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 27, 2000 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 June 27, 2000, 34,447,516 shares of Class A Common Stock and 34,138,778
shares of Class B Common Stock of the registrant were outstanding.
<PAGE>
MSC INDUSTRIAL DIRECT CO., INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
May 27, 2000 and August 28, 1999 3
Consolidated Statements of Income
Thirteen and thirty-nine weeks ended May 27,
2000 and May 29, 1999 4
Consolidated Statement of Shareholders' Equity
Thirty-nine weeks ended May 27, 2000 5
Consolidated Statements of Cash Flows
Thirty-nine weeks ended May 27, 2000 and May 29, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands, except share data) May 27, August 28,
2000 1999
---- ----
(unaudited) (audited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,645 $ 2,725
Accounts receivable, net of allowance for doubtful
accounts of $5,411 and $5,799, respectively 101,398 90,007
Inventories 258,076 225,542
Due from officers, employees and affiliated companies 169 499
Other receivable (Note 6) 4,704 --
Prepaid expenses and other current assets 4,369 3,891
Current deferred income taxes 4,490 5,379
--------- ---------
Total current assets 378,851 328,043
--------- ---------
Investments, at cost (Notes 7 & 8) 8,957 --
Property, plant and equipment, net 115,136 106,750
Goodwill 65,555 67,080
Other assets 7,330 12,511
--------- ---------
$ 575,829 $ 514,384
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 12,463 $ 23,510
Accrued liabilities 64,554 56,979
Current portion of notes payable 277 306
--------- ---------
Total current liabilities 77,294 80,795
Long-term notes payable 86,790 69,468
Other long-term liabilities 43 43
Deferred income tax liabilities 8,357 8,451
--------- ---------
Total liabilities 172,484 158,757
--------- ---------
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; 34,323,255 and 33,902,048 shares issued,
33,230,255 and 32,761,048 shares outstanding, respectively 34 34
Class B common stock; $0.001 par value; 50,000,000 shares
authorized; 34,138,778 shares issued and outstanding 34 34
Additional paid-in capital 223,674 216,977
Retained earnings 201,406 161,687
Treasury stock, at cost, 1,093,000 and 1,141,000 of Class A
Common stock held, respectively (21,471) (22,452)
Deferred stock compensation (332) (653)
--------- ---------
Total shareholders' equity 403,345 355,627
--------- ---------
$ 575,829 $ 514,384
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
Page 3
<PAGE>
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------- -----------------------
(in thousands, except per share data) May 27, May 29, May 27, May 29,
2000 1999 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 212,845 $ 170,492 $ 593,839 $ 486,461
Cost of goods sold 131,043 101,732 364,644 287,783
--------- --------- --------- ---------
Gross profit 81,802 68,760 229,195 198,678
Operating expenses 53,189 47,796 157,697 132,397
--------- --------- --------- ---------
Income from operations 28,613 20,964 71,498 66,281
--------- --------- --------- ---------
Other Income (Expense):
Interest income 112 13 128 71
Interest expense (1,534) (717) (4,021) (1,419)
Equity in loss of unconsolidated
affiliate (Note 7) -- -- (465) --
Other income, net 85 104 212 426
--------- --------- --------- ---------
(1,337) (600) (4,146) (922)
--------- --------- --------- ---------
Income before provision
for income taxes 27,276 20,364 67,352 65,359
Provision for income taxes 10,910 8,044 26,882 25,818
--------- --------- --------- ---------
Net income $ 16,366 $ 12,320 $ 40,470 $ 39,541
========= ========= ========= =========
Per Share Information (Note 2):
Net income per common share:
Basic $ 0.24 $ 0.18 $ 0.60 $ 0.59
========= ========= ========= =========
Diluted $ 0.24 $ 0.18 $ 0.60 $ 0.58
========= ========= ========= =========
Common shares used in computing
per share amounts (Note 2):
Basic 67,129 66,853 67,044 66,905
========= ========= ========= =========
Diluted 68,700 68,151 67,893 68,627
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
Page 4
<PAGE>
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statement of Shareholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Class A Class B Treasury Stock
(in thousands) Common Stock Common Stock Additional ------------------
--------------- --------------- Paid-In Retained Amount at
Shares Amount Shares Amount Capital Earnings Shares Cost
------ ------ ------ ------ ---------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirty-nine weeks ended May 27, 2000:
Balance, August 28, 1999 33,902 $ 34 34,139 $ 34 $ 216,977 $ 161,687 1,141 $ (22,452)
Exercise of common stock options,
including related tax benefits 421 -- -- -- 6,697 -- -- --
Common stock issued under stock
purchase plan -- -- -- -- -- (751) (88) 1,729
Purchase of treasury stock -- -- -- -- -- -- 40 (748)
Net income -- -- -- -- -- 40,470 -- --
Amortization of deferred stock
compensation -- -- -- -- -- -- -- --
------- ------ ------ ------ --------- --------- ----- ---------
Balance, May 27, 2000 34,323 $ 34 34,139 $ 34 $ 223,674 $ 201,406 1,093 $ (21,471)
