UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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Commission File Number: 1-14130

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MSC INDUSTRIAL DIRECT CO., INC.

(Exact name of registrant as specified in its charter)

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(516) 812-2000

(Registrant’s telephone number, including area code)

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Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

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

The aggregate market value of Class A Common Stock held by non-affiliates of the registrant as of February 26, 202125, 2022 was approximately $3,942,922,360.$3,576,295,429.

As of October 1, 2021, 46,820,2653, 2022, 47,219,586 shares of Class A Common Stock and 8,654,010 shares of Class B Common Stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

MSC INDUSTRIAL DIRECT CO., INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED AUGUST 28, 2021SEPTEMBER 3, 2022

TABLE OF CONTENTS

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PART I.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (this “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Item 1 of Part I and Item 7 of Part II of this Report, as well as within this Report generally. The words “will,” “may,” “believes,” “anticipates,” “thinks,” “expects,” “estimates,” “plans,” “intends,” and similar expressions are intended to identify forward-looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances, statements involving a discussion of strategy, plans or intentions, statements about management’s assumptions, projections or predictions of future events or market outlook and any other statement other than a statement of present or historical fact are forward-looking statements. We expressly disclaim any obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this Report with the United States Securities and Exchange Commission (the “SEC”), except to the extent required by applicable law. These forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in Item 1A of Part I and Item 7 of Part II of this Report. In addition, new risks may emerge from time to time and it is not possible for management to predict such risks or to assess the impact of such risks on our business or financial results. Accordingly, future results may differ materially from historical results or from those discussed or implied by these forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward-looking statements. These risks and uncertainties include, but are not limited to, the following:

the impact of the COVID-19 pandemic on our sales, operations and supply chain;

general economic conditions in the markets in which we operate, including conditions resulting from the COVID-19 pandemic;operate;

changing customer and product mixes;

volatility in commodity and energy prices, the impact of prolonged periods of low, high and rapid inflation, and fluctuations in interest rates;

competition, including the adoption by competitors of aggressive pricing strategies and sales methods;

industry consolidation and other changes in the industrial distribution sector;

our ability to realize the expected benefits from our investment and strategic plans, including our transition from being a spot buyspot-buy supplier to a mission-critical partner to our customers;

our ability to realize the expected cost savings and benefits from our restructuring activities and structural cost reductions;

the potential impact of the COVID-19 pandemic on our sales, operations and supply chain;

the retention of key personnel;

volatility in commodity and energy prices;

the credit risk of our customers, including changes in credit risk as a result of the COVID-19 pandemic;pandemic, higher inflation and fluctuations in interest rates;

the risk of customer cancellation or rescheduling of orders;

difficulties in calibrating customer demand for our products, in particularsuch as personal protective equipment or “PPE” products, which could cause an inability to sell excess products ordered from manufacturers resulting in inventory write-downs or could conversely cause inventory shortages of such products;

work stoppages, labor shortages or other business interruptions (including those due to extreme weather conditions or as a result of the COVID-19 pandemic)conditions) at transportation centers, shipping ports, our headquarters or our customer fulfillment centers;

disruptions or breaches of our information technology systems, or violations of data privacy laws;

the retention of qualified sales and customer service personnel and metalworking specialists;

the risk of loss of key suppliers or contractors or key brands or supply chain disruptions, including due to import restrictions resulting from the COVID-19 pandemic;or global geopolitical conditions;

changes to governmental trade or sanctions policies, including the impact from significant import restrictions or tariffs;tariffs or moratoriums on economic activity with certain countries or regions;

risks related to opening or expanding our customer fulfillment centers;

our ability to estimate the cost of healthcare claims incurred under our self-insurance plan;

litigation risk due to the nature of our business;

risks associated with the integration of acquired businesses or other strategic transactions;

financial restrictions on outstanding borrowings;

our ability to maintain our credit facilities;facilities or incur additional borrowings on terms we deem attractive;

the interest rate uncertainty due to the London InterBank Offered Rate (“LIBOR”) reform;

the failure to comply with applicable environmental, health and safety laws and regulations, including government action in response to the COVID-19 pandemic, and other laws applicable to our business;

the outcome of government or regulatory proceedings or future litigation;

goodwill and intangible assets recorded resulting from our acquisitions could be impaired;

our common stock price may be volatile due to factors outside of our control; and

the significant control that our principal shareholders exercise significant control over us, which may result in our taking actions or failing to take actions which our other shareholders do not prefer.

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ITEM 1. BUSINESS.

General

MSC Industrial Direct Co., Inc. (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, “MSC,” “MSC Industrial,” the “Company,” “we,” “us” or “our”) is a leading North American distributor of a broad range of metalworking and maintenance, repair and operations (“MRO”) products and services. With a history of driving innovation in industrial product distribution for more than 80 years, we help solve our manufacturing customers’ metalworking, MRO and operational challenges. Through our technical metalworking expertise and inventory management and other supply chain solutions, our team of more than 6,500approximately 7,000 associates helps to keep our customers’ manufacturing operations up and running and to improve their efficiency, productivity and profitability.

We serve a broad range of customers throughout the United States, Canada, Mexico and the United Kingdom, from individual machine shops to Fortune 1000 manufacturing companies to government agencies such as the United States General Services Administration and the United States Department of Defense. We operate a sophisticated network of 11six customer fulfillment centers, (seven in the United States, three in Canada and one in the United Kingdom), seven10 regional inventory centers (all locatedand 38 warehouses (36 in the United States),North America and 28 branch offices (20two in the United States, seven in Mexico and one in the United Kingdom)Europe). Of these branch offices, 10warehouses, 13 are new to MSC as a result of the fiscal year 20212022 acquisitions. Our primary customer fulfillment centers are located in or near Harrisburg, Pennsylvania; Atlanta, Georgia; Elkhart, Indiana; Reno, Nevada; Columbus, Ohio; and Columbus, OhioHanover Park, Illinois in the United States. In addition, we operate six smaller customer fulfillment centers in or near Hanover Park, Illinois; and Shelbyville, Kentucky (repackaging and replenishment center) in the United States; Wednesbury, England in the United Kingdom; and Edmonton, Alberta; Beamsville, Ontario; and Moncton, New Brunswick in Canada. As part of our enhanced customer support model, we have recently transitioned from a branch office network to virtual customer care hubs. This transition included the closure of 73 branch offices during fiscal year 2021 and a realignment of certain existing locations from branch offices to regional inventory centers.

We offer approximately 1.92.1 million active, saleable stock-keeping units (“SKUs”) through our catalogs,catalogs; our brochures,brochures; our eCommerce channels, including our website,, mscdirect.com (the “MSC website”),; our inventory management solutions,solutions; and our callcustomer care centers, branch offices, customer fulfillment centers, and regional inventory centers.centers and warehouses. We carry many of the products we sell in our inventory, so that orders for these in-stock products are processed and fulfilled the day the order is received. We offer next-day delivery nationwide for qualifying orders placed by 8 p.m. Eastern Time (excluding Class C (“Consumables”) category products). Our customers can choose among many convenient ways to place orders: the MSC website, eProcurement platforms, callcustomer care centers or direct communication with our telesales and outside sales associates.

