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 March 2, 2002 Commission file number: 1-14130
MSC INDUSTRIAL DIRECT CO., INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-3289165
(State of incorporation) (IRS Employer
Identification No.)
75 MAXESS ROAD
MELVILLE, NY 11747
(Address of principal executive offices, including zip code)
(516) 812-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of April 4, 2002 37,162,246 shares of Class A Common Stock and
33,203,825 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 -
March 2, 2002 and September 1, 2001 3
Consolidated Statements of Income -
Thirteen and twenty-six weeks ended March 2, 2002 and February 24, 2001 4
Consolidated Statement of Shareholders' Equity -
Twenty-six weeks ended March 2, 2002 5
Consolidated Statements of Cash Flows -
Twenty-six weeks ended March 2, 2002 and February 24, 2001 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Balance Sheets
(In thousands, except share data) March 2, September 1,
2002 2001
---- ----
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 62,485 $ 12,466
Accounts receivable, net of allowance for doubtful
accounts of $5,066 and $4,927, respectively 93,109 95,263
Inventories 210,329 233,131
Prepaid expenses and other current assets 7,747 5,728
Deferred income taxes 4,862 5,264
--------- ---------
Total current assets 378,532 351,852
--------- ---------
Property, Plant and Equipment, net 117,174 121,149
--------- ---------
Other Assets:
Goodwill 63,354 63,354
Other 12,333 17,553
--------- ---------
75,687 80,907
--------- ---------
Total Assets $ 571,393 $ 553,908
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 23,065 $ 25,776
Accrued liabilities 33,166 37,755
Current portion of long-term notes payable 214 214
--------- ---------
Total current liabilities 56,445 63,745
Long-term notes payable 1,413 1,517
Deferred income tax liability 15,709 16,069
--------- ---------
Total liabilities 73,567 81,331
--------- ---------
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; 36,724,744
and 36,133,385 shares issued, 35,770,744 and 35,139,385 shares outstanding, 36
respectively 36
Class B common stock; $0.001 par value; 50,000,000 shares authorized;
33,453,825 and 33,478,778 shares issued and outstanding,
respectively 34 34
Additional paid-in capital 246,143 238,314
Retained earnings 270,327 253,704
Treasury stock, at cost, 954,000 and 994,000 shares, respectively (18,714) (19,511)
--------- ---------
Total shareholders' equity 497,826 472,577
--------- ---------
Total Liabilities and Shareholders' Equity $ 571,393 $ 553,908
========= =========
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 Twenty-Six Weeks Ended
---------------------------------- ----------------------------------
(In thousands, except net income March 2, February 24, March 2, February 24,
per share data) 2002 2001 2002 2001
---------------- -------------- ---------------- ---------------
Net sales $ 194,791 $ 223,089 $ 383,643 $ 444,973
Cost of goods sold 109,461 127,315 215,834 255,913
--------- --------- --------- ---------
Gross profit 85,330 95,774 167,809 189,060
Operating expenses 71,264 70,794 140,481 140,350
--------- --------- --------- ---------
Income from operations 14,066 24,980 27,328 48,710
--------- --------- --------- ---------
Other Income (Expense):
Interest income (expense), net 227 (1,115) 366 (2,349)
Other income, net 54 51 97 63
--------- --------- --------- ---------
Total other income (expense) 281 (1,064) 463 (2,286)
--------- --------- --------- ---------
Income before provision
for income taxes 14,347 23,916 27,791 46,424
Provision for income taxes 5,667 9,566 10,977 18,570
--------- --------- --------- ---------
Net income $ 8,680 $ 14,350 $ 16,814 $ 27,854
========= ========= ========= =========
Per Share Information (Note 2):
Net income per common share:
Basic $ 0.13 $ 0.21 $ 0.24 $ 0.41
========= ========= ========= =========
Diluted $ 0.12 $ 0.21 $ 0.24 $ 0.40
========= ========= ========= =========
Common shares used in computing per share
amounts (Note 2):
Basic 69,012 68,102 68,821 68,030
========= ========= ========= =========
Diluted 71,429 69,609 70,838 69,233
========= ========= ========= =========
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
--------- ---------- ------- -------- --------------- -------------
Twenty-six weeks ended March 2, 2002:
Balance, September 1, 2001 36,133 $ 36 33,479 $ 34 $ 238,314 $ 253,704
Exchange of Class B common stock for
Class A common stock 25 -- (25) -- -- --
Common stock issued under associate stock -- -- -- -- -- (191)
purchase plan
Exercise of common stock options, including 567 -- -- -- 7,829 --
income tax benefits
Net income -- -- -- -- -- 16,814
--------- ---------- ------- -------- --------------- -------------
Balance, March 2, 2002 36,725 $ 36 33,454 $ 34 $ 246,143 $ 270,327
========= ========== ======= ======== =============== =============
(In thousands) Treasury Stock
------------------------
Shares Amount at Cost Total
-------- --------------- -----------
Twenty-six weeks ended March 2, 2002:
Balance, September 1, 2001 994 $ (19,511) $472,577
Exchange of Class B common stock for
Class A common stock -- -- --
Common stock issued under associate stock (40) 797 606
purchase plan
Exercise of common stock options, including -- -- 7,829
income tax benefits
Net income -- -- 16,814
-------- --------------- -----------
Balance, March 2, 2002 954 $ (18,714) $497,826
======== =============== ===========
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) Twenty-Six Weeks Ended
-------------------------------------------
March 2, February 24,
2002 2001
----------------- ------------------
Cash Flows from Operating Activities:
Net income $ 16,814 $ 27,854
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,648 8,110
Amortization of deferred stock compensation -- 209
Provision for doubtful accounts 1,432 1,028
Deferred income taxes 42 1,728
Changes in operating assets and liabilities:
Accounts receivable 722 (9,532)
Inventories 22,802 3,022
Prepaid expenses and other current assets (2,019) (219)
Other assets 5,220 4,103
Accounts payable and accrued liabilities (6,589) (12,725)
----------------- ------------------
Total adjustments 29,258 (4,276)
----------------- ------------------
Net cash provided by operating activities 46,072 23,578
----------------- ------------------
Cash Flows from Investing Activities:
Expenditures for investments -- (1,852)
Expenditures for property, plant and equipment (3,673) (11,068)
----------------- ------------------
Net cash used in investing activities (3,673) (12,920)
----------------- ------------------
Cash Flows from Financing Activities:
Net proceeds from associate stock purchase plan 606 238
Net proceeds from exercise of common stock options 7,118 2,214
Net repayments of notes payable (104) (2,828)
----------------- ------------------
Net cash provided by (used in) financing activities 7,620 (376)
----------------- ------------------
Net increase in cash and cash equivalents 50,019 10,282
Cash and cash equivalents - beginning of period 12,466 3,209
----------------- ------------------
Cash and cash equivalents - end of period $ 62,485 $ 13,491
================= ==================
Supplemental Disclosure:
Cash paid for interest 22 2,065
Cash paid for income taxes 7,970 10,073
The accompanying notes are an integral part of these consolidated statements.
Page 6
Notes to Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
1. MSC Industrial Direct Co., Inc. ("MSC") was incorporated in the State of
New York on October 24, 1995. MSC and its subsidiaries, including its
principal operating subsidiary, Sid Tool Co., Inc., are hereinafter
referred to collectively as the "Company."
Reference is made to the Notes to Consolidated Financial Statements
contained within the Company's audited financial statements included in
MSC's annual report on Form 10-K for the year ended September 1, 2001. In
the opinion of management, the interim unaudited financial statements
included herein reflect all adjustments necessary, consisting of normal
recurring adjustments, for a fair presentation of such data in accordance
with generally accepted accounting principles. The results of operations
for interim periods are not necessarily indicative of the results to be
expected for a full year.
The Company's fiscal year ends on a Saturday close to August 31 of each
year.
2. The Company follows the provisions of the Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share". SFAS No. 128 requires the Company to present basic and diluted
earnings per share ("EPS") on the face of the income statement. Basic
earnings per common share were computed based on the weighted average
number of common shares issued and outstanding during the relevant periods.
