ohio. The closure is part of our strategic realignment efforts to optimize our supply chain and distribution network and enhance operational efficiency. The related assets classified as held for sale within Property, plant and equipment, net in the unaudited Condensed Consolidated Balance Sheet as of June 1, 2024 had a carrying value of approximately $31,758 as of such date.
•We acquired certain intellectual property assets from Schmitz Manufacturing Research & Technology LLC (“SMRT”) for aggregate consideration of $2.9 million and we acquired KAR Industrial Inc. (“KAR”) for aggregate consideration of $8.9 million, including post-closing working capital adjustments.
•In the first quarter of fiscal year 2024, we completed our previously announced reclassification (the “Reclassification”) of our common stock to eliminate our Class B Common Stock, par value $0.001 per share
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(“Class B Common Stock”). Pursuant to the Reclassification, each issued and outstanding share of Class B Common Stock was reclassified, exchanged and converted into 1.225 shares of Class A Common Stock. See Note 8, “Shareholders’ Equity” in the Notes to Condensed Consolidated Financial Statements for additional information.
Our Strategy
Our Company-wide initiative, referred to as “Mission Critical,” which focused on market share capture and improved profitability came to a close at the end of fiscal year 2023. We successfully executed on our Mission Critical initiatives, which included solidifying our market-leading metalworking business, with an emphasis on selling our product portfolio, expanding our solutions, improving our digital and E-commerce capabilities and diversifying our customers and end-markets. The next phase of our mission critical journey is anchored in three pillars: maintaining the momentum of the first phase of the Mission Critical program and our existing growth drivers, increasing our focus on both core customers and Original Equipment Manufacturer fasteners, and driving productivity improvements and reducing operating expenses as a percentage of net sales. To accomplish the next phase of our mission critical journey, we will leverage investments in advanced analytics to improve supply chain performance, maintain momentum from our category line reviews and upgrade our digital core to unlock productivity within our order-to-cash and procure-to-pay processes. In fiscal year 2024, we completed our web price realignment initiative, and we are currently in the process of rolling out our E-commerce enhancements.
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. We have experienced success to date as measured by the growth rates of our high-touch programs, such as vending and in-plant programs, and the rate of new customer implementations. 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
The United States economy has experienced various macroeconomic pressures including an elevated inflationary environment, sustained high interest rates and general economic and political uncertainty. Such pressures have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations. During the first three quarters of fiscal year 2024, the Company experienced softening demand for the products and services it offers as evidenced by the decrease in the average IP Index (as defined below) during the third quarter. This demand softening was felt more acutely in the manufacturing industry, which is the largest end-market for the Company’s products.
We utilize various indices when evaluating the level of our business activity, including the Industrial Production (“IP”) Index. Approximately 67% and 68% of our revenues came from sales in the manufacturing sector during the thirteen- and thirty-nine-week periods ended June 1, 2024, respectively. Through statistical analysis, we have found that trends in our customers’ activity have correlated to changes in the IP Index. 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. The IP Index over the three months ended May 2024 and the average for the three- and 12-month periods ended May 2024 were as follows:
