10-Q 1 msm-20220226x10q.htm 10-Q msm-20220226x10q
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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 February 26, 2022

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 March 15, 2022, 47,187,565 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, the impact of prolonged periods of low, high and rapid inflation, and fluctuations in interest rates;

the credit risk of our customers, including changes in credit risk as a result of the COVID-19 pandemic, higher inflation and fluctuations in interest rates;

the risk of customer cancellation or rescheduling of orders;

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

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

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

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

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

changes to governmental trade or sanctions policies, including the impact from significant import restrictions or tariffs or moratoriums on economic activity with certain countries or regions;

risks related to opening or expanding our customer fulfillment centers;

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

litigation risk due to the nature of our business;

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

financial restrictions on outstanding borrowings;


 

our ability to maintain our credit facilities;

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

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

the outcome of government or regulatory proceedings or future litigation;

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

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

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


MSC INDUSTRIAL DIRECT CO., INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 26, 2022

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of February 26, 2022 and August 28, 2021

1

Condensed Consolidated Statements of Income for the Thirteen and Twenty-Six Weeks Ended February 26, 2022 and February 27, 2021

2

Condensed Consolidated Statements of Comprehensive Income for the Thirteen and Twenty-Six Weeks Ended February 26, 2022 and February 27, 2021

3

Condensed Consolidated Statements of Shareholders’ Equity for the Thirteen and Twenty-Six Weeks Ended February 26, 2022 and February 27, 2021

4

Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended February 26, 2022 and February 27, 2021

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 6.

Exhibits

28

SIGNATURES

29


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

February 26,

August 28,

2022

2021

(Unaudited)

ASSETS

Current Assets:

Cash and cash equivalents

$

41,754

$

40,536

Accounts receivable, net of allowance for credit losses of $18,480 and $18,416, respectively

619,913

560,373

Inventories

657,710

624,169

Prepaid expenses and other current assets

97,435

89,167

Total current assets

1,416,812

1,314,245

Property, plant and equipment, net

300,232

298,416

Goodwill

692,482

692,704

Identifiable intangibles, net

96,061

101,854

Operating lease assets

51,602

49,011

Other assets

7,726

5,885

Total assets

$

2,564,915

$

2,462,115

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Current portion of debt including obligations under finance leases

$

251,269

$

202,433

Current portion of operating lease liabilities

13,417

13,927

Accounts payable

191,436

186,330

Accrued expenses and other current liabilities

141,049

159,238

Total current liabilities

597,171

561,928

Long-term debt including obligations under finance leases

584,182

583,616

Noncurrent operating lease liabilities

39,410

36,429

Deferred income taxes and tax uncertainties

108,851

108,827

Other noncurrent liabilities

9,443

Total liabilities

1,329,614

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; 48,434,601 and 48,042,901 shares issued, respectively

48

48

Class B Common Stock (10 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

766,156

740,867

Retained earnings

584,283

532,315

Accumulated other comprehensive loss

(19,121)

(17,984)

Class A treasury stock, at cost, 1,250,390 and 1,223,644 shares, respectively

(107,401)

(104,384)

Total MSC Industrial shareholders’ equity

1,223,974

1,150,871

Noncontrolling interest

11,327

11,001

Total shareholders’ equity

1,235,301

1,161,872

Total liabilities and shareholders’ equity

$

2,564,915

$

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

Twenty-Six Weeks Ended

February 26,

February 27,

February 26,

February 27,

2022

2021

2022

2021

Net sales

$

862,522

$

773,995

$

1,711,069

$

1,545,899

Cost of goods sold

496,247

479,244

992,198

927,830

Gross profit

366,275

294,751

718,871

618,069

Operating expenses

265,973

245,115

522,554

483,820

Impairment loss

26,726

Restructuring and other costs

3,134

21,615

8,417

25,594

Income from operations

97,168

28,021

187,900

81,929

Other income (expense):

Interest expense

(3,617)

(3,580)

(7,345)

(6,936)

Interest income

21

16

40

37

Other income (expense), net

91

(58)

(322)

593

Total other expense

(3,505)

(3,622)

(7,627)

(6,306)

Income before provision for income taxes

93,663

24,399

180,273

75,623

Provision for income taxes

23,509

6,051

43,862

18,498

Net income

70,154

18,348

136,411

57,125

Less: Net income attributable to noncontrolling interest

223

263

413

586

Net income attributable to MSC Industrial

$

69,931

$

18,085

$

135,998

$

56,539

Per share data attributable to MSC Industrial:

Net income per common share:

Basic

$

1.25

$

0.32

$

2.44

$

1.01

Diluted

$

1.25

$

0.32

$

2.43

$

1.01

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

Basic

55,799

55,838

55,664

55,749

Diluted

55,971

56,133

55,945

56,019

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

Twenty-Six Weeks Ended

February 26,

February 27,

February 26,

February 27,

2022

2021

2022

2021

Net income, as reported

$

70,154

$

18,348

$

136,411

$

57,125

Other comprehensive income, net of tax:

Foreign currency translation adjustments

3,768

626

(1,224)

2,822

Comprehensive income (1)

73,922

18,974

135,187

59,947

Comprehensive income attributable to noncontrolling interest:

Net income

(223)

(263)

(413)

(586)

Foreign currency translation adjustments

(824)

251

87

(210)

Comprehensive income attributable to MSC Industrial

$

72,875

$

18,962

$

134,861

$

59,151

(1) There were no material taxes associated with other comprehensive income during the thirteen- and twenty-six-week periods ended February 26, 2022 and February 27, 2021.

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

Twenty-Six Weeks Ended

February 26,

February 27,

February 26,

February 27,

2022

2021

2022

2021

Class A Common Stock

Beginning Balance

$

48

$

48

$

48

$

47

Exchange of Class B Common Stock for Class A Common Stock

1

Ending Balance

48

48

48

48

Class B Common Stock

Beginning Balance

9

9

9

10

Exchange of Class B Common Stock for Class A Common Stock

(1)

Ending Balance

9

9

9

9

Additional Paid-in Capital

Beginning Balance

756,314

702,341

740,867

690,739

Associate Incentive Plans

9,842

10,409

25,289

22,011

Ending Balance

766,156

712,750

766,156

712,750

Retained Earnings

Beginning Balance

556,586

547,957

532,315

749,515

Net Income

69,931

18,085

135,998

56,539

Regular cash dividends declared on Class A Common Stock

(35,356)

(35,047)

(70,605)

(69,808)

Regular cash dividends declared on Class B Common Stock

(6,490)

(6,823)

(12,981)

(13,877)

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

(388)