0001104659-06-045709.txt : 20060706 0001104659-06-045709.hdr.sgml : 20060706 20060706165910 ACCESSION NUMBER: 0001104659-06-045709 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060527 FILED AS OF DATE: 20060706 DATE AS OF CHANGE: 20060706 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: 0827 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14130 FILM NUMBER: 06948623 BUSINESS ADDRESS: STREET 1: 75 MAXESS RD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 516-812-2000 MAIL ADDRESS: STREET 1: 151 SUNNYSIDE BLVD CITY: PLAINVIEW STATE: NY ZIP: 11803 10-Q 1 a06-14862_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 27, 2006

OR

o	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		11-3289165
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

75 Maxess Road, Melville, NY		11747
(Address of principal executive offices)		(Zip Code)

(516) 812-2000

(Registrant’s telephone number, including area code)

Website: www.mscdirect.com

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

Large Accelerated Filer x

Accelerated Filer o

Non-Accelerated Filer o

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

As of July 3, 2006, 48,720,871 shares of Class A common stock and 18,839,874 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 hereof, as well as within this Report generally. In addition, when used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,” and similar expressions are intended to identify forward-looking statements. All forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results, as discussed below under the heading “Risk Factors”. Factors that may cause these differences include, but are not limited to:

· the Company’s ability to timely and efficiently integrate its recent acquisition of the business of J&L Industrial Supply (“J&L”) and realize the anticipated revenue and cost synergies from the transaction;

· changing customer and product mixes;

· changing market conditions and industry consolidation;

· competition;

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

· recent changes in accounting for equity-related compensation;

· rising commodity and energy prices;

· risk of cancellation or rescheduling of orders;

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

· risk of war, terrorism and similar hostilities;

· dependence on our information systems;

· dependence on key personnel; and

· other matters discussed in the Business Description contained in the Company’s Annual Report on Form 10-K for the fiscal year ended August 27, 2005.

Consequently, such forward-looking statements should be regarded solely as the Company’s current plans, estimates and beliefs. The Company does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

Available Information

We file annual, quarterly and current reports, information statements and other information with the Securities and Exchange Commission (the “SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at Station Place, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

Internet Address

The Company’s Internet address is http://www.mscdirect.com. We make available on or through our investor relations page on our website, free of charge, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and beneficial ownership reports on Forms 3, 4, and 5 and amendments to those reports as soon as reasonably practicable after this material is electronically filed or furnished to the SEC. We also make available, on our website, the charters of the committees of our Board of Directors and Management’s Code of Ethics, the Code of Business Conduct and Corporate Governance Guidelines pursuant to SEC requirements and New York Stock Exchange listing standards.

MSC INDUSTRIAL DIRECT CO., INC.

INDEX

PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets May 27, 2006 and August 27, 2005	1
	Consolidated Statements of Income Thirteen and Thirty-Nine weeks ended May 27, 2006 and May 28, 2005	2
	Consolidated Statement of Shareholders’ Equity Thirty-Nine weeks ended May 27, 2006	3
	Consolidated Statements of Cash Flows Thirty-Nine weeks ended May 27, 2006 and May 28, 2005	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	Controls and Procedures	17
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 6.	Exhibits	19
SIGNATURES		20

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Balance Sheets
(In thousands, except share data)

	May 27, 2006			August 27, 2005
	(Unaudited)			(Audited)
ASSETS
Current Assets:
Cash and cash equivalents	$	133,020		$	41,020
Available-for-sale securities	2,131			4,254
Accounts receivable, net of allowance for doubtful accounts of $3,182 and $2,547, respectively	145,269			126,501
Inventories	254,400			231,199
Prepaid expenses and other current assets	20,463			18,856
Deferred income taxes	12,149			10,166
Total current assets	567,432			431,996
Available-for-sale securities	21,738			40,224
Property, Plant and Equipment, net	108,669			102,219
Goodwill	63,202			63,202
Other assets	7,355			13,957
Total Assets	$	768,396		$	651,598

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	48,945		$	36,571
Accrued liabilities	53,416			56,080
Current portion of long-term notes payable	154			151
Total current liabilities	102,515			92,802
Long-term notes payable	713			830
Deferred income tax liabilities	27,968			27,550
Total liabilities	131,196			121,182
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; 57,416,680 and 54,281,413 shares issued, and 48,700,166 and 45,514,011 shares outstanding, respectively	57			54
Class B common stock (ten votes per share); $0.001 par value; 50,000,000 shares authorized; 18,839,874 and 21,006,394 shares issued and outstanding, respectively	19			21
Additional paid-in capital	375,710			351,649
Retained earnings	452,409			376,251
Accumulated other comprehensive loss	(53		)	(82		)
Class A treasury stock, at cost, 8,716,514, and 8,767,402 shares, respectively	(190,942		)	(191,943		)
Deferred stock compensation	—			(5,534		)
Total shareholders’ equity	637,200			530,416
Total Liabilities and Shareholders’ Equity	$	768,396		$	651,598

See accompanying notes.

MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	May 27, 2006		May 28, 2005		May 27, 2006		May 28, 2005
Net sales	$	329,817	$	288,465	$	931,650	$	823,158
Cost of goods sold	173,812		155,460		491,345		446,490
Gross profit	156,005		133,005		440,305		376,668
Operating expenses	96,977		84,047		275,671		241,914
Income from operations	59,028		48,958		164,634		134,754

Other income:
Interest income, net	1,243		1,291		3,164		3,029
Other income, net	56		59		207		76
Total other income	1,299		1,350		3,371		3,105
Income before provision for income taxes	60,327		50,308		168,005		137,859
Provision for income taxes	23,309		19,620		65,723		53,765
Net income	$	37,018	$	30,688	$	102,282	$	84,094

Per Share Information (Note 1):
Net income per common share:
Basic	$	0.55	$	0.45	$	1.53	$	1.23
Diluted	$	0.54	$	0.44	$	1.50	$	1.19

Weighted average shares used in computing net income per common share (Note 1):
Basic	67,076		68,341		66,743		68,573
Diluted	68,730		70,111		68,283		70,603

Cash dividend paid per common share	$	0.14	$	0.12	$	0.40	$	0.32

See accompanying notes.

MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statement of Shareholders’ Equity
Thirty-Nine weeks ended May 27, 2006
(In thousands)
(Unaudited)

															Accumulated			Class A
	Class A			Class B					Additional						Other			Treasury Stock					Deferred
	Common Stock			Common Stock					Paid-In			Retained			Comprehensive					Amount			Stock
	Shares	Amount		Shares		Amount			Capital			Earnings			Loss			Shares		at Cost			Compensation			Total
Balance at August 27, 2005	54,281	$	54	21,006		$	21		$	351,649		$	376,251		$	(82	)	8,767		$	(191,943	)	$	(5,534	)	$	530,416
Exchange of Class B common stock for Class A common stock	2,166	2		(2,166	)	(2		)	—			—			—			—		—			—			—
Exercise of common stock options, including income tax benefits of $8,633	867	1		—		—			22,313			—			—			—		—			—			22,314
Common stock issued under associate stock purchase plan	—	—		—		—			—			727			—			(50	)	1,001			—			1,728
Reclassification of restricted stock	—	—		—		—			(5,534		)	—			—			—		—			5,534			—
Grant of restricted stock net of cancellations	103	—		—		—			—			—			—			—		—			—			—
Amortization of restricted stock	—	—		—		—			1,257			—			—			—		—			—			1,257
Share-based payment expense	—	—		—		—			6,025			—			—			—		—			—			6,025
Cash dividends paid	—	—		—		—			—			(26,851		)	—			—		—			—			(26,851		)

Net income	—	—		—		—			—			102,282			—			—		—			—			102,282
Unrealized gain on available-for-sale securities, net of tax benefit	—	—		—		—			—			—			29			—		—			—			29

Comprehensive income																										102,311

Balance at May 27, 2006	57,417	$	57	18,840		$	19		$	375,710		$	452,409		$	(53	)	8,717		$	(190,942	)	$	—		$	637,200

See accompanying notes.

MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

	Thirty-Nine Weeks Ended
	May 27, 2006			May 28, 2005

Cash Flows from Operating Activities:
Net income	$	102,282		$	84,094
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,398			9,117
Loss on disposal of property, plant and equipment	—			189
Gain on sale of securities	(858		)	—
Stock-based compensation	7,282			538
Provision for doubtful accounts	1,824			1,673
Deferred income taxes	(1,565		)	2,695
Stock option income tax benefit	—			6,759
Amortization of bond premiums	201			381
Reclassification of excess tax benefits from stock-based compensation	(7,402		)	—
Changes in operating assets and liabilities:
Accounts receivable	(20,592		)	(15,078		)
Inventories	(23,201		)	(12,732		)
Prepaid expenses and other current assets	(1,607		)	(417		)
Other assets	6,602			6,726
Accounts payable and accrued liabilities	18,343			4,314

Total adjustments	(11,575		)	4,165

Net cash provided by operating activities	90,707			88,259

Cash Flows from Investing Activities:
Proceeds from sales of investments in available-for-sale securities	153,426			79,555
Purchases of investments in available-for-sale securities	(132,131		)	(83,280		)
Expenditures for property, plant and equipment	(15,848		)	(8,060		)

Net cash provided by (used in) investing activities	5,447			(11,785		)

Cash Flows from Financing Activities:
Payment of cash dividends	(26,851		)	(22,076		)
Purchase of treasury stock	—			(73,187		)
Reclassification of excess tax benefits from stock-based compensation	7,402			—
Proceeds from sale of Class A common stock in connection with associate stock purchase plan	1,728			1,341
Proceeds from exercise of Class A common stock options	13,681			14,431
Repayments of notes payable	(114		)	(121		)

Net cash used in financing activities	(4,154		)	(79,612		)

Net increase (decrease) in cash and cash equivalents	92,000			(3,138		)
Cash and cash equivalents—beginning of period	41,020			39,517

Cash and cash equivalents—end of period	$	133,020		$	36,379

Supplemental Disclosure of Cash Flow Information:

Cash paid for income taxes	$	58,512		$	39,980

See accompanying notes.

Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)

Note 1. Basis of Presentation

MSC Industrial Direct Co., Inc. (“MSC”) was incorporated in the State of New York on October 24, 1995. The accompanying consolidated financial statements include MSC and all of its subsidiaries, including its principal operating subsidiary, Sid Tool Co., Inc. and is hereinafter referred to collectively as the “Company.” All intercompany balances and transactions have been eliminated in consolidation.

The unaudited 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 footnotes 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 thirty-nine weeks of fiscal 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending August 26, 2006. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 27, 2005.

The Company’s fiscal year ends on a Saturday close to August 31 of each year.

A reconciliation between the numerator and denominator of the basic and diluted EPS calculation is as follows:

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	May 27, 2006		May 28, 2005		May 27, 2006		May 28, 2005
Net income for EPS Computation	$	37,018	$	30,688	$	102,282	$	84,094

Basic EPS:
Weighted average Common shares	67,076		68,341		66,743		68,573

Basic EPS	$	0.55	$	0.45	$	1.53	$	1.23

Diluted EPS:
Weighted average Common shares	67,076		68,341		66,743		68,573
Shares issuable from assumed conversion of Common stock equivalents	1,654		1,770		1,540		2,030
Weighted average Common and Common equivalent shares	68,730		70,111		68,283		70,603

Diluted EPS	$	0.54	$	0.44	$	1.50	$	1.19

Note 2. Stock-Based Compensation

As of August 27, 2005, the Company’s stock-based compensation plans included the 1995, 1998 and 2001 Stock Option Plans, the 1995 Restricted Stock Plan and the Associate Stock Purchase Plan. These plans are described in Note 10 in the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 27, 2005. On January 3, 2006, at the 2006 Annual Meeting, the Shareholders approved an Omnibus Equity Plan to replace the 1995, 1998, and 2001 Stock Option Plans, and the 1995 Restricted Stock Plans (the “Previous Plans”). The Omnibus Equity Plan covers 3,000 shares, and is in lieu of and replaces the unissued shares not subject to prior grants that were covered under the Previous Plans, for an aggregate of approximately 500 fewer shares than were covered under the Previous Plans. Under the Omnibus Equity Plan, the Compensation Committee of the Board of Directors may grant stock options, stock appreciation rights, stock awards (restricted stock) and performance awards.

