10-Q

UNITED 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 March 1, 2014
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For transition period from              to

Commission File No.: 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.)
75 Maxess Road, Melville, New York (Address of principal executive offices)	11747 (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 ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a “smaller reporting company.” See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒ Accelerated filer ☐ Non‑accelerated filer ☐
(Do not check if a smaller reporting company) Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

As of April 4,  2014,  48,606,411shares of Class A common stock and 13,715,747 shares of Class B common stock of the registrant were outstanding.

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (the “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 Items 2 and 3 of Part I and Item 1 of Part II of this Report, as well as within this Report generally. The words “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 are forward‑looking statements. We undertake no obligation to publicly disclose any revisions to these forward‑looking statements to reflect events or circumstances occurring subsequent to filing this Report with the Securities and Exchange Commission (the “SEC”). These forward‑looking statements are subject to risks and uncertainties, including, without limitation, those discussed in this section and Items 2 and 3 of Part I, as well as in Part II, Item 1A, “Risk Factors” of this Report, and in Part I, Item 1A, “Risk Factors” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2013. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. 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 Company’s ability to timely and efficiently integrate its recently acquired business of Barnes Distribution North America (“BDNA”) and realize the anticipated synergies from the transaction;

•risk of delays in opening or expanding our customer fulfillment centers or customer service centers;

•current economic, political, and social conditions;

•general economic conditions in the markets in which the Company operates;

•changing customer and product mixes;

•competition;

•industry consolidation and other changes in the industrial distribution sector;

•volatility in commodity and energy prices;

•the outcome of potential government or regulatory proceedings or future litigation;

•credit risk of our customers;

•risk of cancellation or rescheduling of customer orders;

•work stoppages or other business interruptions (including those due to extreme weather conditions) at transportation centers or shipping ports;

•risk of loss of key suppliers, key brands or supply chain disruptions;

•dependence on our information systems;  

•retention of key personnel;

•failure to comply with applicable environmental, health and safety laws and regulations;

•goodwill and intangible assets recorded as a result of our acquisitions could be impaired;

•disclosing our use of “conflict minerals” in certain of the products we distribute could raise reputational and other risks; and

•the Company’s ability to enhance its information technology systems without disruption to our business operations.

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MSC INDUSTRIAL DIRECT CO., INC.

INDEX

		Page
PART I.  FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of March 1, 2014 and August 31, 2013	4
	Condensed Consolidated Statements of Income for the Thirteen and Twenty-Six Weeks Ended March 1, 2014 and March 2, 2013	5
	Condensed Consolidated Statements of Comprehensive Income for the Thirteen and Twenty-Six Weeks Ended March 1, 2014 and March 2, 2013	6
	Condensed Consolidated Statement of Shareholders’ Equity for the Twenty-Six Weeks Ended March 1, 2014	7
	Condensed Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended March 1, 2014 and March 2, 2013	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	26
Item 6.	Exhibits	26
SIGNATURES		27

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PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

	March 1,		August 31,
	2014		2013
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	45,323	$	55,876
Accounts receivable, net of allowance for doubtful accounts of $9,071 and $7,523, respectively		365,074		345,366
Inventories		393,558		419,012
Prepaid expenses and other current assets		38,503		35,464
Deferred income taxes		37,771		37,771
Total current assets		880,229		893,489
Property, plant and equipment, net		280,027		251,536
Goodwill		628,606		630,318
Identifiable intangibles, net		146,305		155,324
Other assets		34,666		12,336
Total assets	$	1,969,833	$	1,943,003
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Revolving credit note	$	40,000	$	—
Current maturities of long-term debt		20,321		14,184
Accounts payable		108,432		113,636
Accrued liabilities		84,057		85,759
Total current liabilities		252,810		213,579
Long-term debt, net of current maturities		251,669		241,566
Deferred income taxes and tax uncertainties		97,475		97,475
Total liabilities		601,954		552,620
Commitments and Contingencies
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; 55,424,216 and 54,634,259 shares issued, respectively		55		55
Class B common stock (ten votes per share); $0.001 par value; 50,000,000 shares authorized; 13,715,747 and 14,140,747 shares issued and outstanding, respectively		14		14
Additional paid-in capital		555,497		528,770
Retained earnings		1,199,866		1,132,868
Accumulated other comprehensive loss		(6,261)		(4,427)
Class A treasury stock, at cost, 6,816,366 and 5,340,587 shares, respectively		(381,292)		(266,897)
Total shareholders’ equity		1,367,879		1,390,383
Total liabilities and shareholders’ equity	$	1,969,833	$	1,943,003
See accompanying notes to condensed consolidated financial statements.

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MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	March 1,		March 2,		March 1,		March 2,
	2014		2013		2014		2013
Net sales	$	661,513	$	569,462	$	1,340,023	$	1,146,953
Cost of goods sold		354,692		313,093		718,347		625,495
Gross profit		306,821		256,369		621,676		521,458
Operating expenses		225,099		165,793		443,204		328,530
Income from operations		81,722		90,576		178,472		192,928
Other (expense) income:
Interest expense		(967)		(73)		(1,814)		(125)
Interest income		4		39		9		82
Other (expense) income, net		(266)		87		(478)		71
Total other (expense) income		(1,229)		53		(2,283)		28
Income before provision for income taxes		80,493		90,629		176,189		192,956
Provision for income taxes		30,981		34,550		67,631		73,690
Net income	$	49,512	$	56,079	$	108,558	$	119,266
Per share information:
Net income per common share:
Basic	$	0.80	$	0.89	$	1.73	$	1.89
Diluted	$	0.79	$	0.88	$	1.72	$	1.88
Weighted average shares used in computing net income per common share:
Basic		61,743		62,699		62,258		62,538
Diluted		62,050		63,008		62,564		62,854
Cash dividend declared per common share	$	0.33	$	0.30	$	0.66	$	0.60
See accompanying notes to condensed consolidated financial statements.

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MSC INDUSTRIAL DIRECT CO., INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	March 1,		March 2,		March 1,		March 2,
	2014		2013		2014		2013
Net income, as reported	$	49,512	$	56,079	$	108,558	$	119,266
Foreign currency translation adjustments		(2,457)		(1,046)		(1,834)		(777)
Comprehensive income	$	47,055	$	55,033	$	106,724	$	118,489
See accompanying notes to condensed consolidated financial statements.

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MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statement of Shareholders’ Equity

Twenty-Six Weeks Ended March 1, 2014

(In thousands)

(Unaudited)

	Class A Common Stock			Class B Common Stock			Additional				Accumulated Other		Class A Treasury Stock
	Shares	Amount		Shares	Amount		Paid-In Capital		Retained Earnings		Comprehensive Loss		Shares	Amount at Cost		Total
Balance at August 31, 2013	54,634	$	55	14,141	$	14	$	528,770	$	1,132,868	$	(4,427)	5,341	$	(266,897)	$	1,390,383
Exchange of Class B common stock for Class A common stock	425		—	(425)		—		—		—		—	—		—		—
Exercise of common stock options, including income tax benefits of $4,197	255		—	—		—		16,381		—		—	—		—		16,381
Common stock issued under associate stock purchase plan	—		—	—		—		949		—		—	(28)		1,040		1,989
Issuance of restricted common stock, net of cancellations	110		—	—		—		—		—		—	—		—		—
Stock-based compensation	—		—	—		—		9,267		—		—	—		—		9,267
Purchase of treasury stock	—		—	—		—		—		—		—	1,503		(115,435)		(115,435)
Cash dividends paid on Class A common stock	—		—	—		—		—		(32,172)		—	—		—		(32,172)
Cash dividends paid on Class B common stock	—		—	—		—		—		(9,258)		—	—		—		(9,258)
Issuance of dividend equivalent units	—		—	—		—		130		(130)		—	—		—		—
Foreign currency translation adjustment	—		—	—		—		—		—		(1,834)	—		—		(1,834)
Net income	—		—	—		—		—		108,558		—	—		—		108,558
Balance at March 1, 2014	55,424	$	55	13,716	$	14	$	555,497	$	1,199,866	$	(6,261)	6,816	$	(381,292)	$	1,367,879
See accompanying notes to condensed consolidated financial statements.

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MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Twenty-Six Weeks Ended
	March 1,		March 2,
	2014		2013
Cash Flows from Operating Activities:
Net income	$	108,558	$	119,266
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		32,059		21,069
Stock-based compensation		9,267		8,104
Loss on disposal of property, plant, and equipment		1,087		645
Provision for doubtful accounts		2,538		1,591
Excess tax benefits from stock-based compensation		(4,143)		(4,735)
Changes in operating assets and liabilities, net of amounts associated with business acquired:
Accounts receivable		(21,669)		(9,573)
Inventories		25,875		28,246
Prepaid expenses and other current assets		(4,414)		(9,494)
Other assets		865		2,390
Accounts payable and accrued liabilities		1,460		(22,482)
Total adjustments		42,925		15,761
Net cash provided by operating activities		151,483		135,027
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment		(33,925)		(40,306)
Investment in available for sale securities		(24,024)		—
Cash used in business acquisitions, net of cash received		1,434		—
Net cash used in investing activities		(56,515)		(40,306)
Cash Flows from Financing Activities:
Purchases of treasury stock		(115,435)		(3,629)
Payments of cash dividends		(41,430)		(37,855)
Payments on capital lease and financing obligations		(1,077)		(610)
Excess tax benefits from stock-based compensation		4,143		4,735
Proceeds from sale of Class A common stock in connection with associate stock purchase plan		1,989		2,094
Proceeds from exercise of Class A common stock options		12,184		15,901
Borrowings under financing obligations		254		257
Borrowings under Credit Facility		50,000		—
Payment of notes payable and revolving credit note under the Credit Facility		(16,250)		—
Net cash used in financing activities		(105,622)		(19,107)
Effect of foreign exchange rate changes on cash and cash equivalents		101		(118)
Net (decrease) increase in cash and cash equivalents		(10,553)		75,496
Cash and cash equivalents—beginning of period		55,876		168,453
Cash and cash equivalents—end of period	$	45,323	$	243,949
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	67,062	$	77,552
Cash paid for interest	$	1,613	$	31
See accompanying notes to condensed consolidated financial statements.

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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 accompanying condensed consolidated financial statements include MSC Industrial Direct Co., Inc. (“MSC”) and all of its subsidiaries (hereinafter referred to collectively as the “Company”).All intercompany balances and transactions have been eliminated in consolidation.

The Company acquired substantially all of the assets and assumed certain liabilities of the North American distribution business (“BDNA”) of Barnes Group Inc. (“Barnes”) on April 22, 2013. The results of BDNA are included since the date of acquisition.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. Operating results for the thirteen week and twenty-six week periods ended March 1, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending August 30, 2014. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2013.

The Company’s fiscal year ends on the Saturday closest to August 31 of each year. Unless the context requires otherwise, references to years contained herein pertain to the Company’s fiscal year. The Company’s 2014 fiscal year will be a 52-week accounting period that will end on August 30, 2014 and the 2013 fiscal year was a 52-week accounting period that ended on August 31, 2013.

Note 2. Net Income per Share

The following table sets forth the computation of basic and diluted net income per common share under the two-class method in accordance with Accounting Standards Codification™ ("ASC") Topic 260, “Earnings Per Share”:  

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	March 1,		March 2,		March 1,		March 2,
	2014		2013		2014		2013
Net income as reported	$	49,512	$	56,079	$	108,558	$	119,266
Less: Distributed net income available to participating securities		(116)		(123)		(248)		(240)
Less: Undistributed net income available to participating securities		(221)		(300)		(514)		(644)
Numerator for basic net income per share:
Undistributed and distributed net income available to common shareholders	$	49,175	$	55,656	$	107,796	$	118,382
Add: Undistributed net income allocated to participating securities		221		300		514		644
Less: Undistributed net income reallocated to participating securities		(220)		(299)		(512)		(641)
Numerator for diluted  net income per share:
Undistributed and distributed net income available to common shareholders	$	49,176	$	55,657	$	107,798	$	118,385

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Denominator:
Weighted average shares outstanding for basic net income per share		61,743		62,699		62,258		62,538
Effect of dilutive securities		307		309		306		316
Weighted average shares outstanding for diluted net income per share		62,050		63,008		62,564		62,854
Net income per share Two-class method:
Basic	$	0.80	$	0.89	$	1.73	$	1.89
Diluted	$	0.79	$	0.88	$	1.72	$	1.88

There were no  antidilutive stock options included in the computation of diluted earnings per share for the thirteen week period ended March 1, 2014. Antidilutive stock options of 392 were not included in the computation of diluted earnings per share for the twenty-six week period ended March 1, 2014. There were no  antidilutive stock options included in the computation of diluted earnings per share for the thirteen and twenty-six week periods ended March 2, 2013.

Note 3. Stock-Based Compensation

The Company accounts for all share-based payments in accordance with ASC Topic 718, "Compensation—Stock Compensation" ("ASC 718").  The stock‑based compensation expense related to the stock option plans and the Associate Stock Purchase Plan included in operating expenses was $1,741and $1,329 for the thirteen week periods ended March 1, 2014 and March 2, 2013, respectively, and $3,196 and $2,768for the twenty-six week periods ended March 1, 2014 and March 2, 2013, respectively.  Tax benefits related to these expenses for the thirteen week periods endedMarch 1, 2014 and March 2, 2013were $637 and $480, respectively, and for the twenty-six week periods ended March 1, 2014 and March 2, 2013were $1,163 and $1,004, respectively.

The fair value of each option grant is estimated on the date of grant using the Black‑Scholes option pricing model with the following assumptions:

	Twenty-Six Weeks Ended
	March 1,		March 2,
	2014		2013
Expected life (in years)	3.9		3.8
Risk-free interest rate	0.93	%	0.55	%
Expected volatility	26.59	%	32.86	%
Expected dividend yield	1.70	%	1.70	%

A summary of the Company’s stock option activity for the twenty-sixweeks ended March 1, 2014is as follows:

	Options	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on August 31, 2013	1,224	$	58.30
Granted	399		81.76
Exercised	(255)		47.85
Canceled	(17)		72.46
Outstanding on March 1, 2014	1,351	$	67.02	5.29	$	15,204
Exercisable on March 1, 2014	486	$	55.77	3.99	$	10,242

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The weighted‑average grant-date fair values of the stock options granted for the twenty-six week periods ended March 1, 2014and March 2, 2013were $14.98 and $15.33, respectively.  The unrecognized share‑based compensation cost related to stock option expense at March 1, 2014 was $10,557and will be recognized over a weighted average period of 1.8 years. The total intrinsic value of options exercised, which represents the difference between the exercise price and market value of common stock measured at each individual exercise date, during the twenty-six week periods ended March 1, 2014and March 2, 2013 were $9,113 and $12,356, respectively.

A  summary of the non‑vested restricted share award activity under the Company’s 2005 Omnibus Incentive Plan (the “Plan”) for the twenty-six weeks ended March 1, 2014 is as follows:

	Shares	Weighted-Average  Grant-Date Fair Value
Non-vested restricted share awards at August 31, 2013	505	$	59.47
Granted	121		82.20
Vested	(147)		51.18
Canceled/Forfeited	(11)		67.54
Non-vested restricted share awards at March 1, 2014	468	$	68.33

Stock‑based compensation expense recognized for the restricted share awards was $2,753 and $1,992 for the thirteen week periods ended March 1, 2014 and March 2, 2013, respectively, and $4,990 and $4,277 for the twenty-six week periods ended March 1, 2014 and March 2, 2013, respectively.The unrecognized compensation cost related to restricted share awards granted under the Plan at March 1, 2014 was $20,027 and will be recognized over a weighted average period of 2.4 years. 

A summary of the Company’s non-vested restricted stock unit award activity including dividend equivalent units for the twenty-six weeks ended March 1, 2014is as follows:

	Shares		Weighted- Average Grant- Date Fair Value
Non-vested restricted stock unit awards at August 31, 2013	196	$	55.32
Granted	2		80.82
Vested	—		—
Canceled/Forfeited	—		—
Non-vested restricted stock unit awards at March 1, 2014	198	$	55.60

Stock‑based compensation expense recognized for the restricted stock units was $542 and $529 for the thirteen week periods ended March 1, 2014 and March 2, 2013, respectively, and$1,081 and$1,059 for the twenty-six week periods ended March 1, 2014 and March 2, 2013, respectively.  The unrecognized compensation cost related to the restricted stock units at March 1, 2014was $2,917 and is expected to be recognized over a period of 1.9years.

Note 4. 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 following 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 activemarkets.

Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

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Level 3—Unobservable inputs which are supported by little or no market activity.

As of March 1, 2014and August 31, 2013, the Company measured cash equivalents consisting of money market funds at fair value on a recurring basis for which market prices are readily available (Level 1) and that invest primarily in United States government and government agency securities and municipal bond securities, which aggregated $6,436 and $2,529, respectively.

In connection with the construction of the Company’s new customer fulfillment center in Columbus, Ohio, the Company entered into an arrangement with the Columbus-Franklin County Finance Authority (“Finance Authority”) which provides savings on state and local sales taxes imposed on construction materials to entities that finance the transactions through them. This arrangement consists of the Finance Authority issuing taxable bonds to finance the structure and site improvements of the Company’s customer fulfillment center. The taxable bonds were approximately $26,024 and $2,000 at March 1, 2014 and August 31, 2013, respectively. The taxable bonds are classified as available for sale securities in accordance with ASC Topic 320. The securities are recorded at fair value in the Consolidated Balance Sheet. The fair values of these securities are based on observable inputs in non-active markets, which are therefore classified as Level 2 in the hierarchy. The Company did not record any significant gains or losses on these securities during the twenty-six week period ended March 1, 2014. The outstanding principal amount of each bond bears interest at the rate of 2.4% per year. Interest is payable on a semiannual basis in arrears on each interest payment date.

In addition, based on borrowing rates currently available to the Company for borrowings with similar terms, the carrying values of the Company’s capital lease obligations also approximate fair value. The fair value of the Company’s long-term debt, including current maturities, is estimated based on quoted market prices for the same or similar issues or on current rates offered to the Company for debt of the same remaining maturities. The carrying amount of the Company’s debt at March 1, 2014, approximates its fair value.

The Company’s financial instruments, other than those presented in the disclosure above, include cash, receivables, accounts payable, and accrued liabilities. Management believes the carrying amount of the aforementioned financial instruments is a reasonable estimate of fair value as of March 1, 2014 and August 31, 2013 due to the short-term maturity of these items.

During the twenty-six weeks ended March 1, 2014and March 2, 2013, the Company had no measurements of non-financial assets or liabilities at fair value on a non-recurring basis subsequent to their initial recognition.