We believe that our value-added solutions approach to driving our customers’ success serves to differentiate MSC from traditional transaction-focused distributors. We endeavor to save our customers money when they partner with us for their metalworking and MRO product needs. We focus on building strong partnerships with our customers to help them improve their productivity and growth. We do this in several ways:

our experienced team includes customer care team members,representatives, metalworking specialists, safety specialists, fluid connector specialists, inventory management specialists, in-plant and technical support teams and experienced sales associates focused on driving our customers’ success by reducing their operational costs;

our robust systems and transactional data enable us to provide insights to our customers to help them take cost out of their supply chains and operations;

our extensive product inventory enables customers to deal with fewer suppliers, streamlining their purchasing work and reducing their administrative costs;

our timely shipping enables our customers to reduce their inventory investment and carrying costs;

our purchasing process consolidates multiple purchases into a single order, providing a single invoice for multiple purchases over time and offering direct shipments to specific departments and personnel at one or more facilities. This reduces our customers’ administrative costs;

our extensive eCommerce capabilities provide sophisticated search and transaction capabilities, access to real-time inventory, customer-specific pricing, workflow management tools, customized reporting and other features. We can also interface directly with many purchasing portals;

our “Better MRO” digital platform delivers knowledge and insights to our customers that assist their associates and their business operations;

our collaboration efforts with key supplier partners and their research and development teams deliver value and productivity on the plant floor;

our inventory management solutions enable our customers to carry less inventory and still significantly reducelimit situations when a critical item isitems are out of stock;

our proprietary software solution, called Ap Op^® (Application Optimization), enables our metalworking specialists to document productivity savings for customers for a range of applications, including grinding, milling, turning, threading, sawing, hole-making, metalworking fluids and other manufacturing process improvements; and

our exclusive service, MSC MillmaxMillMax^®, focuses on maximizing milling productivity and lowering cost by reducing the milling optimization process to a fraction of the time. MSC MillmaxMillMax^® helps customers increase material removal rates, reduce cycle times, improve surface finishes and extend tool life, leading to improved productivity, quality and cost savings.

Industry Overview

MSC operates in a large, fragmented industry. National, regional and local distributors, retail outlets, small distributorships, online distributors, direct mail suppliers, large warehouse stores and manufacturers’ own sales forces all serve MRO customers.

MSC differentiates itself in the industry by being a leading distributor of metalworking products. We have continued to expand technical support and enhance supplier relationships, especially with our metalworking products. Our associates share their deep expertise and knowledge of metalworking and MRO products to help our customers achieve their goals.

Nearly every industrial and service business has an ongoing need for MRO supplies. These businesses, with the exception of the largest industrial plants, often do not have the resources to manage and monitor their MRO inventories effectively. They spend more than necessary to purchase and track their supplies, providing an opportunity for MSC to serve as their one-stop MRO product supplier. Even the larger facilities often store their supplies in multiple locations, so they often carry excess inventories and duplicate purchase orders. In many organizations, multiple people often acquire the same item in small quantities via expensive, one-off purchases, resulting in higher purchasing costs and administrative efforts to keep track of supplies.

With limited capital availability and limited eCommerce capabilities and operating leverage, smaller industrial distributors are under increasing pressure to consolidate and/or curtail services and product lines to remain competitive. Their challenge represents MSC’s opportunity. We improve purchasing efficiency and reduce costs for our customers because our offerings enable our customers to consolidate suppliers, purchase orders and invoices, and reduce inventory tracking, stocking decisions, purchases and out-of-stock situations. In addition, through Vendor Managed Inventory (“VMI”), Customer Managed Inventory (“CMI”) and vending solutions, we empower our customers to utilize sophisticated inventory management solutions.

Business Strategy

MSC’s business strategy is based on helping our customers become more productive and profitable by reducing their total cost for purchasing, using and maintaining metalworking and MRO supplies. Leveraging our expertise, knowledge and experience with metalworking products will continue to be a key tenet of our business and growth strategy. Our customer-focused culture and high-touch engagement model drives value for our customers and results in deep customer relationships. Our strategy includes the following key elements:

Technical Expertise and Support. We provide technical support and one-on-one service through our field sales specialists and customer care centerour centralized tech team representatives.  We have a dedicated team of more than 100120 metalworking specialists who work with customers to improve their manufacturing processes and efficiency, as well as a technical support team that provides assistance to our sales teams and customers via phone and email. These metalworking specialists are customer-facing and work side-by-side with our customers. We utilize our Application Optimization Ap Op^® proprietary software to capture the application data and to deliver documented cost savings to our customers. Our exclusive service, MSC MillmaxMillMax^®, focuses on maximizing milling productivity and lowering cost by reducing the milling optimization process to a fraction of the time. Our customers recognize the value of a distributor that can provide technical support to improve their operations and productivity.

Inventory Management Solutions. Our approach starts with a thorough customer assessment. Our expert associates develop and recommend solutions that provide exceptional value to the customer. Depending on the customer’s size and needs, we customize options to address complexity and processes, as well as specific products, technical issues and cost targets. The options include eProcurement, CMI, VMI, vending, tool crib control or in-plant solutions. Our world-class sourcing, logistics and business systems provide predictable, reliable and scalable service.

Broad Selection of Products. Customers want a full range of product options, even as they look to reduce the number of suppliers they partner with. We provide “good-better-best” alternatives, comprising a spectrum of brand name, MSC exclusive brand and generic MRO products. MSC’s broad selection of products enables customers to choose the right combination of price and quality on every purchase to meet their needs.

Same-Day Shipping and Next-Day Delivery. We guarantee same-day shipping of our core metalworking and MRO products, enabling customers to reduce supply inventories. We fulfill our same-day shipment guarantee for in-stock products about 99% of the time. We offer next-day delivery nationwide for qualifying orders placed by 8 p.m. Eastern Time (excluding Consumables category products). We know that our customers value this service, and areas accessible by next-day delivery generate significantly greater sales for MSC than areas where next-day delivery is not available.

Superior Customer Service. Our commitment to customer service starts with our many associates who share their deep expertise and knowledge of metalworking and MRO products to help our customers achieve greater success. We invest in sophisticated information systems and provide extensive training to empower our associates to better support our customers. Using our proprietary customer support software, our in-bound salescustomer care representatives can: inform customers on a real-time basis of product availability; recommend substitute products; verify credit information; receive special, custom or manufacturer direct orders; cross-check inventory items using previously entered customer product codes; and arrange or provide technical assistance. We offer: customized billing; customer savings reports; electronic data interchange ordering; eCommerce capabilities; bulk discounts; and stocking of specialty items requested by customers.