| Period | IP Index | |||||||
| March | 102.4 | |||||||
| April | 102.5 | |||||||
| May | 103.3 | |||||||
| Fiscal Year 2024 Q3 Average | 102.7 | |||||||
| 12-Month Average | 102.7 | |||||||
The average IP Index for the three months ended May 2024 of 102.7 increased relative to the adjusted average from the second fiscal quarter of 2024 of 102.3 but declined relative to the adjusted average from the same period in the prior fiscal year of 102.9. These readings indicate minimal improvement in a challenging macro environment, specifically in the heavy manufacturing end-market, which represented 46 % of our revenues during the thirteen-week period ended June 1, 2024. General economic uncertainty remains driven by an elevated inflationary environment, sustained high interest
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rates and political uncertainty. As we see the IP Index continue to fluctuate, we will 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 June 1, 2024 Compared to the Thirteen-Week Period Ended June 3, 2023
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 | |||||||||||||||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| Net sales | $ | 979,350 | 100.0 | % | $ | 1,054,464 | 100.0 | % | $ | (75,114) | (7.1) | % | |||||||||||||||||||||||
| Cost of goods sold | 578,903 | 59.1 | % | 625,527 | 59.3 | % | (46,624) | (7.5) | % | ||||||||||||||||||||||||||
| Gross profit | 400,447 | 40.9 | % | 428,937 | 40.7 | % | (28,490) | (6.6) | % | ||||||||||||||||||||||||||
| Operating expenses | 288,991 | 29.5 | % | 291,706 | 27.7 | % | (2,715) | (0.9) | % | ||||||||||||||||||||||||||
| Restructuring and other costs | 4,690 | 0.5 | % | 1,845 | 0.2 | % | 2,845 | 154.2 | % | ||||||||||||||||||||||||||
| Income from operations | 106,766 | 10.9 | % | 135,386 | 12.8 | % | (28,620) | (21.1) | % | ||||||||||||||||||||||||||
| Total other expense | (11,430) | (1.2) | % | (8,981) | (0.9) | % | (2,449) | 27.3 | % | ||||||||||||||||||||||||||
| Income before provision for income taxes | 95,336 | 9.7 | % | 126,405 | 12.0 | % | (31,069) | (24.6) | % | ||||||||||||||||||||||||||
| Provision for income taxes | 24,024 | 2.5 | % | 31,266 | 3.0 | % | (7,242) | (23.2) | % | ||||||||||||||||||||||||||
| Net income | 71,312 | 7.3 | % | 95,139 | 9.0 | % | (23,827) | (25.0) | % | ||||||||||||||||||||||||||
| Less: Net loss attributable to noncontrolling interest | (393) | 0.0 | % | (41) | 0.0 | % | (352) | 858.5 | % | ||||||||||||||||||||||||||
| Net income attributable to MSC Industrial | $ | 71,705 | 7.3 | % | $ | 95,180 | 9.0 | % | $ | (23,475) | (24.7) | % | |||||||||||||||||||||||
Net Sales
Net sales decreased 7.1%, or $75.1 million, to $979.4 million for the thirteen-week period ended June 1, 2024, as compared to $1,054.5 million for the same period in the prior fiscal year. The $75.1 million decrease in net sales was comprised of $75.7 million of lower sales volume and a negative $4.4 million impact from pricing, inclusive of impacts from our web price realignment initiative and changes in customer and product mix, discounting and other items, partially offset by $3.9 million of net sales from acquisitions occurring after the third quarter of fiscal year 2023 and $1.1 million of favorable foreign exchange impact. Of the $75.1 million decrease in net sales during the thirteen-week period ended June 1, 2024, sales to our core and other customers decreased $39.8 million, sales to our public sector customers decreased $31.2 million and sales to our national account customers decreased $4.1 million.