Prior to August 28, 2005, we accounted for these plans under Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“FAS 123”). As permitted under this standard, compensation cost was recognized using the intrinsic value method described in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). On August 28, 2005, the first day of the Company’s 2006 fiscal year, the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“FAS 123R”) and applied the provisions of the Securities and Exchange Commission Staff Accounting Bulletin No. 107 using the modified-prospective transition method. Stock-based compensation expense recognized in the thirty-nine weeks ended May 27, 2006 includes compensation expense for all share-based payments granted prior to, but not yet vested as of August 28, 2005, based on the grant date fair value estimated in accordance with the original provisions of FAS 123, and compensation cost for all share-based payments granted on or subsequent to August 28, 2005, based on the grant date fair value estimated in accordance with the provisions of FAS 123R.

APB 25 did not require any compensation expense to be recorded in the financial statements if the exercise price of the award was not less than the market price on the date of grant, except in the case of a stock purchase plan where a discount of up to 15% of the market price was allowed before any compensation expense was required to be recognized. Since all options granted by the Company had exercise prices equal to the market price on the date of grant and the shares purchased through the Associate Stock Purchase Plan were discounted at 15% of the market price, no compensation expense was recognized for stock option grants or Associate Stock Purchase Plan grants prior to August 28, 2005.

In accordance with the provisions of FAS 123R, using the modified-prospective transition method (prior periods are not adjusted), stock-based compensation expense related to stock option plans and the Associate Stock Purchase Plan included in operating expenses for the thirteen and thirty-nine week periods ended May 27, 2006 was $1,818 and $6,025, respectively. Tax benefits related to this expense were $389 and $1,234 for the thirteen and thirty-nine week periods ended May 27, 2006, respectively; resulting in a reduction in net income of $1,429 ($0.02 per share) and $4,791 ($0.07 per share) for the thirteen and thirty-nine week periods ended May 27, 2006, respectively. The tax benefit recorded for the stock-based option expense is at a lower rate than the Company’s current effective tax rate because a significant portion of the options are Incentive Stock Options (“ISO”). In accordance with Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes,” no tax benefit is recorded for an ISO unless upon exercise a disqualifying disposition occurs.

Prior to the adoption of FAS 123R all tax benefits from the exercise of stock options were reported as operating cash flows in our consolidated statements of cash flows. In accordance with FAS 123R, the Company will prospectively record excess tax benefits from the exercise of stock options as cash flows from financing activities. The total tax benefits for the thirty-nine weeks ended May 27, 2006, were $8,633 of which $7,402 are excess tax benefits and reported as cash flows from financing activities.

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:

	May 27, 2006		May 28, 2005
Expected life (years)	4.7		5.5
Risk-free interest rate	3.11	%	3.6	%
Expected Volatility	30.2	%	48.7	%
Expected Dividend yield	1.20	%	1.23	%

A summary of the activity of the Company’s stock option plans for the thirty-nine weeks ended May 27, 2006 is as follows:

	Options		Weighted- Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on August 27, 2005	3,625		$	17.80
Granted	380		$	37.60
Exercised	(867	)	$	15.90
Forfeited/Canceled	(148	)	$	27.25

Outstanding on May 27, 2006	2,990		$	20.38	5.16	$	80,669

Exercisable on May 27, 2006	1,784		$	15.92	4.44	$	56,093

The weighted-average grant-date fair value for the thirty-nine week periods ended May 27, 2006 and May 28, 2005 was $10.46 and $14.34, respectively. The total intrinsic value of options exercised during the thirty-nine week periods ended May 27, 2006 and May 28, 2005 was $24,561 and $18,560, respectively. The unrecognized share-based compensation cost related to stock option expense at May 27, 2006 is $11,832 and will be recognized over a weighted average of 2.53 years.

The following table illustrates the effect on net income and net income per share if, for the thirteen and thirty-nine week periods ended May 28, 2005, the Company had applied the fair value recognition provisions, under which compensation expense would be recognized as incurred, of SFAS No. 123, “Accounting for Stock-Based Compensation”, to stock-based employee compensation:

	Thirteen Weeks Ended			Thirty-Nine Weeks Ended
	May 28, 2005			May 28, 2005
	(a)			(a)
Net income, as reported	$	30,688		$	84,094
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	167			328
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(1,590		)	(3,334		)
Pro forma net income	$	29,265		$	81,088

Net income per common share:
Net income per common share, as reported	$	0.45		$	1.23
Net income per common share, pro forma	$	0.43		$	1.18
Diluted net income per common share, as reported	$	0.44		$	1.19
Diluted net income per common share, pro forma	$	0.42		$	1.15

(a) The stock-based employee compensation expense has been reduced for tax benefits received for disqualifying dispositions made by stock option plan participants resulting in an increase to pro forma net income of $345 and $2,340 for the thirteen and thirty-nine week periods ended May 28, 2005. Such tax benefits are not reflected in the net income for the thirty-nine weeks ended May 27, 2006 because in accordance with FAS 123R, tax benefits for disqualifying dispositions can only be recognized in net income if the compensation expense related to the disqualifying disposition is recorded in net income. No stock-based compensation expense related to the disqualifying dispositions that occurred in the thirty-nine week periods ended May 27, 2006 was recorded in net income. Therefore, no tax benefit on the disqualifying dispositions could be recorded.

In accordance with APB 25, the Company did record compensation expense for restricted stock awards based on the fair market value on the date of grant. The fair value was recorded as deferred compensation in a separate component of shareholders’ equity and expensed over the vesting period. In accordance with FAS 123R, on August 28, 2005, the deferred compensation balance of $5,534 was reclassified to paid-in-capital.

Stock-based compensation expense recognized for restricted stock awards was $413 and $274 for the thirteen week periods ended May 27, 2006 and May 28, 2005, respectively; and $1,257 and $538 for the thirty-nine week periods ended May 27, 2006 and May 28, 2005, respectively. The unrecognized compensation cost related to the unvested restricted shares at May 27, 2006 is $8,039 and will be recognized over a weighted-average period of 4.21 years.

A summary of the activity of restricted stock under the Company’s 1995 Restricted Stock Plan and 2005 Omnibus Equity Plan for the thirty-nine weeks ended May 27, 2006 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Outstanding on August 27, 2005	194		$	33.40
Granted	124		42.86
Vested	—		—
Forfeited/Canceled	(21	)	35.33

Outstanding on May 27, 2006	297		$	37.23

Note 3. Available-For-Sale Securities

The Company’s investments consist of municipal notes and bonds and corporate bonds. Investments with original or remaining maturities of less than one year are considered to be short-term. The custodians of these investments are major financial institutions. The Company’s investments are classified as available-for-sale and are recorded on the consolidated balance sheet at fair value. Unrealized gains and losses on investments are included as a separate component of accumulated other comprehensive income (loss), net of any related tax effect. The Company will recognize an impairment charge if a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. Cumulative, unrealized losses, net of taxes, included in accumulated other comprehensive loss at May 27, 2006 were approximately $53. As of June 8, 2006, all available-for-sale securities were sold, and as a result, realized losses incurred were approximately $90.

The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses, interest and dividends and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the first-in, first-out method. During the thirty-nine week period ended May 27, 2006, the Company invested in a short-term income fund. All holdings were sold prior to May 27, 2006. Realized gains of $858 from the sale of this investment are included in interest income.

Note 4. Comprehensive Income

The Company complies with the provisions of SFAS No. 130, “Reporting Comprehensive Income”, which establishes standards for the reporting of comprehensive income and its components. The components of comprehensive income, net of tax are as follows:

	Thirteen Weeks Ended					Thirty-Nine Weeks Ended
	May 27, 2006		May 28, 2005			May 27, 2006		May 28, 2005

Net income as reported:	$	37,018	$	30,688		$	102,282	$	84,094
Unrealized gains (losses) on available-for-sale securities, net of tax benefit, for the period	12		(22		)	29		(86		)
Comprehensive income	$	37,030	$	30,666		$	102,311	$	84,008

Note 5. Shareholders’ Equity

Each holder of the Company’s Class A common stock is entitled to one vote for each share held of record on the applicable record date on all matters presented to a vote of shareholders, including the election of directors. The holders of Class B common stock are entitled to ten votes per share on the applicable record date and are entitled to vote, together with the holders of the Class A common stock, on all matters which are subject to shareholder approval. Holders of Class A common stock and Class B common stock have no cumulative voting rights or preemptive rights to purchase or subscribe for any stock or other securities and except as described below there are no conversion rights or redemption or sinking fund provisions with respect to such stock.

The Company is authorized to repurchase up to 5,000 shares of the Company’s Class A common stock under its stock repurchase plan (the “Plan”). The Plan allows the Company to repurchase shares at any time and in any increments it deems appropriate in accordance with Rule 10(b)-18 of the Securities Exchange Act of 1934, as amended. The Company did not repurchase any shares of its Class A common stock during the first thirty-nine weeks of fiscal 2006, but may make future repurchases based on market conditions. The Company reissued 50 shares of treasury stock during the first thirty-nine weeks of fiscal 2006 to fund the Associate Stock Purchase Plan.

The holders of the Company’s Class B common stock have the right to convert their shares of Class B common stock into shares of Class A common stock at their election and on a one-to-one basis, and all shares of Class B common stock convert into shares of Class A common stock on a one-to-one basis upon the sale or transfer of such shares of Class B common stock to any person who is not a member of the Jacobson or Gershwind families or any trust not established principally for members of the Jacobson and Gershwind families or is not an executor, administrator or personal representative of an estate of a member of the Jacobson and Gershwind families.

The Company has 5,000 shares of preferred stock authorized. The Company’s Board of Directors has the authority to issue shares of preferred stock. Shares of preferred stock have priority over the Company’s Class A common stock and Class B common stock with respect to dividend or liquidation rights, or both. As of May 27, 2006, there were no shares of preferred stock issued or outstanding.

The Company paid a dividend of $9,462 on April 18, 2006 to shareholders of record at the close of business on April 7, 2006. On June 26, 2006, the Board of Directors approved a dividend of $0.14 per share payable on July 21, 2006 to shareholders of record at the close of business on July 10, 2006. The dividend will result in a payout of approximately $9,500, based on the number of shares outstanding at July 3, 2006.

On January 3, 2006 at the 2006 Annual Meeting, the Shareholders approved an Omnibus Equity Plan to replace the 1995, 1998, and 2001 Stock Option Plans, and the 1995 Restricted Stock Plan (the “Previous Plans”). The Omnibus Equity Plan covers 3,000 shares, and is in lieu of and replaces the unissued shares not covered by previous grants that were covered under the Previous Plans, for an aggregate of approximately 500 fewer shares than were covered under the Previous Plans. On January 10, 2006, the Company awarded 124 restricted shares to management.

