-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OmWwnXvocOGEKgr+CmhQQjQWX2fZxmoArMWokHkHykvLBiNRixKMxBTNfngVOfIJ tKOI0zv87fTkq/EcqNiiZw== 0001005477-98-002158.txt : 19980708 0001005477-98-002158.hdr.sgml : 19980708 ACCESSION NUMBER: 0001005477-98-002158 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980530 FILED AS OF DATE: 19980707 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MSC INDUSTRIAL DIRECT CO INC CENTRAL INDEX KEY: 0001003078 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-INDUSTRIAL MACHINERY & EQUIPMENT [5084] IRS NUMBER: 113289165 STATE OF INCORPORATION: NY FISCAL YEAR END: 0902 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14130 FILM NUMBER: 98661347 BUSINESS ADDRESS: STREET 1: 151 SUNNYSIDE BLVD CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 5163497100 MAIL ADDRESS: STREET 1: 151 SUNNYSIDE BLVD CITY: PLAINVIEW STATE: NY ZIP: 11803 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended May 30, 1998 Commission File No.: 1-14130 MSC INDUSTRIAL DIRECT CO., INC. (Exact name of registrant as specified in its charter) New York 11-3289165 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 151 Sunnyside Blvd. Plainview, NY 11803-1592 (Address of principal executive offices, including zip code) (516) 349-7100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Shares of each class of common stock, outstanding as of July 6, 1998: Class A common stock -- 33,648,984, Class B common stock -- 34,142,028 MSC INDUSTRIAL DIRECT CO., INC. INDEX PART I. FINANCIAL INFORMATION Page No. - ------- --------------------- -------- ITEM 1. Consolidated Financial Statements Consolidated Balance Sheets - May 30, 1998 and August 30, 1997 3 Consolidated Statements of Income - Thirteen and thirty-nine weeks ended May 30, 1998 and May 31, 1997 4 Consolidated Statement of Shareholders' Equity - Thirty-nine weeks ended May 30, 1998 5 Consolidated Statements of Cash Flows - Thirty-nine weeks ended May 30, 1998 and May 31, 1997 6 Notes to Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION - -------- ----------------- ITEM 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 Page 2 PART I. FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements MSC INDUSTRIAL DIRECT CO., INC. Consolidated Balance Sheets
May 30, August 30, 1998 1997 (in thousands, except share data) ---- ---- (unaudited) (audited) ASSETS Current Assets: Cash and cash equivalents $ 18,137 $ 13,418 Accounts receivable, net of allowance for doubtful accounts of $3,410 and $2,030, respectively 75,690 55,348 Inventories 157,704 163,003 Due from officers, employees and affiliated companies 687 765 Prepaid expenses and other current assets 2,269 2,242 Current deferred income tax assets 11,812 9,237 --------- --------- Total current assets 266,299 244,013 --------- --------- Property, plant and equipment, net 70,718 49,658 --------- --------- Other Assets: Goodwill 54,700 34,270 Other 5,254 6,893 --------- --------- 59,954 41,163 --------- --------- $ 396,971 $ 334,834 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 19,067 $ 11,459 Accrued liabilities 59,464 41,997 Current portion of long-term notes payable 171 213 --------- --------- Total current liabilities 78,702 53,669 Long-term notes payable 2,650 2,744 Other long-term liabilities 105 108 Deferred income tax liabilities 3,916 3,318 --------- --------- Total liabilities 85,373 59,839 --------- --------- Shareholders' Equity: Preferred stock; $0.001 par value; 5,000,000 shares authorized; none outstanding -- -- Class A common stock; $0.0005 par value; 100,000,000 shares authorized; 33,635,853 and 33,331,966 shares, respectively, issued and outstanding 17 17 Class B common stock; $0.0005 par value; 50,000,000 shares authorized; 34,142,028 and 34,364,400 shares, respectively, issued and outstanding 17 17 Additional paid-in capital 212,921 211,704 Retained earnings 100,898 65,499 Treasury stock, at cost (887) (499) Deferred stock compensation (1,368) (1,743) --------- --------- Total shareholders' equity 311,598 274,995 --------- --------- $ 396,971 $ 334,834 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. Page 3 MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Income (unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended (in thousands, except per May 30, May 31, May 30, May 31, share data) 1998 1997 1998 1997 --------- --------- --------- ---------- Net sales $155,098 $ 123,895 $ 433,227 $ 320,794 Cost of goods sold 91,508 73,452 256,113 189,374 --------- --------- --------- --------- Gross profit 63,590 50,443 177,114 131,420 Operating expenses 40,677 32,688 120,102 87,626 --------- --------- --------- --------- Income from operations 22,913 17,755 57,012 43,794 --------- --------- --------- --------- Other Income (Expense): Interest income 315 224 816 446 Interest expense (6) (219) (49) (298) Other income (expense), net 311 276 730 178 --------- --------- --------- --------- 620 281 1,497 326 --------- --------- --------- --------- Income before provision for income taxes 23,533 18,036 58,509 44,120 Provision for income taxes 9,296 7,115 23,110 17,418 --------- --------- --------- --------- Net income $ 14,237 $ 10,921 $ 35,399 $ 26,702 ========= ========= ========= ========= Per Share Information (Note 3): Net income per common share: Basic $ 0.21 $ 0.16 $ 0.52 $ 0.40 ========= ========= ========= ========= Diluted $ 0.21 $ 0.16 $ 0.51 $ 0.39 ========= ========= ========= ========= Common shares used in computing per share amounts (Note 3): Basic 67,770 67,552 67,739 66,983 ========= ========= ========= ========= Diluted 69,215 68,280 68,924 67,860 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. Page 4 MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statement of Shareholders' Equity (unaudited)