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The table below shows, among other things, the change in our average daily sales (“ADS”) by total Company, by customer end-market and by customer type for the thirteen-week periods ended June 1, 2024 and June 3, 2023, each as compared to the same period in the prior fiscal year:
ADS Percentage Change
(Unaudited)
| Thirteen Weeks Ended | |||||||||||
| June 1, 2024 | June 3, 2023 | ||||||||||
| Net Sales (in thousands) | $ | 979,350 | $ | 1,054,464 | |||||||
| Sales Days | 64 | 64 | |||||||||
ADS (1) (in millions) | $ | 15.3 | $ | 16.5 | |||||||
Total Company ADS Percent Change (2) | (7.1) | % | 11.7 | % | |||||||
Manufacturing Customers ADS Percent Change (2) | (5.1) | % | 5.8 | % | |||||||
| Manufacturing Customers Percent of Total Net Sales | 67 | % | 66 | % | |||||||
Non-Manufacturing Customers ADS Percent Change (2) | (11.0) | % | 25.3 | % | |||||||
| Non-Manufacturing Customers Percent of Total Net Sales | 33 | % | 34 | % | |||||||
National Account Customers ADS Percent Change (2)(3) | (1.1) | % | 8.8 | % | |||||||
National Account Customers Percent of Total Net Sales (3) | 37 | % | 35 | % | |||||||
Public Sector Customers ADS Percent Change (2)(3) | (25.4) | % | 81.0 | % | |||||||
Public Sector Customers Percent of Total Net Sales (3) | 9 | % | 11 | % | |||||||
Core and Other Customers ADS Percent Change (2)(3) | (7.0) | % | 4.9 | % | |||||||
Core and Other Customers Percent of Total Net Sales (3) | 54 | % | 54 | % | |||||||
(1)ADS is calculated using the number of business days in the United States for the periods indicated. The Company believes ADS is a key performance indicator because it shows the effectiveness of the Company’s selling performance on a consistent basis between periods.
(2)Percent reflects the change from the 2023 fiscal period to the 2024 fiscal period and the change from the 2022 fiscal period to the 2023 fiscal period, respectively.
(3)Includes reclassifications of certain customers during fiscal year 2024, primarily between national account customers and core and other customers.
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 E-commerce platforms, including sales made through EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 63.3% of consolidated net sales for the thirteen-week period ended June 1, 2024, as compared to 60.1% of consolidated net sales for the same period in the prior fiscal year.
Gross Profit
Gross profit of $400.4 million for the thirteen-week period ended June 1, 2024 decreased $28.5 million, or 6.6%, compared to the same period in the prior fiscal year. Gross profit margin was 40.9% for the thirteen-week period ended June 1, 2024, as compared to 40.7% for the same period in the prior fiscal year. The decrease in gross profit was primarily a result of lower sales volume, as described above. The increase in gross profit margin was primarily a result of significant public sector sales in the prior fiscal year period that were transacted below our typical public sector margins, which did not repeat in the current fiscal year period. This benefit was partially offset by negative price-cost impacts during the
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current fiscal quarter, primarily due to temporary excess discounting during the launch of our web price realignment initiative.
Operating Expenses
Operating expenses decreased 0.9%, or $2.7 million, to $289.0 million for the thirteen-week period ended June 1, 2024, as compared to $291.7 million for the same period in the prior fiscal year. Operating expenses were 29.5% of net sales for the thirteen-week period ended June 1, 2024, as compared to 27.7% for the same period in the prior fiscal year. The decrease in Operating expenses was primarily attributable to lower variable expenses associated with lower sales volume, including lower incentive compensation and freight expense. The primary drivers of the increase in Operating expenses as a percentage of net sales were higher payroll costs, primarily due to higher associate headcount to support our strategic growth investments and our annual merit increases, and investments supporting our digital initiatives and solutions growth.
Payroll and payroll-related costs for the thirteen-week period ended June 1, 2024 were 55.4% of total Operating expenses, as compared to 56.1% for the same period in the prior fiscal year. Payroll and payroll-related costs, which include salary, incentive compensation, sales commission and fringe benefit costs, decreased $3.6 million for the thirteen-week period ended June 1, 2024. The majority of this decrease compared to the same period in the prior fiscal year was due to lower incentive compensation and fringe benefit costs, partially offset by higher salary expense attributable to higher associate headcount to support our strategic growth investments and our annual merit increases.
Freight expense was $37.4 million for the thirteen-week period ended June 1, 2024, as compared to $39.4 million for the same period in the prior fiscal year. The primary driver of the decrease in freight expense was a decrease in sales volume.