Note 5.  Restructuring and Other Charges

As a result of the BDNA acquisition, the Company has and will incur restructuring charges associated with associate severance costs, stay bonuses, and the impairment of long-lived assets due to the closure of facilities. The aggregate liabilities included in “Accrued liabilities” in the consolidated balance sheet relating to the restructuring activities as of March 1, 2014 and activity for the twenty-six week period ended March 1, 2014 consisted of the following:

	Workforce Reductions		Facility Closings		Total
Accrued restructuring balance, August 31, 2013	$	2,460	$	—	$	2,460
Charged to operating expenses		3,859		2,030		5,889
Cash payments		(1,473)		(1,113)		(2,586)
Accrued restructuring balance, March 1, 2014	$	4,846	$	917	$	5,763

Non-recurring integration costs and restructuring charges associated with the BDNA acquisition are estimated to be between approximately $5,000 and $7,000 throughout the remainder of fiscal year 2014.

Note 6. Debt and Capital Lease Obligations

Credit Facility

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On April 22, 2013, in connection with the acquisition of BDNA, the Company entered into a new $650,000 Credit Facility (the “Credit Facility”). The Credit Facility, which matures on April 22, 2018, provides for a five-year unsecured revolving loan facility in the aggregate amount of $400,000 and a five-year unsecured term loan facility in the aggregate amount of $250,000. The Credit Facility replaced the Company’s previous $200,000 Credit Facility, dated June 8, 2011.

The Credit Facility also permits the Company, at its request, and upon the satisfaction of certain conditions, to add one or more incremental term loan facilities and/or increase the revolving loan commitments in an aggregate amount not to exceed $200,000. Subject to certain limitations, each such incremental term loan facility or revolving commitment increase will be on terms as agreed to by the Company, the Administrative Agent and the lenders providing such financing.

Borrowings under the Credit Facility bear interest, at the Company’s option, either at (i) the LIBOR (London Interbank Offered Rate) rate plus the applicable margin for LIBOR loans ranging from 1.00% to 1.375%, based on the Company’s consolidated leverage ratio; or (ii) the greatest of (a) the Administrative Agent’s prime rate in effect on such day, (b) the federal funds effective rate in effect on such day, plus 0.50% and (c) the LIBOR rate that would be calculated as of such day in respect of a proposed LIBOR loan with a one-month interest period, plus 1.00%, plus, in the case of each of clauses (a) through (c), an applicable margin ranging from 0.00% to 0.375%, based on the Company’s consolidated leverage ratio. The Company is required to pay a quarterly undrawn fee ranging from 0.10% to 0.20% per annum on the unutilized portion of the Credit Facility based on the Company’s consolidated leverage ratio. The Company is also required to pay quarterly letter of credit usage fees ranging between 1.00% to 1.375% (based on the Company’s consolidated leverage ratio) on the amount of the daily average outstanding letters of credit, and a quarterly fronting fee of 0.125% per annum on the undrawn and unexpired amount of each letter of credit. The applicable borrowing rate for the Company for any borrowings outstanding under the Credit Facility at March 1, 2014 was 1.16%, which represents LIBOR plus 1.0%. Based on the interest period the Company selects, interest may be payable every one, two, three or six months. Interest is reset at the end of each interest period. The Company currently elects to have loans under the Credit Facility bear interest based on LIBOR with one-month interest periods.

The Credit Facility contains several restrictive covenants including the requirement that the Company maintain a maximum consolidated leverage ratio of total indebtedness to EBITDA (earnings before interest expense, taxes, depreciation and amortization) of no more than 3.00 to 1.00, and a minimum consolidated interest coverage ratio of EBITDA to total interest expense of at least 3.00 to 1.00, during the term of the Credit Facility. Borrowings under the Credit Facility are guaranteed by certain of the Company’s subsidiaries.

The Company financed $370,000 of the BDNA purchase price with the proceeds of the unsecured term loan facility and a portion of the unsecured revolving loan facility. The Company repaid $120,000 of the revolving loan facility during fiscal 2013. During the twenty-six week period ended March 1, 2014, the Company borrowed $50,000 under the revolving loan facility and repaid $10,000 of the revolving loan facility.

As of March 1, 2014, there were $243,750 and $40,000 of borrowings outstanding under the term loan facility and the revolving credit facility, respectively, of the Credit Facility, of which $58,750 represents current maturities. As of August 31, 2013, there were $250,000 of borrowings outstanding under the term loan facility of the Credit Facility, of which $12,500 represents current maturities, and no borrowings outstanding under the revolving credit facility. At March 1, 2014, the Company was in compliance with the operating and financial covenants of the Credit Facility.

Capital Lease and Financing Obligations

In connection with the construction of the Company’s new customer fulfillment center in Columbus, Ohio, the Company entered into an arrangement with the Finance Authority which provides savings on state and local sales taxes imposed on construction materials to entities that finance the transactions through them. This arrangement consists of the Finance Authority issuing taxable bonds to finance the structure and site improvements of the Company’s customer fulfillment center. The Finance Authority holds the title to the building and entered into a long-term lease with the Company. The lease has a 20-year term with a prepayment option without penalty between 7 and 20 years. At the end of the lease term, the building’s title is transferred to the Company for a nominal amount when the principal of and interest on the bonds have been fully paid. The lease has been classified as a capital lease in accordance with ASC Topic 840. At March 1, 2014 and August 31, 2013, the capital lease obligation was approximately $26,024 and $2,000, respectively. The non-cash financing activity related to the capital lease for the twenty-six week period ended March 1, 2014 was $24,024.

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From time to time, the Company enters into capital leases and financing arrangements to purchase certain equipment. The equipment acquired from these vendors is paid over a specified period of time based on the terms agreed upon. During the twenty-six week period ended March 1, 2014, the Company entered into a financing obligation for certain information technology equipment totaling $254. During the fiscal year ended August 31, 2013, the Company entered into various capital leases and financing obligations for certain information technology equipment totaling $1,854.  

The amount due under all capital leases and financing arrangements at March 1, 2014was approximately $28,240,of which $1,571 represents current maturities and at August 31, 2013 was approximately $5,750, of which $1,684 represents current maturities.  The net book value of the property and equipment acquired under these capital leases and financing agreements at March 1, 2014 and August 31, 2013 was approximately $29,190and $6,734, respectively.

Note 7. Shareholders’ Equity

The Company paid cash dividends of $41,430 for the twenty-six weeks ended March 1, 2014. For the twenty-six weeks ended March 2, 2013, the Company paid cash dividends of $37,855.  On April 4, 2014, the Board of Directors declared a quarterly cash dividend of $0.33 per share payable on April 22, 2014 to shareholders of record at the close of business on April 15, 2014. The dividend will result in a payout of approximately $20,566, based on the number of shares outstanding at April 4, 2014.

The Board of Directors established the MSC Stock Repurchase Plan (the “Repurchase Plan”) which allows the Company to repurchase shares at any time and in any increments it deems appropriate in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During the twenty-six week period ending March 1, 2014, the Company repurchased 1,503 shares of its Class A common stock for $115,435, which is reflected at cost as treasury stock in the accompanying condensed consolidated financial statements. Approximately 50 of these shares were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its share-based compensation program. As of March 1, 2014, the maximum number of shares that may yet be repurchased under the Repurchase Plan was 2,931 shares.

Note 8. Product Warranties

The Company generally offers a maximum one-year warranty, including parts and labor, for some of its machinery products. The specific terms and conditions of those warranties vary depending upon the product sold. The Company may be able to recoup some of these costs through product warranties it holds with its original equipment manufacturers, which typically range from thirty to ninety days. In general, many of the Company’s general merchandise products are covered by third party original equipment manufacturers’ warranties. The Company’s warranty expense for the twenty-six week periods ended March 1, 2014 and March 2, 2013 was minimal.

Note 9. Income Taxes

During the thirteen and twenty-six week periods endedMarch 1, 2014, there were no material changes in unrecognized tax benefits. 

Note 10. Legal Proceedings

There are various claims, lawsuits, and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

Note 11. Recently Issued Accounting Standards

Recognizing Assets and Liabilities Arising from Lease Contracts on the Balance Sheet

In May 2013, the FASB reissued an exposure draft on lease accounting that would require entities to recognize assets and liabilities arising from lease contracts on the balance sheet. The proposed exposure draft states that lessees and lessors should apply a “right-of-use model” in accounting for all leases. Under the proposed model, lessees would recognize an asset for the right to use the leased asset, and a liability for the obligation to make rental payments over the lease term. When measuring the asset and liability, variable lease payments are excluded whereas renewal options that provide a significant

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economic incentive upon renewal would be included. The lease expense from real estate based leases would continue to be recorded under a straight line approach, but other leases not related to real estate would be expensed using an effective interest method that would accelerate lease expense. Comments were due by September 13, 2013. A final standard is currently expected to be issued in 2014 and would be effective no earlier than annual reporting periods beginning on January 1, 2017 (fiscal year 2018 for the Company). The Company is currently assessing the impact that the adoption of the guidance will have on its financial position, results of operations and cash flows. As of March 1, 2014, the Company leases all of its branch offices and certain of its customer fulfillment centers and office space.

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 31, 2013 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 Annual Report on Form 10-K.

Overview

MSC Industrial Direct Co., Inc. (together with its subsidiaries, “MSC,” the “Company,” “we,” “our,” or “us”) is one of the largest direct marketers and distributors of a broad range of metalworking and maintenance, repair, and operations (“MRO”) products to customers throughout North America. Our goal is to become the preferred supplier of MRO supplies for businesses throughout North America. We continue to implement our strategies to gain market share against other suppliers and generate new customers, increase sales to existing customers and diversify our customer base.

We offer approximately 760,000 stock-keeping units (“SKUs”), excluding BDNA, through our master catalogs; weekly, monthly and quarterly specialty and promotional catalogs; newspapers; brochures; and the Internet, including our websites, MSCDirect.com, MSCMetalworking.com and Use-Enco.com (the “MSC Websites”). We service our customers from 11 customer fulfillment centers and 103 branch offices. We employ one of the industry’s largest sales forces. Most 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. Excluding BDNA, we offer a nationwide cutoff time of 8:00 PM Eastern Time on qualifying orders for customers in the contiguous United States, which will be delivered to customers the next day at no additional cost over standard MSC ground delivery charges.

Net sales increased by 16.2% and 16.8% for the thirteen and twenty-six week periods ended March 1, 2014, as compared to the same periods in the prior fiscal year.  As discussed below, during the fiscal third quarter of 2013, we acquired substantially all of the assets and assumed certain liabilities of BDNA. BDNA contributed $69.8 million and $142.1 million of net sales for the thirteen and twenty-six week periods ended March 1, 2014, respectively. Our financial results for the thirteen and twenty-six week periods ended March 1, 2014 and March 2, 2013 reflect execution of our growth strategies, including acquisitions, to increase revenues. We have also invested in our business by increasing our sales force, increasing our investment in vending solutions, making technology investments to improve our electronic procurement tools, and making productivity and infrastructure investments. We believe these investments, combined with our strong balance sheet, extensive product assortment, high in-stock levels, same day shipping, and high levels of execution, have increased our competitive advantage over smaller distributors.

Key manufacturing measurements, such as the Institute for Supply Management (“ISM”) index, evidenced an expanding manufacturing sector environment throughout most of fiscal year 2013 and the trend has continued through our second fiscal quarter of 2014, with the most recent ISM index in March 2014 of 53.7%. Until the second quarter of fiscal 2014, we experienced a divergence between the ISM index and the core metalworking manufacturing sector that is more reflective of our business environment. Metalworking related indices contracted during fiscal year 2013. This rate of contraction slowed during our fourth quarter of fiscal 2013 and these indices have begun to experience moderate growth through our second quarter of fiscal 2014. We will continue to monitor the current economic conditions for its impact on our customers and markets and continue to assess both risks and opportunities that may affect our business. See the discussion below describing recent fluctuations in economic indicators and the possible impact on our future sales and margins.

Our gross profit margin was 46.4% for the thirteen and twenty-six week periods ended March 1, 2014, as compared to 45.0% and 45.5% for the same periods in the prior fiscal year. The increase in gross margin was primarily driven by higher

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gross margins from BDNA, partially offset by increases in product costs, changes in customer and product mix and lower gross margins from our vending programs.

Operating expenses increased 35.8% and 34.9% for the thirteen and twenty-six week periods ended March 1, 2014 as compared to the same periods in the prior fiscal year, as a result of the acquired BDNA operations as well as non-recurring integration costs and restructuring charges associated with the acquisition. BDNA’s operating expenses accounted for approximately $35.7 million and $71.1 million of total operating expenses for the thirteen and twenty-six week periods ended March 1, 2014.We incurred operating expenses of approximately $4.6 million and $8.4 million for the thirteen and twenty-six week periods ended March 1, 2014, respectively, related to non-recurring integration costs and restructuring charges. Excluding BDNA, operating expenses increased as a result of increased payroll and payroll related costs, costs associated with our investment programs, costs related to the establishment of our new co-located headquarters in Davidson, North Carolina and approximately $3.0 million of executive separation costs. For the thirteen and twenty-six week periods ended March 1, 2014, our operating margin was 12.4% and 13.3%, respectively, as compared to 15.9% and 16.8% for the same periods in the prior fiscal year.

We expect operating costs to continue to increase throughout fiscal year 2014 as compared to fiscal year 2013 due to increased expenses related to inclusion of a full year of BDNA operations, non-recurring integration costs and restructuring charges, increased compensation expenses and fringe benefits costs, and increased costs associated with executing on our vending and other investment programs. In addition, we expect increased costs associated with our co-located headquarters in Davidson, North Carolina and we also expect to incur operating costs associated with the establishment of our new customer fulfillment center in Columbus, Ohio. We will continue to opportunistically seek additional growth opportunities that will help position us for future expansion. We believe that cash flows from operations, available cash and funds available under our revolving credit facility will be adequate to support our operations and growth plans for the next twelve months.

The ISM index, which measures the economic activity of the U.S. manufacturing sector, is important to our planning because it historically has been an indicator of our manufacturing customers’ activity. A substantial portion of our revenues came from sales in the manufacturing sector during the first two quarters of fiscal 2014, including certain national account customers. An ISM index reading below 50.0% generally indicates that the manufacturing sector is expected to contract. Conversely, an ISM index reading above 50.0% generally indicates that the manufacturing sector is expected to expand. The ISM index was 53.7% for the month of March 2014 and averaged 54.0% for the past twelve months. Details released with the most recent index indicate that economic activity in the manufacturing sector related to new orders, production, inventories and employment are growing, while supplier deliveries have slowed from the previous month. Although the most recent measurement trend indicates that the manufacturing sector is expanding, there remains uncertainty relating to the current economic environment. Continued concerns relating to macroeconomic factors may continue to influence our customers to be more cautious in their purchases of MSC’s products. Sales to our government accounts represented approximately 7% of our total sales during the twenty-six week period ended March 1, 2014 compared to 9% for the twenty-six week period ended March 2, 2013.

We are continuing to take advantage of our strong balance sheet, which enables us to maintain or extend credit to our credit worthy customers and maintain optimal inventory and service levels to meet customer demands during these challenging economic conditions, while many of our smaller competitors in our fragmented industry continue to have difficulties in offering competitive service levels. We also believe that customers will continue to seek cost reductions and shorter cycle times from their suppliers. Our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our customers’ needs. 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 drive cost reduction throughout our business through cost saving strategies and increased leverage from our existing infrastructure, and continue to provide additional procurement cost savings solutions to our customers through technology such as our CMI, VMI, and vending programs.

On April 22, 2013, we acquired substantially all of the assets and assumed certain liabilities of BDNA, pursuant to the terms of the Asset Purchase Agreement, dated February 22, 2013, between us and Barnes Group Inc. In connection with the acquisition, the total cash consideration we paid to Barnes was $547.3 million which is net of a post-closing working capital adjustment in the amount of $1.4 million that we received in September 2013. The acquisition was funded in part with borrowings under our new unsecured Credit Facility, which was closed simultaneously with the acquisition, and the remainder was funded from available cash reserves. BDNA is a leading distributor of fasteners and other high margin, low cost consumables with a broad distribution footprint throughout the U.S. and Canada. BDNA has a strong presence with customers across manufacturing, government, transportation and natural resources end-markets. BDNA specializes in lowering the total cost of their customers’ inventory management through storeroom organization and vendor managed

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inventory. With this acquisition, we add a highly complementary provider of fasteners and other high margin consumable products and services (often referred to as “Class C” items) with an experienced field sales force and VMI solution. With the integration of the two businesses, we will have the opportunity to bring our MRO offering to BDNA’s customers, and BDNA’s Class C offering and VMI system to our customers. As a result of the BDNA acquisition, we incurred non-recurring transaction and integration costs and restructuring charges associated with associate severance costs, stay bonuses and the impairment of long-lived assets due to the closure of facilities. Integration costs and restructuring charges are estimated to be between approximately $5.0 million and $7.0 million throughout the remainder of fiscal year 2014.

Results of Operations

Net Sales

	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	March 1,		March 2,		Percentage	March 1,		March 2,		Percentage
	2014		2013		Change	2014		2013		Change
	(Dollars in thousands)
Net Sales	$	661,513	$	569,462	16.2%	$	1,340,023	$	1,146,953	16.8%

Net sales increased 16.2%, or approximately $92.1 million, for the thirteen week period ended March 1, 2014, as compared to the same period in the prior fiscal year.  We estimate that this $92.1 million increase in net sales is comprised of $69.8 million from the BDNA operations, which we acquired in April 2013, and that approximately $17.6 million of the increase is volume related and approximately $4.7 million is from improved pricing, which is partially offset by changes in customer and product mix, discounting and other items. Of the above $92.1 million increase in net sales, our government and national account programs (“Large Account Customer”) increased by approximately $14.0 million and there was an increase in our remaining business of approximately $78.1 million.

Net sales increased 16.8%, or approximately $193.1 million, for the twenty-six week period ended March 1, 2014, as compared to the same period in the prior fiscal year.  We estimate that this $193.1 million increase in net sales is comprised of $142.1 million from the BDNA operations, which we acquired in April 2013, and that approximately $45.2 million of the increase is volume related and approximately $5.8 million is from improved pricing, which is partially offset by changes in customer and product mix, discounting and other items. Of the above $193.1 million increase in net sales, our government and national account programs (“Large Account Customer”) increased by approximately $26.8 million and there was an increase in our remaining business of approximately $166.3 million.

The table below shows the pattern to the change in our fiscal quarterly average daily sales from the same period in the prior fiscal year:

Average Daily Sales Percentage Change – Total Company
(unaudited)
Fiscal Periods	Thirteen  Week Period Ended Fiscal Q2		Thirteen  Week Period Ended Fiscal Q1		Twenty-Six Week Period Ended Fiscal Q2 YTD
2014 vs. 2013	16.2	%	17.5	%	16.8	%
2013 vs. 2012	1.2	%	5.8	%	3.5	%

Excluding BDNA and U.K. operations, the trends noted above can be further analyzed by customer type.  Our manufacturing customers currently represent approximately 76% of our business and our non-manufacturing customers currently represent approximately 24% of our business.  BDNA operations are excluded from the tables below until we have

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annual comparative information. The table below shows the pattern to the change in our fiscal quarterly average daily sales by customer type from the same periods in the prior fiscal year.