Class A Class B (in thousands) Common Stock Common Stock Additional ------------------- ------------------ Paid-In Retained Shares Amount Shares Amount Capital Earnings ------ ------ ------ ------ --------- -------- Thirty-nine weeks ended May 30, 1998: Balance, September 1, 1997 33,332 $ 17 34,364 $ 17 $ 211,704 $ 65,499 Exchange of Class B common stock for Class A common stock 222 -- (222) -- -- -- Purchase of treasury stock Exercise of common stock options, including related tax benefits 82 -- -- -- 1,217 -- Net income -- -- -- -- -- 35,399 Amortization of deferred stock compensation -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- Balance, May 30, 1998 33,636 $ 17 34,142 $ 17 $ 212,921 100,898 ========= ========= ========= ========= ========= ========= (in thousands) Treasury Stock Deferred ------------------------- Stock Shares Amount at Cost Compensation Total ------ -------------- ------------ ----- Thirty-nine weeks ended May 30, 1998: Balance, September 1, 1997 28 $ (499) $ (1,743) $ 274,995 Exchange of Class B common stock for Class A common stock -- -- -- -- Purchase of treasury stock 18 (388) (388) Exercise of common stock options, including related tax benefits -- -- -- 1,217 Net income -- -- -- 35,399 Amortization of deferred stock compensation -- -- 375 375 --------- --------- --------- --------- Balance, May 30, 1998 46 $ (887) $ (1,368) 311,598 ========= ========= ========= =========
The accompanying notes are an integral part of this consolidated statement. Page 5 MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Cash Flows (unaudited) (in thousands) Thirty-Nine Weeks Ended ----------------------- May 30, May 31, 1998 1997 --------- --------- Cash Flows from Operating Activities: Net income $ 35,399 $ 26,702 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,234 3,534 Amortization of deferred stock compensation 375 440 Provision for doubtful accounts 1,525 566 Deferred income taxes (1,521) 3,944 Changes in operating assets and liabilities, net of effect from acquisitions: Accounts receivable (13,237) (9,106) Inventories 9,666 8,594 Prepaid expenses and other current assets 328 2,341 Other assets 1,866 2,181 Accounts payable and accrued liabilities 7,091 (5,038) Other long-term liabilities (3) (589) --------- --------- 11,324 6,867 --------- --------- Net cash provided by operating activities 46,723 33,569 --------- --------- Cash Flows from Investing Activities: Expenditures for property, plant and equipment (23,290) (11,351) Cash paid for acquisitions, net of cash acquired (18,741) (27,771) --------- --------- Net cash used in investing activities (42,031) (39,122) --------- --------- Cash Flows from Financing Activities: Net proceeds from public offering of common stock -- 64,444 Purchase of treasury stock (388) -- Net proceeds from exercise of common stock options 761 814 Net repayments of notes payable (424) (52,638) Net advances to affiliates 78 441 --------- --------- Net cash provided by financing activities 27 13,061 --------- --------- Net increase in cash and cash equivalents 4,719 7,508 Cash and cash equivalents - beginning of period 13,418 1,679 --------- --------- Cash and cash equivalents - end of period $ 18,137 $ 9,187 ========= ========= The accompanying notes are an integral part of these consolidated statements. Page 6 Notes to Consolidated Financial Statements (in thousands, except per share data) (unaudited) 1. MSC Industrial Direct Co., Inc. ("MSC") was incorporated in the State of New York on October 24, 1995. MSC and its subsidiaries, including its principal operating subsidiary, Sid Tool Co., Inc., are hereinafter referred to collectively as the "Company." Reference is made to the Notes to Consolidated Financial Statements contained within the Company's audited financial statements included in MSC's annual report on Form 10-K for the year ended August 30, 1997. In the opinion of management, the interim unaudited financial statements included herein reflect all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of such data in accordance with generally accepted accounting principles. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. The Company's fiscal year ends on the Saturday nearest August 31 of each year. Certain fiscal 1997 balances have been reclassified to conform to the fiscal 1998 presentation. 2. The Company adopted the Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, for the period ended February 28, 1998. SFAS No. 128 requires the Company to present basic and diluted earnings per share ("EPS") on the face of the income statement. Basic earnings per common share were computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share were computed based on the weighted average number of common shares issued and outstanding plus additional shares assumed to be outstanding to reflect the diluted effect of common stock equivalents using the treasury stock method. A reconciliation between the numerator and denominator of the basic and diluted EPS calculation is as follows: Page 7