Restructuring and Other Costs
We incurred $4.7 million in Restructuring and other costs for the thirteen-week period ended June 1, 2024, as compared to $1.8 million for the same period in the prior fiscal year. Restructuring and other costs primarily consist of consulting-related costs associated with the Company’s strategic realignment efforts to optimize its supply chain and distribution network. See Note 9, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from Operations
Income from operations decreased 21.1%, or $28.6 million, to $106.8 million for the thirteen-week period ended June 1, 2024, as compared to $135.4 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales decreased to 10.9% for the thirteen-week period ended June 1, 2024, as compared to 12.8% for the same period in the prior fiscal year. The decrease in income from operations as a percentage of net sales was primarily attributable to, as described above, a higher level of Restructuring and other costs and an increase in Operating expenses as a percentage of net sales, partially offset by a higher gross profit margin during the thirteen-week period ended June 1, 2024.
Total Other Expense
Total other expense increased 27.3%, or $2.4 million, to $11.4 million for the thirteen-week period ended June 1, 2024, as compared to $9.0 million for the same period in the prior fiscal year. The increase was primarily due to higher interest rates and higher average balances on our credit facilities.
Provision for Income Taxes
The Company’s effective tax rate for the thirteen-week period ended June 1, 2024 was 25.2%, as compared to 24.7% for the same period in the prior fiscal year. The increase in the effective tax rate was primarily due to the non-deductibility of certain transaction costs associated with the Reclassification, which were recently finalized in the prior fiscal year tax return.
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Net Income
The factors which affected net income for the thirteen-week period ended June 1, 2024, as compared to the same period in the prior fiscal year, have been discussed above.
Thirty-Nine-Week Period Ended June 1, 2024 Compared to the Thirty-Nine-Week Period Ended June 3, 2023
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:
| Thirty-Nine Weeks Ended | |||||||||||||||||||||||||||||||||||
| June 1, 2024 | June 3, 2023 | Change | |||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| Net sales | $ | 2,868,667 | 100.0 | % | $ | 2,973,841 | 100.0 | % | $ | (105,174) | (3.5) | % | |||||||||||||||||||||||
| Cost of goods sold | 1,686,492 | 58.8 | % | 1,750,410 | 58.9 | % | (63,918) | (3.7) | % | ||||||||||||||||||||||||||
| Gross profit | 1,182,175 | 41.2 | % | 1,223,431 | 41.1 | % | (41,256) | (3.4) | % | ||||||||||||||||||||||||||
| Operating expenses | 870,859 | 30.4 | % | 852,031 | 28.7 | % | 18,828 | 2.2 | % | ||||||||||||||||||||||||||
| Restructuring and other costs | 11,787 | 0.4 | % | 5,722 | 0.2 | % | 6,065 | 106.0 | % | ||||||||||||||||||||||||||
| Income from operations | 299,529 | 10.4 | % | 365,678 | 12.3 | % | (66,149) | (18.1) | % | ||||||||||||||||||||||||||
| Total other expense | (32,920) | (1.1) | % | (25,244) | (0.8) | % | (7,676) | 30.4 | % | ||||||||||||||||||||||||||
| Income before provision for income taxes | 266,609 | 9.3 | % | 340,434 | 11.4 | % | (73,825) | (21.7) | % | ||||||||||||||||||||||||||
| Provision for income taxes | 64,604 | 2.3 | % | 84,768 | 2.9 | % | (20,164) | (23.8) | % | ||||||||||||||||||||||||||
| Net income | 202,005 | 7.0 | % | 255,666 | 8.6 | % | (53,661) | (21.0) | % | ||||||||||||||||||||||||||
| Less: Net (loss) income attributable to noncontrolling interest | (897) | 0.0 | % | 32 | 0.0 | % | (929) | (2,903.1) | % | ||||||||||||||||||||||||||
| Net income attributable to MSC Industrial | $ | 202,902 | 7.1 | % | $ | 255,634 | 8.6 | % | $ | (52,732) | (20.6) | % | |||||||||||||||||||||||
Net Sales
Net sales decreased 3.5%, or $105.2 million, to $2,868.7 million for the thirty-nine-week period ended June 1, 2024, as compared to $2,973.8 million for the same period in the prior fiscal year. The $105.2 million decrease in net sales was comprised of $149.0 million of lower sales volume, partially offset by $19.9 million from improved pricing, inclusive of changes in customer and product mix, discounting and other items, $18.1 million of net sales from fiscal year 2023 and 2024 acquisitions and $5.8 million of favorable foreign exchange impact. Of the $105.2 million decrease in net sales during the thirty-nine-week period ended June 1, 2024, sales to our core and other customers decreased $106.8 million and sales to our public sector customers decreased $24.3 million, partially offset by an increase in sales to our national account customers of $25.9 million.