Diluted earnings per common share were computed based on the weighted
average number of common shares issued and outstanding plus additional
shares assumed to be outstanding to reflect the diluted effect of common
stock equivalents using the treasury stock method.
Page 7
A reconciliation between the numerator and denominator of the basic and
diluted EPS calculation is as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------------ -------------------------------
March 2, February 24, March 2, February 24,
2002 2001 2002 2001
-------------- -------------- -------------- -------------
Net income for EPS
Computation $8,680 $14,350 $16,814 $27,854
======== ======= ======= =======
Basic EPS:
Weighted average
Common shares 69,012 68,102 68,821 68,030
======== ======= ======= =======
Basic EPS $0.13 $0.21 $0.24 $0.41
======== ======= ======= =======
Diluted EPS:
Weighted average
Common shares 69,012 68,102 68,821 68,030
Shares issuable from
Assumed conversion of
Common stock equivalents 2,417 1,507 2,017 1,203
-------- ------- ------- -------
Weighted average common
and common equivalent shares 71,429 69,609 70,838 69,233
======== ======= ======= =======
Diluted EPS $0.12 $0.21 $0.24 $0.40
======== ======= ======= =======
Page 8
3. Certain prior year balances have been reclassified to conform with current
year presentation.
4. In July 2000, the Emerging Issue Task Force ("EITF") reached a consensus
with respect to EITF issue 00-10, "Accounting for Shipping and Handling
Fees and Costs." The purpose of this issue discussion was to clarify the
classification of shipping and handling fees and costs. The consensus
reached was that all shipping and handling billed to customers is revenue
and the cost associated with these revenues should be classified as either
cost of sales or, if not cost of sales, as selling, general, and
administrative costs, with footnote disclosure as to the classification and
amount of these costs. This standard requires a reclassification of prior
periods as discussed below. Beginning in fiscal 2001, the Company recorded
the amounts billed to customers for shipping and handling in net revenues
and classified the costs associated with these revenues in operating
expenses. Prior to this standard, the Company had recorded net freight as a
component of total operating expenses. The Company has reclassified
financial information for all periods presented to give effect to the
adoption of this new standard. Shipping and handling costs included in
operating expenses were $10.2 million and $11.6 million for 13 week period
ended March 2, 2002 and February 24, 2001, respectively, and $20.0 million
and $22.4 million for the 26 week period ended March 2, 2002 and February
24, 2001, respectively.
5. In July 2001, the FASB issued Statements of Financial Accounting Standards
No. 141, "Business Combinations" and No. 142, "Goodwill and other
Intangible Assets". SFAS No. 141 requires all business combinations
initiated after June 30, 2001 to be accounted for using the purchase
method. Under SFAS No. 142, goodwill and intangible assets with indefinite
lives are no longer amortized but are reviewed annually (or more
frequently, if impairment indicators arise) for impairment. Separable
intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives (but with no maximum
life).
The Company has adopted this standard effective September 2, 2001 and has
evaluated its intangible asset to identify goodwill separately from other
identifiable intangibles. The intangible asset is classified as goodwill
with an indefinite life; no other separately identifiable intangibles
exist. Intangible assets that will continue to be classified as goodwill or
as other intangibles with indefinite lives will no longer be amortized.
This resulted in the exclusion of approximately $0.5 million and $0.9
million in amortization expense for the 13 and 26 week periods ended March
2, 2002, respectively. In accordance with the SFAS No. 142, intangible
assets, including purchased goodwill, will be evaluated periodically for
impairment. Based upon the results of our transitional impairment testing,
there has been no material impact on the consolidated financial results
related to our intangible assets or purchased goodwill.
Page 9
The following table presents pro forma net income and earnings per share
data restated to include the retroactive impact of the adoption of SFAS No.
