-----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, AQVaD/PIa9FH/cz6SWkN0I8Uy1dsgruOrkIL6Thm1pH8spqDb7cf+ecuuDiWxRwi O/YWPyOvZGV59bkh0+T2Vg== 0001005477-01-000078.txt : 20010123 0001005477-01-000078.hdr.sgml : 20010123 ACCESSION NUMBER: 0001005477-01-000078 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001125 FILED AS OF DATE: 20010109 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: 1503871 BUSINESS ADDRESS: STREET 1: 151 SUNNYSIDE BLVD CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 5163497100 MAIL ADDRESS: STREET 1: 151 SUNNYSIDE BLVD CITY: PLAINVIEW STATE: NY ZIP: 11803 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 25, 2000 Commission file number: 1-14130 MSC INDUSTRIAL DIRECT CO., INC. (Exact name of registrant as specified in its charter) New York 11-3289165 (State of incorporation) (IRS Employer Identification No.) 75 Maxess Road Melville, NY 11747 (Address of principal executive offices, including zip code) (516) 812-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of January 5, 2001, 35,648,184 shares of Class A Common Stock and 33,478,778 shares of Class B Common Stock of the registrant were outstanding. MSC INDUSTRIAL DIRECT CO., INC. INDEX PART I. FINANCIAL INFORMATION Page ---- Item 1. Consolidated Financial Statements Consolidated Balance Sheets - November 25, 2000 and August 26, 2000 3 Consolidated Statements of Income - Thirteen weeks ended November 25, 2000 and November 27, 1999 4 Consolidated Statement of Shareholders' Equity - Thirteen weeks ended November 25, 2000 5 Consolidated Statements of Cash Flows - Thirteen weeks ended November 25, 2000 and November 27, 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14 Page 2 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements MSC INDUSTRIAL DIRECT CO., INC. Consolidated Balance Sheets
November 25, August 26, 2000 2000 --------- --------- (In thousands, except share data) (Unaudited) (Audited) ASSETS Current Assets: Cash and cash equivalents $ 4,833 $ 3,209 Accounts receivable, net of allowance for doubtful accounts of $4,006 and $3,779, respectively 103,982 98,837 Inventories 274,614 264,494 Prepaid expenses and other current assets 4,315 4,190 Current deferred income taxes 3,926 4,484 --------- --------- Total current assets 391,670 375,214 --------- --------- Investments, at cost 10,834 8,982 --------- --------- Property, Plant and Equipment, net 117,090 116,378 --------- --------- Other Assets: Goodwill 64,675 65,115 Other 13,708 15,285 --------- --------- 78,383 80,400 --------- --------- $ 597,977 $ 580,974 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 28,639 $ 30,245 Accrued liabilities 41,063 48,032 Current portion of long term notes payable 233 244 --------- --------- Total current liabilities 69,935 78,521 Long-term notes payable 79,498 68,398 Deferred income tax liabilities 12,331 12,386 --------- --------- Total liabilities 161,764 159,305 --------- --------- Shareholders' Equity: Preferred stock; $0.001 par value; 5,000,000 shares authorized; none outstanding -- -- Class A common stock; $0.001 par value; 100,000,000 shares authorized; 35,335,269 and 35,290,231 shares issued, 34,279,269 and 34,217,231 shares outstanding, respectively 35 35 Class B common stock; $0.001 par value; 50,000,000 shares authorized; 33,738,778 shares issued and outstanding 34 34 Additional paid-in capital 229,975 229,297 Retained earnings 227,000 213,591 Treasury stock, at cost, 1,056,000 and 1,073,000 shares, respectively (20,745) (21,079) Deferred stock compensation (86) (209) --------- --------- Total shareholders' equity 436,213 421,669 --------- --------- $ 597,977 $ 580,974 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. Page 3 MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended -------------------- November 25, November 27, (In thousands, except per share data) 2000 1999 --------- --------- Net sales $ 211,107 $ 182,761 Cost of goods sold 128,598 111,541 --------- --------- Gross profit 82,509 71,220 Operating expenses 58,779 52,781 --------- --------- Income from operations 23,730 18,439 --------- --------- Other Income (Expense): Interest income 8 12 Interest expense (1,242) (1,089) Other income, net 12 65 --------- --------- (1,222) (1,012) --------- --------- Income before provision for income taxes 22,508 17,427 Provision for income taxes 9,003 6,936 --------- --------- Net income $ 13,505 $ 10,491 ========= ========= Per Share Information (Note 2): Net income per common share: Basic $ 0.20 $ 0.16 ========= ========= Diluted $ 0.20 $ 0.16 ========= ========= Common shares used in computing per share amounts (Note 2): Basic 67,958 67,086 ========= ========= Diluted 68,913 67,303 ========= =========
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 Additional (In thousands) Common Stock Common Stock Paid-In Retained Shares Amount Shares Amount Capital Earnings --------- --------- --------- --------- --------- --------- Thirteen weeks ended November 25, 2000: Balance, August 26, 2000 35,290 $ 35 33,739 $ 34 $ 229,297 $ 213,591 Common stock issued under associate stock purchase plan -- -- -- -- -- (96) Amortization of deferred stock compensation -- -- -- -- -- -- Exercise of common stock options, including income tax benefits 45 -- -- -- 678 -- Net income -- -- -- -- -- 13,505 --------- --------- --------- --------- --------- --------- Balance, November 25, 2000 35,335 $ 35 33,739 $ 34 $ 229,975 $ 227,000 ========= ========= ========= ========= ========= ========= Treasury Stock Deferred (In thousands) --------------------------- Stock Shares Amount at Cost Compensation Total --------- -------------- ------------ --------- Thirteen weeks ended November 25, 2000: Balance, August 26, 2000 1,073 $ (21,079) $ (209) $ 421,669 Common stock issued under associate stock purchase plan (17) 334 -- 238 Amortization of deferred stock compensation -- -- 123 123 Exercise of common stock options, including income tax benefits -- -- -- 678 Net income -- -- -- 13,505 --------- --------- --------- --------- Balance, November 25, 2000 1,056 $ (20,745) $ (86) $ 436,213 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements. Page 5 MSC INDUSTRIAL DIRECT CO., INC. Consolidated Statements of Cash Flows (Unaudited)