Thirteen Weeks Ended Thirty-Nine Weeks Ended -------------------- ----------------------- May 30, May 31, May 30, May 31, 1998 1997 1998 1997 --------- --------- --------- --------- Net income for EPS computation $ 14,237 $ 10,921 $ 35,399 $ 26,702 ========= ========= ========= ========= Basic EPS: Weighted average common shares 67,770 67,552 67,739 66,983 ========= ========= ========= ========= Basic EPS $ 0.21 $ 0.16 $ 0.52 $ 0.40 ========= ========= ========= ========= Diluted EPS: Weighted average common shares 67,770 67,552 67,739 66,983 Shares issuable from assumed conversion of common stock equivalents 1,445 728 1,185 877 --------- --------- --------- --------- Weighted average common shares and common stock equivalents 69,215 68,280 68,924 67,860 ========= ========= ========= ========= Diluted EPS $ 0.21 $ 0.16 $ 0.51 $ 0.39 ========= ========= ========= =========
3. On April 6, 1998, the Company declared a two-for-one stock split in the form of a stock dividend, to be distributed May 22, 1998 to shareholders of record as of April 24, 1998. All information contained in the accompanying consolidated financial statements has been retroactively restated to give effect to this stock split for all periods presented. Page 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview MSC Industrial Direct Co., Inc. ("MSC") was formed in October 1995 as a holding company to hold all of the outstanding capital stock of Sid Tool Co., Inc. (the "Operating Subsidiary"), which has conducted business since 1941. MSC and its subsidiaries, including the Operating Subsidiary, are hereinafter referred to collectively as the "Company." The Company is one of the largest direct marketers of a broad range of industrial products to small and mid-sized industrial customers throughout the United States. The Company distributes a full line of industrial products, such as cutting tools, abrasives, measuring instruments, machine tool accessories, safety equipment, fasteners, welding supplies and electrical supplies, intended to satisfy its customers' maintenance, repair and operations ("MRO") supplies requirements. The Company's 4,075 page master catalog offers approximately 332,000 stock keeping units ("SKUs") and is supplemented by weekly, monthly and quarterly specialty and promotional catalogs, newspapers and brochures. The products are distributed through the Company's three distribution centers and seventy-nine customer service locations. Most of the products are carried in stock, and orders for these products are typically fulfilled on the day the order is received. Results of Operations - Thirteen weeks ended May 30, 1998 and May 31, 1997 Net sales increased by $31.2 million, or 25.2%, to $155.1 million in the third quarter of fiscal 1998 from $123.9 million in the third quarter of fiscal 1997. This increase was primarily attributable to an increase in sales to the Company's existing customers, an increase in the number of active customers and the effect of acquisitions made in fiscal 1997 and fiscal 1998. The increase in sales to existing customers was principally derived from an increase in the number of SKUs offered, as well as from more focused marketing efforts. Gross profit increased by $13.2 million, or 26.2%, to $63.6 million in the third quarter of fiscal 1998 from $50.4 million in the third quarter of fiscal 1997. The increase in gross profit was primarily attributable to increased sales. As a percentage of sales, gross profit increased slightly from 40.7% to 41.0%. Operating expenses increased by $8.0 million, or 24.5%, to $40.7 million in the third quarter of fiscal 1998 from $32.7 million in the third quarter of fiscal 1997. As a percentage of sales, operating expenses decreased slightly from 26.4% to 26.2%. The decrease was primarily the result of operating efficiencies and the distribution of fixed expenses over a larger revenue base, offset in part by continuous investment in new branches and other growth programs. Income from operations increased by $5.1 million, or 28.7%, to $22.9 million in the third quarter of fiscal 1998 from $17.8 million in the third quarter of fiscal 1997. The increase was primarily attributable to increased sales and gross profit, offset by an increase in operating expenses. Page 9 Net income increased by $3.3 million, or 30.3%, to $14.2 million in the third quarter of fiscal 1998 from $10.9 million in the third quarter of fiscal 1997. This increase was primarily the result of previously mentioned increases in sales and gross profit, offset by the increase in operating expenses. Results of Operations - Thirty-nine weeks ended May 30, 1998 and May 31, 1997 Net sales increased by $112.4 million, or 35.0%, to $433.2 million during the first nine months of fiscal 1998 from $320.8 million in the first nine months of fiscal 1997. This increase was primarily attributable to an increase in sales to the Company's existing customers, an increase in the number of active customers and the effect of acquisitions made in fiscal 1997 and fiscal 1998. The increase in sales to existing customers was principally derived from an increase in the number of SKUs offered, as well as from more focused marketing efforts. Gross profit increased by $45.7 million, or 34.8%, to $177.1 million during the first nine months of fiscal 1998 from $131.4 million in the first nine months of fiscal 1997, primarily attributable