0001003078-21-000269.txt : 20211222 0001003078-21-000269.hdr.sgml : 20211222 20211222142052 ACCESSION NUMBER: 0001003078-21-000269 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 70 CONFORMED PERIOD OF REPORT: 20211127 FILED AS OF DATE: 20211222 DATE AS OF CHANGE: 20211222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MSC INDUSTRIAL DIRECT CO INC CENTRAL INDEX KEY: 0001003078 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 113289165 STATE OF INCORPORATION: NY FISCAL YEAR END: 0903 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14130 FILM NUMBER: 211512763 BUSINESS ADDRESS: STREET 1: 515 BROADHOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 516-812-2000 MAIL ADDRESS: STREET 1: 515 BROADHOLLOW ROAD CITY: MELVILLE STATE: NY ZIP: 11747 10-Q 1 msm-20211127x10q.htm 10-Q msm-20211127x10q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________

FORM 10-Q

__________________________________________

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 27, 2021

OR

o

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

__________________________________________

MSC INDUSTRIAL DIRECT CO., INC.

(Exact name of registrant as specified in its charter)

__________________________________________

 

New York
(State or other jurisdiction of
incorporation or organization)

11-3289165
(I.R.S. Employer Identification No.)

 

515 Broadhollow Road, Suite 1000, Melville, New York
(Address of principal executive offices)

11747
(Zip Code)

(516812-2000

(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

Class A Common Stock, par value $0.001 per share

MSM

New York Stock Exchange

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.

Large accelerated filer  x

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 December 10, 2021, 47,136,688 shares of Class A Common Stock and 8,654,010 shares of Class B 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, any statements which refer to expectations, projections or other characterizations of future events or circumstances, statements involving a discussion of strategy, plans or intentions, statements about management’s assumptions, projections or predictions of future events or market outlook and any other statement other than a statement of present or historical fact are forward-looking statements. We expressly disclaim any obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Report with the United States Securities and Exchange Commission (the “SEC”), except to the extent required by applicable law. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of Part I and Item 1, “Legal Proceedings” and Item 1A, “Risk Factors” of Part II of this Report, as well as in Item 1A, “Risk Factors” of Part I and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of our Annual Report on Form 10-K for the fiscal year ended August 28, 2021. In addition, new risks may emerge from time to time and it is not possible for management to predict such risks or to assess the impact of such risks on our business or financial results. Accordingly, future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements. These risks and uncertainties include, but are not limited to, the following:

the impact of the COVID-19 pandemic on our sales, operations and supply chain;

general economic conditions in the markets in which we operate, including conditions resulting from the COVID-19 pandemic;

changing customer and product mixes;

competition, including the adoption by competitors of aggressive pricing strategies and sales methods;

industry consolidation and other changes in the industrial distribution sector;

our ability to realize the expected benefits from our investment and strategic plans, including our transition from being a spot-buy supplier to a mission-critical partner to our customers;

our ability to realize the expected cost savings and benefits from our restructuring activities and structural cost reductions;

the retention of key personnel;

volatility in commodity and energy prices and the impact of prolonged periods of low, high and rapid inflation;

the credit risk of our customers, including changes in credit risk as a result of the COVID-19 pandemic;

the risk of customer cancellation or rescheduling of orders;

difficulties in calibrating customer demand for our products, in particular personal protective equipment or “PPE” products, which could cause an inability to sell excess products ordered from manufacturers resulting in inventory write-downs or could conversely cause inventory shortages of such products;

work stoppages, labor shortages or other business interruptions (including those due to extreme weather conditions or as a result of the COVID-19 pandemic) at transportation centers, shipping ports, our headquarters or our customer fulfillment centers;

disruptions or breaches of our information technology systems, or violations of data privacy laws;

the retention of qualified sales and customer service personnel and metalworking specialists;

the risk of loss of key suppliers or contractors or key brands or supply chain disruptions, including due to import restrictions resulting from the COVID-19 pandemic;

changes to governmental trade policies, including the impact from significant import restrictions or tariffs;

risks related to opening or expanding our customer fulfillment centers;

our ability to estimate the cost of healthcare claims incurred under our self-insurance plan;

litigation risk due to the nature of our business;

risks associated with the integration of acquired businesses or other strategic transactions;

financial restrictions on outstanding borrowings;

our ability to maintain our credit facilities;


 

the interest rate uncertainty due to the London InterBank Offered Rate (“LIBOR”) reform;

the failure to comply with applicable environmental, health and safety laws and regulations, including government action in response to the COVID-19 pandemic, and other laws applicable to our business;

the outcome of government or regulatory proceedings or future litigation;

goodwill and intangible assets recorded resulting from our acquisitions could be impaired;

our common stock price may be volatile due to factors outside of our control; and

our principal shareholders exercise significant control over us, which may result in our taking actions or failing to take actions which our other shareholders do not prefer.