Note 6. Product Warranties

The Company offers a one-year warranty for certain of its machinery products. The specific terms and conditions of those warranties vary depending upon the product sold. Generally, the Company provides a basic limited warranty, including parts and labor, for these products for one year. The Company would be able to recoup certain of these costs through product warranties it holds with its original equipment manufacturers, which typically range from thirty to ninety days. In addition, certain of the Company’s general merchandise products are covered by third party original equipment manufacturers’ warranties. The Company’s warranty expense for the thirty-nine week periods ended May 27, 2006 and May 28, 2005 has been minimal.

Note 7. Legal Proceedings

There are various claims, lawsuits, and pending actions against the Company and its subsidiaries incident to the operations of its businesses in the ordinary course. It is the opinion of management that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

Note 8. Subsequent Event

On June 8, 2006, we acquired, through our wholly owned subsidiary, MSC Acquisition Corp. VI, all of the outstanding common stock of J&L America, Inc., DBA J&L Industrial Supply (J&L), a subsidiary of Kennametal Inc., for $349.5 million subject to certain post-closing purchase price adjustments. We financed $205 million of the purchase price with a portion of the proceeds of a new credit facility, which was closed simultaneously with the acquisition. The new credit facility includes a $205 million term loan, which was drawn in entirety to provide the funding for the acquisition, and a $75 million revolver which will be used for working capital purposes. There are currently no borrowings outstanding under the revolving credit facility. The loan is due for repayment in full on June 8, 2011. Principal payments will begin on June 30, 2007, and will be made in quarterly installments in accordance with the credit agreement. The new credit facility will replace our current uncommitted $30 million line of credit. The interest rate payable for all borrowings is based on the Company’s leverage and is currently 50 basis points over LIBOR rates. We will be subject to various operating and financial covenants. We anticipate cash flows from operations and available cash reserves will be adequate to support our operations for at least the next twelve months.

In connection with the acquisition, Kennametal, J&L and the Company entered into certain business arrangements, including: a distributor agreement under which the Company and J&L will receive an exclusive five-year national level distribution arrangement for Kennametal branded products (within the US), a non-exclusive distributorship in the US for other products and a non-exclusive distributorship for Kennametal branded and other products in the UK; a trademark license agreement which grants an exclusive, royalty-free, right and license in perpetuity to the use of the HERTEL trademark in the United States and United Kingdom, and limited rights in Canada and other jurisdictions; a private label agreement under which Kennametal will manufacture and supply to the Company certain products under the HERTEL trademark; certain noncompetition arrangements; and an administrative services agreement relating to, among other things, data support services.

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 27, 2005 and presumes that readers have access to, and will have read, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in such Form 10-K.

This Quarterly Report on Form 10-Q contains or incorporates certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. Such forward-looking statements involve known and unknown risks and uncertainties and include, but are not limited to, statements regarding future events and our plans, goals and objectives. Such statements are generally accompanied by words such as “believe,” “anticipate,” “think,” “intend,” “estimate,” “expect,” or similar terms. Our actual results may differ materially from such statements. Factors that could cause or contribute to such differences include, without limitation, our ability to timely and efficiently integrate the J&L business and realize the anticipated synergies from the transaction, changing customer and product mixes, changing market conditions, industry consolidation, competition, general economic conditions in the markets in which the Company operates, recent changes in accounting for equity-related compensation, rising commodity and energy prices, risk of cancellation or rescheduling of orders, work stoppages or other business interruptions (including due to extreme weather conditions) at transportation centers or shipping ports, the risk of war, terrorism and similar hostilities, dependence on our information systems and on key personnel. 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. The Company does not undertake any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements.

Overview

MSC Industrial Direct Co., Inc. (“MSC”) was formed in October 1995 and has conducted business through its predecessor companies since 1941. MSC and its subsidiaries, including Sid Tool Co., Inc. (the “Operating Subsidiary”), are hereinafter referred to collectively as the “Company.”

MSC 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 intended to satisfy our customers’ maintenance, repair and operations (“MRO”) supplies requirements. Not including our new J&L business, we offer in excess of 500,000 stock-keeping units (“SKUs”) through our master catalogs, weekly, monthly and quarterly specialty and promotional catalogs and brochures and service our customers from four customer fulfillment centers and approximately 90 branch offices. 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.

The Company is continuing to benefit from a strong U.S. economy as well as the execution of its growth strategies to increase revenues. Net sales increased 14.3% and 13.2%, for the thirteen and thirty-nine week periods ended May 27, 2006, respectively as compared to the same periods in fiscal 2005. We have been able to gain market share in the national account and government program (the “large account customer”) sectors, which have become important components of our overall customer mix, revenue base, recent growth and planned business expansion. By expanding in these sectors, which involve customers with multiple locations and high volume MRO needs, we are diversifying our customer base beyond small and mid-sized customers, thereby reducing the cyclical nature of our business. In addition to continuing to increase the number of field sales associates in existing markets, the Company has opened up new branches in the San Diego and Oakland areas with their own field sales force as part of the Company’s west coast expansion strategy. Sales related to the new branches did not have a significant impact on the Company’s total sales for the thirteen and thirty-nine week periods ended May 27, 2006. The Company has increased the number of field sales associates (including those in the new branches) to 565 at May 27, 2006, as compared to 498 at May 28, 2005. We expect that the number of sales associates will increase to approximately 700 by the end of fiscal 2006 due to the acquisition of J&L.

As a result of increasing prices based on market conditions, our gross profit margins have increased to 47.3% for the thirteen and thirty-nine week periods ended May 27, 2006, as compared to 46.1% and 45.8% for the same periods in fiscal 2005.

Operating expenses increased as a result of increased sales volume related expenses (primarily payroll related costs and freight expenses), and the recognition of stock-based compensation expense related to the adoption of Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“FAS 123R”) for the thirteen and thirty-nine week periods ended May 27, 2006 as compared to the same periods in fiscal 2005. The increase in gross margin and operating leverage from prior investments in our infrastructure enabled the Company to increase operating margins for the thirteen and thirty-nine week periods ended May 27, 2006 to 17.9% and 17.7%, respectively as compared to 17.0% and 16.4% for the same periods in fiscal 2005. We expect operating expenses to continue to increase through the remainder of fiscal 2006 as a result of increased sales volume and freight costs due to rising energy costs.

In connection with the acquisition, Kennametal, J&L and the Company entered into certain business arrangements, including: a distributor agreement under which we and J&L will receive an exclusive five year national level distribution arrangement for Kennametal branded products (within the US), a non-exclusive distributorship in the US for other products and a non-exclusive distributorship for Kennametal branded and other products in the UK; a trademark license agreement which grants an exclusive, royalty-free, right and license in perpetuity to the use of the HERTEL trademark in the United States and United Kingdom, and limited rights in Canada and other jurisdictions; a private label agreement under which Kennametal will manufacture and supply to us certain products under the HERTEL trademark; certain noncompetition arrangements; and an administrative services agreement relating to, among other things, data support services.

The acquisition is not expected to have a material impact on our fiscal 2006 results, and is expected to be neutral to our earnings per share through most of fiscal 2007, becoming additive to earnings towards the end of fiscal 2007. The acquisition is expected to be additive to earnings in fiscal 2008 and beyond as synergies are realized.

The Institute for Supply Management (“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. Approximately 72% of our revenues came from sales in the manufacturing sector during the thirty-nine weeks ended May 27, 2006, including some large account customers. The ISM has continued to be above 50.0% for all of fiscal 2006 and is currently at 54.4% for the month of May 2006. These levels indicate growth for the industrial economy, and based on historical information, has been a good predictor of future sales growth for the Company. It is possible that the impact of rising energy prices and interest rates and raw material availability will have an adverse effect on customer order flow. We believe that companies will be seeking 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. To meet our customers’ needs and our business goals, 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 Customer Managed Inventory and Vendor Managed Inventory programs.

Results of Operations

The Results of Operations presented below do not reflect our June 8, 2006 acquisition of J&L (except as specified).

Net Sales

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	May 27, 2006		May 28, 2005		Percentage Change		May 27, 2006		May 28, 2005		Percentage Change

Net sales	$	329,817	$	288,465	14.3	%	$	931,650	$	823,158	13.2	%

Net Sales grew 14.3% and 13.2% for the thirteen and thirty-nine week periods ended May 27, 2006, respectively, as compared to the same periods in fiscal 2005. Of these amounts, we estimate approximately 30% and 35% of the growth, for the thirteen and thirty-nine week periods ended May 27, 2006, respectively, was attributable to our increase in prices on certain stock keeping units (“SKUs”) based on market conditions in accordance with our pricing strategy. We estimate approximately 30% of the net sales growth, for the thirteen and thirty-nine week periods ended May 27, 2006, is attributable to the growth of our large account customer programs. The remaining net sales growth is primarily a result of an increase in sales to our new and existing core accounts. Sales to manufacturing and non-manufacturing sectors grew 13.3% and 17.1%, respectively, during the thirteen weeks ended May 27, 2006, and 12.6% and 14.8%, respectively, for the thirty-nine weeks ended May 27, 2006, as compared to the same periods in fiscal 2005.

Our growth in the large account customer programs has allowed us to diversify our customer mix and revenue base. As a result of this diversification (these customers tend to order larger amounts) and the strong U.S. economy, our average order size has increased to approximately $278 in the third quarter of fiscal 2006 from $253 in the third quarter of fiscal 2005. These large customers tend to require advanced e-commerce capabilities. We believe that our ability to transact with our customers through various portals and directly through our website, mscdirect.com, gives us a competitive advantage over smaller suppliers. Sales through our website, mscdirect.com, increased to $66.8 million for the thirteen weeks ended May 27, 2006 and $181.3 million for the thirty-nine weeks ended May 27, 2006, an increase of 32.8% and 34.9%, respectively, as compared to the same periods in fiscal 2005. As our large account customer programs continue to grow we will benefit from processing more sales through electronic transactions that carry lower operating costs than orders processed manually through our call centers and branches. These cost savings may be offset by the lower gross margins on our large account customer business.

The primary reasons for the increase in sales to large account customers, as well as new and existing core customers, during the thirteen and thirty-nine week periods ended May 27, 2006 are a combination of the success of our sales force in expanding the accounts as well as the continued strength of the U.S. economy. The Company grew the field sales force to 565 associates at May 27, 2006, an increase of approximately 13.5% from sales associate levels of 498 at May 28, 2005, as part of our strategy to acquire new accounts and expand existing

accounts across all customer types. Included in the sales force numbers are the field sales teams for the San Diego and Oakland branches that were opened as part of the Company’s west coast expansion. Sales related to the branches opened as part of the west coast expansion have not had a significant impact on the Company’s total sales for the thirteen and thirty-nine weeks ended May 27, 2006.

We introduced approximately 21,000 new SKUs in our fiscal 2006 catalog and removed approximately 25,000 non-productive SKUs. We believe that the new SKUs improve the overall quality of our offering and will be important factors in our sales growth.

Gross Profit

	Thirteen Weeks Ended								Thirty-Nine Weeks Ended
	May 27, 2006			May 28, 2005			Percentage Change		May 27, 2006			May 28, 2005			Percentage Change

Gross Profit	$	156,005		$	133,005		17.3	%	$	440,305		$	376,668		16.9	%
Gross Profit Margin	47.3		%	46.1		%			47.3		%	45.8		%

Substantially all of the increase in gross margin percentage for the thirteen and thirty-nine week periods ended May 27, 2006, as compared to the same periods in fiscal 2005, are a result of our price increases on certain SKUs based on market conditions, net of increases in the cost of goods purchased. The increases in costs of goods purchased are raising the cost basis of our inventory as we replace lower cost items that were sold with higher cost purchases. As a result of this, and the impact of J&L’s lower gross margin, we expect gross margin to be approximately 45.8% for the fourth quarter of fiscal 2006. However, if the Company is forced to accept product price increases from our vendors, which cannot be passed along to our customers, we could see a decrease in this gross margin percentage.