Commitment to Technological Innovation. We embrace technological innovations to support our growth, improve customer service and reduce our operating costs. The innovations make our buying practices more effective, improve our automated inventory replenishment and streamline order fulfillment. MSC’s proprietary software helps our customers and sales representatives determine the availability of products in real time and evaluate alternative products and pricing. The MSC website contains a searchable online catalog with electronic ordering capabilities. The MSC website also offers an array of services, workflow management tools and related information. Our warehouses are automated through the use of advanced systems and robotics platforms that allow us to rapidly process orders for next-day delivery, with greater efficiency.

We also continually upgrade our distribution methods and systems and provide comprehensive electronic ordering capabilities to support our customers’ purchase order processing. We continue to invest in our VMI, CMI and vending solutions that streamline customer replenishment and trim our customers’ inventories. Our vending solutions include different kinds of machines, such as storage lockers or carousels, which can stand alone or be combined with other machines. MSC vending machines use network or web-based software to enable customers to gain inventory visibility, save time and drive profitability.

Digital Technologies and the MSC Website. The MSC website provides personalized real-time inventory availability, superior search capabilities, online bill payment, delivery tracking status, and other enhancements, including work-flow management tools. The user-friendly search engine allows customers to find SKUs by keyword, part description, competitive part number, vendor number or brand. The MSC website is a key component of our strategy to reduce our customers’ transaction costs and delivery time.

Competitive Pricing. Customers increasingly evaluate their total procurement cost, of purchasing, using and maintainingwhich our industrial supplies and recognize that price isare an important aspect of their procurement costs. We make surecomponent. As a result, we strategically adjust our customer pricing is competitiveto maintain competitiveness, while reflectingcapturing the value that we bring throughof our comprehensive services.

Growth Strategy

Our growth strategy includes a number of initiatives to gain market share and complete the repositioning of MSC from being a spot buyspot-buy supplier to a mission-critical partner to our customers. These initiatives include the following:

Expanding and enhancing our metalworking capabilities to aggressively penetrate customers in heavy and light manufacturing. MSC is a leading distributor of metalworking products in North America. We have continued to expand technical support and enhance supplier relationships. We are continuing to develop high-performance metalworking products marketed under MSC exclusive brands, providing high-value product alternatives for our customers. Our metalworking field specialists and centralized technical support team members have diverse backgrounds in machining, programming, management and engineering. They help our customers select the right tool for the job from our deep supplier base and exclusive brands.

Expanding programs for governmentpublic sector and national account customers. Our government programs are focused on becoming an industry leader and trusted advisor to key public sector end customers. Although MSC has been providing metalworking and MRO supplies to the commercial sector for more than 80 years, we continue to focus onrecognize the importance of diversifying into the public sector. Over the last few years, MSC has invested in our government customersprograms and have aexpanded into several large contract businesscontracts with numerous federal, state and local agencies. We have developed customized governmentIn fiscal year 2022, MSC was awarded and national account programs.has successfully executed a five-year contract to service the United States Marine Corps bases across the continental United States, Hawaii and Japan. We see opportunity for additional growth in this area.the public sector.

We provide customized national account programs for larger customers, often on an enterprise-wide basis. These national account customers value our ability to support their procurement needs electronically to reduce their transactional

costs. Our dedicated national account managers and operations experts provide supply chain solutions that reduce these customers’ total costs of procurement and ownership through increased visibility into their MRO purchases and improved management. We demonstrate these savings by providing these customers with detailed reporting at both the enterprise and site level.

Increasing the size and improving the productivity of our direct sales force. We have invested resources to give our sales representatives more time with our customers and provide increased support during the MRO purchasing process. At August 28, 2021,September 3, 2022, our field sales and service associate headcount was 2,398.2,536. We believe that our sales force investment has played a critical role in the overall success of the Company’s revenue performance. During fiscal year 2021, the Company announced a transition from the branch office network to virtual customer care hubs. This plan included the reduction of management and other positions within the commercial sales organization. We also have migrated ourOur sales force, from one designed to sellfocusing on a spot buy value proposition to one prepared to deliver upon the new, more complex and high-touch role, that we play, drivingdrives value for our customers by enabling them to achieve higher levels of growth, profitability and productivity.

Increasing sales from existing customers and generating new customers with various value-added programs. Our value-added programs include business needs analysis, inventory management solutions and workflow management tools. Our customers particularly value our industrial vending solutions that can accommodate a range of products from precision cutting tools to MRO supplies. We are increasing investments in vending, VMI and our growing in-plant solutions program.

Increasing the number of product lines and productive SKUs. We offer approximately 1.92.1 million active, saleable SKUs through our eCommerce channels, including the MSC website, inventory management solutions, catalogs, brochures and call centers and branch offices.customer care centers. The majority of products sold are third-party manufactured products; however, SKUs sold under MSC private label brands approximate 15%14% of net sales. We are increasing the breadth and depth of our product offerings and pruning non-value-added SKUs. In fiscal year 2021,2022, we added approximately 55,000190,000 SKUs, net of SKU removals, to our active, saleable SKU count. We also leverage the depth and breadth of MSC’s product portfolio within our Consumables category sales channel. We plan to continue adding SKUs in fiscal year 2022.2023.

Improving our marketing programs. MSC has built an extensive buyer database, which we harness via both human and artificial intelligence to target our marketing to the best prospects. We supplement the efforts of our sales force through the use of digital and traditional marketing tactics. Our industry-specific expertise allows us to focus our outreach on the most promising growth areas.

Enhancing eCommerce capabilities. The MSC website is a proprietary, business-to-business, horizontal marketplace serving the metalworking and MRO market. The MSC website allows customers to enjoy added convenience without sacrificing customized service. The MSC website is a key component of our strategy to reduce customers’ transaction costs and internal requisition time. MSC continues to evaluate the MSC website and solicit customer feedback, making on-going improvements to ensure that it remains a premier website in our marketplace. ​The MSC website provides advanced features, such as order approval (workflow) and purchase order control, that our customers interact with in order to derive business value beyond merely placing an order. Many large customer accounts transact business with MSC using eProcurement solution providers that sell a suite of eCommerce products. We have associations with many of these providers and continue to evaluate and expand our eProcurement capabilities.

Improving our excellent customer support service. MSC consistently receives hightop quartile customer satisfaction ratings, according to customer surveys. By working to anticipate our customers’ requirements,needs, we strive to exceed our customers’ expectations. This focus on our customers’ needs enables us to achieve our goal to stand apart in the market. We use customer comment cards, surveys and other customer outreach tools, using their feedback to improve the overall customer experience.

Selectively pursuing strategic acquisitions and investments. MSC is a leader in the highly fragmented industrial distribution market with significant opportunities for organic and acquisitive growth. We selectively pursue strategic acquisitions that deepen our metalworking expertise, extend our capabilities into strategic adjacencies, such as Original Equipment Manufacturer (“OEM”) fasteners, and expand our markets in North America. We also seek to target investments in businesses and other ventures which we believe offer opportunities for growth and improved operational performance for our business.

