-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UWaDwqjrSMJehO3BAbW48LEmSA27G7FnVJaAza75zWKVgsevMBJbtthjPw6R+Agq QUrigEqF9LEgzFqJ6M5V0w== 0000950136-01-000643.txt : 20010410 0000950136-01-000643.hdr.sgml : 20010410 ACCESSION NUMBER: 0000950136-01-000643 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010224 FILED AS OF DATE: 20010404 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: 0902 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14130 FILM NUMBER: 1595566 BUSINESS ADDRESS: STREET 1: 151 SUNNYSIDE BLVD CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 5163497100 MAIL ADDRESS: STREET 1: 151 SUNNYSIDE BLVD CITY: PLAINVIEW STATE: NY ZIP: 11803 10-Q 1 0001.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 24, 2001 Commission file number: 1-14130 MSC INDUSTRIAL DIRECT CO., INC. (Exact name of registrant as specified in its charter) NEW YORK 11-3289165 (State of incorporation) (IRS Employer Identification No.) 75 MAXESS ROAD MELVILLE, NY 11747 (Address of principal executive offices, including zip code) (516) 812-2000 (Registrant's telephone number, including area code) 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 --- As of April 4, 2001 35,821,550 shares of Class A Common Stock and 33,478,778 shares of Class B Common Stock of the registrant were outstanding. MSC INDUSTRIAL DIRECT CO., INC. INDEX PART I. FINANCIAL INFORMATION PAGE ----- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets - February 24, 2001 and August 26, 2000 3 Consolidated Statements of Income - Thirteen and twenty-six weeks ended February 24, 2001 and February 26, 2000 4 Consolidated Statement of Shareholders' Equity - Twenty-six weeks ended February 24, 2001 5 Consolidated Statements of Cash Flows - Twenty-six weeks ended February 24, 2001 and February 26, 2000 6 Notes to Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15 SIGNATURES 16 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS MSC INDUSTRIAL DIRECT CO., INC. Consolidated Balance Sheets
(In thousands, except share data) February 24, August 26, 2001 2000 ---- ---- (Unaudited) (Audited) ASSETS Current Assets: Cash and cash equivalents $ 13,491 $ 3,209 Accounts receivable, net of allowance for doubtful accounts of $4,485 and $3,779, respectively 107,341 98,837 Inventories 261,472 264,494 Prepaid expenses and other current assets 4,409 4,190 Current deferred income taxes 2,922 4,484 --------- --------- Total current assets 389,635 375,214 --------- --------- Investments, at cost 10,834 8,982 --------- --------- Property, Plant and Equipment, net 120,216 116,378 --------- --------- Other Assets: Goodwill 64,235 65,115 Other 11,182 15,285 --------- --------- 75,417 80,400 --------- --------- Total Assets $ 596,102 $ 580,974 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 23,325 $ 30,245 Accrued liabilities 41,630 48,032 Current portion of long term notes payable 224 244 --------- --------- Total current liabilities 65,179 78,521 Long-term notes payable 65,590 68,398 Deferred income tax liabilities 12,552 12,386 --------- --------- Total liabilities 143,321 159,305 --------- --------- Shareholders' Equity: Preferred stock; $0.001 par value; 5,000,000 shares authorized; none outstanding - - Class A common stock; $0.001 par value; 100,000,000 shares authorized; 35,821,435 and 35,290,231 shares issued, 34,765,435 and 34,217,231 shares outstanding, respectively 36 35 Class B common stock; $0.001 par value; 50,000,000 shares authorized; 33,478,778 and 33,738,778 shares issued and outstanding, respectively 34 34 Additional paid-in capital 232,107 229,297 Retained earnings 241,349 213,591 Treasury stock, at cost, 1,056,000 and 1,073,000 shares, respectively (20,745) (21,079) Deferred stock compensation _ (209) --------- --------- Total shareholders' equity 452,781 421,669 --------- --------- Total Liabilities and Shareholders' Equity $ 596,102 $ 580,974 ========== =========
The accompanying notes are an integral part of these consolidated balance sheets. Page 3 MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended ---------------------------------- ---------------------------------- (In thousands, except per share and share February 24, February 26, February 24, February 26, data) 2001 2000 2001 2000 -------------- ------------- ----------- --------------- Net sales $ 211,536 $ 198,233 $ 422,643 $ 380,994 Cost of goods sold 127,315 122,060 255,913 233,601 -------------- ------------- ----------- --------------- Gross profit 84,221 76,173 166,730 147,393 Operating expenses 59,241 51,727 118,020 104,508 -------------- ------------- ----------- --------------- Income from operations 24,980 24,446 48,710 42,885 -------------- ------------- ----------- --------------- Other