Average Daily Sales Percentage Change – Manufacturing Customers
(unaudited and excluding BDNA and U.K. operations)
Fiscal Periods	Thirteen  Week Period Ended Fiscal Q2		Thirteen  Week Period Ended Fiscal Q1		Twenty-Six Week Period Ended Fiscal Q2 YTD
2014 vs. 2013	3.9	%	5.1	%	4.5	%
2013 vs. 2012	1.3	%	6.2	%	3.7	%

Average Daily Sales Percentage Change – Non-Manufacturing Customers
(unaudited and excluding BDNA and U.K. operations)
Fiscal Periods	Thirteen  Week Period Ended Fiscal Q2		Thirteen  Week Period Ended Fiscal Q1		Twenty-Six Week Period Ended Fiscal Q2 YTD
2014 vs. 2013	3.1	%	3.9	%	3.5	%
2013 vs. 2012	0.4	%	4.9	%	2.7	%

Exclusive of BDNA operations and customers in the U.K., average order size increased to approximately $406 for the second quarter of fiscal 2014 as compared to $398 in the second quarter of fiscal 2013.

We believe that our ability to transact business with our customers through various electronic portals and directly through the MSC Websites gives us a competitive advantage over smaller suppliers. Sales made through our eCommerce platforms, include sales made through Electronic Data Interchange systems, VMI systems, Extensible Markup Language ordering based systems, vending machine systems, hosted systems and other electronic portals, but excluding BDNA, were $560.8 million for the twenty-six week period ended March 1, 2014, representing 46.8% of consolidated net sales, compared to $494.7 million for the same period in the prior fiscal year, representing 43.1% of consolidated net sales.

We grew our field sales associate headcount to 1,163 at March 1, 2014, an increase of approximately 5.4% from field sales associates of 1,103 at March 2, 2013. Excluded from the sales force numbers at March 1, 2014 are 692 field sales associates related to the BDNA sales force. We plan to continue to increase our field sales associate headcount through the end of fiscal 2014. We will continue to manage the timing of our sales force expansion based on economic conditions and our selected mix of growth investments.

In fiscal 2014, in the MSC catalog distributed in September 2013, we added approximately 18,000 new SKUs and removed approximately 12,250 SKUs. Approximately 22% of the new SKUs are MSC private brands. SKUs are primarily removed as they are consolidated to other items providing our customers equal or higher value and are consistent with our margin expansion initiatives. Our objective is to continuously and significantly increase the number of SKUs available to our customers through our eCommerce, telesales and catalog channels. We executed on our SKU expansion plan during the first two quarters of fiscal 2014 by introducing approximately 95,000 new SKUs to our ordering database, bringing our total active, saleable SKU count to approximately 1,120,000, excluding BDNA. In addition, we increased the number of new SKUs available on www.mscdirect.com by approximately 75,000, bringing our total SKUs available for order via the web toapproximately 760,000, excluding BDNA. We expect this SKU expansion plan through our eCommerce channels to continue throughout fiscal 2014.

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Gross Profit

	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	March 1,		March 2,		Percentage	March 1,		March 2,		Percentage
	2014		2013		Change	2014		2013		Change
	(Dollars in thousands)					(Dollars in thousands)
Gross Profit	$	306,821	$	256,369	19.7%	$	621,676	$	521,458	19.2%
Gross Profit Margin		46.4%		45.0%			46.4%		45.5%

Gross profit margin for the thirteen and twenty-six week periods ended March 1, 2014 increased from the comparable periods in the prior fiscal year primarily as a result of higher gross margins from BDNA. This was partially offset by increases in product costs, changes in customer and product mix and lower gross margins from our vending programs.

Operating Expenses

	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	March 1,		March 2,		Percentage	March 1,		March 2,		Percentage
	2014		2013		Change	2014		2013		Change
	(Dollars in thousands)					(Dollars in thousands)
Operating Expenses	$	225,099	$	165,793	35.8%	$	443,204	$	328,530	34.9%
Percentage of Net Sales		34.0%		29.1%			33.1%		28.6%

The increase in operating expenses as a percentage of net sales for the thirteen and twenty-six week periods ended March 1, 2014, as compared to the same period in the prior fiscal year, was primarily a result of additional operating expenses incurred as a result of the acquired BDNA operations as well as non-recurring integration costs and restructuring charges associated with the acquisition.

The increase in operating expenses in dollars for the thirteen week period ended March 1, 2014, as compared to the same period in the prior fiscal year, was primarily a result of additional operating expenses incurred as a result of the acquired BDNA operations as well as non-recurring integration costs and restructuring charges associated with the acquisition. BDNA’s operating expenses accounted for approximately $35.7 million of total operating expenses for the thirteen week period ended March 1, 2014. Approximately $4.6 million of expenses related to non-recurring integration costs and restructuring charges associated with the BDNA acquisition were also included in operating expenses for the thirteen week period ended March 1, 2014. Excluding BDNA, operating expenses increased primarily due to increased incentive compensation, an increase in payroll and payroll related costs, increased costs associated with our vending program, increased advertising expense, and approximately $3.0 million of executive separation costs.

The increase in operating expenses in dollars for the twenty-six week period ended March 1, 2014, as compared to the same period in the prior fiscal year, was primarily a result of additional operating expenses incurred as a result of the acquired BDNA operations as well as non-recurring integration costs associated and restructuring charges with the acquisition. BDNA’s operating expenses accounted for approximately $71.1 million of total operating expenses for the twenty-six week period ended March 1, 2014. Approximately $8.4 million of expenses related to non-recurring integration costs and restructuring charges associated with the BDNA acquisition were also included in operating expenses for the twenty-six week period ended March 1, 2014. Excluding BDNA, operating expenses increased primarily due to increased incentive compensation, an increase in payroll and payroll related costs, increased costs associated with our vending program, increased advertising expense, approximately $2.5 million of non-recurring relocation costs associated with the establishment of our new co-located headquarters in Davidson, North Carolina and approximately $3.0 million of executive separation costs.

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Payroll and payroll related costs represented approximately 53.3% and 53.7% of total operating expenses for the thirteen and twenty-six week periods ended March 1, 2014, as compared to approximately 54.5% for the thirteen and twenty-six week periods ended March 2, 2013, respectively. Included in these costs are salary, incentive compensation, and sales commission. These costs increased for the thirteen and twenty-six week periods ended March 1, 2014, as compared to the same period in the prior fiscal year, primarily due to increased costs associated with the acquired BDNA operations, increased incentive compensation as the fiscal 2014 bonus payout is expected to be made at higher levels than fiscal 2013, and an increase in our staffing levels primarily related to sales associates, other program development and volume related positions to support our growth initiatives as well as significant investments in vending programs. Payroll and payroll related costs decreased as a percentage of operating expenses for the thirteen and twenty-six week periods ended March 1, 2014 as compared to the same period in the prior fiscal year as a result of increased other operating expenses due to the factors discussed above.

Freight expense was approximately $28.1 million and $56.6 million for the thirteen and twenty-six week periods ended March 1, 2014, as compared to approximately $24.9 million and $49.4 million for the thirteen and twenty-six week periods ended March 2, 2013, respectively. The primary driver of this increase was increased sales.

Income from Operations

	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	March 1,		March 2,		Percentage	March 1,		March 2,		Percentage
	2014		2013		Change	2014		2013		Change
	(Dollars in thousands)					(Dollars in thousands)
Income from Operations	$	81,722	$	90,576	(9.8)%	$	178,472	$	192,928	(7.5)%
Percentage of Net Sales		12.4%		15.9%			13.3%		16.8%

The decrease in income from operations for the thirteen and twenty-six week periods ended March 1, 2014, as compared to the same periods in the prior fiscal year, was primarily attributable to the increase in operating expenses described above, offset in part by increases in net sales and gross profit described above. Income from operations as a percentage of net sales also decreased for the thirteen and twenty-six week periods ended March 1, 2014, as compared to the same periods in the prior fiscal year due to those same factors. 

Provision for Income Taxes

	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	March 1,		March 2,		Percentage	March 1,		March 2,		Percentage
	2014		2013		Change	2014		2013		Change
	(Dollars in thousands)					(Dollars in thousands)
Provision for Income Taxes	$	30,981	$	34,550	(10.3)%	$	67,631	$	73,690	(8.2)%
Effective Tax Rate		38.5%		38.1%			38.4%		38.2%

The effective tax rate for the thirteen and twenty-six week periods ended March 1, 2014 was 38.5% and 38.4%, respectively, as compared to 38.1% and 38.2% for the comparable periods in the prior fiscal year.

Net Income

	Thirteen Weeks Ended					Twenty-Six Weeks Ended
	March 1,		March 2,		Percentage	March 1,		March 2,		Percentage
	2014		2013		Change	2014		2013		Change
	(Dollars in thousands)					(Dollars in thousands)
Net Income	$	49,512	$	56,079	(11.7)%	$	108,558	$	119,266	(9.0)%
Diluted Earnings Per Share	$	0.79	$	0.88	(10.2)%	$	1.72	$	1.88	(8.5)%

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The factors which affected net income for the thirteen and twenty-six week periods ended March 1, 2014, as compared to the same periods in the previous fiscal year, have been discussed above.

Liquidity and Capital Resources

As of March 1, 2014, we held $45.3 million in cash and cash equivalent funds. We maintain a substantial portion of our cash, and invest our cash equivalents, with well-known financial institutions. Historically, our primary capital needs have been to fund our working capital requirements necessitated by our sales growth, the costs of acquisitions, adding new products, facilities expansions, investments in vending solutions, technology investments, and productivity investments. Cash generated from operations, together with borrowings under credit facilities, have been used to fund these needs, to repurchase shares of our Class A common stock, and to pay dividends. At March 1, 2014, total borrowings outstanding, representing amounts due under the Credit Facility (discussed below) and all capital leases and financing arrangements, were approximately $312.0 million. At August 31, 2013, total borrowings outstanding, representing amounts due under all capital leases and financing arrangements, were approximately $255.8 million.

On April 22, 2013, in connection with the acquisition of BDNA, we entered into a new $650.0 million Credit Facility (the “Credit Facility”). The Credit Facility, which matures on April 22, 2018, provides for a five-year unsecured revolving loan facility in the aggregate amount of $400.0 million and a five-year unsecured term loan facility in the aggregate amount of $250.0 million. The Credit Facility replaced our previous $200.0 million Credit Facility dated June 8, 2011.

The Credit Facility also permits us, at our request, and upon the satisfaction of certain conditions, to add one or more incremental term loan facilities and/or increase the revolving loan commitments in an aggregate amount not to exceed $200.0 million. Subject to certain limitations, each such incremental term loan facility or revolving commitment increase will be on terms as agreed to by us, the Administrative Agent and the lenders providing such financing.

Borrowings under the Credit Facility bear interest, at our option, either at (i) the LIBOR (London Interbank Offered Rate) rate plus the applicable margin for LIBOR loans ranging from 1.00% to 1.375%, based on our consolidated leverage ratio; or (ii) the greatest of (a) the Administrative Agent’s prime rate in effect on such day, (b) the federal funds effective rate in effect on such day, plus 0.50% and (c) the LIBOR rate that would be calculated as of such day in respect of a proposed LIBOR loan with a one-month interest period, plus 1.00%, plus, in the case of each of clauses (a) through (c), an applicable margin ranging from 0.00% to 0.375%, based on our consolidated leverage ratio. Based on the interest period we select, interest may be payable every one, two, three or six months. Interest is reset at the end of each interest period. We currently elect to have loans under the Credit Facility bear interest based on LIBOR with one-month interest periods.

We are required to pay a quarterly undrawn fee ranging from 0.10% to 0.20% per annum on the unutilized portion of the Credit Facility based on our consolidated leverage ratio. We are also required to pay quarterly letter of credit usage fees ranging between 1.00% to 1.375% (based on our consolidated leverage ratio) on the amount of the daily average outstanding letters of credit, and a quarterly fronting fee of 0.125% per annum on the undrawn and unexpired amount of each letter of credit.

The Credit Facility contains several restrictive covenants including the requirement that the Company maintain a maximum consolidated leverage ratio of total indebtedness to EBITDA (earnings before interest expense, taxes, depreciation and amortization) of no more than 3.00 to 1.00, and a minimum consolidated interest coverage ratio of EBITDA to total interest expense of at least 3.00 to 1.00, during the term of the Credit Facility.

We financed $370.0 million of the BDNA purchase price with the proceeds of the unsecured term loan facility and a portion of the unsecured revolving loan facility. This consisted of borrowings of $120.0 million under the revolving loan facility and borrowings of $250.0 million of the term loan facility. During fiscal 2013, we repaid the remaining outstanding balance of $120.0 million on the revolving loan facility.

During the twenty-six week period ended March 1, 2014, the Company borrowed $50.0 million under the revolving loan facility of which $10.0 million was repaid in December 2013. As of March 1, 2014, there were $243.8 million and $40.0 million of borrowings outstanding under the term loan facility and the revolving credit facility, respectively, of which $58.8 million represents current maturities. As of August 31, 2013, there were $250.0 million of borrowings outstanding under the

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term loan facility of the Credit Facility, of which $12.5 million represents current maturities, and no borrowings outstanding under the revolving credit facility.

At March 1, 2014, we were in compliance with the operating and financial covenants of the Credit Facility. The Company repaid borrowings of $35.0 million under the revolving loan facility in March 2014. The current balance of $395.0 million of the revolving loan facility is available for working capital purposes, if necessary.

Net cash provided by operating activities for the twenty-six week periods ended March 1, 2014 and March 2, 2013 was $151.5 million and $135.0 million, respectively. There are various increases and decreases contributing to this change. An increase in accounts payable and accrued liabilities and an increase in depreciation and amortization contributed to the majority of the increase in net cash provided by operating activities. This change was offset in part by an increase in accounts receivables.

Working capital was $627.4 million at March 1, 2014, compared to $679.9 million at August 31, 2013. At these dates, the ratio of current assets to current liabilities was 3.5 and 4.2, respectively. The decrease in working capital and the current ratio is primarily related to borrowings under the Credit Facility.

Net cash used in investing activities for the twenty-six week periods ended March 1, 2014 and March 2, 2013 was $56.5 million and $40.3 million, respectively. The increase of approximately $16.2 million in net cash used in investing activities resulted from investments in available for sale securities relating to capital expenditures to construct and outfit our new customer fulfillment center in Columbus, Ohio.

Net cash used in financing activities for the twenty-six week periods ended March 1, 2014 and March 2, 2013 was $105.6 million and $19.1 million, respectively. The major components contributing to the use of cash for the twenty-six week period ended March 1, 2014 were the repurchase of shares of Class A common stock of $115.4 million and cash dividends paid of $41.4 million, partially offset by borrowings under the Credit Facility in the amount of $50.0 million. The major component contributing to the use of cash for the twenty-six week period ended March 2, 2013 was cash dividends paid of $37.9 million, partially offset by the net proceeds received from the exercise of the Company’s Class A common stock options in the amount of $15.9 million. Net cash used in financing activities increased for the twenty-six week period ended March 1, 2014 compared to the same period in the prior fiscal year primarily due to the repurchase of approximately 1.5 million shares of our Class A common stock for approximately $115.4 million.

We paid cash dividends of $41.4 million during the twenty-six week period ended March 1, 2014 to shareholders of record, which consisted of the regular quarterly cash dividend of $0.33 per share.  On April 4, 2014, the Board of Directors declared a dividend of $0.33 per share payable on April 22, 2014 to shareholders of record at the close of business on April 15, 2014.  This dividend will result in a payout of approximately $20.6 million.

As a distributor, our use of capital is largely for working capital to support our revenue base. Capital commitments for property, plant and equipment generally are limited to information technology assets, warehouse equipment, office furniture and fixtures, building and leasehold improvements, construction and expansion, and vending machines. Therefore, the amount of cash consumed or generated by operations other than from net earnings will primarily be due to changes in working capital as a result of the rate of increases or decreases in sales. In periods when sales are increasing, as in our first two quarters of fiscal 2014, the expanded working capital needs are funded primarily by cash from operations. In addition to our working capital needs, in fiscal 2014, we repurchased approximately 1.5 million shares of our Class A common stock for approximately $115.4 million and returned $41.4 million to shareholders in the form of cash dividends.

In connection with the construction of our co-located corporate headquarters in Davidson, North Carolina, completed in fiscal 2013, we spent approximately $31.9 million and $4.2 million in fiscal years 2013 and 2012, respectively, in capital expenditures, which included the purchase of the land and costs to construct and outfit the facility in Davidson. In addition, we incurred approximately $2.5 million in the twenty-six week period ended March 1, 2014 and $4.3 million in fiscal 2013 for non-recurring relocation costs associated with the establishment of our new co-located headquarters.

In connection with the construction of our new customer fulfillment center in Columbus, Ohio, we expect to invest approximately $55.0 million in capital expenditures which includes the purchase of the land and costs to construct and outfit the facility in Columbus, of which we spent approximately $32.6 million in the twenty-six week period ended March 1, 2014 and $6.4 million in fiscal 2013. We expect to complete construction and begin operation in late 2014.

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In connection with the BDNA acquisition, we incurred approximately $8.4 million in the twenty-six week period ended March 1, 2014 for non-recurring integration costs and restructuring charges associated with associate severance costs, stay bonuses and the impairment of long-lived assets due to the closure of facilities. For the 2013 fiscal year, these costs amounted to $11.6 million. We expect to incur approximately $5.0 million to $7.0 million in non-recurring integration costs and restructuring charges throughout the remainder of fiscal 2014.

We believe, based on our current business plan, that our existing cash, cash equivalents, funds available under our revolving credit facility, and cash flow from operations will be sufficient to fund our planned capital expenditures and operating cash requirements for at least the next 12 months. 

Related Party Transactions

We are affiliated with one real estate entity (the “Affiliate”), which leased property to us as of March 1, 2014. The Affiliate is owned by our principal shareholders (Mitchell Jacobson, our Chairman, and his sister, Marjorie Gershwind Fiverson, and by their family related trusts). We paid rent under operating leases to the Affiliate for the first twenty-six weeks of fiscal 2014 of approximately $1.1 million, in connection with our occupancy of our Atlanta Customer Fulfillment Center. In the opinion of our management, based on its market research, the lease with the Affiliate is on terms which approximated fair market value when the lease and its amendments were executed.

Contractual Obligations

Capital Lease and Financing Arrangements

In connection with the construction of the Company’s new customer fulfillment center in Columbus, Ohio, the Company entered into a long-term lease with the Columbus-Franklin County Finance Authority. The lease has been classified as a capital lease in accordance with ASC Topic 840. At March 1, 2014, the capital lease obligation was approximately $26.0 million.

From time to time, we enter into capital leases and financing arrangements to purchase certain equipment. Excluding the Columbus facility capital lease discussed above, we currently have various capital leases and financing obligations for certain information technology equipment in the amount of $7.0 million, of which $2.2 million remains outstanding at March 1, 2014. Refer to Note 6 to our condensed consolidated financial statements.

Operating Leases

As of March 1, 2014, certain of our operations are conducted on leased premises, of which one location is leased from an Affiliate, as noted above. The lease (which requires us to provide for the payment of real estate taxes and other operating costs) is through 2030.  In addition, we are obligated under certain equipment and automobile operating leases, which expire on varying dates through 2018.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements.