======= ====== ====== ====== ========= ========= ===== =========
<CAPTION>
(in thousands) Deferred
Stock
Compensation Total
------------ -----
<S> <C> <C>
Thirty-nine weeks ended May 27, 2000:
Balance, August 28, 1999 $ (653) $ 355,627
Exercise of common stock options,
including related tax benefits -- 6,697
Common stock issued under stock
purchase plan -- 978
Purchase of treasury stock -- (748)
Net income -- 40,470
Amortization of deferred stock
compensation 321 321
------- ---------
Balance, May 27, 2000 $ (332) $ 403,345
======= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
Page 5
<PAGE>
MSC INDUSTRIAL DIRECT CO., INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
(in thousands) Thirty-Nine Weeks Ended
-----------------------
May 27, May 29,
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 40,470 $ 39,541
-------- --------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in loss of unconsolidated affiliate 465 --
Depreciation and amortization 10,038 6,640
Amortization of deferred stock compensation 321 315
Provision for doubtful accounts 2,016 1,988
Deferred income taxes 795 2,109
Changes in operating assets and liabilities,
net of effect from acquisitions:
Accounts receivable (13,407) (8,233)
Inventories (32,534) (45,126)
Prepaid expenses and other current assets (478) 353
Other assets 5,181 5,260
Accounts payable and accrued liabilities (2,940) (3,422)
Other long-term liabilities -- (4)
-------- --------
(30,543) (40,120)
-------- --------
Net cash provided by (used in) operating activities 9,927 (579)
-------- --------
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment (16,899) (31,327)
Cash paid for investments (9,422) (13,003)
-------- --------
Net cash used in investing activities (26,321) (44,330)
-------- --------
Cash Flows from Financing Activities:
Purchase of treasury stock (748) (21,790)
Net proceeds from associate purchase plan 978 --
Net proceeds from exercise of common stock options 1,461 2,174
Net proceeds from notes payable 17,293 60,405
Net advances to affiliates 330 233
-------- --------
Net cash provided by financing activities 19,314 41,022
-------- --------
Net increase (decrease) in cash and cash equivalents 2,920 (3,887)
Cash and cash equivalents - beginning of period 2,725 8,630
-------- --------
Cash and cash equivalents - end of period $ 5,645 $ 4,743
======== ========
Supplemental Disclosure:
Cash paid for interest 2,500 700
Cash paid for income taxes 18,894 19,200
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
Page 6
<PAGE>
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 28,
1999. In the opinion of management, the interim unaudited financial
statements included herein reflect all adjustments necessary, consisting
of normal recurring adjustments, for a fair presentation of such data in
accordance with generally accepted accounting principles. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for a full year.
The Company's fiscal year ends on the Saturday nearest August 31 of each
year.
2. The Company follows the provisions of the Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share". SFAS No. 128 requires the Company to present basic
and diluted earnings per share ("EPS") on the face of the income
statement. Basic earnings per common share were computed based on the
weighted average number of common shares issued and outstanding during the
relevant periods. Diluted earnings per common share were computed based on
the weighted average number of common shares issued and outstanding plus
additional shares assumed to be outstanding to reflect the diluted effect
of common stock equivalents using the treasury stock method.
A reconciliation between the numerator and denominator of the basic and
diluted EPS calculation is as follows:
Page 7
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Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
May 27, May 29, May 27, May 29,
2000 1999 2000 1999
------- ------- ------- -------
Net income for EPS
computation $16,366 $12,320 $40,470 $39,541
======= ======= ======= =======
Basic EPS:
Weighted average
common shares 67,129 66,853 67,044 66,905
======= ======= ======= =======
Basic EPS $ 0.24 $ 0.18 $ 0.60 $ 0.59
======= ======= ======= =======
Diluted EPS:
Weighted average
common shares 67,129 66,853 67,044 66,905
Shares issuable from
assumed conversion of
common stock equivalents 1,571 1,298 849 1,722
------- ------- ------- -------
Weighted average common
and common equivalent shares 68,700 68,151 67,893 68,627
======= ======= ======= =======
Diluted EPS $ 0.24 $ 0.18 $ 0.60 $ 0.58
======= ======= ======= =======
3. The Company follows the provisions of SFAS No. 130 "Reporting
Comprehensive Income," which establishes new rules for the reporting of
comprehensive income and its components. The adoption of this statement
had no impact on the Company's net income or shareholders' equity. For the
first nine months of fiscal 1999 and fiscal 2000, the Company's operations
did not give rise to items includable in comprehensive income which were
not already included in net income. Therefore, the Company's comprehensive
income is the same as its net income for all periods presented.