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The table below shows, among other things, the change in our ADS by total Company, by customer end-market and by customer type for the thirty-nine-week periods ended June 1, 2024 and June 3, 2023, each as compared to the same period in the prior fiscal year:
ADS Percentage Change
(Unaudited)
| Thirty-Nine Weeks Ended | |||||||||||
| June 1, 2024 | June 3, 2023 | ||||||||||
| Net Sales (in thousands) | $ | 2,868,667 | $ | 2,973,841 | |||||||
| Sales Days | 189 | 189 | |||||||||
ADS (1) (in millions) | $ | 15.2 | $ | 15.7 | |||||||
Total Company ADS Percent Change (2) | (3.5) | % | 12.0 | % | |||||||
Manufacturing Customers ADS Percent Change (2) | (3.6) | % | 8.8 | % | |||||||
| Manufacturing Customers Percent of Total Net Sales | 68 | % | 68 | % | |||||||
Non-Manufacturing Customers ADS Percent Change (2) | (3.4) | % | 19.4 | % | |||||||
| Non-Manufacturing Customers Percent of Total Net Sales | 32 | % | 32 | % | |||||||
National Account Customers ADS Percent Change (2)(3) | 2.5 | % | 13.6 | % | |||||||
National Account Customers Percent of Total Net Sales (3) | 37 | % | 35 | % | |||||||
Public Sector Customers ADS Percent Change (2)(3) | (8.8) | % | 41.4 | % | |||||||
Public Sector Customers Percent of Total Net Sales (3) | 9 | % | 9 | % | |||||||
Core and Other Customers ADS Percent Change (2)(3) | (6.5) | % | 7.3 | % | |||||||
Core and Other Customers Percent of Total Net Sales (3) | 54 | % | 56 | % | |||||||
(1)ADS is calculated using the number of business days in the United States for the periods indicated. The Company believes ADS is a key performance indicator because it shows the effectiveness of the Company’s selling performance on a consistent basis between periods.
(2)Percent reflects the change from the 2023 fiscal period to the 2024 fiscal period and the change from the 2022 fiscal period to the 2023 fiscal period, respectively.
(3)Includes reclassifications of certain customers during fiscal year 2024, primarily between national account customers and core and other customers.
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 E-commerce platforms, including sales made through EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 63.2% of consolidated net sales for the thirty-nine-week period ended June 1, 2024, as compared to 61.3% of consolidated net sales for the same period in the prior fiscal year.
Gross Profit
Gross profit of $1,182.2 million for the thirty-nine-week period ended June 1, 2024 decreased $41.3 million, or 3.4%, compared to the same period in the prior fiscal year. Gross profit margin was 41.2% for the thirty-nine-week period ended June 1, 2024, as compared to 41.1% for the same period in the prior fiscal year. The decrease in gross profit was primarily a result of lower sales volume, as described above. The increase in gross profit margin was primarily a result of significant public sector sales in the prior fiscal year period that were transacted below our typical public sector margins, which did not repeat in the current fiscal year period. This benefit was partially offset by negative price-cost impacts during the current fiscal year period, primarily due to temporary excess discounting during the launch of our web price realignment initiative.