Operating Expenses

	Thirteen Weeks Ended								Thirty-Nine Weeks Ended
	May 27, 2006			May 28, 2005			Percentage Change		May 27, 2006			May 28, 2005			Percentage Change

Operating Expenses	$	96,977		$	84,047		15.4	%	$	275,671		$	241,914		14.0	%
Percentage of Net Sales	29.4		%	29.1		%			29.6		%	29.4		%

The increase in operating expenses in dollars for the thirteen and thirty-nine week periods ended May 27, 2006, as compared to the same periods in fiscal 2005, was primarily the result of an increase in payroll and payroll related costs, an increase in freight expense to support increased sales, an increase in stock-based compensation expense and an increase in the accrual for incentive compensation. The increase in freight expense includes the freight cost surcharges discussed above, most of which were passed along to customers.

Payroll and payroll related costs continue to make up a significant portion of our operating expenses. These costs increased primarily as a result of an increase in headcount and annual payroll increases. The increase in headcount is primarily the result of an increase in sales associates as part of our overall growth strategy to build sales as well as an increase in personnel in our customer fulfillment centers and branches to handle increased sales volume. We expect that the number of sales associates will increase to approximately 700 by the end of fiscal 2006 due to the acquisition of J&L.

For the first half of fiscal 2006, medical benefit costs were running lower than what we had been trending in fiscal 2005. The reduction in medical benefit costs was due to fewer claims submitted as well as a decrease in the dollar value of claims submitted as compared to the comparable period in fiscal 2005. However, during the thirteen week period ended May 27, 2006, we began to see an increase in medical benefit costs that brought us back to the levels of fiscal 2005. We expect the medical benefit costs to remain at these higher levels for the remainder of fiscal 2006.

The increase in stock-based compensation is the result of the Company adopting FAS 123R as of the beginning of fiscal 2006. As discussed in Note 2 of the Consolidated Financial Statements, prior to adopting FAS 123R, the Company was not required to record any compensation expense for stock options since all of our options were granted at the market price. Stock-based compensation expense for stock options for the thirteen and thirty-nine week periods ended May 27, 2006 was $1.8 million and $6.0 million, respectively. This charge resulted in a reduction to earnings per share of $0.02 and $0.07 for the thirteen and thirty-nine week periods ended May 27, 2006, respectively. The Company expects the stock-based compensation expense related to stock options for our fourth quarter of fiscal 2006 to increase operating expenses by approximately $1.8 million and reduce earnings per share by approximately $0.02 per share. The unrecognized share-based compensation cost related to stock option expense at May 27, 2006 is $11,832 and will be recognized over a weighted average of 2.53 years.

The increase in operating expenses as a percentage of net sales for the thirteen and thirty-nine week periods ended May 27, 2006, as compared to the same periods in fiscal 2005, is primarily the result of the increase in stock-based compensation recorded and an increase in the accrual for incentive compensation offset by productivity gains and the allocation of fixed expenses over a larger revenue base.

Income From Operations

	Thirteen Weeks Ended								Thirty-Nine Weeks Ended
	May 27, 2006			May 28, 2005			Percentage Change		May 27, 2006			May 28, 2005			Percentage Change

Income from Operations	$	59,028		$	48,958		20.6	%	$	164,634		$	134,754		22.2	%
Percentage of Net Sales	17.9		%	17.0		%			17.7		%	16.4		%

The increase in dollars for the thirteen and thirty-nine week periods ended May 27, 2006, as compared to the same periods in fiscal 2005, was primarily attributable to the increase in net sales offset in part by the increase in operating expenses as described above. As a percentage of net sales, the increase is primarily the result of the distribution of expenses over a larger revenue base and the increase in gross profit margin as described above offset by the dollar increase in operating expenses also described above.

Interest Income, Net

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	May 27, 2006		May 28, 2005		Percentage Change		May 27, 2006		May 28, 2005		Percentage Change

Interest Income, net	$	1,243	$	1,291	(3.7	)%	$	3,164	$	3,029	4.5	%

Interest income levels for the thirteen and thirty-nine week periods ended May 27, 2006, were comparable to the same periods in fiscal 2005. The Company anticipates a material increase in interest expense in future periods in connection with the new borrowing incurred to finance the J&L acquisition. See “Liquidity and Capital Resources” at page 13.

Provision for Income Taxes

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	May 27, 2006		May 28, 2005		Percentage Change		May 27, 2006		May 28, 2005		Percentage Change

Provision for Income Taxes	$	23,309	$	19,620	18.8	%	$	65,723	$	53,765	22.2	%

The effective tax rate for the thirteen and thirty-nine week periods ended May 27, 2006, are in line with the comparable periods in fiscal 2005.

Net Income

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	May 27, 2006		May 28, 2005		Percentage Change		May 27, 2006		May 28, 2005		Percentage Change

Net Income	$	37,018	$	30,688	20.6	%	$	102,282	$	84,094	21.6	%
Diluted Earnings Per Share	$	0.54	$	0.44	22.7	%	$	1.50	$	1.19	26.1	%

The factors which affected net income for the thirteen and thirty-nine week periods ended May 27, 2006, as compared to the same periods in fiscal 2005, have been discussed above. In addition to the increase in net income, the diluted earnings per share for the thirteen and thirty-nine week periods ended May 27, 2006 was impacted by the buy back of Class A common stock in the prior fiscal year which resulted in fewer shares outstanding at May 27, 2006.

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. In the past, our primary sources of financing have been cash generated from operations. Taken as a whole, cash, cash equivalents and all available-for-sale securities is $156.9 million at May 27, 2006, an increase from $85.5 million at the fiscal year ended August 27, 2005 and a decrease from $183.4 at May 28, 2005.

Net cash provided by operating activities for the thirty-nine week periods ended May 27, 2006 and May 28, 2005 was $90.7 million and $88.3 million, respectively. The increase of $2.4 million in net cash provided from operations resulted primarily from higher net income and in increase in accounts payable and accrued liabilities offset by an increase in accounts receivable and inventory during the thirty-nine week period ended May 27, 2006, as compared to the same period in fiscal 2005.

Net cash provided by investing activities for the thirty-nine week periods ended May 27, 2006 was $5.4 million and the net cash used in investing activities for the thirty-nine week periods ended May 28, 2005 was $11.8 million. The change in these amounts is primarily the result of a decrease in investments in available-for-sale securities during the thirty-nine week period ended May 28, 2006, as compared to the same period in fiscal 2005.

The net cash used in financing activities for the thirty-nine week periods ended May 27, 2006 and May 28, 2005 was $4.2 million and $79.6 million, respectively. The reduction in the cash used in financing activities is primarily the result of the Company not repurchasing shares of Class A common stock in the fiscal 2006 period and the reclassification of excess tax benefits from stock-based compensation, offset by increased dividend payments during the thirty-nine week period ended May 27, 2006, as compared to the same period in fiscal 2005.

The Company reissued approximately 50,000 shares of treasury stock during the first thirty-nine weeks of fiscal 2006 to fund the Associate Stock Purchase Plan. The Company did not repurchase any shares of its Class A common stock during the first thirty-nine weeks of fiscal 2006, but may make future repurchases based on market conditions and other investment criteria. The Company has adequate reserves to fund such future repurchases.

The Company paid a dividend of $9.5 million on April 18, 2006 to shareholders of record at the close of business on April 7, 2006. On June 26, 2006, the Board of Directors approved a dividend of $0.14 per share payable on July 21, 2006 to shareholders of record at the close of business on July 10, 2006. The dividend will result in a payout of approximately $9.5 million, based on the number of shares outstanding at July 3, 2006.

As a result of implementing operational enhancements in customer fulfillment centers, we may continue to see an increase in capital expenditures during fiscal 2006. The Company has adequate resources to fund these plans out of cash and our new $75 million revolver as part of the new credit facility.

Related Party Transactions

The Company is affiliated with two real estate entities (together, the “Affiliates”). The Affiliates are owned primarily by the Company’s principal shareholders. The Company paid rent under operating leases to Affiliates for the first thirty-nine weeks of fiscal 2006 of approximately $1.3 million. In the opinion of the Company’s management, based on its market research, the leases with Affiliates are on terms which approximate fair market value.

Contractual Obligations

Certain of the operations of the Company are conducted on leased premises, two of which are leased from Affiliates. The leases (most of which require the Company to provide for the payment of real estate taxes, insurance and other operating costs) are for varying periods, the longest extending to the year 2023. In addition, the Company is obligated under certain equipment and automobile operating leases, which expire on varying dates through 2012. At August 27, 2005, approximate minimum annual rentals on such leases were as follows (in thousands):

Fiscal Year	Total (Including Related Party Commitments)		Related Party Commitments
2006	6,020		1,736
2007	5,165		1,745
2008	4,263		1,745
2009	2,968		1,747
2010	1,950		1,745
Thereafter	22,872		22,769
Total	$	43,238	$	31,487

Since August 27, 2005 there has been no material change in these obligations.

Off-Balance Sheet Arrangements

The Company has not entered into any off-balance sheet arrangements.

Critical Accounting Estimates

The Company makes estimates, judgments and assumptions in determining the amounts reported in the 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. The Company’s significant accounting policies are described in the notes to the consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended August 27, 2005. The accounting policies described below are impacted by the Company’s critical accounting estimates.

Allowance for Doubtful Accounts

The Company performs periodic credit evaluations of its customers’ financial condition and collateral is generally not required. The Company evaluates the collectibility of accounts receivable based on numerous factors, including past transaction history with customers and their credit-worthiness. The Company estimates an allowance for doubtful accounts as a percentage of net sales based on historical bad debt experience and adjusts it for changes in the overall aging of accounts receivable as well as specifically identified customers that are having difficulty meeting their financial obligations (e.g. bankruptcy, etc.). Historically, there has not been significant volatility in our bad debt expense due to strict adherence to our credit policy. The Company does not anticipate that the acquisition of J&L will have a material adverse effect, relative to the increased level of accounts, on its allowance for doubtful accounts.

Inventory Valuation Reserve

Inventories consist of merchandise held for resale and are stated at the lower of weighted average cost or market. Management evaluates the need to record adjustments to reduce inventory to net realizable value on a quarterly basis. The reserve is initially provided for based on a percentage of sales. Each quarter items to be liquidated are specifically identified and written-down, using historical data and reasonable assumptions, to its estimated market value, if less than its cost. Inherent in the estimates of market value

are management’s estimates related to customer demand, technological and/or market obsolescence, possible alternative uses and ultimate realization of excess inventory. The Company does not anticipate that the acquisition of J&L will have a material adverse effect, relative to the increased level of inventory, on its inventory valuation reserve.

Sales Returns

The Company establishes a reserve for anticipated sales returns based on historical return rates. The return rates are periodically analyzed for changes in current return trends. Historically, material adjustments to the estimated sales reserve have not been required based on actual returns. In the second quarter of fiscal 2005, based on an improvement in return trends the Company was able to adjust the reserve downward. If future returns are materially greater than estimated returns the sales return reserve may need to be increased which would adversely impact recorded sales. The Company does not anticipate that the acquisition of J&L will have a material adverse effect, relative to the increased level of sales, on its sales return reserve.