142:
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------------------- --------------------------------
March 2, February 24, March 2, February 24,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Reported net income for EPS
computation $ 8,680 $ 14,350 $ 16,814 $ 27,854
Add back:
Goodwill amortization,
net of tax - 264 - 528
------------- ----------- ------------ ----------
Pro forma net income $ 8,680 $ 14,614 $ 16,814 $ 28,382
============= =========== ============ ==========
Basic EPS:
Basic EPS before SFAS $ 0.13 $ 0.21 $ 0.24 $ 0.41
No.142
SFAS No. 142 effect, net
of tax - - - 0.01
------------- ----------- ------------ ----------
Basic EPS after SFAS
No. 142 $ 0.13 $ 0.21 $ 0.24 $ 0.42
Diluted EPS:
Diluted EPS before SFAS $ 0.12 $ 0.21 $ 0.24 $ 0.40
No.142
SFAS No. 142 effect, net
of tax - - - 0.01
------------- ----------- ------------ ----------
Diluted EPS after SFAS
No. 142 $ 0.12 $ 0.21 $ 0.24 $ 0.41
============= =========== ============ ==========
Weighted average common shares:
Basic 69,012 68,102 68,821 68,030
Diluted 71,429 69,609 70,838 69,233
6. In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. The provisions of this statement are required to be adopted no
later than fiscal years beginning after December 31, 2001, with early
adoption encouraged. The adoption of this SFAS No. 144 is not expected to
have a material impact on our consolidated financial statements.
Page 10
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 September 1, 2001 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, the risk of war, terrorism and similar hostilities, and
availability of suitable 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."
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. 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 approximately 90 branch offices and
four distribution centers. 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.
Page 11
RESULTS OF OPERATIONS -
THIRTEEN WEEKS ENDED MARCH 2, 2002 AND FEBRUARY 24, 2001
NET SALES decreased by $28.3 million, or 12.7%, to $194.8 million in the second
quarter of fiscal 2002 from $223.1 million in the second quarter of fiscal 2001.
This decrease was primarily attributable to a decrease in sales to existing
customers, most of which are in the manufacturing sector, which have been
affected by the recession and continued uncertainty in the industrial sector.
GROSS PROFIT decreased by $10.5 million, or 11.0%, to $85.3 million in the
second quarter of fiscal 2002 from $95.8 million in the second quarter of fiscal
2001, primarily due to lower net sales as discussed above. As a percentage of
net sales, gross profit increased from 42.9% to 43.8%. The increase in gross
profit as a percentage of net sales was the result of modest price increases, a
favorable change in product mix, more favorable discounts obtained from vendors,
and the success of the Company's efforts to increase gross profit margins with
new and existing customers.
OPERATING EXPENSES increased by $0.5 million, or 0.7%, to $71.3 million in the
second quarter of fiscal 2002 from $70.8 million in the second quarter of fiscal
2001. The slight increase in operating expenses in dollars was a result of the
costs associated with the strategic increase in the Company's sales force to
take advantage of opportunities to gain market share, as well as other payroll
related costs as compared to the second quarter of fiscal 2001. These expenses
were offset by cost control initiatives and a decline in volume related
expenses. As a percentage of net sales, operating expenses increased from 31.7%
to 36.6%, primarily as a result of the distribution of fixed expenses over a
smaller revenue base.
INCOME FROM OPERATIONS decreased by $10.9 million, or 43.6%, to $14.1 million in
the second quarter of fiscal 2002 from $25.0 million in the second quarter of
fiscal 2001. The decrease was primarily attributable to the decrease in net
sales described above, although results were favorably impacted by the increased
gross profit margins described above.
INTEREST INCOME (EXPENSE), NET. Net interest income was $0.2 million for the
second quarter of fiscal 2002 compared to net interest expense of $1.1 million
for the second quarter of fiscal 2001. The change from net interest expense to
net interest income reflects the Company's repayment of almost all of its
outstanding debt during fiscal 2001. As a result, the Company now has net
interest income in the second quarter of fiscal 2002, resulting from invested
cash.