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Operating Expenses
Operating expenses increased 2.2%, or $18.8 million, to $870.9 million for the thirty-nine-week period ended June 1, 2024, as compared to $852.0 million for the same period in the prior fiscal year. Operating expenses were 30.4% of net sales for the thirty-nine-week period ended June 1, 2024, as compared to 28.7% for the same period in the prior fiscal year. The increase in Operating expenses and Operating expenses as a percentage of net sales was due to higher payroll costs, primarily resulting from higher associate headcount to support our strategic growth investments and our annual merit increases, partially offset by a decrease in incentive compensation, freight expense and lower variable expenses associated with lower sales.
Payroll and payroll-related costs for both the thirty-nine-week period ended June 1, 2024 and the same period in the prior fiscal year were 56.4% of total Operating expenses. Payroll and payroll-related costs, which include salary, incentive compensation, sales commission, and fringe benefit costs, increased $11.0 million for the thirty-nine-week period ended June 1, 2024. The majority of this increase compared to the same period in the prior fiscal year was due to increased salary expense, primarily attributable to higher associate headcount to support our strategic growth investments and our annual merit increases. Fringe benefit costs also increased, resulting from higher insurance-related healthcare reserves due to recent higher healthcare claims. These increases were partially offset by lower incentive compensation and sales commission expenses.
Freight expense was $111.3 million for the thirty-nine-week period ended June 1, 2024, as compared to $119.4 million for the same period in the prior fiscal year. The primary driver of the decrease in freight expense was a decrease in sales volume.
Restructuring and Other Costs
We incurred $11.8 million in Restructuring and other costs for the thirty-nine-week period ended June 1, 2024, as compared to $5.7 million for the same period in the prior fiscal year. Restructuring and other costs primarily consist of associate severance and separation costs and equity award acceleration costs associated with severance related to the Company’s associate voluntary termination program and consulting-related costs associated with the Company’s strategic realignment efforts to optimize its supply chain and distribution network. See Note 9, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from Operations
Income from operations decreased 18.1%, or $66.1 million, to $299.5 million for the thirty-nine-week period ended June 1, 2024, as compared to $365.7 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales decreased to 10.4% for the thirty-nine-week period ended June 1, 2024, as compared to 12.3% for the same period in the prior fiscal year. The decrease in income from operations as a percentage of net sales was primarily attributable to, as described above, a higher level of Restructuring and other costs and an increase in Operating expenses as a percentage of net sales, partially offset by a higher gross profit margin during the thirty-nine-week period ended June 1, 2024.
Total Other Expense
Total other expense increased 30.4%, or $7.7 million, to $32.9 million for the thirty-nine-week period ended June 1, 2024, as compared to $25.2 million for the same period in the prior fiscal year. The increase was primarily due to higher interest rates on our credit facilities and fees incurred associated with the RPA entered into during the second quarter of fiscal year 2023.
Provision for Income Taxes
The Company’s effective tax rate for the thirty-nine-week period ended June 1, 2024 was 24.2%, as compared to 24.9% 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.
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Net Income
The factors which affected net income for the thirty-nine-week period ended June 1, 2024, as compared to the same period in the prior fiscal year, have been discussed above.
Liquidity and Capital Resources
| June 1, 2024 | September 2, 2023 | $ Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Total debt | $ | 506,147 | $ | 454,326 | $ | 51,821 | |||||||||||
| Less: Cash and cash equivalents | 25,928 | 50,052 | (24,124) | ||||||||||||||
| Net debt | $ | 480,219 | $ | 404,274 | $ | 75,945 | |||||||||||
| Total shareholders’ equity | $ | 1,414,209 | $ | 1,492,582 | $ | (78,373) | |||||||||||
As of June 1, 2024, we had $25.9 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 Class A Common Stock from time to time, and to pay dividends to our shareholders.
