SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 26, 2001 Commission File No.: 1-14130
MSC INDUSTRIAL DIRECT CO., INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-3289165
(State of incorporation) (IRS Employer
Identification No.)
75 MAXESS ROAD
MELVILLE, NY 11747
(Address of principal executive offices, including zip code)
(516) 812-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of July 2, 2001, 35,878,657 shares of Class A Common Stock and 33,478,778
shares of Class B Common Stock of the registrant were outstanding.
MSC INDUSTRIAL DIRECT CO., INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
May 26, 2001 and August 26, 2000 3
Consolidated Statements of Income
Thirteen and thirty-nine weeks ended May 26, 2001 and
May 27, 2000 4
Consolidated Statement of Shareholders' Equity
Thirty-nine weeks ended May 26, 2001 5
Consolidated Statements of Cash Flows
Thirty-nine weeks ended May 26, 2001 and May 27, 2000 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Balance Sheets
(In thousands, except share data) May 26, August 26,
2001 2000
---- ----
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 29,804 $ 3,209
Accounts receivable, net of allowance for doubtful
accounts of $4,625 and $3,779, respectively 95,455 98,837
Inventories 247,826 264,494
Prepaid expenses and other current assets 3,752 4,190
Current deferred income taxes 5,343 4,484
---------- ---------
Total current assets 382,180 375,214
---------- ---------
Investments, at cost (Note 2) 550 8,982
Property, Plant and Equipment, net 121,340 116,378
Other Assets:
Goodwill 63,794 65,115
Other assets 9,825 15,285
---------- ---------
73,619 80,400
---------- ---------
Total Assets $ 577,689 $ 580,974
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,805 $ 30,245
Accrued liabilities 34,269 48,032
Current portion of long-term notes payable 214 244
---------- ---------
Total current liabilities 60,288 78,521
Long-term notes payable 45,289 68,398
Deferred income tax liabilities 14,968 12,386
---------- ---------
Total liabilities 120,545 159,305
---------- ---------
Shareholders' Equity:
Preferred stock; $0.001 par value; 5,000,000 shares authorized; none outstanding - -
Class A common stock; $0.001 par value; 100,000,000 shares authorized; 35,890,324
and 35,290,231 shares issued, and 34,879,324 and 34,217,231 shares outstanding,
respectively 36 35
Class B common stock; $0.001 par value; 50,000,000 shares authorized;
33,478,778 and 33,738,778 shares issued and outstanding, respectively 34 34
Additional paid-in capital 233,399 229,297
Retained earnings 243,536 213,591
Treasury stock, at cost, 1,011,000 and 1,073,000 shares, respectively (19,861) (21,079)
Deferred stock compensation - (209)
---------- ---------
Total shareholders' equity 457,144 421,669
---------- ---------
Total Liabilities and Shareholders' Equity $ 577,689 $ 580,974
========== =========
The accompanying notes are an integral part of these consolidated balance
sheets.