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 doubtful accounts, warranty and self-insured group health plan reserves, contingencies and litigation, income taxes, accounting for goodwill and long-lived assets, stock-based compensation, and business combinations.  We make estimates, judgments and assumptions in determining the amounts reported in the 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 in the Company’s Critical Accounting Policies, as disclosed in its Annual Report on Form 10-K for the fiscal year ended August 31, 2013.

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Recently Issued Accounting Standards

See Note 11 to the accompanying financial statements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our exposures to market risks since August 31, 2013. Please refer to the 2013 Annual Report on Form 10-K for the fiscal year ended August 31, 2013 for a complete discussion of our exposures to market risks.

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 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 the Chief Executive Officer and 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 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, including the Chief Executive Officer and Chief Financial Officer, 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.

No change occurred in our internal controls 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 March 1, 2014 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

There are various claims, lawsuits, and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

Item 1A.  Risk Factors

In addition to the other information set forth in this Report, consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2013, which could materially affect our business, financial condition or future results. The risks described in the aforementioned report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be not material also may materially 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 during the thirteen week period ended March 1, 2014:

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(3)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
12/1/13-1/1/14	1,476	$	80.64	—	2,931,173
1/2/14-2/1/14	3,774		85.40	—	2,931,173
2/2/14-3/1/14	—		—	—	2,931,173
Total	5,250	$	84.06	—

(1) During the thirteen weeks ended March 1, 2014, 5,250 shares of our common stock were withheld by the Company as payment to satisfy our associates’ tax withholding liability associated with our share-based compensation program and are included in the total number of shares purchased.

(2) Activity is reported on a trade date basis and includes commission paid.

(3) During fiscal year 1999, the Board of Directors established the MSC Stock Repurchase Plan, which we refer to as the “Repurchase Plan.” The total number of shares of our Class A common stock initially authorized for future repurchase was set at 5,000,000 shares. On January 8, 2008, the Board of Directors reaffirmed and replenished the Repurchase Plan and set the total number of shares of Class A common stock authorized for future repurchase at 7,000,000 shares. On October 21, 2011, the Board of Directors reaffirmed and replenished the Repurchase Plan and set the total number of shares of Class A common stock authorized for future repurchase at 5,000,000 shares. As of March 1, 2014, the maximum number of shares that may yet be repurchased under the Repurchase Plan was 2,931,173 shares. There is no expiration date for this program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

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Item 5. Other Information

None.

Item 6.  Exhibits

Exhibits:
10.01		MSC Industrial Direct Co., Inc. 2005 Omnibus Incentive Plan, as amended through January 13, 2014.*
10.02		Separation Agreement and General Release, dated January 13, 2014, between MSC Industrial Direct Co., Inc. and Eileen McGuire (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 13, 2014).
31.1		Chief Executive Officer’s Certificate, pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.*
31.2		Chief Financial Officer’s Certificate, pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.*
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.**
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002.**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*
*	Filed herewith.
**	Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MSC Industrial Direct Co., Inc. (Registrant)
Dated: April 10, 2014	By:	/s/ ERIK GERSHWIND President and Chief Executive Officer (Principal Executive Officer)
Dated: April 10, 2014	By:	/s/ JEFFREY KACZKA Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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EXHIBIT INDEX

Exhibit No.		Exhibit
10.01	MSC Industrial Direct Co., Inc. 2005 Omnibus Incentive Plan, as amended through January 13, 2014.*
10.02	Separation Agreement and General Release, dated January 13, 2014, between MSC Industrial Direct Co., Inc. and Eileen McGuire (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on January 13, 2014).
31.1	Chief Executive Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Chief Financial Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

*Filed herewith.

**Furnished herewith.

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EX-10.01

Exhibit 10.01

MSC INDUSTRIAL DIRECT CO., INC.

2005 OMNIBUS INCENTIVE PLAN

As adopted January 3, 2006 and amended through January 13, 2014

1.     ESTABLISHMENT AND PURPOSE.

        The MSC Industrial Direct Co., Inc. 2005 Omnibus Incentive Plan (the “Plan”) is established by MSC Industrial Direct Co., Inc., a New York corporation (the “ Company“), to attract and retain persons eligible to participate in the Plan; motivate Participants to achieve short and long-term Company goals; and further align Participants’ interests with those of the Company’s other stockholders. The Plan is adopted as of November 23, 2005, subject to approval by the Company’s stockholders within 12 months after such adoption date. No Awards that are settled in Stock shall be granted hereunder prior to the approval of the Plan by the Company’s stockholders. Unless the Plan is discontinued earlier by the Board as provided herein, no Award shall be granted hereunder on or after the date 10 years after the Effective Date. The Plan shall terminate on January 3, 2016 or such earlier time as the Board may determine.

        Certain terms used herein are defined as set forth in Section 10.

2.     ADMINISTRATION; ELIGIBILITY.

        The Plan shall be administered by the Compensation Committee, or such other Committee, appointed by the Board consisting of three (3) or more members of the Board all of whom are intended to be “non-employee directors” within the meaning of Section 16 of the Securities Exchange Act of 1934 and the regulations promulgated thereunder and “outside directors” within the contemplation of Section 162(m) of the Code; provided, however, that, if at any time no Compensation Committee or other Committee has been appointed or is eligible to act in the circumstances, the Plan shall be administered by the Board. The Plan may be administered by different Committees with respect to different groups of Eligible Individuals. As used herein, the term “Administrator” means the Board, the Compensation Committee or any of the Board’s other Committees as shall be administering the Plan. A majority of the members of the Compensation Committee, such other Committee or the Board, as applicable, shall constitute a quorum, and all determinations shall be made by a majority of the members thereof.

        The Administrator shall have plenary authority to grant Awards pursuant to the terms of the Plan to Eligible Individuals. Participation shall be limited to such persons as are selected by the Administrator. Subject to Section 409A of the Code, awards may be granted as alternatives to, in exchange or substitution for, or replacement of, awards outstanding under the Plan or any other plan or arrangement of the Company or a Subsidiary (including a plan or arrangement of a

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business or entity, all or a portion of which is acquired by the Company or a Subsidiary). The provisions of Awards need not be the same with respect to each Participant.

        Among other things, the Administrator shall have the authority, subject to the terms of the Plan:

(a) to select the Eligible Individuals to whom Awards may from time to time be granted;

(b) to determine whether and to what extent Stock Options, Stock Appreciation Rights, Stock Awards, Cash Awards or any combination thereof are to be granted hereunder;

(c) to determine the number of shares of Stock to be covered by each Award granted hereunder that is not a Cash Award;

(d) to approve forms of agreement for use under the Plan;

(e) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, the option price, any vesting restriction or limitation, any performance condition, any vesting acceleration or waiver of forfeiture, and any right of repurchase, right of first refusal or other transfer restriction regarding any Award and the shares of Stock relating thereto, based on such factors or criteria as the Administrator shall determine);

(f) subject to Section 9(a), to modify, amend or adjust the terms and conditions of any Award, at any time or from time to time, including, but not limited to, with respect to (i) performance goals and targets applicable to performance based Awards pursuant to the terms of the Plan and (ii) extension of the post-termination exercisability period of Stock Options;

(g) to determine to what extent and under what circumstances Stock and other amounts payable with respect to an Award shall be deferred;

(h) to determine the Fair Market Value; and

(i) to determine the type and amount of consideration to be received by the Company for any Stock Award issued under Section 6.

        The Administrator shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto) and to otherwise supervise the administration of the Plan.

        Except to the extent prohibited by applicable law, the Administrator may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to any other person or persons selected by it. Any such allocation or delegation may be revoked by the Administrator at any time. The Administrator may authorize any one or more of their members or any officer of the Company to execute and deliver documents on behalf of the Administrator.

        Any determination made by the Administrator or pursuant to delegated authority pursuant to the provisions of the Plan with respect to any Award shall be made in the sole discretion of the Administrator or such delegate at the time of the

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grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Administrator or any appropriately delegated officer pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Participants.

        No member of the Administrator, and no officer of the Company, shall be liable for any action taken or omitted to be taken by such individual or by any other member of the Administrator or officer of the Company in connection with the performance of duties under this Plan, except for such individual’s own willful misconduct or as expressly provided by law.

3.     STOCK SUBJECT TO PLAN.

        Subject to adjustment as provided in this Section 3, the aggregate number of shares of Stock which may be delivered under the Plan shall not exceed 6,200,000 shares.

        To the extent any shares of Stock covered by an Award are not delivered to a Participant or beneficiary thereof because the Award expires, is forfeited, lapses without exercise, is canceled or otherwise terminated (including as a result of shares not being earned), or the shares of Stock are not delivered because the Award is settled in cash or, in the cases of Stock Awards, are used to satisfy the applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan with respect to, and shall be available for, future grants of Awards.  Notwithstanding anything to the contrary contained herein, the following shares shall not be added to the shares of Stock authorized for grant under this Section 3 and will not be available for future grants of Awards: (i) shares tendered by a Participant or withheld by the Company in payment of the exercise price of a Stock Option; (ii) shares tendered by a Participant or withheld by the Company to satisfy any tax withholding obligation with respect to a Stock Option; (iii) shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (iv) shares purchased on the open market with the cash proceeds from the exercise of Stock Options. 

        Subject to adjustment as provided in this Section 3, the maximum number of shares that may be covered by Stock Options, Stock Appreciation Rights and Stock Awards, in the aggregate, granted to any one Participant during any calendar year shall be 400,000 shares.

        In the event of any Company stock dividend, stock split, combination or exchange of shares, recapitalization or other change in the capital structure of the Company, corporate separation or division of the Company (including, but not limited to, a split-up, spin-off, split-off or other distribution to Company stockholders, other than a normal or special cash dividend), sale by the Company of all or a substantial portion of its assets (measured on either a stand-alone or consolidated basis), reorganization, rights offering, partial or complete liquidation, merger or consolidation in which the Company is the surviving corporation, or any other corporate transaction or other event involving the Company and having an effect similar to any of the foregoing, the Administrator shall make such substitution or adjustments in the (a) number and kind of shares that may be delivered under the Plan, (b) additional maximums imposed in the immediately preceding paragraph, (c) number and kind of shares or other property, including cash, subject to outstanding Awards, (d) exercise price of outstanding Stock Options and Stock Appreciation Rights and (e) other characteristics or terms of the Awards, as necessary or appropriate to equitably reflect such corporate transaction or other event and to prevent dilution or enlargement of Participants’ rights under the Plan; provided, however, that the number of shares subject to any Award shall always be a whole number; and provided, further, that,with respect to Incentive Stock Options, such adjustment shall be made in accordance with Section 424 of the Code.

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        In the event of the dissolution or liquidation of the Company, or a merger, reorganization or consolidation in which the Company is not the surviving corporation, then, except as otherwise provided herein and/or in the discretion of the Administrator, each Stock Option, to the extent not theretofore exercised, shall terminate forthwith.

        Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3 to the extent that such adjustment would violate Section 409A of the Code.

4.     STOCK OPTIONS.

        Stock Options may be granted alone or in addition to other Awards granted under the Plan and may be of two types: Incentive Stock Options and Non-Qualified Stock Options. Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.

        The Administrator shall have the authority to grant any Eligible Individual Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options. Incentive Stock Options may be granted only to employees of the Company and its subsidiaries (within the meaning of Section 424(f) of the Code). To the extent that any Stock Option is not designated as an Incentive Stock Option or, even if so designated, does not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option. Incentive Stock Options may be granted only within 10 years from the date the Plan is adopted, or the date the Plan is approved by the Company’s stockholders, whichever is earlier.

        Stock Options shall be evidenced by option agreements, each in a form approved by the Administrator. An option agreement shall indicate on its face whether it is intended to be an agreement for an Incentive Stock Option or a Non-Qualified Stock Option. The grant of a Stock Option shall occur as of the date the Administrator determines, subject to FASB Statement 123(R)(now codified as FASB Accounting Standards Codification (ASC) Topic 718 – Stock Compensation) and guidance thereunder.

        Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Optionee affected, to disqualify any Incentive Stock Option under Section 422 of the Code.

        To the extent that the aggregate Fair Market Value of Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under all plans of the Company and its subsidiaries within the meaning of Section 424(f) of the Code) exceeds $100,000, such Stock Options shall be treated as Non-Qualified Stock Options.

        Stock Options granted under this Section 4 shall be subject to the following terms and conditions and shall contain such additional terms and conditions as the Administrator shall deem desirable:

(a) Exercise Price. The exercise price per share of Stock purchasable under a Stock Option shall be determined by the Administrator at the time of grant; provided, however, that the exercise price per share shall be not less than the Fair Market Value per share on the date the Stock Option is granted, or in the case of an Incentive Stock Option granted to an

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individual who is a Ten Percent Holder, not less than 110% of such Fair Market Value per share on the date the Stock Option is granted.

(b) Option Term. The term of each Stock Option shall be fixed by the Administrator at the time of grant, but no Incentive Stock Option shall be exercisable more than 10 years (or five years in the case of an individual who is a Ten Percent Holder) after the date the Incentive Stock Option is granted.

(c) Vesting. Except as otherwise provided in the applicable option agreement, an Optionee may not exercise a Stock Option during the period commencing on the date of the grant of such Stock Option to him or her and ending on the day immediately preceding the first anniversary of such date. Except as otherwise provided in the applicable option agreement, an Optionee may (i) during the period commencing on the first anniversary of the date of the grant of a Stock Option to him or her and ending on the day immediately preceding the second anniversary of such date, exercise such Stock Option with respect to one-fourth of the shares granted thereby; (ii) during the period commencing on the second anniversary of the date of such grant and ending on the day immediately preceding the third anniversary of the date of such grant, exercise such Stock Option with respect to one-half of the shares granted thereby; (iii) during the period commencing on the third anniversary of the date of such grant and ending on the day immediately preceding the fourth anniversary of such date, exercise such Stock Option with respect to three-fourths of the shares granted thereby and (iv) during the period commencing on the fourth anniversary of the date of such grant and ending at the time the Stock Option expires pursuant to the terms of the Plan, exercise such Stock Option with respect to all of the shares granted thereby. Notwithstanding the foregoing, except as otherwise determined by the Administrator in connection with the termination of employment of an Optionee,no Stock Option shall be fully vested prior to the third anniversary of the date of grant of such Stock Option, provided that Stock Options granted to non-employee directors of the Company may be fully vested by the second anniversary of the date of grant of such Stock Option.

(d) Exercisability. Except as otherwise provided herein, Stock Options shall be subject to such terms and conditions, performance requirements, restrictions, forfeiture provisions, contingencies and limitations, if any, as shall be determined by the Administrator. If any Stock Option is exercisable only in installments, the Administrator may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Administrator may determine. In addition, the Administrator may at any time, in whole or in part, accelerate the exercisability of any Stock Option. Notwithstanding the foregoing, except as otherwise determined by the Administrator in connection with the termination of employment of an Optionee, no Stock Option shall be fully exercisable prior to the third anniversary of the date of grant of such Stock Option, provided that Stock Options granted to non-employee Directors of the Company may be fully exercisable by the second anniversary of the date of grant of such Stock Option.

(e) Method of Exercise. Stock Options may be exercised, in whole or in part, by giving written notice of exercise to the Company specifying the number of shares of Stock subject to the Stock Option to be purchased.

The option price of any Stock Option shall be paid in full in cash (by certified or bank check or such other instrument as the Company may accept) or, unless otherwise provided in the applicable option agreement, by one or more of the following: (i) in the form of mature shares of unrestricted Stock already owned by the Optionee, based on the Fair Market Value of the Stock on the date the Stock Option is exercised; (ii) by certifying ownership of shares of mature Stock owned by the Optionee to the satisfaction of the Administrator for later delivery to the Company as specified by the Company; (iii) unless otherwise prohibited by law for either the Company or the Optionee, by irrevocably authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Stock Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from

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such exercise; or (iv) by any combination of cash and/or any one or more of the methods specified in clauses (i), (ii) and (iii). Notwithstanding the foregoing, a form of payment shall not be permitted to the extent it would cause the Company to recognize a compensation expense (or additional compensation expense) with respect to the Stock Option for financial reporting purposes.

If payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock, the number of shares of Stock to be received upon such exercise equal to the number of shares of Restricted Stock used for payment of the option exercise price shall be subject to the same forfeiture restrictions to which such Restricted Stock was subject, unless otherwise determined by the Administrator.

No shares of Stock shall be issued upon exercise of a Stock Option until full payment therefor has been made. Upon exercise of a Stock Option (or a portion thereof), the Company shall have a reasonable time to issue the Stock for which the Stock Option has been exercised, and the Optionee shall not be treated as a stockholder for any purposes whatsoever prior to such issuance. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such Stock is recorded as issued and transferred in the Company’s official stockholder records, except as otherwise provided herein or in the applicable option agreement.

(f) Transferability of Stock Options. Except as otherwise provided in the applicable option agreement, a Non-Qualified Stock Option (i) shall be transferable by the Optionee to a Family Member of the Optionee, provided that (A) any such transfer shall be by gift with no consideration and (B) no subsequent transfer of such Stock Option shall be permitted other than by will or the laws of descent and distribution, and (ii) shall not otherwise be transferable except by will or the laws of descent and distribution. An Incentive Stock Option shall not be transferable except by will or the laws of descent and distribution. A Stock Option shall be exercisable, during the Optionee’s lifetime, only by the Optionee or by the guardian or legal representative of the Optionee, it being understood that the terms “holder” and “ Optionee“ include the guardian and legal representative of the Optionee named in the applicable option agreement and any person to whom the Stock Option is transferred (X) pursuant to the first sentence of this Section 4(f)  or pursuant to the applicable option agreement or (Y) by will or the laws of descent and distribution. Notwithstanding the foregoing, references herein to the termination of an Optionee’s employment or provision of services shall mean the termination of employment or provision of services of the person to whom the Stock Option was originally granted.

(g) Termination by Death. If an Optionee’s employment or provision of services terminates by reason of death, any Stock Option held by such Optionee may thereafter be exercised for a period of one year from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is shorter.

(h) Termination by Reason of Disability. If an Optionee’s employment or provision of services terminates by reason of Disability, any Stock Option held by such Optionee may thereafter be exercised by the Optionee for a period of one year from the date of such termination of employment or provision of services or until the expiration of the stated term of such Stock Option, whichever period is shorter.

(i) Termination by Reason of Retirement. If an Optionee’s employment or provision of services terminates by reason of Retirement, any Stock Option held by such Optionee may thereafter be exercised by the Optionee for a period of one year from the date of such termination of employment or provision of services or until the expiration of the stated term of such Stock Option, whichever period is shorter.

(j) Involuntary Termination Without Cause.  If an Optionee’s employment or provision of services terminates involuntarily without Cause, and for reasons other than death, Disability or Retirement, any Stock Option held by such

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Optionee may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of 30 days from the date of such termination of employment or provision of services or until the expiration of the stated term of such Stock Option, whichever period is shorter, and any Stock Option that is unvested or unexercisable at the date of termination shall thereupon terminate.