PROVISION FOR INCOME TAXES AND NET INCOME: The effective tax rate was 39.5% for
the second quarter of fiscal 2002 as compared to 40.0% in the second quarter of
fiscal 2001. Net income decreased by $5.7 million, or 39.6%, to $8.7 million in
the second quarter of fiscal 2002 from $14.4 million in the second quarter of
fiscal 2001. This decrease was primarily the result of decreases in income from
operations explained above.
Page 12
RESULTS OF OPERATIONS -
TWENTY-SIX WEEKS ENDED MARCH 2, 2002 AND FEBRUARY 24, 2001
NET SALES decreased by $61.4 million, or 13.8%, to $383.6 million during the
first half of fiscal 2002 from $445.0 million in the first half of fiscal 2001.
This decrease was primarily attributable to a decrease in sales to existing
customers, most of which are in the manufacturing sector, which have been
affected by the recession and continued uncertainty in the industrial sector.
The Company believes that the events of September 11, 2001 also had a
detrimental effect on the Company's net sales in the first quarter of fiscal
2002; however, that effect cannot be reliably estimated.
GROSS PROFIT decreased by $21.3 million, or 11.3%, to $167.8 million during the
first half of fiscal 2002 from $189.1 million in the first half of fiscal 2001,
primarily due to lower net sales as discussed above. As a percentage of net
sales, gross profit increased from 42.5% to 43.7%. The increase in gross profit
as a percentage of net sales was the result of modest price increases, a
favorable change in product mix, more favorable discounts obtained from vendors,
and the success of the Company's efforts to increase gross profit margins with
new and existing customers.
OPERATING EXPENSES remained constant at approximately $140.5 million during the
first half of fiscal 2002 and the first half of fiscal 2001. The slight increase
in operating expenses in dollars was a result of the costs associated with the
strategic increase (during the latter part of fiscal 2001) in the Company's
sales force to take advantage of opportunities to gain market share, as compared
to the first half of fiscal 2001 and an increase in other payroll related costs
as compared to the first half of fiscal 2001. These expenses were offset by cost
control initiatives and a decline in volume related expenses. As a percentage of
net sales, operating expenses increased from 31.5% to 36.6%, primarily as a
result of the distribution of fixed expenses over a smaller revenue base.
INCOME FROM OPERATIONS decreased by $21.4 million, or 43.9%, to $27.3 million
during the first half of fiscal 2002 from $48.7 million in the first half of
fiscal 2001. The decrease was primarily attributable to the decrease in net
sales described above, although results were favorably impacted by the increased
gross profit margins described above.
INTEREST INCOME (EXPENSE), NET. Net interest income was $0.4 million for the
first half of fiscal 2002 compared to net interest expense of $2.3 million for
the first half of fiscal 2001. The change from net interest expense to net
interest income reflects the Company's repayment of almost all of its
outstanding debt during fiscal 2001. As a result, the Company now has net
interest income in the first half of fiscal 2002, resulting from invested cash.
PROVISION FOR INCOME TAXES AND NET INCOME: The effective tax rate was
approximately 39.5% for the first half of fiscal 2002 as compared to 40.0% in
the first half of fiscal 2001. Net income decreased by $11.1 million, or 39.8%,
to $16.8 million in the first half of fiscal 2002 from $27.9 million in the
first half of fiscal 2001. This decrease was primarily the result of decreases
in income from operations explained above.
Page 13
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 next 12 months.
Under the terms of the credit facility, the maximum permitted borrowings are
$110.0 million under an unsecured revolving credit agreement. Interest on
amounts borrowed may be paid at a rate per annum equal to the bank's base rate
(4.75% at March 2, 2002) or, alternatively, at the bankers' acceptance rate or
LIBOR rate plus margins, which vary from 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
March 2, 2002 the Company had no outstanding borrowings under this agreement and
was in compliance with all financial covenants.
Net cash provided by operating activities for the 26 week period ended March 2,
2002 and February 24, 2001 was $46.1 million and $23.6 million, respectively.
The change of approximately $22.5 million is primarily attributable to lower
inventory levels, reflecting improved inventory control policies and a decrease
in accounts receivable.