Page 3
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statements of Income
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------- ------------------------------
(In thousands, except per share May 26, May 27, May 26, May 27,
and share data) 2001 2000 2001 2000
------------- ------------ ----------- -------------
Net sales $ 204,834 $ 212,845 $ 627,477 $ 593,839
Cost of goods sold 122,786 131,043 378,699 364,644
--------- --------- --------- ---------
Gross profit 82,048 81,802 248,778 229,195
Operating expenses 60,657 53,189 178,677 157,697
--------- --------- --------- ---------
Income from operations 21,391 28,613 70,101 71,498
--------- --------- --------- ---------
Other (Expense) Income:
Interest income 145 112 253 128
Interest expense (923) (1,534) (3,380) (4,021)
Equity in loss of unconsolidated - - - (465)
affiliate
Provision for impairment in carrying
value of investments (Note 2) (10,284) - (10,284) -
Other income, net 36 85 99 212
--------- --------- --------- ---------
Total other (expense) income (11,026) (1,337) (13,312) (4,146)
--------- --------- --------- ---------
Income before provision
for income taxes 10,365 27,276 56,789 67,352
Provision for income taxes 7,883 10,910 26,453 26,882
--------- --------- --------- ---------
Net income $ 2,482 $ 16,366 $ 30,336 $ 40,470
========= ========= ========= =========
Per Share Information (Note 3):
Net income per common share:
Basic $ 0.04 $ 0.24 $ 0.45 $ 0.60
========= ========= ========= =========
Diluted $ 0.04 $ 0.24 $ 0.44 $ 0.60
========= ========= ========= =========
Common shares used in computing per share
amounts (Note 3):
Basic 68,264 67,129 68,099 67,044
========= ========= ========= =========
Diluted 69,615 68,700 69,288 67,893
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
Page 4
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statement of Shareholders' Equity
(Unaudited)
Class A Class B
(In thousands) Common Stock Common Stock Additional
---------------- ---------------- Paid-In Retained
Shares Amount Shares Amount Capital Earnings
------ ------ ------ ------ ------- --------
Thirty-nine weeks ended May 26, 2001:
Balance, August 26, 2000 35,290 $35 33,739 $34 $229,297 $213,591
Exchange of Class B common stock for Class A 260 - (260) - - -
common stock
Common stock issued under associate stock - - - - - (391)
purchase plan
Amortization of deferred stock compensation - - - - - -
Exercise of common stock options, including 340 1 - - 4,102 -
income tax benefits
Net income - - - - - 30,336
------ ---- ------ ---- -------- --------
Balance, May 26, 2001 35,890 $36 33,479 $34 $233,399 $243,536
====== ==== ====== ==== ======== ========
Treasury Stock
(In thousands) ---------------------- Deferred
Amount at Stock
Shares Cost Compensation Total
-------- --------- ------------ -----
Thirty-nine weeks ended May 26, 2001:
Balance, August 26, 2000 1,073 $(21,079) $ (209) $421,669
Exchange of Class B common stock for Class A - - - -
common stock
Common stock issued under associate stock (62) 1,218 - 827
purchase plan
Amortization of deferred stock compensation - - 209 209
Exercise of common stock options, including - - - 4,103
income tax benefits
Net income - - - 30,336
------ -------- ------ --------
Balance, May 26, 2001 1,011 $(19,861) - $457,144
====== ======== ====== ========
The accompanying notes are an integral part of these consolidated statements.
Page 5
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands) Thirty-Nine Weeks Ended
-----------------------------
May 26, May 27,
2001 2000
-------- --------
Cash Flows from Operating Activities:
Net income $ 30,336 $ 40,470
--------- ---------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity loss of unconsolidated affiliate - 465
Provision for impairment in carrying value of investments 10,284 -
Depreciation and amortization 12,626 10,038
Amortization of deferred stock compensation 209 321
Provision for doubtful accounts 1,526 2,016
Deferred income taxes 1,723 795
Changes in operating assets and liabilities:
Accounts receivable 1,856 (13,407)
Inventories 16,668 (32,534)
Prepaid expenses and other current assets 438 (478)
Other assets 5,460 5,181
Accounts payable and accrued liabilities (17,606) (2,610)
--------- ---------
33,184 (30,213)
--------- ---------
Net cash provided by operating activities 63,520 10,257
--------- ---------
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment (16,267) (16,899)
Cash paid for investment in affiliates (1,852) (9,422)
--------- ---------
Net cash used in investing activities (18,119) (26,321)
--------- ---------
Cash Flows from Financing Activities:
Purchase of treasury stock - (748)
Net proceeds from associate stock purchase plan 827 981
Net proceeds from exercise of common stock options 3,506 1,461
Net proceeds from (repayments of) notes payable (23,139) 17,290
--------- ---------
Net cash (used in) provided by financing activities (18,806) 18,984
--------- ---------
Net increase in cash and cash equivalents 26,595 2,920
Cash and cash equivalents - beginning of period 3,209 2,725
--------- ---------
Cash and cash equivalents - end of period $ 29,804 $ 5,645
========= ========
Supplemental Disclosure:
Cash paid for interest 2,564 2,500
Cash paid for income taxes 19,727 18,894
The accompanying notes are an integral part of these consolidated statements.