Income (Expense): Interest income 100 4 108 16 Interest expense (1,215) (1,398) (2,457) (2,487) Equity in loss of unconsolidated affiliate -- (465) -- (465) Other income, net 51 62 63 127 -------------- ------------- ----------- --------------- Total other income (expense) (1,064) (1,797) (2,286) (2,809) -------------- ------------- ----------- --------------- Income before provision for income taxes 23,916 22,649 46,424 40,076 Provision for income taxes 9,566 9,036 18,570 15,972 -------------- ------------- ----------- --------------- Net income $ 14,350 $ 13,613 $ 27,854 $ 24,104 ============== ======== ======== ======== Per Share Information (Note 2): Net income per common share: Basic $ 0.21 $ 0.20 $ 0.41 $ 0.36 ============== ======== ======== ======== Diluted $ 0.21 $ 0.20 $ 0.40 $ 0.36 ============== ======== ======== ======== Common shares used in computing per share amounts (Note 2): Basic 68,102 67,110 68,030 67,098 ============== ======== ======== ======== Diluted 69,609 68,063 69,233 67,736 ============== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. Page 4 MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statement of Shareholders' Equity (Unaudited)
Class A Class B (In thousands) --------------------- ----------------- Additional Common Stock Common Stock Paid-In Retained Shares Amount Shares Amount Capital Earnings ------ ------ ------ ------ ------- -------- Twenty-six weeks ended February 24, 2001: Balance, August 26, 2000 35,290 $ 35 33,739 $ 34 $229,297 $213,591 Exchange of Class B common stock for Class A common stock 260 -- (260) -- -- -- Common stock issued under associate stock -- -- -- -- -- (96) purchase plan Amortization of deferred stock compensation -- -- -- -- -- -- Exercise of common stock options, including 271 1 -- -- 2,810 -- income tax benefits Net income -- -- -- -- -- 27,854 --------- ----- ------ -------- --------- ---------- Balance, February 24, 2001 35,821 $ 36 33,479 $ 34 $232,107 $241,349 ========= ===== ====== ======== ========= ========== (In thousands) Treasury Stock Deferred ------------------------- Stock Shares Amount at Cost Compensation Total ------ -------------- ------------ ----- Twenty-six weeks ended February 24, 2001: Balance, August 26, 2000 1,073 $ (21,079) $ (209) $421,669 Exchange of Class B common stock for Class A common stock -- Common stock issued under associate stock (17) 334 -- 238 purchase plan Amortization of deferred stock compensation -- -- 209 209 Exercise of common stock options, including -- -- -- 2,811 income tax benefits Net income -- -- -- 27,854 ------- ------------ -------- -------- Balance, February 24, 2001 1,056 $ (20,745) $ -- $452,781 ======= ============ ======== ========
The accompanying notes are an integral part of these consolidated statements. Page 5 MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Twenty-Six Weeks Ended ------------------------------------------- February 24, February 26, 2001 2000 ----------------- ------------------ Cash Flows from Operating Activities: Net income $ 27,854 $ 24,104 ----------------- ------------------ Adjustments to reconcile net income to net Cash provided by (used in) operating activities: Equity in loss of unconsolidated affiliate -- 465 Depreciation and amortization 8,110 6,443 Amortization of deferred stock compensation 209 210 Provision for doubtful accounts 1,028 1,264 Deferred income taxes 1,728 770 Changes in operating assets and liabilities: Accounts receivable (9,532) (16,096) Inventories 3,022 (32,424) Prepaid expenses and other current assets (219) (309) Other assets 4,103 3,675 Accounts payable and accrued liabilities (12,725) (6,986) ----------------- ------------------ (4,276) (42,988) ----------------- ------------------ Net cash provided by (used in) operating activities 23,578 (18,884) ----------------- ------------------ Cash Flows from Investing Activities: Expenditures for property, plant and equipment (11,068) (9,296) Cash paid for investment in affiliates (1,852) (7,672) ----------------- ------------------ Net cash used in investing activities (12,920) (16,968) ----------------- ------------------ Cash Flows from Financing Activities: Net proceeds from associate stock purchase plan 238 -- Net proceeds from exercise of common stock options 2,214 873 Net proceeds from (repayments of ) notes payable (2,828) 35,861 ----------------- ------------------ Net cash (used in) provided by financing activities (376) 36,734 ----------------- ------------------ Net increase in cash and cash equivalents 10,282 882 Cash and cash equivalents - beginning of period 3,209 2,725 ----------------- ------------------ Cash and cash equivalents - end of period $ 13,491 $ 3,607 ================= ================== Supplemental Disclosure: Cash paid for interest 2,065 2,500 Cash paid for income taxes 10,073 11,100