(k) Involuntary Termination for Cause. If an Optionee’s employment or provision of services terminates involuntarily for Cause vesting of all outstanding Stock Options held by such Optionee shall thereupon terminate and all Stock Options held by such Optionee shall thereupon terminate.

(l) Other Termination.If an Optionee’s employment or provision of services is terminated by the Optionee for any reason other than death, Disability or Retirement, any Stock Option held by such Optionee may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of 30 days from the date of such termination of employment or provision of services or until the expiration of the stated term of such Stock Option, whichever period is shorter, and any Stock Option that is unvested or unexercisable at the date of termination shall thereupon terminate.

(m) Exception to Termination. If the Company or an Affiliate ceases as a result of a transfer of such Optionee from the Company to an Affiliate, or from an Affiliate to the Company, such transfer shall not be a termination of employment or provision of services for purposes of this Plan, unless expressly determined otherwise by the Administrator. A termination of employment or provision of services shall occur for an Optionee who is employed by, or provides services to, an Affiliate of the Company if the Affiliate shall cease to be an Affiliate and the Optionee shall not immediately thereafter be employed by, or provide services to, the Company or an Affiliate.

(n) Notwithstanding the foregoing, to the extent permitted under Section 409A of the Code, the exercise period following a termination described in subsection (g), (h), (i), (j) or (l) above shall be tolled for any applicable window/blackout period restrictions under the Company’s insider trading policy.

5.     STOCK APPRECIATION RIGHTS.

        Stock Appreciation Rights may be granted under the Plan on a stand-alone basis only. The Administrator shall have the authority to grant Stock Appreciation Rights to any Eligible Individual. Except as otherwise provided herein, a Stock Appreciation Right shall terminate and no longer be exercisable as determined by the Administrator.

        Stock Appreciation Rights shall be evidenced by stock appreciation right agreements, each in a form approved by the Administrator. The grant of a Stock Appreciation Right shall occur as of the date the Administrator determines, subject to FASB Statement 123(R) (now codified as FASB Accounting Standards Codification (ASC) Topic 718 – Stock Compensation) and guidance thereunder.

        A Stock Appreciation Right may be exercised by a Participant as determined by the Administrator in accordance with this Section 5. Upon such exercise, the Participant shall be entitled to receive an amount determined in the manner prescribed in this Section 5 .

        Stock Appreciation Rights shall be subject to such terms and conditions, performance requirements, restrictions, forfeiture provisions, contingencies and limitations as shall be determined by the Administrator, including the following:

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(a) Stock Appreciation Right Term. The term of each Stock Appreciation Right shall be fixed by the Administrator at the time of grant.

(b) Vesting. Except as otherwise provided in the applicable stock appreciation right agreement, a Participant may not exercise a Stock Appreciation Right during the period commencing on the date of the grant of such Stock Appreciation Right to him or her and ending on the day immediately preceding the first anniversary of such date. Except as otherwise provided in the applicable stock appreciation right agreement, a Participant may (i) during the period commencing on the first anniversary of the date of the grant of a Stock Appreciation Right and ending on the day immediately preceding the second anniversary of such date, exercise the Stock Appreciation Right with respect to one-fifth of the shares to which the Stock Appreciation Right applies, (ii) during the period commencing on the second anniversary of the date of such grant and ending on the day immediately preceding the third anniversary of the date of such grant, exercise the Stock Appreciation Right with respect to two-fifths of the shares to which the Stock Appreciation Right applies, (iii) during the period commencing on the third anniversary of the date of such grant and ending on the day immediately preceding the fourth anniversary of such date, exercise the Stock Appreciation Right with respect to three-fifths of the shares to which the Stock Appreciation Right applies; (iv) during the period commencing on the fourth anniversary of the date of such grant and ending on the day immediately preceding the fifth anniversary of such date, exercise the Stock Appreciation Right with respect to four-fifths of the shares to which the Stock Appreciation Right applies; and (v) during the period commencing on the fifth anniversary of such date and ending at the time the Stock Appreciation Right expires pursuant to the terms of the Plan, exercise the Stock Appreciation Right with respect to all the shares to which the Stock Appreciation Right applies. Notwithstanding the foregoing, no Stock Appreciation Right shall be fully vested prior to the third anniversary of the date of grant of such Stock Appreciation Right, provided that Stock Appreciation Rights granted to non-employee directors of the Company may be fully vested by the second anniversary of the date of grant of such Stock Appreciation Right.

(c) Exercisability. Notwithstanding Section 5(a), the Administrator may at any time, in whole or in part, accelerate the exercisability of any Stock Appreciation Right. Notwithstanding the foregoing, no Stock Appreciation Right shall be fully exercisable prior to the third anniversary of the date of grant of such Stock Appreciation Right, provided that Stock Appreciation Rights granted to non-employee Directors of the Company may be fully exercisable prior to the second anniversary of the date of grant of such Stock Appreciation Right.

(d) Method of Exercise. Subject to the provisions of this Section 5, Stock Appreciation Rights may be exercised, in whole or in part, at such time or times during the exercisability as determined by the Administrator by giving written notice of exercise to the Company specifying the number of shares with respect to which the Stock Appreciation Right is being exercised.

(e) Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive an amount in shares of Stock, which in the aggregate are equal in value to the excess of the Fair Market Value of one share of Stock on the date of exercise over the Fair Market Value of one share of Stock on the date of grant, multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised.

(f) A Stock Appreciation Right shall be transferable only to, and shall be exercisable only by, such persons permitted in accordance with Section 4(f) .

(g) Termination by Death. If a Participant’s employment or provision of services terminates by reason of death, any Stock Appreciation Right held by such Participant may thereafter be exercised for a period of one year from the date of

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such death or until the expiration of the stated exercisability period of such Stock Appreciation Right, whichever period is shorter.

(h) Termination by Reason of Disability. If a Participant’s employment or provision of services terminates by reason of Disability, any Stock Appreciation Right held by such Participant may thereafter be exercised by the Participant for a period of one year from the date of such termination of employment or provision of services or until the expiration of the exercisability period of such Stock Appreciation Right, whichever period is shorter.

(i) Termination by Reason of Retirement. If a Participant’s employment or provision of services terminates by reason of Retirement, any Stock Appreciation Right held by such Participant may thereafter be exercised by the Participant for a period of one year from the date of such termination of employment or provision of services or until the expiration of the exercisability period of such Stock Appreciation Right, whichever period is shorter.

(j) Involuntary Termination Without Cause. If a Participant’s employment or provision of services terminates involuntarily without Cause, and for reasons other than death, Disability or Retirement, any Stock Appreciation Right held by such Participant may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of 30 days from the date of such termination of employment or provision of services or until the expiration of the exercisability period of such Stock Appreciation Right, whichever period is shorter, and any Stock Appreciation Right that is unvested or unexercisable at the date of termination shall thereupon terminate.

(k) Termination for Cause. If a Participant’s employment or provision of services terminates involuntarily for Cause vesting of all outstanding Stock Appreciation Rights held by such Participant shall thereupon terminate and all Stock Appreciation Rights held by such Participant shall thereupon terminate.

(l) Other Termination. If a Participant’s employment or provision of services is terminated by the Participant for any reason other than death, Disability or Retirement, any Stock Appreciation Right held by such Participant may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of 30 days from the date of such termination of employment or provision of services or until the expiration of the exercisability period of such Stock Appreciation Right, whichever period is shorter, and any Stock Appreciation Right that is unvested or unexercisable at the date of termination shall thereupon terminate.

(m) Notwithstanding the foregoing, to the extent permitted under Section 409A of the Code, the exercise period following a termination described in subsection (g), (h), (i), (j) or (l) above shall be tolled for any applicable window/blackout period restrictions under the Company’s insider trading policy.

6.     STOCK AWARDS OTHER THAN OPTIONS.

        Stock Awards may be directly issued under the Plan (without any intervening options), subject to such terms, conditions, performance requirements, restrictions, forfeiture provisions, contingencies and limitations as the Administrator shall determine. Subject to the provisions of this Section 6,  Stock Awards may be issued which vest in one or more installments over the Participant’s period of employment and/or other service to the Company and/or upon the attainment of specified performance objectives, and/or the Company may issue Stock Awards which entitle the Participant to receive a specified number of vested shares of Stock upon the attainment of one or more performance goals and/or service requirements established by the Administrator. Notwithstanding the foregoingand except as otherwise provided in

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any applicable Award agreement or other agreement approved by the Committee, the restrictions on any Stock Award shall not terminate with respect to all shares subject thereto prior to the third anniversary of the date of grant of such Stock Award, provided that restrictions on any Stock Awards granted to non-employee directors of the Company may terminate as to all the shares subject thereto by the second anniversary of the date of grant of such Stock Award.

        Shares representing a Stock Award shall be evidenced in such manner as the Administrator may deem appropriate, including book-entry registration or issuance of one or more certificates (which may bear appropriate legends referring to the terms, conditions and restrictions applicable to such Award). The Administrator may require that any such certificates be held in custody by the Company until any restrictions thereon shall have lapsed and that the Participant deliver a stock power, endorsed in blank, relating to the Stock covered by such Award.

        A Stock Award may be issued in exchange for any consideration which the Administrator may deem appropriate in each individual instance, including, without limitation:

(a) cash or cash equivalents;

(b) past services rendered to the Company or any Affiliate; or

(c) future services to be rendered to the Company or any Affiliate (provided that, in such case, the par value of the stock subject to such Stock Award shall be paid in cash or cash equivalents, unless the Administrator provides otherwise).

        A Stock Award that is subject to restrictions on transfer and/or forfeiture provisions may be referred to as an award of “Restricted Stock” or “ Restricted Stock Units  .” Except as provided in the applicable restricted stock agreement or restricted stock unit agreement, the restrictions on any Stock Award shall terminate as follows: (a) as to one-half of the restricted shares granted thereby, on the third anniversary of the date of grant of such Stock Award; (b) as to an additional one-fourth of the restricted shares granted thereby, on the fourth anniversary of the date of grant of such Restricted Stock; and (c) as to an additional one-fourth of the restricted shares granted thereby, on the fifth anniversary of the date of grant of such Restricted Stock. A Participant, at his or her option, will be entitled to make the election permitted under section 83(b) of the Code, to include in gross income in the taxable year in which the Restricted Stock are transferred to him or her, the fair market value of such shares at the time of transfer, notwithstanding that such shares are subject to a substantial risk of forfeiture within the meaning of the Code, or he or she may elect to include in gross income the Fair Market Value of the Restricted Stock as of the date or date on which such restrictions lapse. Notwithstanding the foregoing, the Administrator shall adopt, from time to time, such rules with respect to the return of executed Restricted Stock Agreements as it deems appropriate and failure by a Participant to comply with such rules shall, without limitation, terminate the grant of such Restricted Stock to such Participant and/or cause the forfeiture of any Restricted Stock as to which restrictions have not yet lapsed.

Any Participant selected by the Administrator may be granted dividends or dividend equivalents based on the dividends declared on shares of Stock that are subject to any Stock Award, to be credited as of dividend payment dates, during the period between the date the Stock Award is granted and the date the Stock Award is exercised, vests, or expires, as determined by the Administrator.  Such dividends or dividend equivalents shall be converted to cash or additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator.

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7.     PERFORMANCE AWARDS.

(a) Performance Conditions and Cash Awards. The right of a Participant to exercise or receive a grant or settlement of any Stock Appreciation Right, Stock Option or Stock Award, and its timing, may be subject to performance conditions specified by the Administrator at the time of grant (except as provided in this Section 7). In addition, the Administrator may grant to Eligible Individuals Cash Awards, based on the achievement of specified performance conditions for annual periods or such other time periods as determined by the Administrator, in such amounts and upon such terms as the Administrator shall specify at the time of grant consistent with this Section 7. The maximum aggregate dollar amount paid in respect of Cash Awards to any one Participant in respect of a performance period of one fiscal year or less shall not exceed $4,000,000in any fiscal year, and the maximum aggregate dollar amount paid in respect of Cash Awards to any one Participant in respect of a performance period longer than onefiscal year shall not exceed $4,000,000in any fiscal year. The Administrator may use business criteria and other measures of performance it deems appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase amounts payable under any Award subject to performance conditions, except as limited under Sections 7(b) hereof in the case of a Performance Award intended to qualify under Section 162(m) of the Code.

(b) Performance Awards Granted to Designated Covered Employees. If the Administrator determines that a Performance Award to be granted to a person the Administrator regards as likely to be a Covered Employee should qualify as “performance-based compensation” for purposes of Section 162(m) of the Code, the grant and/or settlement of such Performance Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 7(b)

(i) Performance Goals Generally. The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to such criteria, as specified by the Administrator consistent with this Section 7(b). Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m) of the Code, including the requirement that the level or levels of performance targeted by the Administrator result in the performance goals being “substantially uncertain.” The Administrator may determine that more than one performance goals must be achieved as a condition to settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants.

(ii) Business Criteria. One or more of the following business criteria for the Company, on a consolidated basis, and/or for specified Subsidiaries or business units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall exclusively be used by the Administrator in establishing performance goals for such Performance Awards: (a) attainment of the Company’s Key Operating Metrics, (b) attainment of the Company’s Key Business Initiatives, (c)  total stockholder return; (d) such total stockholder return as compared to total return (on a comparable basis) of a publicly available index; (e) net income; (f) pre-tax earnings; (g) EBIT; (h) EBITDA; (i) pre-tax operating earnings after interest expense and before bonuses, service fees, and extraordinary or special items; (j) operating margin; (k) earnings per share; (l) return on equity; (m) return on capital; (n) return on investment; (o) operating income, excluding the effect of charges for acquired in-process technology and before payment of executive bonuses; (p) earnings per share, excluding the effect of charges for acquired in-process technology and before payment of executive bonuses; (q) working capital; (r) net capital provided by operating activities less expenditures for property, plant and equipment; (s) total revenues; (t) free cash flow; and (u) a percentage of incremental revenue dollars converted into operating income (“read through”).

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(iii) Except as limited by Section 162(m) of the Code, the Administrator may adjust such criteria targets to mitigate the effect of unbudgeted or unplanned events not foreseen at the time the targets were established, such as (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; (d) any reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders for the applicable year; (f) acquisitions or divestitures; and (g) foreign exchange gains and losses.

(iv) Performance Period: Timing For Establishing Performance Goals. Achievement of performance goals in respect of such Performance Awards shall be measured over such periods as may be specified by the Administrator. Performance goals shall be established on or before the dates that are required or permitted for “performance-based compensation” under Section 162(m) of the Code.

(v) Payment or Settlement of Performance Awards; Other Terms. Payment of Cash Awards shall be made in cash and settlement of other Performance Awards may be in cash or Stock, or other Awards, or other property, in the discretion of the Administrator.  The time of payment or settlement of Cash Awards or other Performance Awards subject to Section 409A of the Code shall be specified by the Administrator in accordance with the requirements of Section 409A of the Code.  The Administrator may, in its discretion, reduce the amount of a payment or other settlement otherwise to be made in connection with such Performance Awards, but may not exercise discretion to increase any such amount payable in respect of a Performance Award subject to this Section 7(b). Subject to the requirements of Sections 162(m) and 409A of the Code, the Administrator shall specify other terms relating to Performance Awards, including the circumstances in which such Performance Awards shall be forfeited or paid in the event of a termination of employment.

8.     CHANGE IN CONTROL PROVISIONS.

(a) Impact of Event. Notwithstanding any other provision of the Plan to the contrary and except as otherwise provided in any applicable Award agreement or other agreement approved by the Committee, in the event of a Change in Control:

(i) Subject to Section 8(a)(iv) hereof, the vesting and exercisability of any Stock Options and Stock Appreciation Rights outstanding as of the date such Change in Control is determined to have occurred and not then vested and exercisable shall become fully vested and exercisable;

(ii) Subject to Section 8(a)(iv) hereof, any restrictions applicable to any outstanding Stock Awards shall lapse and the Stock relating to such Awards shall become free of all restrictions and fully vested and transferable;

(iii) Subject to Section 8(a)(iv) and8(a)(v) hereof, all outstanding repurchase rights of the Company with respect to any outstanding Awards may, in the discretion of the Administrator, terminate;

(iv) Outstanding Stock Options, Stock Appreciation Rights and other Stock Awards shall be subject to any agreement of merger or reorganization that effects such Change in Control, if such agreement provides for:

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(A) The continuation of the outstanding Awards by the Company, if the Company is a surviving corporation;

(B) The assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary;

(C) The substitution by the surviving corporation or its parent or subsidiary of equivalent awards for the outstanding Awards; or

(D)Subject to Section 409A of the Code, settlement of each share of Stock subject to an outstanding Award for the Change in Control Price (less, to the extent applicable, the per share exercise price), or, if the per share exercise price equals or exceeds the Change in Control Price, the outstanding Award shall terminate and be canceled; and

(v) In the absence of any agreement of merger or reorganization (if applicable) which addresses the effects of such Change in Control and subject to Section 409A of the Code, each share of Stock subject to an outstanding Stock Option, Stock Appreciate Right and Stock Award shall be settled for the Change in Control Price (less, to the extent applicable, the per share exercise price), or, if the per share exercise price equals or exceeds the Change in Control Price, the outstanding Award shall terminate and be canceled.

(b) Definition of Change in Control.

(i) For purposes of the Plan, a “Change in Control” shall occur or be deemed to have occurred only if any of the following events occur:

(A) A change in the ownership of the Company. A change in ownership of the Company shall occur on the date that any one person, or more than one person acting as a “Group” (as defined under Section 409A of the Code), other than Mitchell Jacobson or Marjorie Gershwind or a member of the Jacobson or Gershwind families or any trust established principally for members of the Jacobson or Gershwind families or an executor, administrator or personal representative of an estate of a member of the Jacobson or Gershwind families and/or their respective affiliates, acquires ownership of stock of the Company that, together with stock held by such person or Group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company; provided, however, that, if any one person or more than one person acting as a Group, is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Company.

(B) A change in the effective control of the Company. A change in the effective control of the Company occurs on the date that:

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(I) any one person, or more than one person acting as a Group, other than Mitchell Jacobson or Marjorie Gershwind or a member of the Jacobson or Gershwind families or any trust established principally for members of the Jacobson or Gershwind families or an executor, administrator or personal representative of an estate of a member of the Jacobson or Gershwind families and/or their respective affiliates, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 50% or more of the total voting power of the stock of the Company; or

(II) a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election; provided, however, that, if one person, or more than one person acting as a Group, is considered to effectively control the Company, the acquisition of additional control of the Company by the same person or persons is not considered a change in the effective control of the Company.

(C) A change in the ownership of a substantial portion of the Company’s assets. A change in the ownership of a substantial portion of the Company’s assets occurs on the date that any one person, or more than one person acting as a Group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total Gross Fair Market Value (as defined in Section 8(b)(ii) ) equal to or more than 80% of the total Gross Fair Market Value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that, a transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to:

(I) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;

(II) an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

(III) a person, or more than one person acting as a Group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or

(IV) an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in Section 8(b)(i)(C)(III) .