4. The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Pursuant to this
pronouncement, the reportable operating segments are determined based on
the Company's management approach. The management approach, as defined by
SFAS No. 131, is based on the way that the chief operating decision maker
organizes the segments within an enterprise for making operating decisions
and assessing performance. The Company's results of operations are
reviewed by the chief operating decision maker on a consolidated basis and
the Company operates in only one segment.
Page 8
<PAGE>
5. In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal years beginning after June 15, 2000
and will not require retroactive restatement of prior period financial
statements. This statement requires the recognition of all derivative
instruments as either assets or liabilities in the balance sheet measured
at fair value. Derivative instruments will be recognized as gains or
losses in the period of change. If certain conditions are met where the
derivative instrument has been designated as a fair value hedge, the hedge
items may also be marked to market through earnings, thus creating an
offset. If the derivative is designed and qualifies as a cash flow hedge,
the changes in fair value of the derivative instrument may be recorded in
comprehensive income. The Company does not presently make use of
derivative instruments.
6. At May 27, 2000 the Company recorded as a receivable approximately $4.7
million related to the Company's portion of the proceeds from employee
stock options exercised in late May 2000. This amount was received in June
2000.
7. During the first nine months of fiscal 2000, the Company made an
investment of $2.4 million in an internet joint venture in the form of a
non-controlling combination of voting and non-voting equity securities.
The Company accounted for this investment under the equity method for the
first half of fiscal 2000, whereby the company recognized its allocable
share of the earnings or losses of this venture in its statement of income
as "equity in loss of unconsolidated affiliate." The Company's share of
net loss of unconsolidated affiliate was $0.5 million for the thirty-nine
weeks ended May 27, 2000. During the third quarter of fiscal 2000, the
Company reduced its interest to 19% and since the Company does not
exercise significant influence, the investment is now accounted for using
the cost method. At May 27, 2000 the Company's carrying value of this
investment approximates fair value.
8. During the first nine months of fiscal 2000, the Company invested $2.0
million, $3.0 million and $2.0 million in three internet commerce
companies. The Company's interest in each company is less than 5% and,
accordingly, is accounted for under the cost method. The Company's
carrying value of these investments approximates fair value at May 27,
2000.
Page 9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q contains or incorporates certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. Such forward-looking statements involve known and
unknown risks and uncertainties and include, but are not limited to, statements
regarding future events and our plans, goals and objectives. Such statements are
generally accompanied by words such as "believe," "anticipate," "think,"
"intend," "estimate," "expect," or similar terms. Our actual results may differ
materially from such statements. Factors that could cause or contribute to such
differences include, without limitation, changing market conditions, competitive
and regulatory matters, general economic conditions in the markets in which the
Company operates and availability of acquisition opportunities. Although the
Company believes that the assumptions underlying its forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
the Company cannot make any assurances that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded as a representation by the
Company or any other person that the future events, plans or expectations
contemplated by the Company will be achieved. Furthermore, past performance is
not necessarily an indicator of future performance.
Overview
MSC Industrial Direct Co., Inc. ("MSC") was formed in October 1995 as a holding
company to hold all of the outstanding capital stock of Sid Tool Co., Inc. (the
"Operating Subsidiary"), which has conducted business since 1941. MSC and its
subsidiaries, including the Operating Subsidiary, are hereinafter referred to
collectively as the "Company."
The Company is one of the largest direct marketers of a broad range of
industrial products to small and mid-sized industrial customers throughout the
United States. The Company distributes a full line of industrial products, such
as cutting tools, abrasives, measuring instruments, machine tool accessories,
safety equipment, fasteners, welding supplies and electrical supplies, intended
to satisfy its customers' maintenance, repair and operations ("MRO") supplies
requirements. The Company's 4,211 page master catalog offers over 400,000 stock
keeping units ("SKUs") and is supplemented by weekly, monthly and quarterly
specialty and promotional catalogs, newspapers and brochures. The products are
distributed through the Company's four distribution centers and approximately
100 customer service locations. Most of the products are carried in stock, and
orders for these products are typically fulfilled on the day the order is
received. More recently, the Company began to explore ways to offer its products
for sale over the internet, both through internal initiatives, and through
participation in joint ventures and investments in or associations with third
party e-commerce companies.