The accompanying notes are an integral part of these consolidated statements. Page 6 Notes to Consolidated Financial Statements (In thousands, except per share data) (Unaudited) 1. MSC Industrial Direct Co., Inc. ("MSC") was incorporated in the State of New York on October 24, 1995. MSC and its subsidiaries, including its principal operating subsidiary, Sid Tool Co., Inc., are hereinafter referred to collectively as the "Company." Reference is made to the Notes to Consolidated Financial Statements contained within the Company's audited financial statements included in MSC's annual report on Form 10-K for the year ended August 26, 2000. In the opinion of management, the interim unaudited financial statements included herein reflect all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of such data in accordance with generally accepted accounting principles. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. The Company's fiscal year ends on a Saturday close to August 31 of each year. 2. The Company follows the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS No. 128 requires the Company to present basic and diluted earnings per share ("EPS") on the face of the income statement. Basic earnings per common share were computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share were computed based on the weighted average number of common shares issued and outstanding plus additional shares assumed to be outstanding to reflect the diluted effect of common stock equivalents using the treasury stock method. Page 7 A reconciliation between the numerator and denominator of the basic and diluted EPS calculation is as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------------------- --------------------------------- February 24, February 26, February 24, February 26, 2001 2000 2001 2000 -------------- -------------- -------------- -------------- Net income for EPS Computation $14,350 $13,613 $27,854 $24,104 ========== ========= ========== =========== Basic EPS: Weighted average Common shares 68,102 67,110 68,030 67,098 ========== ========= ========== =========== Basic EPS $0.21 $0.20 $0.41 $0.36 ========== ========= ========== =========== Diluted EPS: Weighted average Common shares 68,102 67,110 68,030 67,098 Shares issuable from Assumed conversion of Common stock equivalents 1,507 953 1,203 638 ----------- ------------ ---------- ---------- Weighted average common and common equivalent shares 69,609 68,063 69,233 67,736 ========== ========= ========== =========== Diluted EPS $0.21 $0.20 $0.40 $0.36 ========== ========= ========== ===========
3. Certain prior year balances have been reclassified to conform with current year presentation. 4. In September 2000, the EITF reached a consensus with respect to EITF Issue No. 00-10, "Accounting for Shipping and Handling Revenues and Costs." The purpose of this issue discussion was to clarify the classification of shipping and handling revenues and costs. The consensus reached was that all shipping and handling billed to customers is revenue. Further, a consensus was reached that the classification of shipping and handling costs is an accounting policy decision that should be disclosed pursuant to Accounting Principles Board Opinion No. 22, "Disclosures of Accounting Policies." The Company may adopt a policy of including shipping and handling costs in cost of sales. If shipping costs are significant and are not included in cost of sales, a company should disclose both the amount(s) of such costs and the line item(s) on the income statement that included them. Page 8 This standard will require a restatement of prior periods for changes in classification. The Company currently nets its shipping and handling revenue with the related costs and includes the residual amount as selling expense. This consensus is effective for the Company beginning with the fourth quarter of fiscal 2001. The Company is in the process of quantifying the impact of its adoption, which will not change reported income from operations or net income. Page 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is intended to update the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended August 26, 2000 and presumes that readers have access to, and will have read, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in such Form 10-K. This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Such forward-looking statements involve known and unknown risks and uncertainties and include, but are not limited to, statements regarding future events and our plans, goals and objectives. Such statements are generally accompanied by words such as "believe," "anticipate," "think," "intend," "estimate," "expect," or similar terms. Our actual results may differ materially from such statements. Factors that could cause or contribute to such differences include, without limitation, changing market conditions, competitive and regulatory matters, general economic conditions in the markets in which the Company operates and availability of acquisition opportunities. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, the Company cannot make any assurances that the results contemplated in such forward-looking statements will be realized. The inclusion of such forward-looking information should not be regarded as a representation by the Company or any other person that the future events, plans or expectations contemplated by the Company will be achieved. Furthermore, past performance is not necessarily an indicator of future performance. OVERVIEW MSC Industrial Direct Co., Inc. ("MSC") was formed in October 1995 and has conducted business since 1941. MSC and its subsidiaries, including Sid Tool Co., Inc. (the "Operating Subsidiary"), are hereinafter referred to collectively as the "Company." The Company is one of the largest direct marketers of a broad range of industrial products to small and mid-sized industrial customers throughout the United States. We distribute a full line of industrial products, such as cutting tools, abrasives, measuring instruments, material handling products, machine tool accessories, safety equipment, fasteners, welding supplies and electrical supplies, intended to satisfy its customers' maintenance, repair and operations ("MRO") supplies requirements. The Company's 4,480 page master catalog offers over 450,000 stock keeping units ("SKUs") and is supplemented by weekly, monthly and quarterly specialty and promotional catalogs and brochures. The products are distributed through the Company's four distribution centers and approximately 90 branch offices. Most of the products are carried in stock, and orders for these products are typically fulfilled on the day the order is received. Page 10 RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED FEBRUARY 24, 2001 AND FEBRUARY 26, 2000 NET SALES increased by $13.3 million, or 6.7%, to $211.5 million in the second quarter of fiscal 2001 from $198.2 million in the second quarter of fiscal 2000. This increase was primarily attributable to an increase in sales to the Company's existing customers and an increase in the number of active customers. The increase in sales to existing customers was principally derived from an increase in the number of SKUs offered, as well as from more focused marketing efforts. GROSS PROFIT increased by $8.0 million, or 10.6%, to $84.2 million in the second quarter of fiscal 2001 from $76.2 million in the second quarter of fiscal 2000, primarily attributable to increased sales. As a percentage of sales, gross profit increased from 38.4% to 39.8%. The increase in gross profit as a percentage of net sales resulted from a favorable change in product mix and the success of the Company's efforts to increase margins with new and existing customers. OPERATING EXPENSES increased by $7.5 million, or 14.5%, to $59.2 million in the second quarter of fiscal 2001 from $51.7 million in the second quarter of fiscal 2000. As a percentage of sales, operating expenses increased from 26.1% to 28.0%. The increase was primarily attributable to increased advertising costs, higher depreciation costs from expenditures for property, plant and equipment and significant increases in the Company's sales force to invest in anticipated future growth. INCOME FROM OPERATIONS increased by $.6 million, or 2.2%, to $25.0 million in the second quarter of fiscal 2001 from $24.4 million in the second quarter of fiscal 2000. The increase was primarily attributable to increased sales and gross profit offset in part by an increase in operating expenses. INTEREST EXPENSE decreased by $.2 million to $1.2 million in the second quarter of fiscal 2001 from $1.4 million in the second quarter of fiscal 2000. The decrease was primarily attributable to lower long-term notes payable borrowings. PROVISION FOR INCOME TAXES AND NET INCOME: The effective tax rate was 40.0% for the second quarter of fiscal 2001 as compared to 39.9% in the prior year. Net income increased by $.7 million, or 5.4%, to $14.4 million in the second quarter of fiscal 2001 from $13.6 million in the second quarter of fiscal 2000. This increase was primarily the result of previously mentioned increases in sales and gross profit offset in part by an increase in operating