(ii) For purposes of Section 8(b)(i)(C), “Gross Fair Market Value” means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

(iii) For purposes of Section 8(b), stock ownership is determined under Section 409A of the Code.

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(c) Change in Control Price. For purposes of the Plan, “Change in Control Price” means the highest of (i) the highest reported sales price, regular way, of a share of Stock in any transaction reported on the New York Stock Exchange Composite Tape or other national securities exchange on which such shares are listed, as applicable, during the 60-day period prior to and including the date of a Change in Control, (ii) if the Change in Control is the result of a tender or exchange offer or a Corporate Transaction, the highest price per share of Stock paid in such tender or exchange offer or Corporate Transaction, and (iii) the Fair Market Value of a share of Stock upon the Change in Control. To the extent that the consideration paid in any such transaction described above consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration shall be determined in the sole discretion of the Board. The Participant shall receive the same form of consideration as holders of common stock, subject to the same restrictions and limitations and indemnification obligations as the holders of common stock and will execute any and all documents required by the Administrator to evidence the same.

9.     MISCELLANEOUS.

(a) Amendment; Prohibition on Repricing. The Board may at any time terminate, amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would adversely affect the rights of a Participant under an Award theretofore granted without the Participant’s consent, except such an amendment (i) made to avoid an expense charge to the Company or an Affiliate under applicable law or regulation, (ii) made to permit the Company or an Affiliate a deduction under the Code, or (iii) made to avoid the violation of Section 409A of the Code. No such amendment or alteration shall be made without the approval of a majority vote of the Company’s shareholders, present in person or by proxy at any special or annual meeting of the shareholders to the extent such approval is required by law, agreement or the rules of any stock exchange or market on which the Stock is listed.  Further, other than adjustments made pursuant to Section 3, without the approval of a majority vote of the Company’s shareholders, present in person or by proxy at any special or annual meeting of the shareholders, the Company may not (X) amend the terms of outstanding Stock Options or Stock Appreciation Rights to reduce the exercise price of such outstanding Stock Options or Stock Appreciation Rights; (Y) cancel outstanding Stock Options or Stock Appreciation Rights in exchange for Stock Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Stock Options or Stock Appreciation Rights; or (Z) cancel outstanding Stock Options or Stock Appreciation Rights with an exercise price above the current stock price in exchange for cash or other securities.

Except as limited by Section 162(m) of the Code in respect of Awards intended to qualify as “performance-based compensation,”  the Administrator may amend the terms of any Stock Option or other Award theretofore granted, prospectively or retroactively, but except as provided in Section 3 hereof no such amendment shall adversely affect the rights of a Participant without the Participant’s consent.

(b) Unfunded Status of Plan. It is intended that this Plan be an “unfunded” plan for incentive and deferred compensation. The Administrator may authorize the creation of trusts or other arrangements to meet the obligations created under this Plan to deliver Stock or make payments, provided that, unless the Administrator otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of this Plan.

(c) General Provisions.

(i) Unless the shares to be issued in connection with an Award are registered prior to the issuance thereof under the Securities Act of 1933, as amended, the Administrator may require each person purchasing or receiving

13075623v5

shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares for his or her own account as an investment without a view to or for sale in connection with, the distribution thereof. The certificates for such shares may include any legend which the Administrator deems appropriate to reflect any restrictions on transfer.

All certificates for shares of Stock or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange or market on which the Stock is then listed and any applicable Federal or state securities law, and the Administrator may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

(ii) Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting other or additional compensation arrangements for its employees.

(iii) The adoption of the Plan shall not confer upon any employee, director, associate, consultant or advisor any right to continued employment, directorship or service, nor shall it interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the employment or service of any employee, consultant or advisor at any time.

(iv) No later than the date as of which an amount first becomes includible in the gross income of the Participant for Federal income tax purposes with respect to any Award under the Plan, the Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any Federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Administrator, withholding obligations may be settled with Stock, including Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company, its Subsidiaries and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participant. The Administrator may establish such procedures as it deems appropriate for the settlement of withholding obligations with Stock.

(v) The Administrator shall establish such procedures as it deems appropriate for a Participant to designate a beneficiary to whom any amounts payable in the event of the Participant’s death are to be paid. In the event of the death of a Participant, a condition of exercising any Award shall be the delivery to the Company of such tax waivers and other documents as the Administrator shall determine.

(vi) Neither any Participant nor his or her legal representatives, legatees or distributees shall be or be deemed to be the holder of any share of Stock covered hereby unless and until a certificate for such share has been issued. Upon payment of the purchase price thereof, a share shall be fully paid and non-assessable.

(vii) The grant of an Award shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets, or issue bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock, or take any other corporate act or proceeding whether of a similar character or otherwise.

13075623v5

(viii) If any payment or right accruing to a Participant under this Plan (without the application of this Section 9(c)(viii)), either alone or together with other payments or rights accruing to the Participant from the Company or an Affiliate (“ Total Payments“) would constitute a “parachute payment” (as defined in Section 280G of the Code and regulations thereunder), such payment or right shall be reduced to the largest amount or greatest right that will result in no portion of the amount payable or right accruing under this Plan being subject to an excise tax under Section 4999 of the Code or being disallowed as a deduction under Section 280G of the Code; provided, however, that the foregoing shall not apply to the extent provided otherwise in an Award or in the event the Participant is party to an agreement with the Company or an Affiliate that explicitly provides for an alternate treatment of payments or rights that would constitute “parachute payments.” The determination of whether any reduction in the rights or payments under this Plan is to apply shall be made by the Administrator in good faith after consultation with the Participant, and such determination shall be conclusive and binding on the Participant. The Participant shall cooperate in good faith with the Administrator in making such determination and providing the necessary information for this purpose. The foregoing provisions of this Section 9(c)(viii) shall apply with respect to any person only if, after reduction for any applicable Federal excise tax imposed by Section 4999 of the Code and Federal income tax imposed by the Code, the Total Payments accruing to such person would be less than the amount of the Total Payments as reduced, if applicable, under the foregoing provisions of this Plan and after reduction for only Federal income taxes.

(ix) To the extent that the Administrator determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Administrator in its discretion may modify those restrictions as it determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.

(x) The headings contained in this Plan are for reference purposes only and shall not affect the meaning or interpretation of this Plan.

(xi) If any provision of this Plan shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not effect any other provision hereby, and this Plan shall be construed as if such invalid or unenforceable provision were omitted.

(xii) This Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon a Participant, and all rights granted to the Company hereunder, shall be binding upon the Participant’s heirs, legal representatives and successors.

(xiii) This Plan and each agreement granting an Award constitute the entire agreement with respect to the subject matter hereof and thereof, provided that in the event of any inconsistency between this Plan and such agreement, the terms and conditions of the Plan shall control.

(xiv) In the event there is an effective registration statement under the Securities Act pursuant to which shares of Stock shall be offered for sale in an underwritten offering, a Participant shall not, during the period requested by the underwriters managing the registered public offering, effect any public sale or distribution of shares of Stock received, directly or indirectly, as an Award or pursuant to the exercise or settlement of an Award.

13075623v5

(xv) None of the Company, an Affiliate or the Administrator shall have any duty or obligation to disclose affirmatively to a record or beneficial holder of Stock or an Award, and such holder shall have no right to be advised of, any material information regarding the Company or any Affiliate at any time prior to, upon or in connection with receipt or the exercise of an Award or the Company’s purchase of Stock or an Award from such holder in accordance with the terms hereof.

(xvi) This Plan, and all Awards, agreements and actions hereunder, shall be governed by, and construed in accordance with, the laws of the state of New York (other than its law respecting choice of law).

10.   DEFINITIONS.

        For purposes of this Plan, the following terms are defined as set forth below:

(a) “Affiliate” means a corporation or other entity controlled by the Company and designated by the Administrator as such.

(b) “Award” means a Stock Appreciation Right, Stock Option, Stock Award or Cash Award.

(c) “Board” means the Board of Directors of the Company.

(d) “Cash Award” means an award granted under Section 7 which is denominated and payable in cash based on the achievement of specified performance conditions.

(e) “Cause” means (i) the commission by the Participant of any act or omission that would constitute a felony or any crime of moral turpitude under Federal law or the law of the state or foreign law in which such action occurred, (ii) dishonesty, disloyalty, fraud, embezzlement, theft, disclosure of trade secrets or confidential information or other acts or omissions that result in a breach of fiduciary or other material duty to the Company and/or a Subsidiary; or (iii) continued reporting to work or working under the influence of alcohol, an illegal drug, an intoxicant or a controlled substance which renders Participant incapable of performing his or her material duties to the satisfaction of the Company and/or its Subsidiaries. Notwithstanding the foregoing, if the Participant and the Company or the Affiliate have entered into an employment or services agreement which defines the term “ Cause“ (or a similar term), such definition shall govern for purposes of determining whether such Participant has been terminated for Cause for purposes of this Plan. The determination of Cause shall be made by the Administrator, in its sole discretion.

(f) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.

(g) “Commission” means the Securities and Exchange Commission or any successor agency.

(h) “Committee” means a committee of Directors appointed by the Board to administer this Plan. Insofar as the Committee is responsible for granting Awards to Participants hereunder, it shall consist solely of two or more 13075623v5

directors, each of whom is a “non-employee director” within the meaning of Rule 16b-3, an “outside director” under Section 162(m) of the Code, an “independent director” as defined by the Sarbanes-Oxley Act of 2002, and “independent” as defined by the rules of any stock exchange or market on which the Stock is listed.

(i) “Covered Employee” means a person who is a “covered employee” within the meaning of Section 162(m) of the Code.

(j) “Director” means a member of the Company’s Board.

(k) “Disability” means mental or physical illness that entitles the Participant to receive benefits under the long-term disability plan of the Company or an Affiliate, or if the Participant is not covered by such a plan or the Participant is not an employee of the Company or an Affiliate, a mental or physical illness that renders a Participant totally and permanently incapable of performing the Participant’s duties for the Company or an Affiliate; provided  , however , that a Disability shall not qualify under this Plan if it is the result of (i) a willfully self-inflicted injury or willfully self-induced sickness; or (ii) an injury or disease contracted, suffered or incurred while participating in a criminal offense. Notwithstanding the foregoing, if the Participant and the Company or an Affiliate have entered into an employment or services agreement which defines the term “ Disability“ (or a similar term), such definition shall govern for purposes of determining whether such Participant suffers a Disability for purposes of this Plan. The determination of Disability shall be made by the Administrator, in its sole discretion. The determination of Disability for purposes of this Plan shall not be construed to be an admission of disability for any other purpose.

(l) “Effective Date” means January 3, 2006.

(m) “Eligible Individual” means any officer, employee, associate or director of the Company or a Subsidiary or Affiliate, or any consultant or advisor providing services to the Company or a Subsidiary or Affiliate, or employees of a corporation or other business enterprise which has been acquired by the Company or a Subsidiary, who hold options with respect to the stock of such corporation which the Company has agreed to assume.  Only executive officers of the Company shall be eligible to receive Cash Awards.

(n) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.

(o) “Fair Market Value” means, as of any given date, the fair market value of the Stock as determined by the Administrator or under procedures established by the Administrator. Unless otherwise determined by the Administrator, the Fair Market Value per share on any date shall be the closing sales price per share of the Stock on the New York Stock Exchange (or the principal stock exchange or market on which the Stock is then traded) on the business day preceding the date as of which such value is being determined or the last previous day on which a sale was reported if no sale of the Stock was reported on such date on such Exchange on such business day.

(p) “Family Member” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or 13075623v5

sister-in-law of a Participant (including adoptive relationships); any person sharing the Participant’s household (other than a tenant or employee); any trust in which the Participant and any of these persons have all of the beneficial interest; any foundation in which the Participant and any of these persons control the management of the assets; any corporation, partnership, limited liability company or other entity in which the Participant and any of these other persons are the direct and beneficial owners of all of the equity interests ( provided  the Participant and these other persons agree in writing to remain the direct and beneficial owners of all such equity interests); and any personal representative of the Participant upon the Participant’s death for purposes of administration of the Participant’s estate or upon the Participant’s incompetency for purposes of the protection and management of the assets of the Participant.

(q) “Incentive Stock Option” means any Stock Option intended to be and designated as an “incentive stock option” within the meaning of Section 422 of the Code.

(r) “Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

(s) “Optionee” means a person who holds a Stock Option.

(t) “Participant” means a person granted an Award.

(u) “Performance Award” means a right, granted to a Participant under Section 7, to receive Awards based upon performance criteria specified by the Administrator.

(v) “Representative” means (i) the person or entity acting as the executor or administrator of a Participant’s estate pursuant to the last will and testament of a Participant or pursuant to the laws of the jurisdiction in which the Participant had his or her primary residence at the date of the Participant’s death; (ii) the person or entity acting as the guardian or temporary guardian of a Participant; (iii) the person or entity which is the beneficiary of the Participant upon or following the Participant’s death; or (iv) any person to whom an Option has been transferred with the permission of the Administrator or by operation of law; provided that  only one of the foregoing shall be the Representative at any point in time as determined under applicable law and recognized by the Administrator.

(w) “Retirement” means termination of employment or provision of services without Cause, death or Disability on or after age 65 with 5 years of service.

(x) “Stock” means the Class A common stock, par value $0.001 per share, of the Company.

(y) “Stock Appreciation Right” means a right granted under Section 5.

(z) “Stock Award” means an Award, other than a Stock Option or Stock Appreciation Right, made in Stock or denominated in shares of Stock.

13075623v5

(aa) “Stock Option” means an option granted under Section 4.

(bb) “Subsidiary” means any company during any period in which it is a “subsidiary corporation” (as such term is defined in Section 424(f) of the Code) with respect to the Company.

(cc) “Ten Percent Holder” means an individual who owns, or is deemed to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary corporation of the Company, determined pursuant to the rules applicable to Section 422(b)(6) of the Code.

In addition, certain other terms used herein have the definitions given to them in the first places in which they are used.

13075623v5

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Erik Gershwind, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 10, 2014

/s/ ERIK GERSHWIND

Erik Gershwind

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Jeffrey Kaczka, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 10, 2014

/s/ JEFFREY KACZKA

Jeffrey Kaczka

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES‑OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc. (the “Company”) for the fiscal quarter ended March 1, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Erik Gershwind, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 10, 2014

By:	/s/ ERIK GERSHWIND
Name:	Erik Gershwind President and Chief Executive Officer (Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to MSC Industrial Direct Co., Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES‑OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc. (the “Company”) for the fiscal quarter ended March 1, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey Kaczka, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 10, 2014

By:	/s/ JEFFREY KACZKA
Name:	Jeffrey Kaczka Executive Vice President and Chief Financial Officer (Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to MSC Industrial Direct Co., Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Product Warranties (Details)	6 Months Ended
	Mar. 01, 2014
Minimum [Member]
Product warranties with original equipment manufacturers	30 days
Maximum [Member]
Warranty period	1 year
Product warranties with original equipment manufacturers	90 days

XML

Stock-Based Compensation (Fair Value Of Options Granted Estimated Using Black-Scholes Option Pricing Model Assumptions) (Details)	6 Months Ended
	Mar. 01, 2014	Mar. 02, 2013
Stock-Based Compensation [Abstract]
Expected life	3 years 10 months 24 days	3 years 9 months 18 days
Risk-free interest rate	0.93%	0.55%
Expected volatility	26.59%	32.86%
Expected dividend yield	1.70%	1.70%

XML

Basis Of Presentation

6 Months Ended

Mar. 01, 2014

Basis Of Presentation [Abstract]

Basis Of Presentation

Note 1. Basis of Presentation

The accompanying condensed consolidated financial statements include MSC Industrial Direct Co., Inc. (“MSC”) and all of its subsidiaries (hereinafter referred to collectively as the “Company”).All intercompany balances and transactions have been eliminated in consolidation.

The Company acquired substantially all of the assets and assumed certain liabilities of the North American distribution business (“BDNA”) of Barnes Group Inc. (“Barnes”) on April 22, 2013. The results of BDNA are included since the date of acquisition.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. Operating results for the thirteen week and twenty-six week periods ended March 1, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending August 30, 2014. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2013.

The Company’s fiscal year ends on the Saturday closest to August 31 of each year. Unless the context requires otherwise, references to years contained herein pertain to the Company’s fiscal year. The Company’s 2014 fiscal year will be a 52-week accounting period that will end on August 30, 2014 and the 2013 fiscal year was a 52-week accounting period that ended on August 31, 2013.