Reserve for Self-insured Group Health Plan

The Company has a self-insured group health plan. The Company is responsible for all covered claims to a maximum liability of $300,000 per participant during a September 1 plan year. Benefits paid in excess of $300,000 are reimbursed to the plan under the Company’s stop loss policy. Due to the time lag between the time claims are incurred and the time claims are paid by the Company, a reserve for these incurred but not reported (“IBNR”) amounts is established. The amount of this reserve is reviewed quarterly and is evaluated based on a historical analysis of claim trends, reporting and processing lag times and medical costs inflation. In the second quarter of fiscal 2005, the Company increased the IBNR reserve due to a trend of increased dollar amounts of medical claims by plan participants. If this trend continues the IBNR reserve may continue to increase. The Company does not anticipate that the acquisition of J&L will have a material adverse effect, relative to the increased number of associates, on its reserve for self-insured group health plan.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company has a long-term note payable in the amount of approximately $0.9 million to the Pennsylvania Industrial Development Authority which is secured by the land on which the Harrisburg, Pennsylvania customer fulfillment center is located, which bears interest at 3% per annum and is payable in monthly installments of approximately $15,000 (includes principal and interest) through September 2011.

The Company maintains an investment portfolio of municipal notes and bonds and corporate bonds of varying maturities. These securities, which are held for purposes other than trading, are classified as available-for-sale and, consequently, are recorded on the consolidated balance sheets at fair value. Approximately 63% of the investments are comprised of variable interest rate debt securities that reset to market prevailing rates at various intervals, thus limiting the exposure to fair value fluctuations for changes in interest rates. The remaining 37% of the investment portfolio is comprised of fixed interest rate debt securities. As of June 8, 2006, all available-for-sale securities were sold, and as a result, realized losses incurred were approximately $90,000.

Unrealized gains and losses on available-for-sale securities, that are considered to be temporary, are included as a separate component of accumulated other comprehensive income (loss), net of any related tax effect. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the first-in, first-out method.

In addition, the Company’s interest income is most sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Company’s cash equivalents and investments in available-for-sale securities.

Item 4. Controls and Procedures

The Company’s senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’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(e) and 15d-15(e), the Company carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, as well as other key members of the Company’s management, of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s 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 the Company’s 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 Securities and Exchange Commission’s rules and forms.

No change occurred in the Company’s internal controls concerning financial reporting during the third fiscal quarter ended May 27, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Except as described below, there have been no material changes from the Risk Factors described in our Form 10-K for the fiscal year ended August 27, 2006. The information below updates, and should be read in conjunction with, the Risk Factors and information disclosed in the Form 10-K.

Our ability to timely and efficiently integrate the J&L business and realize the anticipated synergies from the transaction will have a significant effect on our future operations.

Our future results of operation will be significantly influenced by the operations of J&L, and we will be subject to a number of risks and uncertainties, including the following:

· We will face a number of significant challenges in integrating the technologies, operations, and personnel of J&L in a timely and efficient manner, and our failure to do so effectively could have a material, adverse effect on our business and operating results.

· We may not achieve the strategic objectives and other anticipated potential benefits of the acquisition, or do so in the time we anticipate and our failure to achieve these strategic objectives or to do so in a timely manner could have a material, adverse effect on our revenues, expenses, and operating results.

· Transaction costs associated with the acquisition will be included as part of the total purchase cost for accounting purposes. We may incur charges to operations in amounts that are not currently estimable, in the quarter in which the acquisition is completed or in following quarters, to reflect costs associated with integrating the operations of two companies. In addition, we will record additional operating expenses associated with the amortization of other intangible assets. These costs could adversely affect our future liquidity and operating results.

· Both companies have the U.S. Government and civilian and military agencies of the U.S. Government as significant customers. We face risks associated with integrating the contracting activities of the expanded company, and there can be no assurance that the U.S. Government will maintain existing, or enter into any new contracts with the expanded company. It is possible that, as a result of the acquisition, our customers may delay or defer contracting decisions, which could have a material adverse effect on our business.

· As a result of the acquisition, we incurred debt of approximately $205 million. In addition we will be subject to various operating and financial covenants under the new loan facility; our failure to comply with these covenants could result in the lender declaring a default and accelerating repayment of the indebtedness. Our failure to repay this debt when due would materially, adversely affect our financial condition and results of operations.

· As a result of the acquisition, we may become a larger, more geographically dispersed and complex organization, and if our management is unable to effectively manage the expanded company after the acquisition, our operating results will suffer.

· The acquisition will increase the cost and complexity of complying with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 with regard to the evaluation and attestation of our internal control systems and may increase the risks of achieving timely compliance.

· Achieving the benefits of the acquisition will depend on many factors, including the successful and timely integration of the operations of the two companies following the completion of the acquisition. These integration efforts may be difficult and time consuming. Integration efforts between the two companies will also divert significant management attention and resources. This diversion of attention and resources could have an adverse effect on the Company’s ability to maintain its past growth performance levels.

Acquisitions have not played a role in our recent growth. From time to time, we may consider and/or pursue selected acquisitions that either could expand or complement our business in new or existing markets. There can be no assurance that we will be able to identify and to acquire acceptable acquisition candidates on terms favorable to us and in a timely manner. The failure to complete or successfully integrate prospective acquisitions may have an adverse impact on our growth strategy.

Shares Eligible for Future Sale

Sales of a substantial number of shares of Class A common stock in the public market could adversely affect the prevailing market price of the Class A common stock and could impair our future ability to raise capital through an offering of our equity securities. As of May 27, 2006 there were 48,700,166 shares of Class A common stock outstanding. In addition, 2,989,855 options to purchase shares of Class A common stock granted under the Company’s stock option plans and the Omnibus Equity Plan remain outstanding. As of May 27, 2006, options to purchase an additional 2,855,714 shares of Class A common stock were unissued under the Company’s Omnibus Equity Plan. Approximately 263,113 shares may be sold through the Company’s 1998 Associate Stock Purchase Plan. On January 3, 2006 at the 2006 Annual Meeting, the Shareholders approved, an Omnibus Equity Plan to replace the 1995, 1998, and 2001 Stock Option Plans, and the 1995 Restricted Stock Plans (the “Previous Plans”). The Omnibus Equity Plan will cover 3,000,000 shares, and will be in lieu of and will replace the unissued shares not covered by prior grants covered under the Previous Plans, for an aggregate of approximately 500,000 fewer shares than were covered under the Previous Plans.

Item 6. Exhibits

Exhibits:

10.1		Employment Agreement dated as of March 14, 2006 between J&L America, Inc. (DBA J&L Industrial Supply) and Michael Wessner
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

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 3, 2006	By:	/s/ DAVID SANDLER
		President and Chief Executive Officer


Dated: July 3, 2006	By:	/s/ CHARLES BOEHLKE
		Executive Vice President and Chief Financial Officer

EX-10.1 2 a06-14862_1ex10d1.htm EX-10

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”), dated as of ___________ __ 2006, between J&L America, Inc. (DBA as J&L Industrial Supply), a Michigan corporation (the “Company”), and Michael Wessner (the “Executive”).

W I T N E S S E T H

WHEREAS, MSC Acquisition Corp. VI (“Buyer”) has agreed to acquire (the “Acquisition”) all of the outstanding stock of the Company, of which the Executive is an employee, pursuant to a certain Stock Purchase Agreement dated March __, 2006 between MSC Industrial Direct Co., Inc. (“MSC”), Buyer, JLK Direct Distribution, Inc. and Kennametal Inc. (“Kennametal”); and

WHEREAS, the Company desires to employ the Executive, and the Executive desires to accept such employment, on and subject to the occurrence of the “Effective Date” as defined below and on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, representations and warranties set forth herein, and for other good and valuable consideration, it is hereby agreed as follows:

1. Employment. Effective as of and contingent upon the consummation of the Acquisition, the Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, upon the terms and conditions set forth herein. The date of consummation of the Acquisition and accordingly the Effective Date of Executive’s employment with the Company hereunder shall hereinafter be referred to as the “Effective Date.” Concurrently with the Executive’s execution of this Agreement, the Executive has executed the Associate Confidentiality, Non-Solicitation and Non-Competition Agreement, attached as Exhibit B hereto (the “Confidentiality Agreement”).

2. Term. Subject to the provisions of Section 8 hereof, the period of the Executive’s employment under this Agreement shall be from the Effective Date through the one year anniversary of the Effective Date, unless sooner terminated by the Company or upon the voluntary resignation of the Executive (the “Term”). Unless the parties otherwise agree in writing, continuation of the Executive’s employment with the Company beyond the expiration of the Term shall be deemed an employment at will and Executive’s employment may thereafter be terminated at will by Executive or the Company, provided, however, that Section 9 and the Confidentiality Agreement shall survive expiration of the Term and termination of the Executive’s employment.

3. Position and Duties.

(a) During the first twelve months of the Term, the Executive shall serve as the President of the Company and shall have such responsibilities and duties, consistent with the Executive’s responsibilities and duties to the Company prior to the Effective Date, as from time to time may be prescribed by the President and/or the Board of Directors of the Company. In connection with the future integration of the Company and MSC, after the first twelve months of the Term, Executive’s title may be changed, in consultation with the Executive, to reflect the coordination of MSC’s and the Company’s respective title structures, provided, however, that the Executive’s duties shall not be materially diminished as a result of such change in title.

(b) Subject to Section 3(a), during the Term, the Executive shall perform and discharge the duties that may be assigned to him from time to time by the President of the Company, and the Executive shall devote his best talents, efforts and abilities to the performance of his duties hereunder.

(c) During the Term, the Executive shall perform such duties on a full-time basis and the Executive shall have no other employment and no other outside business activities whatsoever; provided, however, that the Executive shall not be precluded from making passive investments which do not require the Executive’s devotion of any significant time or effort.

4. Compensation. (a) For the Executive’s services hereunder, during the Term, the Company shall pay the Executive salary (the “Base Salary”) at an annual rate of $365,000, payable and earned at a bi-weekly rate of $14,038.46 in accordance with the customary payroll practices of the Company and MSC.

(b) Subject to Sections 8 and 9, following completion of 12 months of employment with the Company and subject to the terms of the Company’s integration bonus program and in consultation with the Executive, Executive shall be eligible to receive an integration bonus (the “Integration Bonus”) currently targeted to be $500,000 (the “Target Bonus”). The actual amount of the Integration Bonus payable to Executive shall be no less than 30% less than, and no more than 30% greater than, the Target Bonus; and shall be determined by the MSC Compensation Committee in its discretion taking into account the Executive’s performance and based on mutually agreed goals and objectives between the Company and the Executive. Any such Integration Bonus shall be paid to Executive on the 13 month anniversary of the Effective Date, provided that the Executive is an employee of the Company on the 12 month anniversary of the Effective Date.

5. Other Benefits. During the Term, as an employee of the Company, then a subsidiary of MSC, the Executive shall be entitled to participate in MSC benefits programs and plans in accordance with the terms of such programs and plans which include major medical and dental insurance, the MSC Industrial Direct Co., Inc. 401(k) Plan (the “401(k) Plan”) and tuition reimbursement. The Executive shall be credited with service with the Company and its affiliates

prior to the Effective Date for purposes of vesting and eligibility, including eligibility and vesting under the 401(k) Plan to the extent such service was credited for such purposes under Kennametal’s 401(k) Plan and in the determination of vacation.

6. Automobile Allowance. During the Term, the Company shall pay the Executive $1,200 per month for expenses such as lease, registration, insurance, repairs, maintenance, license fees, parking, gasoline and oil incurred by the Executive incident to his use of such automobile in connection with his duties hereunder.