MSC INDUSTRIAL DIRECT CO., INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 27, 2021

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of November 27, 2021 and August 28, 2021

1

Condensed Consolidated Statements of Income for the Thirteen Weeks Ended November 27, 2021 and November 28, 2020

2

Condensed Consolidated Statements of Comprehensive Income for the Thirteen Weeks Ended November 27, 2021 and November 28, 2020

3

Condensed Consolidated Statements of Shareholders’ Equity for the Thirteen Weeks Ended November 27, 2021 and November 28, 2020

4

Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended November 27, 2021 and November 28, 2020

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 6.

Exhibits

29

SIGNATURES

30


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

November 27,

August 28,

2021

2021

(Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

62,875

$

40,536

Accounts receivable, net of allowance for credit losses of $18,331 and $18,416, respectively

578,654

560,373

Inventories

622,624

624,169

Prepaid expenses and other current assets

84,255

89,167

Total current assets

1,348,408

1,314,245

Property, plant and equipment, net

298,975

298,416

Goodwill

691,867

692,704

Identifiable intangibles, net

98,419

101,854

Operating lease assets

52,824

49,011

Other assets

5,851

5,885

Total assets

$

2,496,344

$

2,462,115

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Current portion of debt including obligations under finance leases

$

204,484

$

202,433

Current portion of operating lease liabilities

13,703

13,927

Accounts payable

177,823

186,330

Accrued expenses and other current liabilities

190,265

159,238

Total current liabilities

586,275

561,928

Long-term debt including obligations under finance leases

558,318

583,616

Noncurrent operating lease liabilities

40,447

36,429

Deferred income taxes and tax uncertainties

108,827

108,827

Other noncurrent liabilities

9,443

9,443

Total liabilities

1,303,310

1,300,243

Commitments and Contingencies

 

 

Shareholders’ Equity:

MSC Industrial Shareholders’ Equity:

Preferred Stock; $0.001 par value; 5,000,000 shares authorized; none issued and outstanding

Class A Common Stock (one vote per share); $0.001 par value; 100,000,000 shares authorized; 48,346,135 and 48,042,901 shares issued, respectively

48

48

Class B Common Stock (ten votes per share); $0.001 par value; 50,000,000 shares authorized; 8,654,010 and 8,654,010 shares issued and outstanding, respectively

9

9

Additional paid-in capital

756,314

740,867

Retained earnings

556,586

532,315

Accumulated other comprehensive loss

(22,065)

(17,984)

Class A treasury stock, at cost, 1,262,624 and 1,223,644 shares, respectively

(108,138)

(104,384)

Total MSC Industrial shareholders’ equity

1,182,754

1,150,871

Noncontrolling interest

10,280

11,001

Total shareholders’ equity

1,193,034

1,161,872

Total liabilities and shareholders’ equity

$

2,496,344

$

2,462,115

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

November 27,

November 28,

2021

2020

Net sales

$

848,547

$

771,904

Cost of goods sold

495,951

448,586

Gross profit

352,596

323,318

Operating expenses

256,581

238,705

Impairment loss, net

26,726

Restructuring costs

5,283

3,979

Income from operations

90,732

53,908

Other income (expense):

Interest expense

(3,728)

(3,356)

Interest income

19

21

Other income (expense), net

(413)

651

Total other expense

(4,122)

(2,684)

Income before provision for income taxes

86,610

51,224

Provision for income taxes

20,353

12,447

Net income

66,257

38,777

Less: Net income attributable to noncontrolling interest

190

323

Net income attributable to MSC Industrial

$

66,067

$

38,454

Per share data attributable to MSC Industrial:

Net income per common share:

Basic

$

1.19

$

0.69

Diluted

$

1.18

$

0.69

Weighted-average shares used in computing net income per common share:

Basic

55,530

55,659

Diluted

55,856

55,850

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

November 27,

November 28,

2021

2020

Net income, as reported

$

66,257

$

38,777

Other comprehensive income, net of tax:

Foreign currency translation adjustments

(4,992)

2,196

Comprehensive income (1)

61,265

40,973

Comprehensive income attributable to noncontrolling interest:

Net income

(190)

(323)

Foreign currency translation adjustments

911

(461)

Comprehensive income attributable to MSC Industrial

$

61,986

$

40,189

(1) There were no material taxes associated with other comprehensive income during the thirteen-week periods ended November 27, 2021 and November 28, 2020.