Page 6
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
1. MSC Industrial Direct Co., Inc. ("MSC") was incorporated in the State of
New York on October 24, 1995. MSC and its subsidiaries, including its
principal operating subsidiary, Sid Tool Co., Inc., are hereinafter
referred to collectively as the "Company."
Reference is made to the Notes to Consolidated Financial Statements
contained within the Company's audited financial statements included in
the Company's annual report on Form 10-K for the year ended August 26,
2000. In the opinion of management, the interim unaudited financial
statements included herein reflect all adjustments necessary, consisting
of normal recurring adjustments, for a fair presentation of such data in
accordance with generally accepted accounting principles. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for a full year.
The Company's fiscal year ends on a Saturday close to August 31 of each
year.
2. During the third quarter of fiscal 2001, the Company determined that its
ability to ultimately recover the value of its investments in four
privately held Internet startup companies was significantly impaired. The
Company's determination was based upon certain economic indicators and
specific events and circumstances, including these entities' difficulty in
raising additional capital, and the inability of these entities to achieve
business plan objectives and planned financial results. Pursuant to the
Company's evaluation of the respective carrying amounts of each
investment, either the entire cost of the investment or a significant
portion thereof was charged against earnings during the third quarter of
fiscal 2001. The aggregate amount of the non-cash charge recorded in the
statement of income was $10.3 million ($9.9 million, net of tax benefits,
or $.14 per diluted share).
The provision for income taxes in the third quarter and for the nine
months ended May 26, 2001 was substantially affected by the
non-deductibility of a significant portion of the Company's write down of
its Internet investments. Accordingly, the Company's effective tax rate is
significantly higher than in prior periods.
3. The Company follows the provisions of the Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share". SFAS No. 128 requires the Company to present basic
and diluted earnings per share ("EPS") on the face of the income
statement. Basic earnings per common share were computed based on the
weighted average number of common shares issued and outstanding during the
relevant periods. Diluted earnings per common share were computed based on
the weighted average number of common shares issued and outstanding plus
additional shares assumed to be outstanding to reflect the dilutive effect
of common stock equivalents using the treasury stock method.
Page 7
A reconciliation between the numerator and denominator of the basic and
diluted EPS calculation is as follows:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
May 26, May 27, May 26, May 27,
2001 2000 2001 2000
---- ---- ---- ----
Net income for EPS
Computation $2,482 $16,366 $30,336 $40,470
====== ======= ======= =======
Basic EPS:
Weighted average
Common shares 68,264 67,129 68,099 67,044
====== ======= ======= =======
Basic EPS $0.04 $0.24 $0.45 $0.60
====== ======= ======= =======
Diluted EPS:
Weighted average
Common shares 68,264 67,129 68,099 67,044
Shares issuable from
Assumed conversion of
Common stock equivalents 1,351 1,571 1,189 849
------ ------ ------- -------
Weighted average common
and common equivalent shares 69,615 68,700 69,288 67,893
====== ======= ======= =======
Diluted EPS $0.04 $0.24 $0.44 $0.60
====== ======= ======= =======
4. Certain prior year balances have been reclassified to conform with current
year presentation.
5. In September 2000, the EITF reached a consensus with respect to EITF Issue
No. 00-10, "Accounting for Shipping and Handling Revenues and Costs." The
purpose of this issue discussion was to clarify the classification of
shipping and handling revenues and costs. The consensus reached was that
all shipping and handling billed to customers is revenue.
Further, a consensus was reached that the classification of shipping and
handling costs is an accounting policy decision that should be disclosed
pursuant to Accounting Principles Board Opinion No. 22, "Disclosures of
Accounting Policies." The Company may adopt a policy of including shipping
and handling costs in cost of sales. If shipping costs are significant and
are not included in cost of sales, a company should disclose both the
amount(s) of such costs and the line item(s) on the income statement that
included them.
This standard will require a restatement of prior periods for changes in
classification. The Company currently nets its shipping and handling
revenue with the related costs and includes the residual amount as selling
expense. This consensus is effective for the Company beginning with the
fourth quarter of fiscal 2001. The Company is in the process of quantifying
the impact of its adoption, which will not change reported income from
operations or net income.