As of June 1, 2024, total borrowings outstanding, representing amounts due under our credit facilities and notes, as well as all finance leases and financing arrangements, were $506.1 million, net of unamortized debt issuance costs of $0.9 million, as compared to total borrowings outstanding of $454.3 million, net of unamortized debt issuance costs of $1.0 million, as of the end of fiscal year 2023. The increase in total borrowings outstanding was driven by higher net borrowings under our credit facilities to fund our recent higher share repurchase volume to offset the share dilution resulting from the Reclassification. See Note 7, “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 anticipated capital expenditures and operating cash requirements for at least the next 12 months. We will continue to evaluate our financial position in light of future developments 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:
| Thirty-Nine Weeks Ended | |||||||||||
| June 1, 2024 | June 3, 2023 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities | $ | 303,433 | $ | 567,077 | |||||||
| Net cash used in investing activities | (83,213) | (84,295) | |||||||||
| Net cash used in financing activities | (244,475) | (468,087) | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | 131 | 196 | |||||||||
| Net (decrease) increase in cash and cash equivalents | $ | (24,124) | $ | 14,891 | |||||||
Cash Flows from Operating Activities
Net cash provided by operating activities was $303.4 million for the thirty-nine weeks ended June 1, 2024, compared to $567.1 million for the thirty-nine weeks ended June 3, 2023. The decrease was primarily due to the following:
•a decrease in net income, as described above; and
•a smaller decrease in the change in accounts receivable primarily attributable to the RPA entered into during the second quarter of fiscal year 2023; partially offset by
•a decrease in the change in inventories primarily attributable to lower sales and purchase volume.
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The table below summarizes certain information regarding the Company’s operations as of the periods indicated:
| June 1, 2024 | September 2, 2023 | June 3, 2023 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
Working Capital (1) | $ | 629,336 | $ | 668,077 | $ | 632,742 | |||||||||||
Current Ratio (2) | 2.1 | 2.0 | 1.9 | ||||||||||||||
Days’ Sales Outstanding (3) | 39.3 | 36.5 | 36.8 | ||||||||||||||
Inventory Turnover (4) | 3.3 | 3.2 | 3.2 | ||||||||||||||
(1)Working Capital is calculated as current assets less current liabilities.
(2)Current Ratio is calculated as total current assets divided by total current liabilities.
(3)Days’ Sales Outstanding is calculated as accounts receivable divided by net sales, using trailing two months sales data.
(4)Inventory Turnover is calculated as total cost of goods sold divided by inventory, using a 13-month trailing average inventory.
Working capital as of June 1, 2024 declined compared to September 2, 2023 and declined slightly compared to June 3, 2023, while the current ratio increased compared to both September 2, 2023 and June 3, 2023. The decrease in working capital was primarily due to lower inventory and cash balances, partially offset by lower balances in the Current portion of debt including obligations under finance leases and Accrued expenses and other current liabilities.
The increase in days’ sales outstanding as of June 1, 2024 as compared to both September 2, 2023 and June 3, 2023 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 June 1, 2024 increased compared to both September 2, 2023 and June 3, 2023. This improvement in inventory turnover was due to growth in cost of goods sold outpacing growth in inventory. Recent lower inventory balances were due to lower purchase volumes, category management efforts and supply chain efficiencies.
Cash Flows from Investing Activities
Net cash used in investing activities for the thirty-nine weeks ended June 1, 2024 and June 3, 2023 was $83.2 million and $84.3 million, respectively. The use of cash for both periods was primarily due to expenditures for property, plant and equipment mainly related to vending programs and other infrastructure and technology investments. The use of cash for the thirty-nine weeks ended June 1, 2024 and June 3, 2023 also included cash outflows due to the acquisitions of KAR and SMRT in fiscal year 2024 and Buckeye Industrial Supply Co. and Tru-Edge Grinding, Inc. in fiscal year 2023.