(In thousands) Thirteen Weeks Ended ------------------------------ November 25, November 27, 2000 1999 ----------- ----------- Cash Flows from Operating Activities: Net income $ 13,505 $ 10,491 -------- -------- Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 3,992 3,068 Amortization of deferred stock compensation 122 105 Provision for doubtful accounts 513 479 Deferred income taxes 503 1,000 Changes in operating assets and liabilities, net of effect from acquisitions: Accounts receivable (5,658) (8,643) Inventories (10,120) (20,726) Prepaid expenses and other current assets (125) 53 Other assets 1,577 2,009 Accounts payable and accrued liabilities (8,315) (589) -------- -------- (17,511) (23,244) -------- -------- Net cash used in operating activities (4,006) (12,753) -------- -------- Cash Flows from Investing Activities: Expenditures for property, plant and equipment (4,264) (3,817) Cash paid for investment in affiliates (1,852) -- -------- -------- Net cash used in investing activities (6,116) (3,817) -------- -------- Cash Flows from Financing Activities: Net proceeds from associate stock purchase plan 238 -- Net proceeds from exercise of common stock options 419 263 Net proceeds from notes payable 11,089 17,480 Net advances to affiliates -- 131 -------- -------- Net cash provided by financing activities 11,746 17,874 -------- -------- Net increase in cash and cash equivalents 1,624 1,304 Cash and cash equivalents - beginning of period 3,209 2,725 -------- -------- Cash and cash equivalents - end of period $ 4,833 $ 4,029 Supplemental Disclosure: Cash paid for interest 1,242 933 Cash paid for income taxes 456 754
The accompanying notes are an integral part of these consolidated statements. Page 6 Notes to Consolidated Financial Statements (In thousands, except per share data) (Unaudited) 1. MSC Industrial Direct Co., Inc. ("MSC") was incorporated in the State of New York on October 24, 1995. MSC and its subsidiaries, including its principal operating subsidiary, Sid Tool Co., Inc., are hereinafter referred to collectively as the "Company." Reference is made to the Notes to Consolidated Financial Statements contained within the Company's audited financial statements included in MSC's annual report on Form 10-K for the year ended August 26, 2000. In the opinion of management, the interim unaudited financial statements included herein reflect all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of such data in accordance with generally accepted accounting principles. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. The Company's fiscal year ends on a Saturday close to August 31 of each year. 2. The Company follows the provisions of the Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS No. 128 requires the Company to present basic and diluted earnings per share ("EPS") on the face of the income statement. Basic earnings per common share were computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share were computed based on the weighted average number of common shares issued and outstanding plus additional shares assumed to be outstanding to reflect the diluted effect of common stock equivalents using the treasury stock method. A reconciliation between the numerator and denominator of the basic and diluted EPS calculation is as follows: Page 7 Thirteen Weeks Ended ----------------------------- November 25, November 27, 2000 1999 ----------------------------- Net income for EPS Computation $13,505 $10,491 ======= ======= Basic EPS: Weighted average Common shares 67,958 67,086 ======= ======= Basic EPS $ 0.20 $ 0.16 ======= ======= Diluted EPS: Weighted average Common shares 67,958 67,086 Shares issuable from Assumed conversion of Common stock equivalents 955 217 ------- ------- Weighted average common Shares and common stock equivalents 68,913 67,303 ======= ======= Diluted EPS $ 0.20 $ 0.16 ======= ======= 3. Certain prior year balances have been reclassified to conform with current year presentation. 4. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal years beginning after June 15, 2000 and will not require retroactive restatement of prior period financial statements. This statement requires the recognition of all derivative instruments as either assets or liabilities in the balance sheet measured at fair value. Derivative instruments will be recognized as gains or losses in the period of change. If certain conditions are met where the derivative instrument has been designated as a fair value hedge, the hedge items may also be marked to market through earnings, thus creating an offset. If the derivative is designed and qualifies as a cash flow hedge, the changes in fair value of the derivative instrument may be recorded in comprehensive income. The Company does not presently make material use of derivative Page 8 instruments. The Company adopted this statement in fiscal 2001, and the impact of adoption was not material. 