In June 2021, 2022, the Company acquired a majority ownership interest in Wm. F. Hurst Co., LLCcertain assets and assumed certain liabilities of Engman-Taylor Company, Inc. (“Hurst”Engman-Taylor”), a Wichita, Kansas-basedMenomonee Falls, Wisconsin-based distributor of metalworking tools and supplies. Hurst has deep expertise and relationships in the aerospace industry, which we believe will contribute to the growth of the Company’s metalworking base and serve as a center of excellence for expanding its technical capabilities in the aerospace sector. The Company holds an 80% interest in the business, whichEngman-Taylor will continue to do businessgo to market under the Wm. F. Hurst brand.its current name as an MSC company.

In February 2019, two subsidiariesAugust 2022, the Company acquired 100% of the Company, MSC IndustrialSupply, S. de R.L. de C.V.outstanding equity of Tower Fasteners, LLC (“Tower Fasteners”), a Holtsville, New York-based distributor of OEM fasteners and MSC Import Export LLC (together, “MSC Mexico”), completed the acquisition of certain assets of TAC Insumos Industriales, S. de R.L. de C.V. and certain of its affiliates (together, “TAC”). The Company holds a 75% interest in each of the MSC Mexico entities. In July 2021, MSC Mexico acquired additional assets of TAC in conjunction with the acquisition of its outsourcing and logistics businesses. Following this latest acquisition, the Company retains its 75% interest in MSC Mexico.components. The acquisition, provideswhich was made through the Company withCompany’s subsidiary, All Integrated Solutions, Inc. (“AIS”), complements and expands the opportunityCompany’s presence in the OEM fastener market. Tower Fasteners will continue to further expandgo to market under its business throughout North America.current name as an MSC company.

Intellectual Property

We conduct business under various trademarks and service marks. We protect these trademarks by maintaining registrations in the United States, Canada and elsewhere. We also file for and obtain patents and use confidentiality and other agreements with customers, associates, consultants and others in order to protect our proprietary information. Although we do not believe our operations are substantially dependent upon any of our intellectual property, we consider our intellectual property to be valuable to our business.

Products and Supplier Services

Our broad range of MRO products includes cutting tools, measuring instruments, tooling components, metalworking products, fasteners, flat stock, raw materials, abrasives, machinery hand and power tools, safety and janitorial supplies, plumbing supplies, materials handling products, power transmission components and electrical supplies. Our large and growing number of SKUs makes us an increasingly valuable partner to our customers as they look to trim their supplier base. Our assortment from multiple product suppliers and MSC exclusive brands, prices and quality levels enables our customers to select from “good-better-best” options on nearly all of their purchases. Our extensive network of suppliers provides us access to technical application, safety, training certifications and many other value-added services for our customers. We stand apart from our competitors by offering name brand, exclusive brand, and generic products, depth in our core product lines, and competitive pricing.

We purchase substantially all of our products directly from approximatelymore than 3,000 suppliers. No single supplier accounted for more than 6%5% of our total purchases in fiscal year 2022, 2021 2020 or 2019.2020.

Customer Fulfillment Centers and Distribution Network

We continue to invest in the enhancement of our distribution efficiency and capabilities. When our customers order an in-stock product online or via phone, we ship it the day the order is placed about 99% of the time. We do that through our 11six customer fulfillment centers, seven10 regional inventory centers and 28branch offices.38 warehouses. Some specialty or custom items and very large orders are shipped directly from the manufacturer. We manage our primary customer fulfillment centers via computer-based SKU tracking systems and radio frequency devices that locate specific stock items to make the selection process more efficient. Our warehouses are predominantly from our acquired subsidiaries and 13 are new to MSC as a result of the fiscal year 2022 acquisitions. Similar to our customer fulfillment centers, these warehouses primarily handle the stocking and fulfillment of inventory. However, in some cases, these locations also operate as subsidiary headquarters and provide office space for sales associates.

Sales and Marketing

We serve individual machine shops, Fortune 1000 companies, government agencies and manufacturers of all sizes. With some of our recent acquisitions, of Barnes Distribution North America in fiscal year 2013such as AIS and AIS in fiscal year 2018,Tower Fasteners, we have increased our presence in the fastener and Consumables product categories and significantly increased our presence in the VMI space. VMI involves not only the selling of the maintenance Consumables by our associates, but also the management of appropriate stock levels for the customer, fulfilling replenishment orders, putting away the stock, and maintaining a clean and organized inventory area.

MSC’s governmentpublic sector customers include both federal agencies, state governments, and state governments.healthcare providers. Federal government customers include the U.S.United States Marine Corps, the United States Coast Guard, the United States Postal Service, the United States General Services Administration, the United States Department of Defense, the United States Department of Energy, large and small military bases, Veterans Affairs hospitals, and correctional facilities. We have individual state and local contracts and also are engagedhave been awarded partnerships with several state cooperatives.co-operatives.

Our national account program includes Fortune 1000 companies, large privately held companies, and international companies primarily doing business in North America. We have identified hundreds of additional national account prospects and have given our sales team tools to ensure we are targeting prospective customers that best fit the MSC model.

We have implemented advanced analytics and significantly increased the return on our marketing investments designed to acquire new customers and increase our share of business with current customers. The majority of our efforts are focused on search engine marketing, email marketing and online advertising to address changes in our customers’ buying

behavior and we utilize master catalogs and direct mail on a selective basis. We use our own database of over threefour million contacts together with external information to target buyers with the highest likelihood to buy.

Our sales representatives are highly trained and experienced individuals who build relationships with customers, assist customers in reducing costs, provide and coordinate technical support, coordinate special orders and shipments with vendors, and update customer account profiles in our information systems databases. Our marketing approach centers on the ability of our sales representatives, armed with our comprehensive databases as a resource, to respond effectively to the customers’ needs. When a customer places a call to MSC, thesales representative on the other end of the line has immediate access to that customer’s company and specific buyer profile, which includes billing and purchasing track records, and plant and industry information. Meanwhile, the sales representative has access to inventory levels on every SKU we carry.

Our in-bound sales representativesassociates at our customer care centers undergo an intensive seven-week training course, followed up by regular training seminars and workshops. We monitor and evaluate our sales associates at regular intervals and provide our sales associates with technical training by our in-house specialists and product vendors. We maintain a separate technical support group dedicated to answering customer inquiries and assisting our customers with product operation information and finding the most efficient solutions to manufacturing problems.

Branch OfficesVirtual Customer Care Hubs

We operate 28 branch offices, of which 20 are located within the United States, seven are located in Mexico and one is located in the United Kingdom. Of these branch offices, 10 are new to MSC as a result of the fiscal year 2021 acquisitions. As part of our enhanced customer support model implemented in fiscal year 2021, we transitioned from theour branch office network to virtual customer care hubs. This transition included the closure of 73 branch offices and a reduction of management and other positions within the commercial sales organization. Despite the transition, ourOur virtual customer care hubs continue to play an integral role in obtaining new accounts and penetrating existing ones.