XML

Restructuring And Other Charges (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Mar. 01, 2014
Restructuring Cost and Reserve [Line Items]
Accrued restructuring balance, August 31, 2013	$ 2,460
Charged to operating expenses	5,889
Cash payments	(2,586)
Accrued restructuring balance, March 1, 2014	5,763
Workforce Reductions [Member]
Restructuring Cost and Reserve [Line Items]
Accrued restructuring balance, August 31, 2013	2,460
Charged to operating expenses	3,859
Cash payments	(1,473)
Accrued restructuring balance, March 1, 2014	4,846
Facility Closing [Member]
Restructuring Cost and Reserve [Line Items]
Charged to operating expenses	2,030
Cash payments	(1,113)
Accrued restructuring balance, March 1, 2014	917
Minimum [Member]
Restructuring Cost and Reserve [Line Items]
Non-recurring transaction, integration costs and restructuring charges associated with the acquisition in 2014	5,000
Maximum [Member]
Restructuring Cost and Reserve [Line Items]
Non-recurring transaction, integration costs and restructuring charges associated with the acquisition in 2014	$ 7,000

XML

Fair Value (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Mar. 01, 2014	Aug. 31, 2013
Derivatives, Fair Value [Line Items]
Cash equivalents, fair value	$ 6,436	$ 2,529
Corporate Bond Securities [Member]
Derivatives, Fair Value [Line Items]
Taxable bond	26,024	2,000
Gains and losses on securities	$ 0
Interest rate on bonds	2.40%

XML

Debt And Capital Lease Obligations (Credit Facility) (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended	6 Months Ended	12 Months Ended				6 Months Ended		6 Months Ended		6 Months Ended		6 Months Ended		6 Months Ended		6 Months Ended				6 Months Ended
	Mar. 01, 2014	Aug. 31, 2013	Mar. 01, 2014 BDNA [Member]	Aug. 31, 2013 Revolving Credit Facility [Member]	Mar. 01, 2014 Revolving Credit Facility [Member]	Mar. 01, 2014 Term Loan [Member]	Aug. 31, 2013 Term Loan [Member]	Mar. 01, 2014 New Credit Facility [Member]	Apr. 22, 2013 New Credit Facility [Member]	Mar. 01, 2014 New Credit Facility [Member] Revolving Credit Facility [Member]	Apr. 22, 2013 New Credit Facility [Member] Revolving Credit Facility [Member]	Mar. 01, 2014 New Credit Facility [Member] Term Loan [Member]	Apr. 22, 2013 New Credit Facility [Member] Term Loan [Member]	Mar. 01, 2014 New Credit Facility [Member] Letter of Credit [Member]	Mar. 01, 2014 Former Credit Facility [Member]	Mar. 01, 2014 LIBOR [Member] New Credit Facility [Member]	Mar. 01, 2014 Federal Funds Effective Rate [Member] New Credit Facility [Member]	Mar. 01, 2014 Minimum [Member] New Credit Facility [Member]	Mar. 01, 2014 Minimum [Member] New Credit Facility [Member] Letter of Credit [Member]	Mar. 01, 2014 Minimum [Member] LIBOR [Member] New Credit Facility [Member]	Mar. 01, 2014 Minimum [Member] Leverage Ratio Margin [Member]	Mar. 01, 2014 Maximum [Member] New Credit Facility [Member]	Mar. 01, 2014 Maximum [Member] New Credit Facility [Member] Letter of Credit [Member]	Mar. 01, 2014 Maximum [Member] LIBOR [Member] New Credit Facility [Member]	Mar. 01, 2014 Maximum [Member] Leverage Ratio Margin [Member]
Debt Instrument [Line Items]
Credit facility, maximum borrowing capacity									$ 650,000		$ 400,000		$ 250,000		$ 200,000
Maturity date								Apr. 22, 2018
Credit facility, expiration term										5 years		5 years
Available increase in amount borrowed								200,000
Percentage points in addition to reference rate used in computation of variable rate on debt instrument																	0.50%			1.00%	0.00%			1.375%	0.375%
Usage fee, percent																			1.00%				1.375%
Quarterly undrawn fee														0.125%				0.10%				0.20%
Borrowing rate under Credit Facility								1.16%
Reference rate maturity period																1 month
Maximum consolidated leverage ratio of total indebtedness to EBITDA								3.00
Minimum consolidated interest coverage ratio of EBITDA to total interest expense								3.00
Payments under revolving loans from credit facility	10,000	120,000
Borrowings under Credit Facility	50,000		370,000
Amount borrowed during the period				0
Current maturities		12,500						58,750
Outstanding balance					$ 40,000	$ 243,750	$ 250,000

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Debt And Capital Lease Obligations (Capital Lease And Finance Obligations) (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Mar. 01, 2014	Aug. 31, 2013
Capital Leased Assets [Line Items]
Capital leases and financing obligations for certain information technology equipment entered into	$ 254	$ 1,854
Amount due under capital leases and financing agreements	28,240	5,750
Current maturities of capital lease and financing obligations	1,571	1,684
Property and equipment acquired under capital leases and financing agreements	29,190	6,734
Fulfillment Center [Member]
Capital Leased Assets [Line Items]
Capital lease term	20 years
Non-cash financing activity related to the capital lease	24,024
Amount due under capital leases and financing agreements	$ 26,024	$ 2,000
Minimum [Member] | Fulfillment Center [Member]
Capital Leased Assets [Line Items]
Capital lease, prepayment term with no penalty	7 years
Maximum [Member] | Fulfillment Center [Member]
Capital Leased Assets [Line Items]
Capital lease, prepayment term with no penalty	20 years

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Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Mar. 01, 2014	Mar. 02, 2013
Cash Flows from Operating Activities:
Net income	$ 108,558	$ 119,266
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	32,059	21,069
Stock-based compensation	9,267	8,104
Loss on disposal of property, plant, and equipment	1,087	645
Provision for doubtful accounts	2,538	1,591
Excess tax benefits from stock-based compensation	(4,143)	(4,735)
Changes in operating assets and liabilities, net of amounts associated with business acquired:
Accounts receivable	(21,669)	(9,573)
Inventories	25,875	28,246
Prepaid expenses and other current assets	(4,414)	(9,494)
Other assets	865	2,390
Accounts payable and accrued liabilities	1,460	(22,482)
Total adjustments	42,925	15,761
Net cash provided by operating activities	151,483	135,027
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment	(33,925)	(40,306)
Investment in available for sale securities	(24,024)
Cash used in business acquisition, net of cash received	1,434
Net cash used in investing activities	(56,515)	(40,306)
Cash Flows from Financing Activities:
Purchases of treasury stock	(115,435)	(3,629)
Payments of cash dividends	(41,430)	(37,855)
Payments on capital lease and financing obligations	(1,077)	(610)
Excess tax benefits from stock-based compensation	4,143	4,735
Proceeds from sale of Class A common stock in connection with associate stock purchase plan	1,989	2,094
Proceeds from exercise of Class A common stock options	12,184	15,901
Borrowings under financing obligations	254	257
Borrowings under Credit Facility	50,000
Payment of notes payable and under the Credit Facility	(16,250)
Net cash used in financing activities	(105,622)	(19,107)
Effect of foreign exchange rate changes on cash and cash equivalents	101	(118)
Net (decrease) increase in cash and cash equivalents	(10,553)	75,496
Cash and cash equivalents-beginning of period	55,876	168,453
Cash and cash equivalents-end of period	45,323	243,949
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	67,062	77,552
Cash paid for interest	$ 1,613	$ 31

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Shareholders' Equity (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended		1 Months Ended	6 Months Ended
	Mar. 01, 2014	Mar. 02, 2013	Apr. 22, 2014 Scenario, Forecast [Member]	Mar. 01, 2014 Class A Treasury Stock [Member]
Components Of Shareholders Equity [Line Items]
Cash dividends	$ 41,430	$ 37,855
Dividend declared date	Apr. 04, 2014
Dividend declared, per share	$ 0.33
Dividend payable date	Apr. 22, 2014
Dividend record date	Apr. 15, 2014
Dividend payout			20,566
Class A common stock shares repurchased				1,503
Class A common stock shares repurchase amount	$ 115,435			$ 115,435
Shares repurchased by the company for associates' tax withholding liability associated with share-based compensation				50
Maximum number of shares that may yet be repurchased				2,931

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 01, 2014	Aug. 31, 2013
Current Assets:
Cash and cash equivalents	$ 45,323	$ 55,876
Accounts receivable, net of allowance for doubtful accounts of $9,071 and $7,523, respectively	365,074	345,366
Inventories	393,558	419,012
Prepaid expenses and other current assets	38,503	35,464
Deferred income taxes	37,771	37,771
Total current assets	880,229	893,489
Property, plant and equipment, net	280,027	251,536
Goodwill	628,606	630,318
Identifiable intangibles, net	146,305	155,324
Other assets	34,666	12,336
Total assets	1,969,833	1,943,003
Current Liabilities:
Revolving credit note	40,000
Current maturities of long-term debt	20,321	14,184
Accounts payable	108,432	113,636
Accrued liabilities	84,057	85,759
Total current liabilities	252,810	213,579
Long-term debt, net of current maturities	251,669	241,566
Deferred income taxes and tax uncertainties	97,475	97,475
Total liabilities	601,954	552,620
Commitments and Contingencies
Shareholders' Equity:
Preferred stock; $0.001 par value; 5,000,000 shares authorized; none issued and outstanding
Additional paid-in capital	555,497	528,770
Retained earnings	1,199,866	1,132,868
Accumulated other comprehensive loss	(6,261)	(4,427)
Class A treasury stock, at cost, 6,816,366 and 5,340,587 shares, respectively	(381,292)	(266,897)
Total shareholders' equity	1,367,879	1,390,383
Total liabilities and shareholders' equity	1,969,833	1,943,003
Class A Common Stock [Member]
Shareholders' Equity:
Common stock	55	55
Class B Common Stock [Member]
Shareholders' Equity:
Common stock	$ 14	$ 14

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Condensed Consolidated Statement Of Shareholders' Equity (USD $) In Thousands	Class A Common Stock [Member] Common Stock [Member]	Class A Common Stock [Member] Retained Earnings [Member]	Class A Common Stock [Member]	Class B Common Stock [Member] Common Stock [Member]	Class B Common Stock [Member] Retained Earnings [Member]	Class B Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Class A Treasury Stock [Member]	Total
Balance, Value at Aug. 31, 2013	$ 55			$ 14			$ 528,770	$ 1,132,868	$ (4,427)	$ (266,897)	$ 1,390,383
Balance, Shares at Aug. 31, 2013	54,634			14,141						5,341
Exchange of Class B common stock for Class A common stock, Shares	425			(425)
Exercise of common stock options, including income tax benefits of $4,197, Shares	255										255
Exercise of common stock options, including income tax benefits of $4,197, Value							16,381				16,381
Common stock issued under associate stock purchase plan, Shares										(28)
Common stock issued under associate stock purchase plan, Value							949			1,040	1,989
Issuance of restricted common stock, net of cancellations, Shares	110
Stock-based compensation							9,267				9,267
Purchase of treasury stock, Shares										1,503
Purchase of treasury stock, Value										(115,435)	(115,435)
Cash dividends paid on common stock		(32,172)	(32,172)		(9,258)	(9,258)
Issuance of dividend equivalent units							130	(130)
Foreign currency translation adjustments									(1,834)		(1,834)
Net income								108,558			108,558
Balance, Value at Mar. 01, 2014	$ 55			$ 14			$ 555,497	$ 1,199,866	$ (6,261)	$ (381,292)	$ 1,367,879
Balance, Shares at Mar. 01, 2014	55,424			13,716						6,816

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Restructuring And Other Charges (Tables)

6 Months Ended

Mar. 01, 2014

Restructuring And Other Charges [Abstract]

Schedule Of Restructuring Charges

	Workforce Reductions		Facility Closings		Total
Accrued restructuring balance, August 31, 2013	$	2,460	$	—	$	2,460
Charged to operating expenses		3,859		2,030		5,889
Cash payments		(1,473)		(1,113)		(2,586)
Accrued restructuring balance, March 1, 2014	$	4,846	$	917	$	5,763

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Stock-Based Compensation (Narrative) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 01, 2014	Mar. 02, 2013	Mar. 01, 2014	Mar. 02, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense			$ 9,267	$ 8,104
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,741	1,329	3,196	2,768
Stock-based compensation expense, tax benefit	637	480	1,163	1,004
Weighted-average grant-date fair values of the stock options granted			$ 14.98	$ 15.33
Unrecognized share-based compensation cost	10,557		10,557
Unrecognized share-based compensation weighted average period			1 year 9 months 18 days
Total intrinsic value of options exercised			9,113	12,356
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	2,753	1,992	4,990	4,277
Unrecognized share-based compensation cost	20,027		20,027
Unrecognized share-based compensation weighted average period			2 years 4 months 24 days
Restricted Stock Unit Agreement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	542	529	1,081	1,059
Unrecognized share-based compensation cost	$ 2,917		$ 2,917
Unrecognized share-based compensation weighted average period			1 year 10 months 24 days

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Condensed Consolidated Statement Of Shareholders' Equity (Parenthetical) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Mar. 01, 2014
Condensed Consolidated Statement Of Shareholders' Equity [Abstract]
Exercise of common stock options, income tax benefits	$ 4,197

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended	12 Months Ended
	Mar. 01, 2014	Aug. 31, 2013
Accounts receivable, allowance for doubtful accounts	$ 9,071	$ 7,523
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Class A treasury stock, shares	6,816,366	5,340,587
Class A Common Stock [Member]
Common stock, voting rights	1	1
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	55,424,216	54,634,259
Class B Common Stock [Member]
Common stock, voting rights	10	10
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	13,715,747	14,140,747
Common stock, shares outstanding	13,715,747	14,140,747

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Income Taxes

6 Months Ended

Mar. 01, 2014

Income Taxes [Abstract]

Income Taxes

Note 9. Income Taxes

During the thirteen and twenty-six week periods endedMarch 1, 2014, there were no material changes in unrecognized tax benefits. 

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Document And Entity Information	6 Months Ended
	Mar. 01, 2014	Apr. 04, 2014 Class A Common Stock [Member]	Apr. 04, 2014 Class B Common Stock [Member]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 01, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Entity Registrant Name	MSC INDUSTRIAL DIRECT CO INC
Entity Central Index Key	0001003078
Current Fiscal Year End Date	--08-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		48,606,411	13,715,747

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Legal Proceedings

6 Months Ended

Mar. 01, 2014

Legal Proceedings [Abstract]

Legal Proceedings

Note 10. Legal Proceedings

There are various claims, lawsuits, and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

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Condensed Consolidated Statements Of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 01, 2014	Mar. 02, 2013	Mar. 01, 2014	Mar. 02, 2013
Condensed Consolidated Statements Of Income [Abstract]
Net sales	$ 661,513	$ 569,462	$ 1,340,023	$ 1,146,953
Cost of goods sold	354,692	313,093	718,347	625,495
Gross profit	306,821	256,369	621,676	521,458
Operating expenses	225,099	165,793	443,204	328,530
Income from operations	81,722	90,576	178,472	192,928
Other (expense) income:
Interest expense	(967)	(73)	(1,814)	(125)
Interest income	4	39	9	82
Other (expense) income, net	(266)	87	(478)	71
Total other (expense) income	(1,229)	53	(2,283)	28
Income before provision for income taxes	80,493	90,629	176,189	192,956
Provision for income taxes	30,981	34,550	67,631	73,690
Net income	$ 49,512	$ 56,079	$ 108,558	$ 119,266
Net income per common share:
Basic	$ 0.80	$ 0.89	$ 1.73	$ 1.89
Diluted	$ 0.79	$ 0.88	$ 1.72	$ 1.88
Weighted average shares used in computing net income per common share:
Basic	61,743	62,699	62,258	62,538
Diluted	62,050	63,008	62,564	62,854
Cash dividend declared per common share	$ 0.33	$ 0.30	$ 0.66	$ 0.60

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Fair Value

6 Months Ended

Mar. 01, 2014

Fair Value [Abstract]

Fair Value

Note 4. 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 following 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 activemarkets.

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.

As of March 1, 2014and August 31, 2013, the Company measured cash equivalents consisting of money market funds at fair value on a recurring basis for which market prices are readily available (Level 1) and that invest primarily in United States government and government agency securities and municipal bond securities, which aggregated $6,436 and $2,529, respectively.

In connection with the construction of the Company’s new customer fulfillment center in Columbus, Ohio, the Company entered into an arrangement with the Columbus-Franklin County Finance Authority (“Finance Authority”) which provides savings on state and local sales taxes imposed on construction materials to entities that finance the transactions through them. This arrangement consists of the Finance Authority issuing taxable bonds to finance the structure and site improvements of the Company’s customer fulfillment center. The taxable bonds were approximately $26,024 and $2,000 at March 1, 2014 and August 31, 2013, respectively. The taxable bonds are classified as available for sale securities in accordance with ASC Topic 320. The securities are recorded at fair value in the Consolidated Balance Sheet. The fair values of these securities are based on observable inputs in non-active markets, which are therefore classified as Level 2 in the hierarchy. The Company did not record any significant gains or losses on these securities during the twenty-six week period ended March 1, 2014. The outstanding principal amount of each bond bears interest at the rate of 2.4% per year. Interest is payable on a semiannual basis in arrears on each interest payment date.

In addition, based on borrowing rates currently available to the Company for borrowings with similar terms, the carrying values of the Company’s capital lease obligations also approximate fair value. The fair value of the Company’s long-term debt, including current maturities, is estimated based on quoted market prices for the same or similar issues or on current rates offered to the Company for debt of the same remaining maturities. The carrying amount of the Company’s debt at March 1, 2014, approximates its fair value.

The Company’s financial instruments, other than those presented in the disclosure above, include cash, receivables, accounts payable, and accrued liabilities. Management believes the carrying amount of the aforementioned financial instruments is a reasonable estimate of fair value as of March 1, 2014 and August 31, 2013 due to the short-term maturity of these items.

During the twenty-six weeks ended March 1, 2014and March 2, 2013, the Company had no measurements of non-financial assets or liabilities at fair value on a non-recurring basis subsequent to their initial recognition.

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Stock-Based Compensation

6 Months Ended

Mar. 01, 2014

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 3. Stock-Based Compensation

The Company accounts for all share-based payments in accordance with ASC Topic 718, "Compensation—Stock Compensation" ("ASC 718").  The stock‑based compensation expense related to the stock option plans and the Associate Stock Purchase Plan included in operating expenses was $1,741and $1,329 for the thirteen week periods ended March 1, 2014 and March 2, 2013, respectively, and $3,196 and $2,768for the twenty-six week periods ended March 1, 2014 and March 2, 2013, respectively.  Tax benefits related to these expenses for the thirteen week periods endedMarch 1, 2014 and March 2, 2013were $637 and $480, respectively, and for the twenty-six week periods ended March 1, 2014 and March 2, 2013were $1,163 and $1,004, respectively.

The fair value of each option grant is estimated on the date of grant using the Black‑Scholes option pricing model with the following assumptions:

	Twenty-Six Weeks Ended
	March 1,		March 2,
	2014		2013
Expected life (in years)	3.9		3.8
Risk-free interest rate	0.93	%	0.55	%
Expected volatility	26.59	%	32.86	%
Expected dividend yield	1.70	%	1.70	%

A summary of the Company’s stock option activity for the twenty-sixweeks ended March 1, 2014is as follows:

	Options	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on August 31, 2013	1,224	$	58.30
Granted	399		81.76
Exercised	(255)		47.85
Canceled	(17)		72.46
Outstanding on March 1, 2014	1,351	$	67.02	5.29	$	15,204
Exercisable on March 1, 2014	486	$	55.77	3.99	$	10,242

The weighted‑average grant-date fair values of the stock options granted for the twenty-six week periods ended March 1, 2014and March 2, 2013were $14.98 and $15.33, respectively.  The unrecognized share‑based compensation cost related to stock option expense at March 1, 2014 was $10,557and will be recognized over a weighted average period of 1.8 years. The total intrinsic value of options exercised, which represents the difference between the exercise price and market value of common stock measured at each individual exercise date, during the twenty-six week periods ended March 1, 2014and March 2, 2013 were $9,113 and $12,356, respectively.

A  summary of the non‑vested restricted share award activity under the Company’s 2005 Omnibus Incentive Plan (the “Plan”) for the twenty-six weeks ended March 1, 2014 is as follows:

	Shares	Weighted-Average  Grant-Date Fair Value
Non-vested restricted share awards at August 31, 2013	505	$	59.47
Granted	121		82.20
Vested	(147)		51.18
Canceled/Forfeited	(11)		67.54
Non-vested restricted share awards at March 1, 2014	468	$	68.33

Stock‑based compensation expense recognized for the restricted share awards was $2,753 and $1,992 for the thirteen week periods ended March 1, 2014 and March 2, 2013, respectively, and $4,990 and $4,277 for the twenty-six week periods ended March 1, 2014 and March 2, 2013, respectively.The unrecognized compensation cost related to restricted share awards granted under the Plan at March 1, 2014 was $20,027 and will be recognized over a weighted average period of 2.4 years. 

A summary of the Company’s non-vested restricted stock unit award activity including dividend equivalent units for the twenty-six weeks ended March 1, 2014is as follows:

	Shares		Weighted- Average Grant- Date Fair Value
Non-vested restricted stock unit awards at August 31, 2013	196	$	55.32
Granted	2		80.82
Vested	—		—
Canceled/Forfeited	—		—
Non-vested restricted stock unit awards at March 1, 2014	198	$	55.60

Stock‑based compensation expense recognized for the restricted stock units was $542 and $529 for the thirteen week periods ended March 1, 2014 and March 2, 2013, respectively, and$1,081 and$1,059 for the twenty-six week periods ended March 1, 2014 and March 2, 2013, respectively.  The unrecognized compensation cost related to the restricted stock units at March 1, 2014was $2,917 and is expected to be recognized over a period of 1.9years.