7. Reimbursement of Expenses. During the Term, the Company shall pay or reimburse the Executive for all reasonable travel, entertainment and other business expenses actually incurred or paid by the Executive in the performance of his duties hereunder upon presentation of expense statements and/or such other supporting information as the Company may reasonably require of the Executive and in accordance with and subject to the Company’s and MSC’s general procedures and policies.

8. Termination.

(a) The Company shall have the right to terminate the Executive’s employment at any time, with or without Cause, prior to the expiration of the Term.

(b) For purposes of this Agreement, “Cause” means (i) commission by the Executive 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 duty to the Company; (iii) continued reporting to work or working under the influence of alcohol, an illegal drug, an intoxicant or a controlled substance which renders Executive incapable of performing his or her material duties to the satisfaction of the Company or (iv) breach of this Agreement or the Confidentiality Agreement.

(c) For purposes of this Agreement, “Termination Date” is the date as of which the Executive incurs a termination of employment with the Company that constitutes “separation of service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended. Any notice of termination of the Executive’s employment given by the Executive or the Company pursuant to the provisions of this Agreement shall specify the Termination Date.

9. Obligations of Company on Termination. Notwithstanding anything in this Agreement to the contrary, the Company’s obligations on termination of the Executive’s employment shall be as described in this Section 9.

(a) Obligations of the Company in the Case of Termination by the Company Without Cause. In the event that prior to the expiration of the Term, the Company terminates the Executive’s employment other than for Cause, the Company shall provide the Executive with the following:

(i) Amount of Severance Payment. Subject to Sections 9(c) and 9(d) below, in addition to any Base Salary and unreimbursed expenses accrued but unpaid as of the Termination Date (which shall be paid in accordance with the customary payroll practices of the Company, the Company shall pay the Executive (the “Severance Payment”) the following:

(A) the Base Salary otherwise payable to the Executive during the period beginning on the six-month anniversary of the Termination Date (the “Payment Date”) and continuing through the then remaining duration of the Term, if any, payable in substantially equal biweekly installments in accordance with the customary payroll practices of the Company;

(B) the Base Salary that would have been paid to the Executive during the period beginning on the Termination Date through the day prior to the Payment Date, payable in a single lump sum payment on the Payment Date;

(C) any vacation pay accrued but unpaid as of the Termination Date, payable in a single lump sum payment on the Payment Date; and

(D) any Integration Bonus that would otherwise have been payable to the Executive, payable in a single lump sum on the 13 month anniversary of the Effective Date.

(ii) Continued Medical Coverage. In the event that the Executive timely elects under the provision of COBRA to continue his or her coverage in effect prior to the Termination Date under a group health plan sponsored by the Company or MSC, the Executive will be entitled to continuation of such coverage, at the Company’s expense, for the then remaining duration of the Term. Notwithstanding the foregoing, nothing in Section 9(a)(ii) shall prohibit the Executive from continuing his or her group health coverage for the remainder of the period during which he or she is entitled to COBRA continuation coverage, if any, at the Executive’s sole expense.

(iii) Automobile Allowance. For the otherwise remaining duration of the Term, the Company shall pay the Executive for automobile related expenses as follows:

(A) $1,200 multiplied by the number of full calendar months beginning after the Termination Date but prior to the Payment Date, representing the automobile allowance otherwise payable to the Executive for the period beginning on the Termination Date and ending on the day prior to the Payment Date, payable in a single lump sum payment on the Payment Date; and

(B) $1,200 per month, payable on the [first/last] business day of each month occurring on or after the Payment Date through the then remaining duration of the Term, if any.

(iv) Completion Bonus. On the one-year anniversary of the Termination Date, the Company shall pay the Executive a lump sum completion bonus of $250,000, provided that all of the following conditions (A) through (D) are met:

(A) The Executive remains employed by the Company for the full 12 month Term of this Agreement; and

(B) The Executive continues in employment with the Company following the expiration of the Term; and

(C) The Executive’s employment with the Company is terminated by the Company without Cause during the 12-month period immediately following the expiration of the Term; and

(D) The Company and MSC determine, in their sole discretion, that the Executive did not breach any provision of the Confidentiality Agreement.

(b) Obligations of the Company in case of Termination for Death, Disability, Cause or Voluntary Resignation by Executive.

(i) Upon termination of the Executive’s employment for death, disability or for Cause or Executive’s voluntary resignation, the Company shall have no payment or other obligations hereunder to the Executive, except for the payment of any Base Salary, benefits or unreimbursed expenses accrued but unpaid as of the date of such termination and, in the event of the Executive’s voluntary resignation following the Company’s uncured material diminution of his duties, any completion bonus payable in accordance with Section 9(b)(ii) below.

(ii) Completion Bonus. On the one-year anniversary of the Termination Date, the Company shall pay the Executive a lump sum completion bonus of $250,000, provided that all of the following conditions (A) through (D) are met:

(A) The Executive remains employed by the Company for the full 12 month Term of this Agreement; and

(B) The Executive continues in employment with the Company following the expiration of the Term; and

(C) The Executive voluntarily resigns from his employment with the Company during the 12-month period immediately following the expiration of the Term on account of the material diminution of his duties by the Company which diminution is not cured by the Company within 15 days of the Executive’s providing written notice to the Company of such diminution; and

(D) The Company and MSC determine, in their sole discretion, that the Executive did not breach any provision of the Confidentiality Agreement.

(c) As a condition of receiving the Severance Payment, at least 10 days prior to the Payment Date, the Executive shall execute and deliver to the Company the General Release in the form attached as Exhibit A hereto (the “Release”). Notwithstanding anything in this Agreement to the contrary, payment of any Severance Payment hereunder is expressly conditioned on the Executive’s compliance with the terms of the Release and the Confidentiality Agreement and no further Severance Payment shall be made following the Company’s determination, in its sole discretion, that the Executive has breached any provision of the Release or the Confidentiality Agreement.

(d) Confidentiality, Non-Solicitation and Non-Competition. In consideration of the Executive’s employment and continued employment, and any and all payments to the Executive by the Company, the Company’s entrusting the Executive with Confidential Information (as defined in the Confidentiality Agreement), and the benefits provided hereunder, including without limitation the Severance Payment, the parties have entered into the Confidentiality Agreement, which is hereby incorporated by reference herein and made a part hereof as if set forth in full herein.

10. Severability. If any provision of this Agreement for any reason shall be held, by a court of competent jurisdiction, to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not render the entire Agreement illegal, invalid or unenforceable, the parties hereto agree, and it is their desire, that such court shall amend or modify this Agreement, and that this Agreement, in its modified form, shall be enforceable and valid to the maximum extent permitted by applicable law, and each other provision hereof shall not thereby be affected and shall be given full force and effect, and the parties shall cooperate in good faith to further modify this Agreement so as to preserve to the maximum extent possible the intended benefits to be received by the parties.

11. Successors and Assigns. The Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, administrators, executors, personal representatives, successors and assigns. Notwithstanding the foregoing, the Executive’s duties and responsibilities hereunder shall not be assignable.

12. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without regard to any rules respecting the conflicts of laws.

13. Notices. All notices, requests and demands given to or made upon the respective parties hereto shall be in writing and shall be deemed to have been given or made three business days after the date of mailing when mailed by registered or certified mail, postage prepaid, or on the date of delivery if delivered by hand, or one business day after the date of delivery by Federal Express or other reputable overnight delivery service, addressed to the parties at their addresses set forth below or to such other addresses furnished by notice given in accordance with this Section 13: (a) if to the Company, c/o MSC Industrial Direct Co., Inc., 75 Maxess Road, Melville, New York 11747, Attn: President and (b) if to the Executive, ________________________________.

14. Withholding. All payments required to be made by the Company to the Executive under this Agreement shall be subject to withholding taxes, social security and other payroll deductions in accordance with applicable law and the Company’s policies applicable to executive employees of the Company.

15. Resolution of Disputes. Any controversy or claim arising out of this Agreement, or the breach thereof, shall be submitted to final and binding arbitration before the American Arbitration Association (“AAA”), at its offices located in Nassau County and shall be governed by the AAA’s Employment Dispute Rules. In such arbitration, each party shall bear its own legal fees and related costs, except that the parties shall share the fee of the arbitrator, where Executive pays an amount equal to the cost of the filing fee or purchasing an index number in federal or state court, whichever is less. Judgment on any award an arbitrator enters may be entered in any court having jurisdiction over the parties and the arbitrator shall have the discretion to award the same relief a court could award. To the extent that any claim is found not to be subject to arbitration, such claim shall be either decided by the arbitrator, or the appropriate New York state court, and all such claims shall be adjudicated by a judge sitting without a jury.

16. Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the matters referred to herein, and no waiver of or modification to the terms hereof shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth. All prior and contemporaneous agreements and understandings with respect to the subject matter of this Agreement are hereby terminated and superseded by this Agreement.

17. Modification; Waiver.

(a) This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company and the Executive or in the case of a waiver, by the party against whom the waiver is to be effective. Any such waiver shall be effective only to the extent specifically set forth in such writing.

(b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

18. Headings. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of this Agreement.

19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed in its corporate name by one of its officers duly authorized to enter into and execute this Agreement, and the Executive has manually signed his name hereto, all as of the day and year first above written.

	J&L AMERICA, INC. DBA J&L
	INDUSTRIAL SUPPLY


	By:	/s/ Clarence V. Spawr
		Name: Clarence V. Spawr
		Title: Vice President


		/s/ Michael P. Wessner
		Michael Wessner

Exhibit A

RELEASE

WHEREAS, ___________ (the “Associate”) was a party to an Agreement dated as of __________, 200_ (the “Agreement”) by and between the Associate and J&L AMERICA, INC. DBA J&L INDUSTRIAL SUPPLY, a Michigan corporation (the “Corporation”), pursuant to which the Associate served as the ___________ of the Corporation, and the employment of the Associate with the Corporation has been terminated; and

WHEREAS, it is a condition to the Corporation’s obligations to make the severance payments and benefits available to the Associate pursuant to the Agreement that the Associate execute and deliver this Release to the Corporation.

NOW, THEREFORE, in consideration of the receipt by the Associate of the benefits under the Agreement, which constitute a material inducement to enter into this Release, the Associate intending to be legally bound hereby agrees as follows:

Subject to the next succeeding paragraph, effective upon the expiration of the 7-day revocation period following execution hereof as provided below, the Associate irrevocably and unconditionally releases the Corporation and MSC Industrial Direct Co., Inc. (“MSC”) and each’s owners, stockholders, predecessors, successors, assigns, affiliates, control persons, agents, directors, officers, employees, representatives, divisions and subdivisions (collectively, the “Related Persons”) from any and all causes of action, charges, complaints, liabilities, obligations, promises, agreements, controversies and claims (a) arising out of the Associate’s employment with the Corporation and the conclusion thereof, including, without limitation, any federal, state, local or other statutes, orders, laws, ordinances, regulations or the like that relate to the employment relationship and/or specifically that prohibit discrimination based upon age, race,

religion, sex, national origin, disability, sexual orientation or any other unlawful bases, including, without limitation, as amended, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Civil Rights Acts of 1866 and 1871, the Americans With Disabilities Act of 1990, the National Labor Relations Act, the Employee Retirement Income Security Act of 1974, Sections 1981 through 1988 of Title 42 of the United States Code, the Immigration Reform and Control Act, the Workers Adjustment and Retraining Notification Act, the Occupational Safety and Health Act, the New York State Executive Law (including its Human Rights Law), the New York City Administrative Code (including its Human Rights Law), the New York State Labor Law, the New York wage and wage-hour laws, any other federal, state or local civil, human rights, bias, whistleblower, discrimination, retaliation, compensation, employment, labor or other federal, state or local law, regulation or ordinance, and any applicable rules and regulations promulgated pursuant to or concerning any of the foregoing statutes, laws or ordinances; (b) arising out of any benefit, payroll or other plan, policy or program of the Corporation; (c) arising out of any public policy, contract, third-party beneficiary or common law claim; (d) for tort, tortious or harassing conduct, infliction of emotional distress, interference with contract, fraud, libel or slander; and (e) for breach of contract or for damages, including, without limitation, punitive or compensatory damages or for attorneys’ fees, expenses, costs, salary, severance pay, vacation, injunctive or equitable relief, whether, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, which, from the beginning of the world up to and including the date hereof, exists, have existed, or may arise, which the Associate, or any of his heirs, executors, administrators, successors and assigns ever had, now has or at any time hereafter may have, own or hold against the Corporation, MSC and/or any Related Person.