PublicationsDigital and Traditional Marketing

Our primary method of presenting products and solutions is the MSC website and our digital marketing programs. However,programs, which include tactics such as search engine marketing, email marketing, social media and online advertising. These programs align with the ever-evolving buying behavior of our customers and are designed to maximize marketing productivity and return on marketing dollars spent. While digital is our primary means of marketing, we continue to leverage master catalogs, along with specialty and promotional catalogs, and brochures where appropriate. We use specialty and promotional publications to target customers in specific areas, such as metal fabrication, facilities management, and safety and janitorial. Specialty and promotional catalogs, targeted to our best prospects, offer a more focused selection of products. While traditional marketing tactics such as master catalogs, promotional catalogs and brochures continue to play a role in our efforts, our primary forms of marketing are digital platforms, such as search engine marketing, email marketing and online advertising, to align with changes in our customers’ buying behavior and to maximize marketing productivity and return on marketing dollars spent.

Customer Service

One of our goals is to make purchasing our products as convenient and effortless as possible.  Customers submit approximately 60%62% of their orders digitally through our technology platforms (the MSC website, vending machines and eProcurement). The remaining orders are primarily placed via telephone, faxemail and mail.fax. The efficient handling of orders is a critical aspect of our business. Order entry and fulfillment occurs at each of our branch offices and our main customer care centers, mostly located at our customer fulfillment centers. Customer care phone representatives enter non-digital orders into computerized order processing systems. In the event of a local or regional situation, our communications system will reroute customer exchanges to an alternative location. When an order enters the system, a credit check is performed; if the credit is approved, the order is usually transmitted to the customer fulfillment center closest to the customer. Customers are invoiced for merchandise, shipping and handling promptly after shipment.

Information Systems

OurMSC’s information systems are an integral part of driving growth and delivering our full value proposition to our customers. In today’s digital world, our systems allow our customers to conduct business with us securely across multiple channels and in the way they want. In addition, our systems enable usdata visibility for faster decision making, which drives operational efficiency and supports a flexible remote workforce across the globe.

Our eCommerce environment is currently being upgraded and enhanced with a focus on delivering an exceptional online customer experience. We plan to centralize management of key functions acrossachieve this by utilizing state-of-the-art cloud technologies, developing an industry leading search engine, deploying an integrated digital marketing platform and further enriching our business. These systems help usproduct data.

In response to ship on a same-day basis, respond quicklyshifts in the labor market, we also look to order changes, provide a high level ofaccelerate automation in our customer service, and manage our operational costs.fulfillment centers. In fiscal year 2019, we incorporated further robotic-driven automation into ourintroduced a patented robotic packing solution, and, in fiscal year 2023, we expect to be deploying advanced robotic picking technology to several customer fulfillment centers. Our eCommerce environment is built upon a combined platform of our own intellectual property and state-of-the-art software from the world’s leading internet technology providers and is powered by world-class product data. This powerful combination of resources helps us deliver a superior online shopping experience with world-class levels of reliability.

Most of our information systems operate in real time over a secure wide area network, letting each customer fulfillment center and virtual customer care hub share information and monitor daily progress on sales activity, credit approvals,

inventory levels, stock balancing, vendor returns, order fulfillment and other key performance measures. We maintain a sophisticated buying and inventory management system that monitors all of our SKUs and automatically purchases inventory from vendors for replenishment, based on proprietary forecasting models. We also maintain an Electronic Data Interchange (“EDI”) and XML purchasing program with our vendors to boost order placement efficiency, reduce order cycle processing time, and increase order accuracy.

In addition to developing the proprietary computer software programs for use in the customer service and distribution operations, we also provide a comprehensive EDI and Extensible Markup Language (“XML”) ordering system to support our customer-based purchase order processing.

As part of our commitment to creating services that fuel the potential of our customers, we develop and maintain a suite of proprietary VMI digital solutions. These VMI digital solutions allow our customers to focus on their core business, while MSC manages their inventory ordering, fulfillment and replenishment. Our various VMI digital solutions are customizable to meet both simple and complex customer needs. Our scanning solutions integrate scanner accumulated orders directly into our Sales Order Entry system and the MSC website. Our CMI enables customers to simply and effectively replenish inventory by submitting orders directly to the MSC website. Our customized vending solutions are used by customers in manufacturing plants across the United States to help them achieve supply chain and shop floor optimization, through inventory optimization and reduced tooling and labor costs. All of our digital solutions function directly as front-end ordering systems for our e-Portal-based customers. These solutions take advantage of advanced technologies built upon the latest innovations in eCommerce and wireless and cloud-based computing.

Our core business systems run in a highly distributed computing environment and utilize world-class software and hardware platforms from key partners. We utilize disaster recovery techniques and procedures, which are consistent with best practices in enterprise information technology (“IT”). Our ITWith many of our associates moved rapidly and effectively to provide nearly the entire Company with remote access in March 2020, when the COVID-19 pandemic began causing significant macroeconomic disruption in the United States. As the COVID-19 pandemic continued in 2020, we shifted permanentlyshifting to a remote workingwork model for most associates. In addition to deployingbeginning in fiscal year 2020, we deployed secure home computing assets weand implemented collaboration software to enable interconnected teams and scalable video conferencing for large virtual gatherings.

We believe that our current systems and practice of implementing regular updates are adequate to support our current needs. Over the next few years, we will also be upgrading and migrating many of our systems to take advantage of the flexibility and controls offered by cloud computing platforms while downsizing our on premiseon-premise data center footprint. Recent cloud migrations include commercial off the shelfoff-the-shelf enterprise systems as well as our eCommerce infrastructure.

Our sales representatives are equipped with proprietary mobile technology that allows them to tap into MSC’s supply chain directly from our customers’ manufacturing plants and make sure that critical inventory is always on site and available. In addition, we are enhancing our customer websites and portals to reflect this new mobile reality at a pace in line with customer adoption of mobile technology.

Our customer care centers and branch offices are powered via state-of-the-art telephony, case management and workforce optimization platforms. The features within the platforms create a seamless environment equipped with advanced applications that assist our associates in optimizing our customers’ experience. The architecture has established a dynamic infrastructure that is scalable both in terms of operations and future capabilities. We are continuing to implement additional functionality aimed at enhancing the engagement and personalization of the customer experience regardless of the contact method chosen.