Results of Operations -
Thirteen weeks ended May 27, 2000 and May 29, 1999
Net sales increased by $42.3 million, or 24.8%, to $212.8 million in the third
quarter of fiscal 2000 from $170.5 million in the third quarter of fiscal 1999.
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.
The increase in sales to existing customers was principally derived from an
increase in the number of SKUs offered, as well as from more focused marketing
efforts.
Gross profit increased by $13.0 million, or 18.9%, to $81.8 million in the third
quarter of fiscal 2000 from $68.8 million in the third quarter of fiscal 1999.
As a percentage of sales, gross profit decreased from 40.3% to 38.4%. The dollar
increase in gross profit was primarily attributable to increased sales. The
decrease in gross profit as a percentage of net sales resulted primarily from
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the mix of products being sold, the introduction of new products which have
lower margins than certain products which the Company has sold in the past,
increased promotional selling and lower selling prices on selected items.
Operating expenses increased by $5.4 million, or 11.3%, to $53.2 million in the
third quarter of fiscal 2000 from $47.8 million in the third quarter of fiscal
1999. As a percentage of net sales, operating expenses decreased from 28.0% to
25.0%. The decline in operating expenses as a percentage of net sales was
primarily attributable to leveraging fixed costs over a larger revenue base. The
dollar increase was primarily attributable to increased sales volume which
required additional staffing and support, new distribution center operating
costs, increased depreciation costs resulting from the previous year's large
capital expenditures, and expenditures for future growth initiatives, including
increased expenses related to internal internet initiatives.
Income from operations increased by $7.6 million, or 36.2%, to $28.6 million in
the third quarter of fiscal 2000 from $21.0 million in the third quarter of
fiscal 1999. The increase was primarily attributable to increased sales and the
dollar amount increase in gross profit, offset in part by an increase in
operating expenses.
Interest expense increased by $0.8 million to $1.5 million in the third quarter
of fiscal 2000 from $0.7 million in the third quarter of fiscal 1999. The
increase was primarily attributable to higher long-term notes payable borrowings
and higher interest rates under the Company's revolving credit agreement. The
funds were used primarily for inventory purchases for the Company's new
distribution center, increasing inventory to support higher sales volume and
expenditures for property, plant, and equipment.
Provision for income taxes and net income: The effective income tax rate was
approximately 40.0 percent for the third quarter of fiscal 2000 as compared to
39.5 percent in the prior year. Net income increased by $4.1 million, or 33.3%,
to $16.4 million in the third quarter of fiscal 2000 from $12.3 million in the
third quarter of fiscal 1999. This increase was primarily the result of
previously mentioned increased sales and the dollar amount increase in gross
profit offset in part by an increase in operating expenses.
Results of Operations -
Thirty-nine weeks ended May 27, 2000 and May 29, 1999
Net sales increased by $107.3 million, or 22.1%, to $593.8 million during the
first nine months of fiscal 2000 from $486.5 million in the first nine months of
fiscal 1999. 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. The increase in sales to existing customers was principally derived
from an increase in the number of SKUs offered, as well as from more focused
marketing efforts.
Gross profit increased by $30.5 million, or 15.3%, to $229.2 million during the
first nine months of fiscal 2000 from $198.7 million in the first nine months of
fiscal 1999. As a percentage of sales, gross profit decreased from 40.8% to
38.6%. The dollar increase in gross profit was primarily attributable to
increased sales. The decrease in gross profit as a percentage of net sales
resulted primarily from the mix of products being sold, the introduction of new
products which have lower margins than certain products which the Company has
sold in the past, increased promotional selling, lower selling prices on
selected items, and lower margins realized from customers and product lines
gained through the Company's acquisitions.
Operating expenses increased by $25.3 million, or 19.1%, to $157.7 million
during the first nine months of fiscal 2000 from $132.4 million in the first
nine months of fiscal 1999. As a percentage of sales, operating expenses
decreased from 27.2% to 26.6%. The decline in
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<PAGE>
operating expenses as a percentage of sales was primarily attributable to
leveraging fixed costs over a larger revenue base. The dollar increase was
primarily attributable to increased sales volume which required additional
staffing and support, new distribution center opening and operating costs,
increased depreciation costs resulting from the previous year's large capital
expenditures, and expenditures for future growth initiatives, including
increased expenses related to internal internet initiatives.
Income from operations increased by $5.2 million, or 7.8%, to $71.5 million
during the first nine months of fiscal 2000 from $66.3 million in the first nine
months of fiscal 1999. The increase was primarily attributable to increased
sales and the dollar amount increase in gross profit, offset in part by an
increase in operating expenses.