Notwithstanding anything contained herein to the contrary, the Associate is not releasing the Corporation or MSC from any of the Corporation’s or MSC’s obligations (a) under the Agreement, (b) to provide the Associate with insurance coverage defense and/or indemnification as an officer or director of the Corporation, if applicable to Associate, to the extent generally made available at the date of termination to the Corporation’s officers and directors in respect of facts and circumstances existing or arising on or prior to the date hereof, or (c) in respect of the Associate’s rights under the MSC’s 2005 Omnibus Equity Plan.

Associate affirms that he has not filed, caused to be filed, or presently is a party to any claim, complaint, or action against the Corporation, MSC or any Related Person in any forum or form. Associate further affirms that he has no known workplace injuries or occupational diseases and has been provided and/or has not been denied any leave requested under the Family and Medical Leave Act.

This Release shall be governed and conformed in accordance with the laws of the State of New York without regard to its conflict or choice of law provisions. In the event the Associate or the Corporation breaches any provision of this Agreement, Associate and the Corporation affirm that either may institute an action to specifically enforce any term or terms of this Release. If any provision of this Release is declared illegal or unenforceable by any court of competent jurisdiction, the parties agree the court shall have the authority to modify, alter or change the provision(s) in question to make the Release legal and enforceable. If this Release cannot be modified to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving the remainder of this Release in full force and effect. If the general release language is found to be illegal or unenforceable, Associate agrees to

execute a binding replacement release or, if requested by the Corporation or MSC, return the monies paid pursuant to this Release.

Any controversy or claim arising out of this Release, or the breach thereof, shall be submitted to final and binding arbitration before the American Arbitration Association (“AAA”), at its offices located in Nassau County and shall be governed by the AAA’s Employment Dispute Rules. In such arbitration, each party shall bear its own legal fees and related costs, except that the parties shall share the fee of the arbitrator, where Associate pays an amount equal to the cost of the filing fee or purchasing an index number in federal or state court, whichever is less. Judgment on any award an arbitrator enters may be entered in any court having jurisdiction over the parties and the arbitrator shall have the discretion to award the same relief a court could award. To the extent that any claim is found not to be subject to arbitration, such claim shall be either decided by the arbitrator, or the appropriate New York state court, and all such claims shall be adjudicated by a judge sitting without a jury.

The Corporation has advised the Associate in writing to consult with an attorney of his choosing prior to the signing of this Release and the Associate hereby represents to the Corporation that he has in fact consulted with such an attorney prior to the execution of this Release. The Associate acknowledges that he has had at least twenty-one days to consider the waiver of his rights under the ADEA. Upon execution of this Release, the Associate shall have seven additional days from such date of execution to revoke his consent to the waiver of his rights under the ADEA. Any revocation within this period must be submitted, in writing, to ____________ [Identify Company representative] and state, “I hereby revoke my acceptance of our Release.” The revocation must be personally delivered to _________________ [Identify Company representative] or [his/her] designee, or mailed to ____________________

[Identify Company representative] and postmarked within seven (7) calendar days of execution of this Release. This Release shall not become effective or enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday, Sunday, or legal holiday in the state in which Associate was employed at the time of his last day of employment, then the revocation period shall not expire until the next following day which is not a Saturday, Sunday, or legal holiday. If no such revocation occurs, the Associate’s waiver of rights under the ADEA shall become effective seven days from the date the Associate executes this Release.

IN WITNESS WHEREOF, the undersigned has executed this Release on the ___ day of ______________, 200_.



		[Name]

Exhibit B

ON DATE OF HIRE

ASSOCIATE CONFIDENTIALITY, NON-SOLICITATION

AND NON-COMPETITION AGREEMENT

ASSOCIATE CONFIDENTIALITY, NON-SOLICITATION AND NON-COMPETITION AGREEMENT dated as of ________________, between MSC Industrial Direct Co., Inc., on behalf of itself and its subsidiaries including, without limitation, J&L America, Inc. (d/b/a J&L Industrial Supply) (“J&L”) (collectively, “Employer” or “Company”), and _____________________ (“Associate”).

In consideration of Associate’s employment and/or continued employment by J&L and Associates entering into an Employment Agreement dated as of __________, 2006 with J&L, the payment of Associate’s compensation by J&L, and J&L’s entrusting to Associate of confidential information relating to its business, Associate agrees to and accepts the conditions of employment hereinafter set forth.

1. Confidentiality.

a. During the term of Associate’s employment with J&L, Associate will not use or disclose to any individual or entity any Confidential Information (as defined below) except (i) in the performance of Associate’s duties for J&L, (ii) as authorized in writing by Employer, or (iii) as required by law or legal process, provided that, prior written notice of such required disclosure is provided to Employer and, provided further that all reasonable efforts to preserve the confidentiality of such information shall be made.

b. As used in this Agreement, “Confidential Information” shall mean information that (i) is used or potentially useful in Employer’s business, (ii) Employer treats as proprietary, private or confidential, and (iii) is not generally known to the public. “Confidential Information” includes, without limitation, information relating to Employer’s products or services, processing, manufacturing, marketing, selling, customer lists, call lists, customer data, memoranda, notes, records, technical data, sketches, plans, drawings, chemical formulae, trade secrets, composition of products, research and development data, sources of supply and material, operating and cost data, financial information, personal information and information contained in manuals or memoranda. “Confidential Information” also includes proprietary and/or confidential information of Employer’s customers, suppliers and trading partners who may share such information with Employer pursuant to a confidentiality agreement or otherwise. The Associate agrees to treat all such customer, supplier or trading partner information as “Confidential Information” hereunder. The foregoing restrictions on the use or disclosure of confidential information shall continue after Associate’s employment

terminates for any reason for so long as the information is not generally known to the public.

2. Non-competition.

a. Associate recognizes that the Company’s relationship and goodwill with its customers have been established at substantial cost and effort by the Company.

b. Therefore, associate shall not enter into competition (as defined below) with Employer during the term of Associate’s employment with J&L, and

c. for a period of one (1) year following cessation of Associate’s employment with J&L for any reason, Associate will not, in any capacity, accept employment with the employer with whom Associate was employed immediately preceding the commencement of Associate’s employment with the Company, nor will Associate, in any capacity, accept employment with the following business entities, including any parent or subsidiary entities or other affiliated organizations: W.W. Grainger, Inc.; Fastenal Company; McMaster Carr; Kennametal Inc. or its affiliates; and The Home Depot, Inc.

3. Non-Solicitation.

a. Associate recognizes that the Company’s relationship and goodwill with its customers have been established at substantial cost and effort by the Company.

b. Therefore, while employed by J&L, and for an additional period of one (1) year after the termination of employment, Associate shall not in any capacity employ or solicit for employment, or recommend that another person employ or solicit for employment, any person who is then, or was at any time during the six (6) months immediately preceding the termination of Associate’s employment, an Associate, sales representative or agent of Employer or any present or future subsidiary or affiliate of Employer.

c. Further, Associate agrees that while employed by J&L, and for a period of one (1) year after his/her employment with J&L ends, s/he will not, on behalf of himself/herself, or any other person, firm or corporation, solicit any of the Company’s or its Affiliate’s customers with whom s/he has had contact while working for J&L; nor will Associate in any way, directly or indirectly, for himself/herself, or any other person, firm, corporation or entity, divert, or take away any customers of the Company or its Affiliates with whom Associate has had contact. For purposes of this paragraph, the term “contact” shall mean engaging in any communication, whether written or oral, with the customer or a representative of the customer, or

obtaining any information with respect to such customer or customer representative.

4. Employment At-Will. Associate acknowledges that his or her employment by J&L following the expiration of the Term (as defined in the Employment Agreement) will not be for any specified period of time and that it can be terminated by either Associate or Employer at any time following the expiration of the Term for any lawful reason. This is an “employment at will.”

5. Termination of Employment. In the event of termination of employment by either party, this Agreement will remain in effect. Upon termination, Associate will immediately deliver to Employer all property belonging to Employer then in the Associate’s possession or control, including all Documents (as defined herein) embodying Confidential Information. As used herein, “Documents” shall mean originals or copies of files, memoranda, correspondence, notes, manuals, photographs, slides, overheads, audio or video tapes, cassettes, or disks, and records maintained on computer or other electronic media.

6. Notice to Future Employers. For the period of one year immediately following the end of Associate’s employment with J&L, Associate will inform each new employer, in writing, prior to accepting employment, of the existence and details of this Agreement and will provide that employer with a copy of this Agreement. Associate will send a copy of each such writing to MSC at the time the Associate informs each new employer of the Agreement.

7. Remedies. Associate acknowledges that this Agreement, its terms and his/her compliance is necessary to protect the Company’s confidential and proprietary information, its business and its goodwill; and that a breach of any of Associate’s promises contained in this Agreement will irreparably and continually damage the Company to an extent that money damages may not be adequate. For these reasons, Associate agrees that in the event of a breach or threatened breach by the Associate of this Agreement, the Company shall be entitled to a temporary restraining order and preliminary injunction restraining Associate from such breach. Nothing contained in this provision shall be construed as prohibiting the Company from pursuing any other remedies available for such breach or threatened breach or any other breach of this Agreement. If Associate violates this Agreement, then the duration of the restrictions contained in paragraphs 2 and 3 shall be extended for an amount of time equal to the period of time during which Associate was in violation of the Agreement.

8. Entire Agreement. This Agreement embodies the entire agreement and understanding between the Parties with regard to the subject matter of this Agreement, is binding upon and inures to the benefit of the Parties, and it supersedes any and all prior agreements or understandings between the Company and Associate.

9. Modification. This Agreement may be modified or amended only by an instrument in writing executed by the Parties hereto, or in accordance with paragraph 15 herein.

10. Governing Law and Venue. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York, and may be enforced in any court of competent jurisdiction.

11. Waiver. If in one or more instances either party fails to insist that the other party perform any of this Agreement’s terms, this failure shall not be construed as a waiver by the party of any past, present, or future right granted under this Agreement; the obligations of both Parties under this Agreement shall continue in full force and effect.

12. Assignment. This Agreement may not be assigned by Associate. The Company shall have the right to assign its rights and obligations hereunder without the consent of the Associate.

13. Arbitration. Except as otherwise provided in this Agreement, any controversy or claim arising out of Associate’s employment with J&L or the termination thereof, including without limitation any claim related to this Agreement or the breach thereof shall be resolved by binding arbitration in accordance with the rules then in effect of the American Arbitration Association, at the office of the American Arbitration Association nearest to where the Associate performed the Associate's principal duties for the J&L. Nothing in this paragraph shall prevent the parties from seeking injunctive relief from the courts pending arbitration. Each party shall be permitted to engage in arbitral discovery in the form of document production, information requests, interrogatories, depositions and subpoenas. The parties shall share equally the fee of the arbitration panel.