Competition

The MRO supply industry is a large, fragmented industry that is highly competitive. We face competition from:from traditional channels of distribution, such as retail outlets, small dealerships, regional and national distributors utilizing direct sales forces, manufacturers of MRO supplies, large warehouse stores and larger direct mail distributors. We also face substantial competition in the online distribution space that competes with price transparency and includes both traditional distributors and non-traditional, web-based eCommerce competitors. In addition, new entrants in the MRO supply industry could increase competition. We believe that sales of MRO supplies will become more concentrated over the next several years, which may make MRO supply distribution more competitive. Some of our competitors challenge us with a greater variety of product offerings, greater financial resources, additional services, or a combination of these factors. In the industrial products market, customer purchasing decisions are based primarily on one or more of the following criteria: price, product selection, product availability, technical support relationship, level of service and convenience. We believe we compete effectively on all such criteria. Our industry has seen consolidation in recent years. The trend of our industry toward consolidation could cause the industry to become more competitive as greater economies of scale are achieved by

competitors, or as competitors with new lower-cost business models are able to operate with lower prices and gross profit on products.

Seasonality

During any given time, we may be impacted by our industrial customers’ plant shutdowns, particularly during the summer months (our fiscal fourth quarter), as well as the winter months for the Christmas and New Year holiday period (our fiscal second quarter). In addition, we may be impacted by weather-related disruptions and the COVID-19 pandemic.disruptions.

Compliance with Health and Safety and Environmental Protection Laws and Regulations

Our operations are subject to and affected by a variety of federal, state, local and non-U.S. health and safety and environmental laws and regulations relating to the discharge, treatment, storage, disposal, investigation and remediation of certain materials, substances and wastes. We continually assess our compliance status and management of environmental matters to ensure that our operations are compliant with all applicable environmental laws and regulations.

Operating and maintenance costs associated with environmental compliance and management of sites are a normal and recurring part of our operations. With respect to all other matters that may currently be pending, in the opinion of management, based on our analysis of relevant facts and circumstances, compliance with applicable environmental laws and regulations is not likely to have a material adverse effect upon our capital expenditures, earnings or competitive position.

Human Capital Resources

As of August 28, 2021,September 3, 2022, we employed 6,5716,994 associates worldwide, of which approximately 6,3726,765 were full-time and 199229 were part-time. No associate is represented by a labor union. Approximately 90% of our workforce is based in the United Sates and approximately 10% is based outside of the United States. MSC has not experienced any major work stoppages and considers associate relations to be good.

Our goal is to attract, develop and retain a talented team of associates inspired by our greater purpose of fueling the potential of our stakeholders. We believe a career at MSC includes:

Purpose – MSC helps to fuel the industrial economy, propel our stakeholders’ success, and contribute to our customers’ growth.

People and Respect – MSC cares about people. We strive to offer a positive work environment, with people you like and leaders you can respect.

Health and Well-being – MSC offers many available options for our associates and their families to be healthy and plan for the future.

Rewards and Recognition – Appreciation for our associates’ contributions and the opportunity to share financially and intrinsically in MSC’s success.

Growth – The opportunity to learn, take risks and develop a career.

At MSC, we refer to our workforce as our team of “associates,” rather than employees, because we believe that our associates have a stake in our success. We rely on each other to be as dedicated to MSC as MSC is dedicated to each associate. This is a critical part of our expectations of our associates and a unique part of our culture.

Health and Safety

MSC’s safety vision is to build a culture in which safety is a top priority across all levels of the organization, and that every associate has the right and responsibility to continually seek to prevent injuries and build a safe environment for everyone. Our leadership team is highly engaged through our Safety Leadership System in identifying trends in our incidents throughout the network and working collaboratively with our Safety Professionals to effectively reduce incidents involving our associates and to make MSC one of the safest places to work.

Our work overIn calendar year 2021, the last three calendar years has resulted in a 48.4% reduction inCompany’s Occupational Safety and Health Administration (“OSHA”) recordable injuries throughout MSC. In calendar year 2020, the Company’s OSHA Total Recordable Incident Rate was 1.011.09 and the Company’s OSHA Lost Time Incident Rate was 0.480.62 based upon the number of incidents per 100 associates (or per 200,000 work hours). The Company’s rates fall well below the Total Recordable Incident Rate and the Lost Time Incident Rate of the North American Industry Classification System, which were 2.20 and 0.70,0.90, respectively. The success of our Safety Leadership System was additionally validated through the completion and re-

certificationre-certification to the ISO 45001 Standard in our Columbus, Ohio customer fulfillment center.center in calendar year 2020. We are expanding our efforts to achieve ISO 45001 certification throughout the supply chain network in the coming years.

Diversity, Equity and Inclusion

MSC is committed to promoting a respectful, diverse workplace, constructive collaboration, innovative creativity, and genuine leadership. We believe that our culture and our business benefit greatly from the rich combination of experience, creativity and perspective that our diverse workforce provides. Our associates' differences – the individual characteristics, work styles, beliefs and backgrounds – make us strong and equip us to better serve our customers. Because we are dedicated to an environment of equal opportunity, we partner with several outreach organizations that help us in our recruitment efforts such as: Hiring our Heroes, minority-owned organizations, women-owned organizations, local and state workforce services, and vocational rehab centers. Additionally, MSC launched three new business resource groups during fiscal year 2022, known as Inclusion Circles—Pride, DisABLEd and HOLA (Hispanic Organization for Leadership and Advancement)— adding to the those previously introduced in fiscal year 2021—WIN (Women’s Inclusion Network), Veterans, and BIG (Black Inclusion Group). Membership of the Inclusion Circles has grown to more than 800 associates combined, and each Inclusion Circle is sponsored by a member of the MSC leadership team.

Talent Acquisition and Development

MSC focuses on creating opportunities for associate growth, development and training education, offering a comprehensive talent program that continues throughout an associate’s career. MSC believes that its future success is highly dependent upon the Company’s continued ability to attract, retain and motivate associates. As part of its efforts in these areas, the Company offers competitive compensation and benefits to meet the diverse needs of team members and support their health and well-being, financial future and work-life balance. Associates are given access to health plan resources, disease management, tobacco cessation, parental support, stress management and weight loss programs. In addition, MSC provides retirement savings, paid holidays and time off, educational assistance and income protection benefits, as well as a variety of other programs to its associates.

MSC also offers through MSC University various learning and development opportunities in support of associate career growth and success through a variety of offerings, including virtual classrooms and webinars, instructor-led courses, informal work groups, e-learning, books and articles, and more. These opportunities can drive improvement, facilitate career development, provide coaching and mentoring opportunities, and enhance communication skills. Associates were offered 426 types of learnings with 44,099 totalThe average training hours completed by ourMSC associates in fiscal year 2021.2022 increased more than 10% year over year to over 17 hours per individual.

Additionally, MSC’s tuition assistance program covers educational costs and provides eligible associates the financial assistance to obtain a graduate or undergraduate degree while working. MSC’s partnership with an accredited online university doubled associate participation in fiscal year 2021 by offering a full tuition grant when combined with the tuition assistance program.

Available Information

The Company’s internet address is www.mscdirect.com. We make available on or through our investor relations page on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after this material is electronically filed with or furnished to the SEC. We also make available, on our website, the charters of the committees of our Board of Directors, the Code of Ethics, the Code of Business Conduct and the Corporate Governance Guidelines pursuant to SEC requirements and New York Stock Exchange (“NYSE”) listing standards. Information on our website does not constitute a part of this Report.