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

November 27,

November 28,

2021

2020

Class A Common Stock

Beginning Balance

$

48

$

47

Exchange of Class B Common Stock for Class A Common Stock

1

Ending Balance

48

48

Class B Common Stock

Beginning Balance

9

10

Exchange of Class B Common Stock for Class A Common Stock

(1)

Ending Balance

9

9

Additional Paid-in Capital

Beginning Balance

740,867

690,739

Associate Incentive Plans

15,447

11,602

Ending Balance

756,314

702,341

Retained Earnings

Beginning Balance

532,315

749,515

Net Income

66,067

38,454

Regular cash dividends declared on Class A Common Stock

(35,249)

(34,761)

Regular cash dividends declared on Class B Common Stock

(6,491)

(7,054)

Special cash dividends declared on Class A Common Stock

(163,511)

Special cash dividends declared on Class B Common Stock

(31,840)

Dividend equivalents declared, net of cancellations

(56)

(2,846)

Ending Balance

556,586

547,957

Accumulated Other Comprehensive Loss

Beginning Balance

(17,984)

(21,418)

Foreign Currency Translation Adjustment

(4,081)

1,735

Ending Balance

(22,065)

(19,683)

Treasury Stock

Beginning Balance

(104,384)

(103,948)

Associate Incentive Plans

805

910

Repurchases of Class A Common Stock

(4,559)

(3,159)

Ending Balance

(108,138)

(106,197)

Total Shareholders’ Equity Attributable to MSC Industrial

1,182,754

1,124,475

Noncontrolling Interest

Beginning Balance

11,001

5,628

Foreign Currency Translation Adjustment

(911)

461

Net Income

190

323

Ending Balance

10,280

6,412

Total Shareholders’ Equity

$

1,193,034

$

1,130,887

Dividends declared per Class A Common Share

$

0.75

$

4.25

Dividends declared per Class B Common Share

$

0.75

$

4.25

See accompanying Notes to Condensed Consolidated Financial Statements.


4


MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Thirteen Weeks Ended

November 27,

November 28,

2021

2020

Cash Flows from Operating Activities:

Net income

$

66,257

$

38,777

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

17,407

17,105

Non-cash operating lease cost

4,223

4,342

Stock-based compensation

5,689

4,238

Loss on disposal of property, plant and equipment

104

296

Provision for credit losses

1,837

2,503

Changes in operating assets and liabilities:  

Accounts receivable

(21,805)

(3,655)

Inventories

(755)

22,950

Prepaid expenses and other current assets

4,172

(2,168)

Operating lease liabilities

(4,246)

(4,103)

Other assets

(27)

324

Accounts payable and accrued liabilities

(15,052)

22,621

Total adjustments

(8,453)

64,453

Net cash provided by operating activities

57,804

103,230

Cash Flows from Investing Activities:

Expenditures for property, plant and equipment

(15,262)

(7,893)

Net cash used in investing activities

(15,262)

(7,893)

Cash Flows from Financing Activities:

Repurchases of common stock

(4,559)

(3,159)

Payments of regular cash dividends

(41,815)

Proceeds from sale of Class A Common Stock in connection with associate stock purchase plan

1,029

963

Proceeds from exercise of Class A Common Stock options

7,097

5,600

Borrowings under credit facilities

26,000

Payments under credit facilities

(50,000)

(130,000)

Payments on finance lease and financing obligations

(418)

(516)

Other, net

1,057

1,269

Net cash used in financing activities

(19,794)

(167,658)

Effect of foreign exchange rate changes on cash and cash equivalents

(409)

214

Net increase (decrease) in cash and cash equivalents

22,339

(72,107)

Cash and cash equivalents—beginning of period

40,536

125,211

Cash and cash equivalents—end of period

$

62,875

$