expenses necessary in order to support the increase in volume and to invest in anticipated future growth. RESULTS OF OPERATIONS - TWENTY-SIX WEEKS ENDED FEBRUARY 24, 2001 AND FEBRUARY 26, 2000 NET SALES increased by $41.6 million, or 10.9%, to $422.6 million during the first half of fiscal 2001 from $381.0 million in the first half of fiscal 2000. This increase was primarily attributable to an increase in sales to the Company's existing customers and an increase in the number of active customers. The increase in sales to existing customers was principally derived from an increase in the number of SKUs offered, as well as from more focused marketing efforts. Page 11 GROSS PROFIT increased by $19.3 million, or 13.1%, to $166.7 million during the first half of fiscal 2001 from $147.4 million in the first half of fiscal 2000, primarily attributable to increased sales. As a percentage of sales, gross profit increased from 38.7% to 39.4%. The increase in gross profit as a percentage of net sales resulted from a favorable change of product mix and the success of the Company's efforts to increase margins with new and existing customers. OPERATING EXPENSES increased by $13.5 million, or 12.9%, to $118.0 million during the first half of fiscal 2001 from $104.5 million in the first half of fiscal 2000. As a percentage of sales, operating expenses increased from 27.4% to 27.9%. The increase was primarily attributable to increased sales volume which required additional staffing and support, increased advertising costs, higher depreciation costs from expenditures for property, plant and equipment and significant increases in the Company's sales force to invest in anticipated future growth. INCOME FROM OPERATIONS increased by $5.8 million, or 13.6%, to $48.7 million during the first half of fiscal 2001 from $42.9 million in the first half of fiscal 2000. The increase was primarily attributable to increased sales and gross profit offset in part by an increase in operating expenses. INTEREST EXPENSE was unchanged at $2.5 million for the first half of fiscal 2001 and fiscal 2000. PROVISION FOR INCOME TAXES AND NET INCOME: The effective tax rate was approximately 40% for the first half of fiscal 2001 as compared to 39.9% in the first half of fiscal 2000. Net income increased by $3.8 million, or 15.6%, to $27.9 million in the first half of fiscal 2001 from $24.1 million in the first half of fiscal 2000. This increase was primarily the result of previously mentioned increased sales and gross profit offset in part by an increase in operating expenses necessary in order to support the increase in volume and to invest in anticipated future growth. LIQUIDITY AND CAPITAL RESOURCES Our primary capital needs have been to fund the working capital requirements necessitated by our sales growth, adding new products, and facilities expansions. Our primary sources of financing have been cash from operations, supplemented by bank borrowings under our credit facility. We anticipate cash flows from operations and available lines of credit will be adequate to support our operations for the immediate future and for at least the next 24 months. Under the terms of the credit facility, the maximum permitted borrowings are $160.0 million ($110.0 million under an unsecured revolving credit agreement and $50.0 million as a term loan). Interest on amounts borrowed may be paid at a rate per annum equal to the bank's base rate (8.5% at February 24, 2001) or, alternatively, at the bankers' acceptance rate or LIBOR rate plus margins, which vary from 0.65% to 1.25% per annum based on the ratio of total liabilities to effective net worth, or bid note rate. This credit facility contains certain covenants limiting mergers, use of proceeds, indebtedness, liens, investments, sales of assets, acquisitions, and payment of dividends. This credit facility also contains certain standard financial covenants. As of February 24, 2001, the Company was in compliance with all financial covenants. As of February 24, 2001, the Company had approximately $64.0 million in outstanding borrowings under the credit facility. Available borrowings at February 24, 2001 are $96.0 million, all of which were available under the revolving credit agreement. Page 12 Net cash provided by operating activities for the 26 week period ended February 24, 2001 was $23.6 million and net cash used in operating activities for the 26 week period ended February 26, 2000 was $18.9 million. The change of approximately $42.5 million is primarily attributable to lower inventory levels, reflecting improved inventory control policies, and higher net income. Net cash used in investing activities for the 26 week periods