ITEM 1A. RISK FACTORS.

In addition to the other information in this Report, the following factors should be considered in evaluating the Company and its business. Our future operating results depend upon many factors and are subject to various risks and uncertainties. The known material risks and uncertainties which may cause our operating results to vary from anticipated results or which may negatively affect our operating results and profitability are as follows:

Risks RelatingRelated to Our Business

Our results of operations have been and may in the future be adversely impacted by the ongoing COVID-19 pandemic, and the duration and extent to which it will impact our results of operations remains uncertain.

The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. The extent to which the COVID-19 pandemic will impact our business, operations, financial results and financial condition will depend on numerous evolving factors which are uncertain and cannot be predicted, including: the duration and scope of the pandemic; governmental, business and individuals’ actions taken in response; the effect on our customers and customers’ demand for our services and products; the effect on our suppliers and disruptions to the global supply chain, especially with respect to freight and labor availability; our ability to sell and provide our services and products, including as a result of travel restrictions and people working from home; disruptions to our operations resulting from the illness of any of our associates, including associates at our customer fulfillment centers; the ability of our customers to pay for our services and products; and any closures of our and our suppliers’ and customers’ facilities. These effects of the COVID-19 pandemic have resulted and will result in lost or delayed revenue to us, and we have experienced disruptions to our business as we have implemented modifications to associate travel and associate work locations and cancelled events, among other modifications. In addition, the impact of COVID-19 on macroeconomic conditions may impact the proper functioning of financial and capital markets, foreign currency exchange rates, commodity and energy prices, and interest rates. We may continue to experience adverse impacts to our business as the COVID-19 pandemic continues to evolve and as a result of any economic recession or depression that may occur in the future. Any of these events could amplify the other risks and uncertainties described below and could materially adversely affect our business, financial condition, results of operations and/or stock price.

Mandatory COVID-19 vaccination of employees could impact our workforce and have a material adverse effect on our business and results of operations.

On September 9, 2021, President Biden announced a proposed new rule requiring all employers with at least 100 employees to require that their employees be fully vaccinated or tested weekly. The U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) is currently drafting an emergency regulation to carry out this mandate, which is expected to take effect in the coming weeks. At this time, it is unclear, among other things, if the vaccine mandate will apply to all employees or only to employees who work in the office and how compliance will be documented.

As a company with more than 100 employees, it is anticipated that we would be subject to the OSHA regulation concerning COVID-19 vaccination. As a result, on October 13, 2021, we announced a requirement that all of our associates get vaccinated. At this time, it is not possible to predict with certainty the exact impact that the proposed new regulation or the Company’s vaccine requirement will have on us or on our workforce. Our vaccine requirement and the proposed new regulation, if implemented, may result in employee attrition, which could materially adversely affect future revenues and costs, which could have a material adverse effect on our business and results of operations.

Our business depends heavily on the operating levels of our customers and the economic factors that affect them, including general economic conditions.

Many of the primary markets for the products and services we sell are subject to cyclical fluctuations that affect demand for goods and materials that our customers produce. Consequently, demand for our products and services has been, and will continue to be, influenced by most of the same economic factors that affect demand for and production of our customers’ products.

When, as occurs in economic downturns, current or prospective customers reduce production levels because of lower demand or tight credit conditions, their need for our products and services diminishes. Selling prices and terms of sale with our customers come under pressure, which may adversely affect the profitability and the durability of customer relationships. Credit losses increase as well. Volatile economic and credit conditions also make it more difficult for distributors, as well as customers and suppliers, to forecast and plan future business activities.activities and may prevent them from ordering our products as frequently or in the quantities they otherwise would. We may experience adverse impacts to our business as a result of any economic recession or slowing in the rate of growth.

Additionally, macroeconomic conditions may impact the proper functioning of financial and capital markets, foreign currency exchange rates, commodity and energy prices, labor and supply costs, and interest rates. Any or all of these factors may impact us, our customers, and their demand for our products, and all of these factors may be exacerbated by an increase in the rate of COVID-19 infections, or any government restrictions put in place as a result of an increase in COVID-19 infections.

In addition, as various sectors of our industrial customer base face increased foreign competition, and in fact lose business to foreign competitors or shift their operations overseas in an effort to reduce expenses, we may face increased difficulty in growing and maintaining our market share and growth prospects.

The COVID-19 pandemic has led to periods of significant volatility, uncertainty and economic disruption since its onset. The COVID-19 pandemic has had impacts on our business, operations, financial results and financial condition in the past and the future impacts and consequences of the pandemic will depend on numerous evolving factors which are uncertain and cannot be predicted, including, but not limited to: the scope, duration and severity of the pandemic, including the possibility of further surges or variants of COVID-19; governmental, business and individuals’ actions taken in response; the effect on our customers and customers’ demand for our services and products; the effect on our suppliers and disruptions to the global supply chain, especially with respect to freight and labor availability; disruptions to our ability to sell and provide our services and products; disruptions to our operations resulting from the illness of any of our associates, including associates at our customer fulfillment centers; the macroeconomic environment, including periods of high inflation; the ability of our customers to pay for our services and products; and any closures of our and our suppliers’ and customers’ facilities. Any of these factors could amplify the other risks and uncertainties described herein and could materially adversely affect our business, operations, financial results and financial condition. The future impacts of the COVID-19 pandemic may be difficult to predict and may affect us differently than we have previously experienced.

Changes in our customer and product mix, or adverse changes to the cost of goods we sell, could cause our gross margin percentage to fluctuate, or decrease.

From time to time, we have experienced changes in our customer mix and in our product mix. Changes in our customer mix have resulted from geographic expansion, daily selling activities within current geographic markets, and targeted selling activities to new customers. Changes in our product mix have resulted from marketing activities to existing customers and needs communicated to us from existing and prospective customers as well as from business acquisitions. As our largenational account and government customer program sales grow, we will face continued pressures on maintaining gross margin because these customers receive lower pricing due to their higher level of purchases from us. In addition, our continued expansion of our vending program and other eCommerce platforms has placed pressure on our gross margin. Further, weWe may also be subject to price increases from vendorsour suppliers and independent freight carriers that we may not be able to pass along to our customers, particularly in periods of high inflation.

Volatility in commodity, energy and labor prices may adversely affect operating margins.

In times of commodity, energy and labor price increases, we may be subject to price increases from our suppliers and independent freight carriers that we may be unable to pass along to our customers. Raw material costs used in our suppliers’ products (steel, tungsten, etc.), and energy and labor costs may increase, which may result in increased production costs for our suppliers. The fuel costs of our independent freight carriers have been volatile. Our suppliers and independent freight carriers typically look to pass increased costs along to us through price increases. When we are forced to accept these price increases, we may not be able to pass them along to our customers, resulting in lower margins.

In addition to increases in commodity, energy and labor prices, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit margin to deteriorate, or by negatively impacting customers in certain industries, which could cause our sales to those customers to decline.