to increased sales. As a percentage of sales, gross profit remained constant at approximately 41.0%. Operating expenses increased by $32.5 million, or 37.1%, to $120.1 million during the first nine months of fiscal 1998 from $87.6 million in the first nine months of fiscal 1997. As a percentage of sales, operating expenses increased from 27.3% to 27.7%. The increase was primarily attributable to increased sales volume which required additional staffing and support, as well as continuous investment in new branches and other growth programs. Income from operations increased by $13.2 million, or 30.1%, to $57.0 million during the first nine months of fiscal 1998 from $43.8 million in the first nine months of fiscal 1997. The increase was primarily attributable to increased sales and gross profit offset by an increase in operating expenses. Net income increased by $8.7 million, or 32.6%, to $35.4 million during the first nine months of fiscal 1998 from $26.7 million in the first nine months of fiscal 1997. This increase was primarily the result of previously mentioned increases in sales and gross profit, offset by the increase in operating expenses. Page 10 Liquidity and Capital Resources The Company's primary use of capital has been to fund the working capital requirements necessitated by its sales growth, acquisitions and facilities expansions. The Company's sources of financing have primarily been from operations, supplemented by bank borrowings under its revolving credit facility, and a portion of the proceeds from a fiscal 1997 public offering of Class A common stock. Net cash provided by operating activities for the 39 week periods ended May 30, 1998 and May 31, 1997 was $46.7 million and $33.6 million, respectively. The increase in net cash provided by operations resulted from higher net income and lower net working capital requirements. Net cash used in investing activities for the 39 week periods ended May 30, 1998 and May 31, 1997 was $42.0 million and $39.1 million, respectively. The net usage of cash in the first nine months of fiscal 1998 was primarily attributable to cash paid for acquisitions and the purchase of a building in Long Island, New York which will begin serving as the new corporate headquarters in fiscal 1999. The net usage of cash in the first nine months of fiscal 1997 was primarily attributable to cash paid for acquisitions. Net cash provided by financing activities was $27,000 and $13.1 million for the 39 week periods ended May 30, 1998 and May 31, 1997, respectively. The change of approximately $13.1 million is primarily attributable to the difference between the proceeds received from the completion of the Company's aforementioned public offering completed in fiscal 1997, net of the existing long-term debt repaid with such proceeds. The Company has an aggressive growth strategy that has involved, and is expected to continue to involve, the acquisition of companies in similar lines of business. The Company anticipates that its cash flow from operations and revolving credit facility will be adequate to support its strategic acquisition plan in the near future. The Company has been assessing the impact of the Year 2000 issue on its information systems for the past few years. In connection with these continuing assessments, the Company has identified potential deficiencies and is addressing them. In accordance with accounting rules, costs associated with modifying existing computer software for Year 2000 will be expensed as incurred. The Company has a committee to address the potential impact on the material aspects of the Company's business and to develop a Year 2000 strategy to manage the risk and prepare contingency plans that may be needed. In addition, the Company is in the process of evaluating the measures being undertaken by its critical customers and suppliers to address the Year 2000 issues. Based on the work to date and assuming the Company's plans, which continue to evolve, are implemented, the Company believes that the costs associated with its Year 2000 project should not have a material adverse effect on the Company's consolidated results of operations or financial position. The foregoing contains certain forward-looking statements which involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, general economic conditions in the markets in which the Company operates, availability of acquisition opportunities, etc.) and, accordingly, there can be no assurance with regard to such statements. Page 11 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial data schedule for the quarter ended May 30, 1998. (b) Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. Page 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MSC INDUSTRIAL DIRECT CO., INC. (Registrant) Dated: July 6, 1998 By: /s/ Mitchell Jacobson ------------- ------------------------------------------- President and Chief Executive Officer Dated: July 6, 1998 By: /s/ Shelley M. Boxer ------------- ------------------------------------------- Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Page 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS AUG-29-1998 MAR-01-1998 MAY-30-1998 18,137 0 79,100 3,410 157,704 266,299 92,012 21,294 396,971 78,702 0 0 0 34 311,564 396,971 155,098 155,098 91,508 91,508 40,677 1,525 6 23,533 9,296 14,237 0 0 0 14,237 0.21 0.21
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