Page 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is intended to update the information contained in the Company's
Annual Report on Form 10-K for the fiscal year ended August 26, 2000 and
presumes that readers have access to, and will have read, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in such Form 10-K.
This Quarterly Report on Form 10-Q contains or incorporates certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. Such forward-looking statements involve known and
unknown risks and uncertainties and include, but are not limited to, statements
regarding future events and our plans, goals and objectives. Such statements are
generally accompanied by words such as "believe," "anticipate," "think,"
"intend," "estimate," "expect," or similar terms. Our actual results may differ
materially from such statements. Factors that could cause or contribute to such
differences include, without limitation, changing market conditions, competitive
and regulatory matters, general economic conditions in the markets in which the
Company operates and availability of acquisition opportunities. Although the
Company believes that the assumptions underlying its forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
the Company cannot make any assurances that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded as a representation by the
Company or any other person that the future events, plans or expectations
contemplated by the Company will be achieved. Furthermore, past performance is
not necessarily an indicator of future performance.
OVERVIEW
MSC Industrial Direct Co., Inc. ("MSC") was formed in October 1995 and has
conducted business since 1941. MSC and its subsidiaries, including Sid Tool Co.,
Inc. (the "Operating Subsidiary"), are hereinafter referred to collectively as
the "Company."
The Company is one of the largest direct marketers of a broad range of
industrial products to small and mid-sized industrial customers throughout the
United States. We distribute a full line of industrial products, such as cutting
tools, abrasives, measuring instruments, material handling products, machine
tool accessories, safety equipment, fasteners, welding supplies and electrical
supplies, intended to satisfy its customers' maintenance, repair and operations
("MRO") supplies requirements. The Company's 4,480 page master catalog offers
over 450,000 stock keeping units ("SKUs") and is supplemented by weekly, monthly
and quarterly specialty and promotional catalogs and brochures. The products are
distributed through the Company's four distribution centers and approximately 90
branch offices. Most of the products are carried in stock, and orders for these
products are typically fulfilled on the day the order is received.
Page 9
RESULTS OF OPERATIONS -
THIRTEEN WEEKS ENDED MAY 26, 2001 AND MAY 27, 2000
NET SALES decreased by $8.0 million, or 3.8%, to $204.8 million in the third
quarter of fiscal 2001 from $212.8 million in the third quarter of fiscal 2000.
This decrease was primarily the result of the progressively slowing industrial
sector. A significant portion of the Company's customer base is in this sector;
accordingly, sales to these customers have declined slightly during the third
quarter of fiscal 2001.
GROSS PROFIT increased by $.2 million, or .3%, to $82.0 million in the third
quarter of fiscal 2001 from $81.8 million in the third quarter of fiscal 2000.
As a percentage of net sales, gross profit increased from 38.4% to 40.1%. The
increase in gross profit as a percentage of net sales resulted from the success
of the Company's efforts to increase margins with new and existing customers and
a favorable change in product mix.
OPERATING EXPENSES increased by $7.5 million, or 14.0%, to $60.7 million in the
third quarter of fiscal 2001 from $53.2 million in the third quarter of fiscal
2000. As a percentage of net sales, operating expenses increased from 25.0% to
29.6%. The increases in operating expenses in dollars and as a percentage of net
sales were primarily attributable to the costs associated with a significant
increase in the Company's sales force, increased advertising costs, and higher
depreciation expense. These increases were partially offset by cost control
initiatives implemented during the third quarter of fiscal 2001.
INCOME FROM OPERATIONS decreased by $7.2 million, or 25.2%, to $21.4 million in
the third quarter of fiscal 2001 from $28.6 million in the third quarter of
fiscal 2000. The decrease was primarily attributable to a decrease in net sales
and an increase in operating expenses, partially offset by an increase in gross
profit percentage.
INTEREST EXPENSE decreased by $0.6 million to $.9 million in the third quarter
of fiscal 2001 from $1.5 million in the third quarter of fiscal 2000. The
decrease was primarily attributable to lower interest rates and lower borrowings
as the Company has used its free cash flow to pay down notes payable borrowings.