ended February 24, 2001 and February 26, 2000 was $12.9 million and $17.0 million, respectively. The net usage of cash in the first half of fiscal 2001 was primarily attributable to expenditures for property, plant and equipment. The net usage of cash in the first half of fiscal 2000 was attributable to expenditures for property, plant and equipment and investments in Internet technology companies. Net cash used in financing activities for the 26 week period ended February 24, 2001 was $0.4 million and net cash provided by financing activities for the 26 week period ended February 26, 2000 was $36.7 million. The net cash used in financing activities for the first half of fiscal 2001 was primarily attributable to repayments of notes payable, offset by the proceeds from the exercise of common stock options. The net cash provided by financing activities in the first half of fiscal 2000 was primarily attributable to proceeds received from notes payable. The Company believes that cash flow from operations and the revolving credit agreement will be sufficient to fund future growth initiatives and meet planned capital expenditure needs in the near future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's principal financial instrument is long-term notes payable under a credit agreement. The Company is affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable by the Company under this credit agreement. Changes in these factors cause fluctuations in the Company's net income and cash flows. The agreement allows the Company maximum borrowings of $160.0 million, of which $110.0 million is a revolving credit agreement and the remaining $50.0 million is a term loan. At February 24, 2001, approximately $64.0 million was outstanding under the credit agreement. Available borrowings at February 24, 2001 are $96.0 million, all of which were available under the revolving credit agreement. The agreement bears interest at the bank's base rate (8.5% at February 24, 2001), or, alternatively, at the bankers acceptance rate or LIBOR rate plus margins, which vary from 0.65% to 1.25% per annum based on the ratio of total liabilities to effective net worth, or bid note rate. If the principal amounts under the Company's credit agreement remained at this quarter-end level for an entire year and the prime rate increased or decreased, respectively, by 1%, then the Company would pay or save, respectively, an additional $0.6 million in interest that year. The Company does not make material use of derivative financial instruments to hedge against changes in interest rates or for any other purpose. Page 13 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On January 5, 2001 the Company held its 2001 Annual Meeting of Shareholders (the "Meeting"). In connection with the Meeting, the Company solicited proxies from its shareholders pursuant to Regulation 14 of the Securities Exchange Act of 1934. At the Meeting, the Company's shareholders elected as directors Sidney Jacobson, Mitchell Jacobson, James Schroeder, Shelley Boxer, Denis Kelly, Raymond Langton, Roger Fradin, David Sandler, Charles Boehlke, and Philip Peller. In addition, the shareholders ratified the selection by the Board of Directors of Arthur Andersen LLP as independent certified public accountants of the Company for fiscal year 2001. The following tables summarize the votes cast at the meeting on the matters brought before the shareholders: 1. Election of Directors Nominee Votes Votes Votes Broker Name For Against Withheld Non-Votes Sidney Jacobson 242,618,156 628,589 0 0 Mitchell Jacobson 242,685,371 561,374 0 0 James Schroeder 242,685,371 561,374 0 0 Shelley Boxer 242,685,271 561,474 0 0 Denis Kelly 242,998,612 248,133 0 0 Raymond Langton 242,998,612 248,133 0 0 Roger Fradin 242,998,612 248,133 0 0 David Sandler 242,685,371 561,374 0 0 Charles Boehlke 242,530,821 715,924 0 0 Philip Peller 242,998,612 248,133 0 0 2. Ratification of Arthur Andersen LLP as independent certified public accountants of the Company for fiscal year 2001. Votes Votes Votes Broker For Against Withheld Non-Votes 243,234,775 7,660 4,310 0 Page 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits: None. Reports on Form 8-K: No reports on Form 8-K have been filed during the quarter for which this report is filed. Page 15 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: April 4, 2001 By: /s/ Mitchell Jacobson ---------------------- --------------------------------------- President and Chief Executive Officer Dated: April 4, 2001 By: /s/ Charles Boehlke ---------------------- --------------------------------------- Senior Vice President and Chief Financial Officer Page 16 -----END PRIVACY-ENHANCED MESSAGE-----