To the extent that an arbitrator or court shall find that any dispute between the parties, including any claim made under or relating to this Agreement, is not subject to arbitration, such claim shall be decided by the courts of the State and the County, in which this agreement was executed, in a proceeding held before a Judge of the Trial Court of the State and County in which this agreement was executed or in the United States District Court in and for the District Court of covering the County in which this agreement was executed. Any trial of such a claim shall be heard by the Judge of such Court, sitting without a jury at a bench trial, to ensure more rapid adjudication of that claim and application of existing law.

14. Attorneys’ Fees. If any party to this Agreement breaches any of this Agreement’s terms, then that party shall pay to the non-defaulting party all of the non-defaulting party’s costs and expenses, including reasonable attorneys’ fees, incurred by that party in enforcing this Agreement.

15. Severability. If any one or more of the provisions contained in this Agreement is held illegal or unenforceable by an arbitrator or court and cannot be modified to be enforceable (which the parties expressly authorize such court, arbitrator, or other forum to do), no other provisions shall be affected by this holding.

16. Acknowledgment. I have read this agreement, have had an opportunity to ask Employer's representatives questions about it, and understand that my signing this

agreement is a condition of employment.

17. Section Headings. Section headings are used herein for convenience of reference only and shall not affect the meaning of any provision of this Agreement.

THUS, the parties knowingly and voluntarily execute this Agreement as of the dates set forth below.

	J&L MANAGER:		ASSOCIATE:

By:	/s/ C.V. Spawr___	Signature:	/s/ Michael P Wessner

Title:	NPHR__	Printed Name:	M P Wessner

Date:	14 March 2006	Date:	3-14-06

EX-31.1 3 a06-14862_1ex31d1.htm EX-31

EXHIBIT 31.1

CERTIFICATIONS

I, David Sandler, 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(s) 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 13(a)-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, 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(s) 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: July 3, 2006
		/s/ DAVID SANDLER
		David Sandler
		President and Chief Executive Officer

EX-31.2 4 a06-14862_1ex31d2.htm EX-31

EXHIBIT 31.2

CERTIFICATIONS

I, Charles Boehlke, certify that:

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

(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: July 3, 2006
	/s/ CHARLES BOEHLKE
	Charles Boehlke
	Executive Vice President
	And Chief Financial Officer

EX-32.1 5 a06-14862_1ex32d1.htm EX-32

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 May 27, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Sandler, 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.

By:	/s/ DAVID SANDLER
Name:	DAVID SANDLER
	Chief Executive Officer
	July 3, 2006

EX-32.2 6 a06-14862_1ex32d2.htm EX-32

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 May 27, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles Boehlke, 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.

By:	/s/ CHARLES BOEHLKE
Name:	CHARLES BOEHLKE
	Chief Financial Officer
	July 3, 2006

GRAPHIC 7 g148621kii001.jpg GRAPHIC begin 644 g148621kii001.jpg M_]C_X``02D9)1@`!`0$`8`!@``#_VP!#``H'!P@'!@H("`@+"@H+#A@0#@T- M#AT5%A$8(Q\E)"(?(B$F*S7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBIJK*SM+6VM[BYNL+#Q,7& MQ\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W^/GZ_\0`'P$``P$!`0$! M`0$!`0````````$"`P0%!@<("0H+_\0`M1$``@$"!`0#!`<%!`0``0)W``$" M`Q$$!2$Q!A)!40=A<1,B,H$(%$*1H;'!"2,S4O`58G+1"A8D-.$E\1<8&1HF M)R@I*C4V-S@Y.D-$149'2$E*4U155E=865IC9&5F9VAI:G-T=79W>'EZ@H.$ MA8:'B(F*DI.4E9:7F)F:HJ.DI::GJ*FJLK.TM;:WN+FZPL/$Q<;'R,G*TM/4 MU=;7V-G:XN/DY>;GZ.GJ\O/T]?;W^/GZ_]H`#`,!``(1`Q$`/P#V6BBB@`HH MKS;XO^.?[`TG^Q-/EQJ-\AWLIYAB/!/L3T'XGTH`=XR^+ECI$YTKP_&NJ:HS M>6"O,4;DXQQ]XY[#\ZY?4U1+A?[:BAUK5\9NYKLL\<3G_EE&@(50O0D=3FL# MP/I0TFQ_X2>Z3_2)"T>F(PZ'HTWT7H/?Z5TFA65C<7<5QK$K)9R7"6ZXSNFF M*7N+9=_P"MEYE.U329;N&*3PYI1221 M5;;$RG!.."&XKH;+XC:1X(T.[TNYGGOKNSO[B"VMMQ9UB5R$W.>@Q]3[5SJH M(=66->D=P%'X-3IO"\-AXNU?Q%KMN'0W\QT^RD'_`!\-O/[QA_SS'_CQ]JFA M4=I.;V-\XP,/:TH8:%G*^WR-*YUK5=7LEU3Q1D)=#=8Z+%(T<83_`)Z3;2&; M/8$\]>E9`;2`>/#6E#Z)(/\`V>IV=]2GN=3U.Z,<$?[RZN6&=H[!1W8]%45H M>*9K)9+.PL;/[+':P*9%8#S-[`$AB.I'`/OFLIU:DDYIV1Z&&R_!T9QPTXJ< M[7;[?UT^\SQ'I\FFZE=II\6F-8VCSQW=E++&\<@X0]7;'XE:WXNB MBTZRD.E6]K:K)J>I`!I3@`'8.@+-P._/;%HC M&1$I^OS-^57[#3_[`\.0:81MN[HK=7OJ"1^[C_X"IR?=O:NA3<*7-+<\>>%I M8O,71H1M!;V\MW^A-,VDO(S/I"WF?^6VH74LTK>Y.X#/T%18T;_H7M-'T:7_ M`.+K2M4N;?0+BYTJYTY=5FD$4?VN1!Y,8Y9@&!!).!],U0,WQ!'36-$/T-K_ M`/$UE#VDE=SL=^(>#P]1THX9RMUU_P`F,QHW_0`T_P#[^3?_`!=5?%']D:9I M.GHFC1IJ%],)52WFE#"W!QW8\N<@<=`?6FZUKGQ!T&TAO+RYM&M9F*)/!!;2 M)N'.TE5X..QJ'PI)>:SK-UXPUJ7[2U@%6`NH`>?&(U``QA0-V!Z#UK:,90]Z M4KH\O$5J.)M0H4.63?S.JU6_NG<1:W-+=7*``V$$[PVEIQPF$(:1AT))QVK* M\W3#_P`P>W_\"KC_`..58T](7GGO]19C9V:&XNFSRX!X7ZLQ`_&LC7?$GQ`T MI?MU_I\6G6L\F(E>PAP,\A1E<\#UK*'M:MY)V1Z.)67Y?RT94^>5M7O%O$6L6WC/XF_8KB^@31=$!8QS3K&ES*O4% MHP$'\";NI/"@"NKGBU"ZN))Y-:T\O(Q9L:K&!D^GS5#)IMU(/WFIZ?(!S\VI MQ''YM7*ZT^D&>_#*L+=<^)CY[?YB-YNN:K'!;1)!$%$<$6<);Q*./H`!DGZU MS\OB&+5OB%H-GI['^R]/OH8[8'CS#YB[I3[L?R``KK-)TQ=9N?\`A'=+NH[C M[1@ZM?6S;H[>W!_U*.."[DG;&:J^)[.2X\`W.H6W MG6^BQ.@@9EVOJ,I8#S6'41J,[1WZURTZ$I2L]$>_C,VH4**E2:E.UEUMZ_Y= M2KIVI1>)?$2"")D\.Z$#=&-^#<2#A6?U9FP,=ER/6M"QC_M;78$O)MOVJX'F MR,?4\UA^`KBSN-!U#1_MEO:W\US',@GD$:SHJD;0QXR"H^MG_ M`.!T/_Q5:5XRYDDM$7UQH5^LAG M.V/[,Y5%7A5''(``%=9%/$$%S,=TJV\>8]W!_X_2_8_$W_02/\`X-$_^+JY5.96E!G+0P2H2DLY_UC>_/RCV45PVE>(Y(?&UMXBU(&X<78N)\= M3SDX^G;Z"O03I0N3]HTS4;&\M9#NCF%W&C$?[2L05;U!K:O&2@HQ6AY>45Z, M\7/$8B24NE]-]_NV+MO'9V&K:;I6KK-!:0[=0OF^S2.)I?\`EC%\JGA0=Q[9 M..U:'C.+P?XVN[>:_P#$.HP1VZ%8X8K.3:"3RW,9Y/'Y5FA/$8'&K8'MJB?_ M`!=+M\2_]!9O_!HG_P`71&JXI)09-?+X5ZLJL\3"[\_^"9G_``@/P[_Z&;5? M_`1O_C==[X1N/`.@R0:5H4JK=W)VJTD,GFSGJ";5]:UF;Q#//)>05X-8.J:D_B_QWI M9AQ["LZZL[U_`^H^*M&*CJ!@X!XP!ZT`=?\`\**\ M*?\`/SJ?_?Y/_B:HZK\-_AUX0CAN]:GOGCED$<<;R%M[=<810:Q-5DU30HO# M/@_6-1O[/3IH1-?W,6]G=F9CY0(!.%X&!ZYQTJO8V$,WB#4M;TZRU"70O#D9 MGM+:ZWL9)\`#`;D#<-Q]`HS0![=I6EZ?I%BEMIEE'9P8R(XTV_G[_6N0UGX/ M>%]:U:XU*8WD,MRYDD6&4!2QZG!4XR:\_P!,\27=KX$N8K%]1O?$7B"X,F[VJ_XKL5TBRTSP^^NS6LNGP^;-'?I*+:_D.&/[Q3D]QC MV[4`=AI/P;\(Z5=KE>9)>2Z=\*-4U&/1-0L)M1E6WC@\^5HE[^:BGYD'4= M>2!U%0/IJZ/X-T;0_#:3MK7B14-U=#S%V1[LG@_=&>,XY"F@#II/@1X7RS"^ MU-%ZX\U#@?\`?%9.B?"7P9XAAFFT[4M9,<+^6S2QB/)Z\;D&:G\6:0W@_1H- M(T2YU'4-EV,CO(T>>2_.3E5(`/%K%+_6=;U**!I!&` M-I+,><`!<]C72?#IOAXES+;>%B'OE0EWN$;SF7O@L.G3(%SO\`5`;32[-8R9$W M`#S&`&1A5[]2?I0!L#X:>!_%>N:C_9EQJ5LUM)B=(DVPJY)SL++SR#T.*L'X M">'>VJ:E_P!]1_\`Q-8D?A[5;R^T3P-#<7D*6Z_;=7O%9O\`6L`=H;H=HPH] MS[5;\8PMX9U:RT&&XN[;1;@&ZN[JX,TINY>GENZ?-C"C@>M`%_\`X4'X?[:K MJ/YQ_P#Q--/P#T'MJ^H?^.?_`!-4C'K/ACP9J6K:3)-#!JMQ$D<4-M*OV"/Y M@\BHY+<\<^^?2K^GP>&K2VN=?\/KKLSZ99R-+'_`(9>!++Q--ISWDVK7]J@D>UF&4B''+;0`>HX)_"O4(XHX8EBB18XT&%1 L1@*/0"O-/@UX>M%TAO$