PROVISION FOR IMPAIRMENT IN CARRYING VALUE OF INVESTMENTS of approximately $10.3
million relates to the write-down of the Company's Internet investments. The
remaining net book value of these investments is approximately $.6 million.
PROVISION FOR INCOME TAXES: The effective tax rate was approximately 76.1% and
40.0% for the third quarter of fiscal 2001 and fiscal 2000, respectively. The
increase in the effective tax rate is a direct result of limited tax benefits
from the Internet investment write-downs. Accordingly, the company's effective
tax rate is significantly higher than in prior periods. Excluding the effect of
this write-down, the effective tax rate is 40.0% for both periods.
NET INCOME decreased by $13.9 million, or 84.8%, to $2.5 million in the third
quarter of fiscal 2001 from $16.4 million in the third quarter of fiscal 2000.
This decrease is primarily the result of the write-down of the Company's
Internet investments and the decrease in income from operations explained above.
Without taking into account the investment write-down, net income would have
decreased by $4.0 million or 24.4%, to $12.4 million.
Page 10
RESULTS OF OPERATIONS -
THIRTY-NINE WEEKS ENDED MAY 26, 2001 AND MAY 27, 2000
NET SALES increased by $33.6 million, or 5.7%, to $627.5 million during the
first nine months of fiscal 2001 from $593.8 million in the first nine months of
fiscal 2000. This increase was primarily attributable to an increase in sales to
the Company's existing customers, and an increase in the number of active
customers in the first quarter of fiscal 2001. During the second and third
quarters of fiscal 2001 the Company experienced a decrease in sales to existing
customers primarily as a result of the progressively slowing industrial sector.
GROSS PROFIT increased by $19.6 million, or 8.5%, to $248.8 million during the
first nine months of fiscal 2001 from $229.2 million in the first nine months of
fiscal 2000. As a percentage of net sales, gross profit increased from 38.6% to
39.6%. The increase in gross profit as a percentage of net sales resulted from a
favorable change of product mix and the success of the Company's efforts to
increase margins with new and existing customers.
OPERATING EXPENSES increased by $21.0 million, or 13.3%, to $178.7 million
during the first nine months of fiscal 2001 from $157.7 million in the first
nine months of fiscal 2000. As a percentage of net sales, operating expenses
increased from 26.6% to 28.5%. The increases in operating expenses in dollars
and as a percentage of net sales were primarily attributable to the costs
associated with a significant increase in the Company's sales force, increased
advertising costs, and higher depreciation expense.
INCOME FROM OPERATIONS decreased by $1.4 million, or 2.0%, to $70.1 million
during the first nine months of fiscal 2001 from $71.5 million in the first nine
months of fiscal 2000. The decrease was primarily attributable to an increase in
operating expenses, offset in part by an increase in net sales and gross profit
margin.
INTEREST EXPENSE decreased by $.6 million to $3.4 million in the nine months of
fiscal 2001 from $4.0 million in the first nine months of fiscal 2000. The
decrease was primarily attributable to lower long-term notes payable borrowings.
PROVISION FOR IMPAIRMENT IN CARRYING VALUE OF INVESTMENTS of approximately $10.3
million relates to the write-down of the Company's Internet investments. The
remaining net book value of these investments is approximately $.6 million.
PROVISION FOR INCOME TAXES: The effective tax rate was approximately 46.6% and
40.0% for the first nine months of fiscal 2001 and fiscal 2000, respectively.
The increase in the effective tax rate is a direct result of limited tax
benefits from the Internet investment write-downs. Accordingly, the Company's
effective tax rate is significantly higher than in prior periods. Excluding the
effect of this write-down, the effective tax rate is approximately 40.0% for
both periods.
NET INCOME: Net income decreased by $10.1 million, or 25.0%, to $30.3 million in
the first nine months of fiscal 2001 from $40.5 million in the first nine months
of fiscal 2000. This decrease is primarily the result of the write-down of the
Company's Internet investments and a slight decrease in income from operations
explained above. Without taking into account the investment write-down, net
income would have decreased by $0.2 million or 0.5%, to $40.2 million.