5. In September 2000, the EITF reached a consensus with respect to EITF Issue No. 00-10, "Accounting for Shipping and Handling Revenues and Costs." The purpose of this issue discussion was to clarify the classification of shipping and handling revenues and costs. The consensus reached was that all shipping and handling billed to customers is revenue. Further, a consensus was reached that the classification of shipping and handling costs is an accounting policy decision that should be disclosed pursuant to Accounting Principles Board Opinion No. 22, "Disclosures of Accounting Policies." The Company may adopt a policy of including shipping and handling costs in cost of sales. If shipping costs are significant and are not included in cost of sales, a company should disclose both the amount(s) of such costs and the line item(s) on the income statement that included them. This standard will require a restatement of prior periods for changes in classification. The Company currently nets its shipping and handling revenue with the related costs and includes the residual amount as selling expense. This consensus is effective for the Company beginning with the fourth quarter of fiscal 2001. The Company is in the process of quantifying the impact of its adoption, which will not change reported income from operations or net income. Page 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Such forward-looking statements involve known and unknown risks and uncertainties and include, but are not limited to, statements regarding future events and our plans, goals and objectives. Such statements are generally accompanied by words such as "believe," "anticipate," "think," "intend," "estimate," "expect," or similar terms. Our actual results may differ materially from such statements. Factors that could cause or contribute to such differences include, without limitation, changing market conditions, competitive and regulatory matters, general economic conditions in the markets in which the Company operates and availability of acquisition opportunities. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, the Company cannot make any assurances that the results contemplated in such forward-looking statements will be realized. The inclusion of such forward-looking information should not be regarded as a representation by the Company or any other person that the future events, plans or expectations contemplated by the Company will be achieved. Furthermore, past performance is not necessarily an indicator of future performance. Overview MSC Industrial Direct Co., Inc. ("MSC") was formed in October 1995 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. We distribute 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 4,480 page master catalog offers over 450,000 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 four distribution centers and approximately 90 branch offices. Most of the products are carried in stock, and orders for these products are typically fulfilled on the day the order is received. Results of Operations - Thirteen weeks ended November 25, 2000 and November 27, 1999 Net sales increased by $28.3 million, or 15.5%, to $211.1 million in the first quarter of fiscal 2001 from $182.8 million in the first quarter of fiscal 2000. This increase was primarily attributable to an increase in sales to the Company's existing customers and an increase in the Page 10 number of active customers. The increase in sales to existing customers was principally derived from an increase in the number of SKUs offered, as well as from more focused marketing efforts. Gross profit increased by $11.3 million, or 15.9%, to $82.5 million in the first quarter of fiscal 2001 from $71.2 million in the first quarter of fiscal 2000. The dollar increase in gross profit was primarily attributable to increased sales. As a percentage of sales, gross profit remained constant at approximately 39%. Operating expenses increased by $6.0 million, or 11.4%, to $58.8 million in the first quarter of fiscal 2001 from $52.8 million in the first quarter of fiscal 2000. As a percentage of sales, operating expenses decreased from 28.9% to 27.8%. The decrease was primarily attributable to leveraging fixed costs over a larger revenue base. The dollar increase was primarily attributable to increased sales volume which required additional staffing and support, increased advertising costs, and higher depreciation costs from expenditures for property, plant and equipment. Income from operations increased by $5.3 million, or 28.8%, to $23.7 million in the first quarter of fiscal 2001 from $18.4 million in the first quarter of fiscal 2000. The increase was primarily attributable to increased sales and the dollar amount increase in gross profit, offset in part by an increase in operating expenses. Interest expense increased by $0.1 million to $1.2 million in the first quarter of fiscal 2001 from $1.1 million in the first quarter of fiscal 2000. The increase was primarily attributable to higher long-term notes payable borrowings and higher interest rates under the Company's revolving credit agreement. Provision for income taxes and net income: The effective tax rate was 40.0 percent for the first quarter of fiscal 2001 as compared to 39.8% in the prior year. Net income increased by $3.0 million, or 28.6%, to $13.5 million in the first quarter of fiscal 2001 from $10.5 million in the first quarter of fiscal 2000. This increase was primarily the result of previously mentioned increases in sales and the dollar amount increase in gross profit offset in part by an increase in operating expenses necessary in order to support the increase in volume and to invest in future growth. Liquidity and Capital Resources Our primary capital needs have been to fund the working capital requirements necessitated by our sales growth, adding new products, and facilities expansions. Our primary sources of financing have been cash from operations, supplemented by bank borrowings under our credit facility. We anticipate cash flows from operations and available lines of credit will be adequate to support our operations for the immediate future and for at least the next 24 months. Under the terms of the credit facility, the maximum permitted borrowings are $160.0 million ($110.0 million under an unsecured revolving credit agreement and $50.0 million as a term loan). Interest on amounts borrowed may be paid at a rate per annum equal to the bank's base rate (9.5% at November 25, 2000) or, alternatively, at the bankers' acceptance rate or LIBOR rate plus margins, which vary from 0.65% to 1.25% per annum based on the ratio of total liabilities to effective net worth, or bid note rate. This credit facility contains certain covenants limiting mergers, use of proceeds, indebtedness, liens, investments, sales of assets, acquisitions, and Page 11 issuance of dividends. This credit facility also contains certain standard financial covenants. As of November 25, 2000, the Company was in compliance with all financial covenants. As of November 25, 2000, the Company had approximately $78.8 million in outstanding borrowings under the credit facility. Available borrowings at November 25, 2000 are $81.2 million, all of which were available under the revolving credit agreement. Net cash used in operating activities for the 13 week periods ended November 25, 2000 and November 27, 1999 was $4.0 million and $12.8 million respectively. The favorable net change of approximately $8.8 million in net cash used in operations resulted from higher net income and improved net working capital requirements. Net cash used in investing activities for the 13 week periods ended November 25, 2000 and November 27, 1999 was $6.1 million and $3.8 million, respectively. The net usage of cash in the first three months of fiscal 2001 and fiscal 2000 was primarily attributable to expenditures for property, plant and equipment. Net cash provided by financing activities was $11.7 million and $17.9 million for the 13 week periods ended November 25, 2000 and November 27, 1999, respectively. Net cash provided by financing activities for the first three months of fiscal 2001 and fiscal 2000 primarily reflected proceeds received from notes payable. The Company believes that cash flow from operations and the revolving credit agreement will be sufficient to fund future growth initiatives and meet planned capital expenditure needs in the near future. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company's principal financial instrument is long-term notes payable under a credit agreement. The Company is affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable by the Company under this credit agreement. Changes in these factors cause fluctuations in the Company's net income and cash flows. The agreement allows the Company maximum borrowings of $160.0 million, of which $110.0 million is a revolving credit agreement and the remaining $50.0 million is a term loan. At November 25, 2000, approximately $78.8 million was outstanding under the credit agreement. Available borrowings at November 25, 2000 are $81.2 million, all of which were available under the revolving credit agreement. The agreement bears interest at the bank's base rate (9.5% at November 25, 2000), or, alternatively, at the bankers acceptance rate or LIBOR rate plus margins, which vary from 0.65% to 1.25% per annum based on the ratio of total liabilities to effective net worth, or bid note rate. If the principal amounts under the Company's credit agreement remained at this quarter-end level for an entire year and the prime rate increased or decreased, respectively, by 1%, then the Company would pay or save, respectively, an additional $0.8 million in interest that year. The Company does not make material use of derivative financial instruments to hedge against changes in interest rates or for any other purpose. Page 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Exhibits: 27 Financial data schedule for the quarter ended November 25, 2000. Reports on Form 8-K: No reports on Form 8-K have been filed during the quarter for which this report is filed. Page 13 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: January 6, 2001 By: /s/ Mitchell Jacobson ----------------------- ------------------------------------- President and Chief Executive Officer Dated: January 6, 2001 By: /s/ Charles Boehlke ----------------------- ------------------------------------- Senior Vice President and Chief Financial Officer Page 14 EX-27 2 0002.txt FDS
5 1,000 3-MOS SEP-01-2001 AUG-27-2000 NOV-25-2000 4,833 10,834 107,988 4,006 274,614 391,670 161,228 44,138 597,977 69,935 0 0 0 69 436,144 597,977 211,107 211,107 128,598 58,779 20 513 1,242 22,508 9,003 13,505 0 0 0 13,505 0.20 0.20
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