Interest expense increased by $2.6 million to $4.0 million during the first nine
months of fiscal 2000 from $1.4 million in the first nine months of fiscal 1999.
The increase was primarily attributable to higher long-term notes payable
borrowings and higher interest rates under the Company's revolving credit
agreement. The funds were used primarily for inventory purchases for the
Company's new distribution center, increasing inventory to support higher sales
volume and expenditures for property, plant, and equipment.
Equity in loss of unconsolidated affiliate of approximately $0.5 million relates
to the Company's non-controlling investment made in the second quarter of fiscal
2000 in an internet joint venture accounted for under the equity method and
which has been accounted for under the cost method since the third quarter of
fiscal 2000.
Provision for income taxes and net income: The effective income tax rate was
approximately 39.9 percent for the first half of fiscal 2000 as compared to 39.5
percent in the prior year. Net income increased by $1.0 million, or 2.5%, to
$40.5 million in the first nine months of fiscal 2000 from $39.5 million in the
first nine months of fiscal 1999. This increase was primarily the result of
previously mentioned increased sales and the dollar amount increase in gross
profit offset in part by an increase in operating expenses.
Liquidity and Capital Resources
The Company's primary use of capital has been to fund its working capital
requirements, necessitated by its sales growth, adding new products, and
acquisitions and facilities expansions. The Company's sources of financing have
primarily been from operations, supplemented by bank borrowings under its
revolving credit facility.
During the second quarter of fiscal 2000, the Company entered into a new credit
agreement with its lenders. Under the terms of the credit agreement, the maximum
permitted borrowings have increased from $80.0 million of unsecured revolving
credit to maximum permitted borrowings of $160.0 million ($110.0 million under
an unsecured revolving credit agreement and $50.0 million as a term loan).
Interest on amounts borrowed may be paid at a rate per annum equal to the bank's
base rate (9.5% at May 27, 2000) or, alternatively, at the bankers' acceptance
rate or LIBOR rate plus margins, which vary from 0.65% to 1.25% per annum. Our
credit facility contains certain covenants limiting mergers, use of proceeds,
indebtedness, liens, investments, sales of assets, acquisitions, and issuance of
dividends. Our credit facility also contains certain standard financial
covenants. As of May 27, 2000, the Company was in compliance with all financial
covenants. As of May 27, 2000, the Company had approximately $85.0 million in
outstanding borrowings under the credit facility. Available borrowings at May
27, 2000 are $75.0 million, all of which were available under the revolving
credit agreement.
Net cash provided by operating activities was $9.9 million for the 39 week
period ended May 27, 2000 and net cash used in operating activities was $0.6
million for the 39 week period ended May 29, 1999. The change of approximately
$10.5 million in net cash provided from operations to net cash used in
operations
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resulted from higher net income and lower net working capital requirements.
Net cash used in investing activities for the 39 week periods ended May 27, 2000
and May 29, 1999 was $26.3 million and $44.3 million, respectively. The net
usage of cash 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 initiatives. The net usage of cash in the first nine months of
fiscal 1999 was primarily attributable to cash paid for construction of the
Company's new headquarters, expenditures related to the construction of a new
distribution center and cash paid for acquisitions.
Net cash provided by financing activities for the 39 week periods ended May 27,
2000 and May 29, 1999 was $19.3 million and 41.0 million, respectively. 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 net cash
provided by financing activities for the first nine months of fiscal 1999 was
primarily attributable to proceeds received from notes payable, offset by the
purchase in the open market of approximately 997,000 shares of Class A common
stock.
The Company believes that cash flow from operations and the revolving credit
agreement will be sufficient to fund future growth initiatives and meet planned
capital expenditure needs in the near future.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's principal financial instrument is long-term notes payable under 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 27, 2000, approximately $85.0 million was outstanding under the revolving
credit agreement. The agreement bears interest at the bank's base rate (9.5% at
May 27, 2000), or, alternatively, at the bankers acceptance rate or LIBOR rate
plus margins, which vary from 0.65% to 1.25% per annum based on the ratio of
total liabilities to effective net worth, or bid note rate. If the principal
amounts under the Company's credit agreement remained at this quarter-end level
for an entire year and the prime rate increased or decreased, respectively, by
1%, then the Company would pay or save, respectively, an additional $0.9 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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial data schedule for the quarter ended May 27, 2000.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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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: June 28, 2000 By: /s/ Mitchell Jacobson
------------------------ --------------------------------------
President and Chief Executive Officer
Dated: June 28, 2000 By: /s/ Shelley M. Boxer
------------------------ --------------------------------------
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
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