Page 11
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital needs have been to fund the working capital requirements
necessitated by our sales growth, adding new products, and facilities
expansions. Our primary sources of financing have been cash from operations,
supplemented by bank borrowings under our credit facility. We anticipate cash
flows from operations and available lines of credit will be adequate to support
our operations for the immediate future and for at least the next 24 months.
Under the terms of the credit facility, the maximum permitted borrowings are
$160.0 million ($110.0 million under an unsecured revolving credit agreement and
$50.0 million as a term loan). Interest on amounts borrowed may be paid at a
rate per annum equal to the bank's base rate (7.0% at May 26, 2001) or,
alternatively, at the bankers' acceptance rate or LIBOR rate plus margins, which
vary from 0.65% to 1.25% per annum based on the ratio of total liabilities to
effective net worth, or bid note rate. This credit facility contains certain
covenants limiting mergers, use of proceeds, indebtedness, liens, investments,
sales of assets, acquisitions, and payment of dividends. This credit facility
also contains certain standard financial covenants. As of May 26, 2001, the
Company was in compliance with all financial covenants. As of May 26, 2001, the
Company had approximately $43.8 million in outstanding borrowings under the
credit facility. Available borrowings at May 26, 2001 are $116.2 million, all of
which were available under the revolving credit agreement.
Net cash provided by operating activities for the 39 week periods May 26, 2001
and May 27, 2000 was $63.5 million and $10.3 million, respectively. The change
of approximately $53.2 million is primarily attributable to lower inventory
levels, reflecting improved inventory control policies, a decrease in accounts
receivable, and improved net working capital requirements.
Net cash used in investing activities for the 39 week periods ended May 26, 2001
and May 27, 2000 was $18.1 million and $26.3 million, respectively. The net
usage of cash in the first nine months of fiscal 2001 was primarily attributable
to expenditures for property, plant and equipment. The net usage of cash in
investing activities in the first nine months of fiscal 2000 was primarily
attributable to expenditures for property, plant and equipment and cash paid for
investments in Internet technology companies.
Net cash used in financing activities for the 39 week period ended May 26, 2001
was $18.8 million and net cash provided by financing activities for the 39 week
period ended May 27, 2000 was 19.0 million. The net cash used in financing
activities for the first nine months of fiscal 2001 was primarily attributable
to repayments of notes payable partially offset by the proceeds from the
exercise of common stock options. The net cash provided by financing activities
for the first nine months of fiscal 2000 was primarily attributable to proceeds
received from notes payable.
The Company believes that cash flow from operations and its revolving credit
agreement will be sufficient to fund future growth initiatives and meet planned
capital expenditure needs in the near future.
Page 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal financial instrument is long-term notes payable under an
unsecured revolving credit agreement. The Company is affected by market risk
exposure primarily through the effect of changes in interest rates on amounts
payable by the Company under this credit agreement. Changes in these factors
cause fluctuations in the Company's net income and cash flows. The agreement
allows the company maximum borrowings of $160.0 million, of which $110.0 million
is a revolving credit agreement and the remaining $50.0 million is a term loan.
At May 26, 2001 approximately $43.8 million was outstanding under the credit
agreement. Available borrowings at May 26, 2001 are $116.2 million, all of which
were available under the revolving credit agreement. The agreement bears
interest at the bank's base rate (7.0% at May 26, 2001), or, alternatively, at
the bankers acceptance rate or LIBOR rate plus margins, which vary from 0.65% to
1.25% per annum based on the ratio of total liabilities to effective net worth,
or bid note rate. If the principal amounts under the Company's credit agreement
remained at this year-end level for an entire year and the prime rate increased
or decreased, respectively, by 1%, then the Company would pay or save,
respectively, an additional $0.4 million in interest that year. The Company does
not utilize derivative financial instruments to hedge against changes in
interest rates or for any other purpose.
Page 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: None.
Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
for which this report is filed.
Page 14
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, 2001 By: /s/ Mitchell Jacobson
----------------- -------------------------------------
President and Chief Executive Officer
Dated: July 3, 2001 By: /s/ Charles Boehlke
----------------- -------------------------------------
Senior Vice President and
Chief Financial Officer
Page 15