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Net Income Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 01, 2014	Mar. 02, 2013	Mar. 01, 2014	Mar. 02, 2013
Net Income Per Share [Abstract]
Net income as reported	$ 49,512	$ 56,079	$ 108,558	$ 119,266
Less: Distributed net income available to participating securities	(116)	(123)	(248)	(240)
Less: Undistributed net income available to participating securities	(221)	(300)	(514)	(644)
Undistributed and distributed net income available to common shareholders, basic	49,175	55,656	107,796	118,382
Add: Undistributed net income allocated to participating securities	221	300	514	644
Less: Undistributed net income reallocated to participating securities	(220)	(299)	(512)	(641)
Undistributed and distributed net income available to common shareholders, diluted	$ 49,176	$ 55,657	$ 107,798	$ 118,385
Weighted average shares outstanding for basic net income per share	61,743	62,699	62,258	62,538
Effect of dilutive securities	307	309	306	316
Weighted average shares outstanding for diluted net income per share	62,050	63,008	62,564	62,854
Net income per share, Basic	$ 0.80	$ 0.89	$ 1.73	$ 1.89
Net income per share, Diluted	$ 0.79	$ 0.88	$ 1.72	$ 1.88
Antidilutive stock options	0	0	392	0

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Recently Issued Accounting Standards

6 Months Ended

Mar. 01, 2014

Recently Issued Accounting Standards [Abstract]

Recently Issued Accounting Standards

Note 11. Recently Issued Accounting Standards

Recognizing Assets and Liabilities Arising from Lease Contracts on the Balance Sheet

In May 2013, the FASB reissued an exposure draft on lease accounting that would require entities to recognize assets and liabilities arising from lease contracts on the balance sheet. The proposed exposure draft states that lessees and lessors should apply a “right-of-use model” in accounting for all leases. Under the proposed model, lessees would recognize an asset for the right to use the leased asset, and a liability for the obligation to make rental payments over the lease term. When measuring the asset and liability, variable lease payments are excluded whereas renewal options that provide a significant economic incentive upon renewal would be included. The lease expense from real estate based leases would continue to be recorded under a straight line approach, but other leases not related to real estate would be expensed using an effective interest method that would accelerate lease expense. Comments were due by September 13, 2013. A final standard is currently expected to be issued in 2014 and would be effective no earlier than annual reporting periods beginning on January 1, 2017 (fiscal year 2018 for the Company). The Company is currently assessing the impact that the adoption of the guidance will have on its financial position, results of operations and cash flows. As of March 1, 2014, the Company leases all of its branch offices and certain of its customer fulfillment centers and office space.

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Shareholders' Equity

6 Months Ended

Mar. 01, 2014

Shareholders' Equity [Abstract]

Shareholders' Equity

Note 7. Shareholders’ Equity

The Company paid cash dividends of $41,430 for the twenty-six weeks ended March 1, 2014. For the twenty-six weeks ended March 2, 2013, the Company paid cash dividends of $37,855.  On April 4, 2014, the Board of Directors declared a quarterly cash dividend of $0.33 per share payable on April 22, 2014 to shareholders of record at the close of business on April 15, 2014. The dividend will result in a payout of approximately $20,566, based on the number of shares outstanding at April 4, 2014.

The Board of Directors established the MSC Stock Repurchase Plan (the “Repurchase Plan”) which allows the Company to repurchase shares at any time and in any increments it deems appropriate in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During the twenty-six week period ending March 1, 2014, the Company repurchased 1,503 shares of its Class A common stock for $115,435, which is reflected at cost as treasury stock in the accompanying condensed consolidated financial statements. Approximately 50 of these shares were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its share-based compensation program. As of March 1, 2014, the maximum number of shares that may yet be repurchased under the Repurchase Plan was 2,931 shares.

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Restructuring And Other Charges

6 Months Ended

Mar. 01, 2014

Restructuring And Other Charges [Abstract]

Restructuring And Other Charges

Note 5.  Restructuring and Other Charges

As a result of the BDNA acquisition, the Company has and will incur restructuring charges associated with associate severance costs, stay bonuses, and the impairment of long-lived assets due to the closure of facilities. The aggregate liabilities included in “Accrued liabilities” in the consolidated balance sheet relating to the restructuring activities as of March 1, 2014 and activity for the twenty-six week period ended March 1, 2014 consisted of the following:

	Workforce Reductions		Facility Closings		Total
Accrued restructuring balance, August 31, 2013	$	2,460	$	—	$	2,460
Charged to operating expenses		3,859		2,030		5,889
Cash payments		(1,473)		(1,113)		(2,586)
Accrued restructuring balance, March 1, 2014	$	4,846	$	917	$	5,763

Non-recurring integration costs and restructuring charges associated with the BDNA acquisition are estimated to be between approximately $5,000 and $7,000 throughout the remainder of fiscal year 2014.

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Debt And Capital Lease Obligations

6 Months Ended

Mar. 01, 2014

Debt And Capital Lease Obligations [Abstract]

Debt And Capital Lease Obligations

Note 6. Debt and Capital Lease Obligations

Credit Facility

On April 22, 2013, in connection with the acquisition of BDNA, the Company entered into a new $650,000 Credit Facility (the “Credit Facility”). The Credit Facility, which matures on April 22, 2018, provides for a five-year unsecured revolving loan facility in the aggregate amount of $400,000 and a five-year unsecured term loan facility in the aggregate amount of $250,000. The Credit Facility replaced the Company’s previous $200,000 Credit Facility, dated June 8, 2011.

The Credit Facility also permits the Company, at its request, and upon the satisfaction of certain conditions, to add one or more incremental term loan facilities and/or increase the revolving loan commitments in an aggregate amount not to exceed $200,000. Subject to certain limitations, each such incremental term loan facility or revolving commitment increase will be on terms as agreed to by the Company, the Administrative Agent and the lenders providing such financing.

Borrowings under the Credit Facility bear interest, at the Company’s option, either at (i) the LIBOR (London Interbank Offered Rate) rate plus the applicable margin for LIBOR loans ranging from 1.00% to 1.375%, based on the Company’s consolidated leverage ratio; or (ii) the greatest of (a) the Administrative Agent’s prime rate in effect on such day, (b) the federal funds effective rate in effect on such day, plus 0.50% and (c) the LIBOR rate that would be calculated as of such day in respect of a proposed LIBOR loan with a one-month interest period, plus 1.00%, plus, in the case of each of clauses (a) through (c), an applicable margin ranging from 0.00% to 0.375%, based on the Company’s consolidated leverage ratio. The Company is required to pay a quarterly undrawn fee ranging from 0.10% to 0.20% per annum on the unutilized portion of the Credit Facility based on the Company’s consolidated leverage ratio. The Company is also required to pay quarterly letter of credit usage fees ranging between 1.00% to 1.375% (based on the Company’s consolidated leverage ratio) on the amount of the daily average outstanding letters of credit, and a quarterly fronting fee of 0.125% per annum on the undrawn and unexpired amount of each letter of credit. The applicable borrowing rate for the Company for any borrowings outstanding under the Credit Facility at March 1, 2014 was 1.16%, which represents LIBOR plus 1.0%. Based on the interest period the Company selects, interest may be payable every one, two, three or six months. Interest is reset at the end of each interest period. The Company currently elects to have loans under the Credit Facility bear interest based on LIBOR with one-month interest periods.

The Credit Facility contains several restrictive covenants including the requirement that the Company maintain a maximum consolidated leverage ratio of total indebtedness to EBITDA (earnings before interest expense, taxes, depreciation and amortization) of no more than 3.00 to 1.00, and a minimum consolidated interest coverage ratio of EBITDA to total interest expense of at least 3.00 to 1.00, during the term of the Credit Facility. Borrowings under the Credit Facility are guaranteed by certain of the Company’s subsidiaries.

The Company financed $370,000 of the BDNA purchase price with the proceeds of the unsecured term loan facility and a portion of the unsecured revolving loan facility. The Company repaid $120,000 of the revolving loan facility during fiscal 2013. During the twenty-six week period ended March 1, 2014, the Company borrowed $50,000 under the revolving loan facility and repaid $10,000 of the revolving loan facility.

As of March 1, 2014, there were $243,750 and $40,000 of borrowings outstanding under the term loan facility and the revolving credit facility, respectively, of the Credit Facility, of which $58,750 represents current maturities. As of August 31, 2013, there were $250,000 of borrowings outstanding under the term loan facility of the Credit Facility, of which $12,500 represents current maturities, and no borrowings outstanding under the revolving credit facility. At March 1, 2014, the Company was in compliance with the operating and financial covenants of the Credit Facility.

Capital Lease and Financing Obligations

In connection with the construction of the Company’s new customer fulfillment center in Columbus, Ohio, the Company entered into an arrangement with the Finance Authority which provides savings on state and local sales taxes imposed on construction materials to entities that finance the transactions through them. This arrangement consists of the Finance Authority issuing taxable bonds to finance the structure and site improvements of the Company’s customer fulfillment center. The Finance Authority holds the title to the building and entered into a long-term lease with the Company. The lease has a 20-year term with a prepayment option without penalty between 7 and 20 years. At the end of the lease term, the building’s title is transferred to the Company for a nominal amount when the principal of and interest on the bonds have been fully paid. The lease has been classified as a capital lease in accordance with ASC Topic 840. At March 1, 2014 and August 31, 2013, the capital lease obligation was approximately $26,024 and $2,000, respectively. The non-cash financing activity related to the capital lease for the twenty-six week period ended March 1, 2014 was $24,024.

From time to time, the Company enters into capital leases and financing arrangements to purchase certain equipment. The equipment acquired from these vendors is paid over a specified period of time based on the terms agreed upon. During the twenty-six week period ended March 1, 2014, the Company entered into a financing obligation for certain information technology equipment totaling $254. During the fiscal year ended August 31, 2013, the Company entered into various capital leases and financing obligations for certain information technology equipment totaling $1,854.  

The amount due under all capital leases and financing arrangements at March 1, 2014was approximately $28,240,of which $1,571 represents current maturities and at August 31, 2013 was approximately $5,750, of which $1,684 represents current maturities.  The net book value of the property and equipment acquired under these capital leases and financing agreements at March 1, 2014 and August 31, 2013 was approximately $29,190and $6,734, respectively.

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Product Warranties

6 Months Ended

Mar. 01, 2014

Product Warranties [Abstract]

Product Warranties

Note 8. Product Warranties

The Company generally offers a maximum one-year warranty, including parts and labor, for some of its machinery products. The specific terms and conditions of those warranties vary depending upon the product sold. The Company may be able to recoup some of these costs through product warranties it holds with its original equipment manufacturers, which typically range from thirty to ninety days. In general, many of the Company’s general merchandise products are covered by third party original equipment manufacturers’ warranties. The Company’s warranty expense for the twenty-six week periods ended March 1, 2014 and March 2, 2013 was minimal.

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Stock-Based Compensation (Tables)

6 Months Ended

Mar. 01, 2014

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Fair Value Of Options Granted Estimated Using Black-Scholes Option Pricing Model Assumptions

	Twenty-Six Weeks Ended
	March 1,		March 2,
	2014		2013
Expected life (in years)	3.9		3.8
Risk-free interest rate	0.93	%	0.55	%
Expected volatility	26.59	%	32.86	%
Expected dividend yield	1.70	%	1.70	%

Summary Of Stock Options

	Options	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on August 31, 2013	1,224	$	58.30
Granted	399		81.76
Exercised	(255)		47.85
Canceled	(17)		72.46
Outstanding on March 1, 2014	1,351	$	67.02	5.29	$	15,204
Exercisable on March 1, 2014	486	$	55.77	3.99	$	10,242

Restricted Stock [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Non-Vested Share Activity

	Shares	Weighted-Average  Grant-Date Fair Value
Non-vested restricted share awards at August 31, 2013	505	$	59.47
Granted	121		82.20
Vested	(147)		51.18
Canceled/Forfeited	(11)		67.54
Non-vested restricted share awards at March 1, 2014	468	$	68.33

Restricted Stock Unit Agreement [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Non-Vested Unit Award Activity

	Shares		Weighted- Average Grant- Date Fair Value
Non-vested restricted stock unit awards at August 31, 2013	196	$	55.32
Granted	2		80.82
Vested	—		—
Canceled/Forfeited	—		—
Non-vested restricted stock unit awards at March 1, 2014	198	$	55.60

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Stock-Based Compensation (Summary Of Stock Options) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Mar. 01, 2014
Stock-Based Compensation [Abstract]
Outstanding on August 31, 2013, Options	1,224
Granted, Options	399
Exercised, Options	(255)
Canceled, Options	(17)
Outstanding on March 1, 2014, Options	1,351
Exercisable on March 1, 2014, Options	486
Outstanding on August 31, 2013, Weighted-Average Exercise Price per Share	$ 58.30
Granted, Weighted-Average Exercise Price per Share	$ 81.76
Exercised, Weighted-Average Exercise Price per Share	$ 47.85
Canceled, Weighted-Average Exercise Price per Share	$ 72.46
Outstanding on March 1, 2014, Weighted-Average Exercise Price per Share	$ 67.02
Exercisable on March 1, 2014, Weighted-Average Exercise Price per Share	$ 55.77
Outstanding on March 1, 2014, Weighted-Average Remaining Contractual Term	5 years 3 months 15 days
Exercisable on March 1, 2014, Weighted-Average Remaining Contractual Term	3 years 11 months 27 days
Outstanding on March 1, 2014, Aggregate Intrinsic Value	$ 15,204
Exercisable on March 1, 2014, Aggregate Intrinsic Value	$ 10,242

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Condensed Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 01, 2014	Mar. 02, 2013	Mar. 01, 2014	Mar. 02, 2013
Condensed Consolidated Statements Of Comprehensive Income [Abstract]
Net income, as reported	$ 49,512	$ 56,079	$ 108,558	$ 119,266
Foreign currency translation adjustments	(2,457)	(1,046)	(1,834)	(777)
Comprehensive income	$ 47,055	$ 55,033	$ 106,724	$ 118,489

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Net Income Per Share

6 Months Ended

Mar. 01, 2014

Net Income Per Share [Abstract]

Net Income Per Share

Note 2. Net Income per Share

The following table sets forth the computation of basic and diluted net income per common share under the two-class method in accordance with Accounting Standards Codification™ ("ASC") Topic 260, “Earnings Per Share”:  

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	March 1,		March 2,		March 1,		March 2,
	2014		2013		2014		2013
Net income as reported	$	49,512	$	56,079	$	108,558	$	119,266
Less: Distributed net income available to participating securities		(116)		(123)		(248)		(240)
Less: Undistributed net income available to participating securities		(221)		(300)		(514)		(644)
Numerator for basic net income per share:
Undistributed and distributed net income available to common shareholders	$	49,175	$	55,656	$	107,796	$	118,382
Add: Undistributed net income allocated to participating securities		221		300		514		644
Less: Undistributed net income reallocated to participating securities		(220)		(299)		(512)		(641)
Numerator for diluted  net income per share:
Undistributed and distributed net income available to common shareholders	$	49,176	$	55,657	$	107,798	$	118,385
Denominator:
Weighted average shares outstanding for basic net income per share		61,743		62,699		62,258		62,538
Effect of dilutive securities		307		309		306		316
Weighted average shares outstanding for diluted net income per share		62,050		63,008		62,564		62,854
Net income per share Two-class method:
Basic	$	0.80	$	0.89	$	1.73	$	1.89
Diluted	$	0.79	$	0.88	$	1.72	$	1.88

There were no  antidilutive stock options included in the computation of diluted earnings per share for the thirteen week period ended March 1, 2014. Antidilutive stock options of 392 were not included in the computation of diluted earnings per share for the twenty-six week period ended March 1, 2014. There were no  antidilutive stock options included in the computation of diluted earnings per share for the thirteen and twenty-six week periods ended March 2, 2013.

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Stock-Based Compensation (Non-Vested Restricted Share Award Activity) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Mar. 01, 2014
Restricted Stock [Member] | 2005 Omnibus Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-vested restricted share awards at August 31, 2013, Shares	505
Granted, Shares	121
Vested, Shares	(147)
Canceled/Forfeited, Shares	(11)
Non-vested restricted share awards at March 1, 2014, Shares	468
Non-vested restricted share awards at August 31, 2013, Weighted-Average Grant-Date Fair Value	$ 59.47
Granted, Weighted-Average Grant-Date Fair Value	$ 82.20
Vested, Weighted-Average Grant-Date Fair Value	$ 51.18
Canceled/Forfeited, Weighted-Average Grant-Date Fair Value	$ 67.54
Non-vested restricted share awards at March 1, 2014, Weighted-Average Grant-Date Fair Value	$ 68.33
Restricted Stock Unit Agreement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-vested restricted share awards at August 31, 2013, Shares	196
Granted, Shares	2
Vested, Shares
Canceled/Forfeited, Shares
Non-vested restricted share awards at March 1, 2014, Shares	198
Non-vested restricted share awards at August 31, 2013, Weighted-Average Grant-Date Fair Value	$ 55.32
Granted, Weighted-Average Grant-Date Fair Value	$ 80.82
Vested, Weighted-Average Grant-Date Fair Value
Canceled/Forfeited, Weighted-Average Grant-Date Fair Value
Non-vested restricted share awards at March 1, 2014, Weighted-Average Grant-Date Fair Value	$ 55.60

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Net Income Per Share (Tables)

6 Months Ended

Mar. 01, 2014

Net Income Per Share [Abstract]

Basic And Diluted Net Income Per Common Share Under The Two-Class Method

	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	March 1,		March 2,		March 1,		March 2,
	2014		2013		2014		2013
Net income as reported	$	49,512	$	56,079	$	108,558	$	119,266
Less: Distributed net income available to participating securities		(116)		(123)		(248)		(240)
Less: Undistributed net income available to participating securities		(221)		(300)		(514)		(644)
Numerator for basic net income per share:
Undistributed and distributed net income available to common shareholders	$	49,175	$	55,656	$	107,796	$	118,382
Add: Undistributed net income allocated to participating securities		221		300		514		644
Less: Undistributed net income reallocated to participating securities		(220)		(299)		(512)		(641)
Numerator for diluted  net income per share:
Undistributed and distributed net income available to common shareholders	$	49,176	$	55,657	$	107,798	$	118,385
Denominator:
Weighted average shares outstanding for basic net income per share		61,743		62,699		62,258		62,538
Effect of dilutive securities		307		309		306		316
Weighted average shares outstanding for diluted net income per share		62,050		63,008		62,564		62,854
Net income per share Two-class method:
Basic	$	0.80	$	0.89	$	1.73	$	1.89
Diluted	$	0.79	$	0.88	$	1.72	$	1.88