Cash Flows from Financing Activities
Net cash used in financing activities was $244.5 million for the thirty-nine weeks ended June 1, 2024, compared to $468.1 million for the thirty-nine weeks ended June 3, 2023, primarily due to the following:
•$167.2 million in aggregate repurchases of Class A Common Stock during the thirty-nine weeks ended June 1, 2024, compared to $31.1 million in aggregate repurchases of Class A Common Stock during the thirty-nine weeks ended June 3, 2023;
•$140.7 million of regular cash dividends paid during the thirty-nine weeks ended June 1, 2024, compared to $132.5 million of regular cash dividends paid during the thirty-nine weeks ended June 3, 2023; and
•net borrowings of $50.0 million under our credit facilities, private placement debt and shelf facility agreements during the thirty-nine weeks ended June 1, 2024, compared to net payments of $330.0 million during the thirty-nine weeks ended June 3, 2023.
Capital Expenditures
We continue to invest in E-commerce and vending platforms, CFCs and distribution network, and other infrastructure and technology.
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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 June 1, 2024, the Company also had three uncommitted credit facilities, totaling $208.0 million in aggregate maximum uncommitted availability. As of June 1, 2024, we were in compliance with the operating and financial covenants of our credit facilities. The current unused balance of $518.7 million from the revolving credit facility, which is reduced by outstanding letters of credit, is available for working capital purposes if necessary. See Note 7, “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. No new notes may be issued pursuant to the Shelf Facility Agreements. In March 2024, the Company paid $50.0 million to satisfy its obligation on the 2.40% Series 2019A Notes, due March 5, 2024, which were the last notes associated with the Shelf Facility Agreements. In April 2024, the Company completed the issuance and sale of $50.0 million aggregate principal amount of 5.73% Senior Notes, due April 18, 2027. See Note 7, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these transactions.
Leases and Financing Arrangements
As of June 1, 2024, 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 2029.
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 September 2, 2023.
Recently Adopted 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 September 2, 2023. 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 September 2, 2023 fiscal year-end.
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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 June 1, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, the Company 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 September 2, 2023, which could materially affect our business, financial condition and/or operating results. There have been no material changes in the Company’s risk factors from those disclosed in our Annual Report on Form 10-K. 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 June 1, 2024:
Issuer Purchases of Equity Securities
| 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) | ||||||||||||||||||||||
| 3/3/24-4/2/24 | — | $ | — | — | 2,277,525 | |||||||||||||||||||||
| 4/3/24-5/2/24 | 200,407 | $ | 92.20 | 200,000 | 2,077,525 | |||||||||||||||||||||
| 5/3/24-6/1/24 | 77 | $ | 84.98 | — | 2,077,525 | |||||||||||||||||||||
| Total | 200,484 | 200,000 | ||||||||||||||||||||||||
(1)During the thirteen weeks ended June 1, 2024, 484 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)In June 2021, the Board of Directors of the Company terminated the existing share repurchase plan and authorized a new share repurchase plan (the “Share Repurchase Plan”) to purchase up to 5,000,000 shares of Class A Common Stock. There is no expiration date for the Share Repurchase Plan. As of June 1, 2024, the maximum number of shares of Class A Common Stock that may yet be repurchased under the Share Repurchase Plan was 2,077,525 shares.
Item 5. Other Information.
Insider Trading Arrangements
During the quarter ended June 1, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”
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Item 6. Exhibits.
EXHIBIT INDEX
| 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).* | |||||||
* | Filed herewith. | |||||||
| ** | Furnished herewith. | |||||||
| † | Indicates a management contract or compensatory plan or arrangement. | |||||||
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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.
| MSC INDUSTRIAL DIRECT CO., INC. (Registrant) | ||||||||
Dated: July 2, 2024 | By: | /s/ ERIK GERSHWIND | ||||||
Erik Gershwind President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Dated: July 2, 2024 | By: | /s/ KRISTEN ACTIS-GRANDE | ||||||
Kristen Actis-Grande Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer ) | ||||||||
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ATTACHMENTS / EXHIBITS
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
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