Net cash used in investing activities for the 26 week periods ended March 2,
2002 and February 24, 2001 was $3.7 million and $12.9 million, respectively. The
net usage of cash in the first half of fiscal 2002 and fiscal 2001 was primarily
attributable to expenditures for property, plant and equipment.
Net cash provided by financing activities for the 26 week period ended March 2,
2002 was $7.6 million and net cash used in financing activities for the 26 week
period ended February 24, 2001 was $0.4 million. Net cash provided by financing
activities for the first half of fiscal 2002 was primarily attributable to
proceeds from the exercise of common stock options. The net cash used in
financing activities for the first half of fiscal 2001 was primarily
attributable to repayments of notes payable, offset by proceeds received from
the exercise of common stock options.
The Company believes that cash flow from operations and the revolving credit
agreement will be sufficient to fund future growth initiatives and meet planned
capital expenditure needs in the near future.
The Board of Directors of the Company has approved a stock repurchase plan (the
"Plan") that would allow for the repurchase of up to 5 million shares of the
Company's Class A common stock. The Plan allows the Company to repurchase shares
at any time and in any increments it deems appropriate.
Page 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's principal financial instrument is long-term notes payable under a
credit agreement. The Company is affected by market risk exposure primarily
through the effect of changes in interest rates on amounts payable by the
Company under this credit agreement. Changes in these factors cause fluctuations
in the Company's net income and cash flows. The agreement allows the company
maximum borrowings of $110.0 million under a revolving credit agreement. At
March 2, 2002, the Company had no outstanding borrowings under this agreement
and was in compliance with all financial covenants. The agreement bears interest
at the bank's base rate (4.75% at March 2, 2002), 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. The Company does not make material use of derivative financial
instruments to hedge against changes in interest rates or for any other purpose.
Page 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 4, 2002 the Company held its 2002 Annual Meeting of Shareholders (the
"Meeting"). In connection with the Meeting, the Company solicited proxies from
its shareholders pursuant to Regulation 14 of the Securities Exchange Act of
1934.
At the Meeting, the Company's shareholders elected as directors Mitchell
Jacobson, Sidney Jacobson, David Sandler, Charles Boehlke, James Schroeder,
Shelley Boxer, Roger Fradin, Denis Kelly, Raymond Langton, and Philip Peller.
In addition, the shareholders approved the adoption of the Company's 2001 Stock
Option Plan and ratified the selection by the Board of Directors of Arthur
Andersen LLP as independent certified public accountants of the Company for
fiscal year 2002.
The following tables summarize the votes cast at the meeting on the matters
brought before the shareholders:
1. Election of Directors
Nominee Votes Votes Votes Broker
Name For Against Withheld Non-Votes
Mitchell Jacobson 298,577,498 8,670,323 0 0
Sidney Jacobson 298,577,247 8,670,574 0 0
David Sandler 298,576,438 8,671,383 0 0
Charles Boehlke 298,732,048 8,515,773 0 0
James Schroeder 298,577,498 8,670,323 0 0
Shelley Boxer 298,577,498 8,670,323 0 0
Roger Fradin 306,786,552 461,269 0 0
Denis Kelly 306,785,693 462,128 0 0
Raymond Langton 306,785,532 462,289 0 0
Philip Peller 306,785,693 462,128 0 0
2. Adoption of the Company's 2001 Stock Option Plan.
Votes Votes Votes Broker
For Against Withheld Non-Votes
297,506,286 9,731,126 10,409 1,961,895
3. Ratification of Arthur Andersen LLP as independent certified public
accountants of the Company for fiscal year 2002.
Votes Votes Votes Broker
For Against Withheld Non-Votes
299,863,505 5,387,241 35,180 0
Page 16
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 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MSC INDUSTRIAL DIRECT CO., INC.
(Registrant)
Dated: April 8, 2002 By: /s/ Mitchell Jacobson
----------------------- ---------------------------
President and Chief Executive Officer
Dated: April 8, 2002 By: /s/ Charles Boehlke
----------------------- -------------------------
Senior Vice President and
Chief Financial Officer
Page 18