Inflation impacts the costs at which we can procure products and our ability to increase prices at which we sell to customers over time. Prolonged periods of low inflation or deflation could adversely affect our ability to increase the prices at which we sell to customers. Periods of high or rapid inflation, such as the historically high levels of inflation the United States has experienced recently, may also cause the prices that our suppliers and independent freight carriers charge to increase rapidly or unpredictably. We may not be able to pass along increased costs due to inflation in full or synchronously to customers, which may result in lower margins or changes in our relationships with customers.

We operate in a highly competitive industry, which is evolving and consolidating, which could adversely affect our business and financial results.

The MRO supply industry, although consolidating, still remains a large, fragmented industry that is highly competitive. We face competition from traditional channels of distribution, such as retail outlets, small dealerships, regional and national distributors utilizing direct sales forces, manufacturers of MRO supplies, large warehouse stores and larger direct mail distributors. We believe that sales of MRO supplies will become more concentrated over the next several years, which may make MRO supply distribution more competitive. Some of our competitors challenge us with a greater variety of product offerings, greater financial resources, additional services, or a combination of these factors. In addition, we also face the risk of companies which operate primarily outside of our industry entering our marketplace.

Our industry is evolving at an accelerated pace. If we do not have the agility and flexibility to effectively respond to this accelerated pace of industry changes, our strategy could be put at risk resulting in a loss of market share. We also face substantial competition in the online distribution space that competes with price transparency. Increased competition from online retailers (particularly those major internet providers who can offer a wide range of products and rapid delivery), and the adoption by competitors of aggressive pricing strategies andor sales methods, could cause us to lose market share or reduce our prices, adversely affecting our sales, margins and profitability.

Traditional MRO suppliers are attempting to consolidate the market through internal expansion, acquisitions or mergers with other industrial suppliers, or a combination of both. This consolidation allows suppliers to improve efficiency and spread fixed costs over a greater number of sales, and to achieve other benefits derived from economies of scale. The trend of our industry toward consolidation could cause the industry to become more competitive as greater economies of scale are achieved by competitors, or as competitors with new lower-cost business models are able to operate with lower prices and gross profit on products. These trends may adversely affect our sales, margins and profitability.

In order to operate more efficiently, control costs, and improve profitability, the Company has engagedwe incurred approximately $15.8 million in restructuring activities which beganand other costs in fiscal year 2019. In fiscal year 2021, we incurred $31.4 million in restructuring costs,2022, primarily consisting of one-time impairment charges for operating lease assets, netconsulting-related costs associated with the optimization of gains related to settlement of lease liabilities,the Company’s operations, associate severance and separation costs, and other exit-relatedequity award acceleration costs. There can be no assurance that these actions will achieve their intended benefits.

Volatility in commodity and energy prices may adversely affect operating margins.

In times of commodity and energy price increases, we may be subject to price increases from our vendors and freight carriers that we may be unable to pass along to our customers. Raw material costs used in our vendors’ products (steel, tungsten, etc.) and energy costs may increase, which may result in increased production costs for our vendors. The fuel costs of our independent freight companies have been volatile. Our vendors and independent freight carriers typically look to pass increased costs along to us through price increases. When we are forced to accept these price increases, we may not be able to pass them along to our customers, resulting in lower margins.

In addition to increases in commodity and energy prices, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit margin to deteriorate, or by negatively impacting customers in certain industries, which could cause our sales to those customers to decline.

Inflation impacts the costs at which we can procure products and our ability to increase prices at which we sell to customers over time. Prolonged periods of low inflation or deflation could adversely affect our ability to increase the prices at which we sell to customers. Periods of high or rapid inflation may also cause the prices that our vendors and freight carriers

charge to increase rapidly or unpredictably. We may not be able to pass along increased costs due to inflation in full or synchronously to customers, which may result in lower margins or changes in our relationships with customers.

As a U.S. government contractor, we are subject to certain laws and regulations which may increase our costs of doing business and which subject us to certain compliance requirements and potential liabilities.

As a supplier to the U.S. government, we must comply with certain laws and regulations, including the Trade Agreements Act, the Buy American Act and the Federal Acquisition Regulation, relating to the formation, administration and performance of U.S. government contracts. These laws and regulations affect how we do business with government customers and, in some instances, impose added compliance and other costs on our business. From time to time, we are subject to governmental or regulatory inquiries or audits relating to our compliance with these laws and regulations. A violation of these specific laws and regulations, as well as others, could result in the imposition of fines and penalties or the termination of our U.S. government contracts and could harm our reputation and cause our business to suffer.

Our business is exposed to the credit risk of our customers which could adversely affect our operating results.

We perform periodic credit evaluations of our customers’ financial condition, and collateral is generally not required. We evaluate the collectability of accounts receivable based on numerous factors, including past transaction history with customers and their creditworthiness, and we provide a reserve for accounts that we believe to be uncollectible. A significant deterioration in the economy or the financial condition of our customers, including as a result of the ongoinghigher inflation and fluctuations in interest rates, a surge in COVID-19 pandemic,infections, geopolitical events, or macroeconomic events, could have an adverse effect on collecting our accounts receivable, including longer payment cycles, increased collection costs and defaults.

Failure to accurately forecast customer demand could lead to excess inventories or inventory shortages, which could result in decreased operating margins, reduced cash flows and harm to our business.

To meet anticipated demand for our products, we may purchase products from manufacturers outside of our typical programs, including payment terms, and in advance of customer orders, which we hold in inventory and resell to customers. We are subject to the risk that we may be unable to sell excess products, in particularsuch as PPE products, ordered from manufacturers. Inventory levels in excess of customer demand due to the difficulty of calibrating demand for such products, the concentration of demand for a limited number of SKUs, difficulties in product sourcing, including due to supply chain disruptions affecting us and our suppliers, or rapid changes in demand may result in inventory impairment or write-downs, and the sale of excess inventory at discounted prices could have an adverse effect on our operating results, financial condition and cash flows. Conversely, if we underestimate customer demand for our products or if our manufacturers fail to supply products we require at the time we need them, including due to supply chain disruptions affecting us and our suppliers, we may experience inventory shortages. Inventory shortages might delay shipments to customers and negatively impact customer relationships.

The risk of cancellation or rescheduling of orders may cause our operating results to fluctuate.

The cancellation or rescheduling of orders may cause our operating results to fluctuate. Although we strive to maintain ongoing relationships with our customers, there is an ongoing risk that orders may be cancelled or rescheduled due to fluctuations in our customers’ business needs or purchasing budgets, including changes in national and local government budgets. Additionally, although our customer base is diverse, ranging from individual machine shops to Fortune 1000 companies and large governmental agencies, the cancellation or rescheduling of significant orders by larger customers may still have a material adverse effect on our operating results from time to time.

Work stoppages, labor shortages or other disruptions, including those due to extreme weather conditions and in response to the COVID-19 pandemic, at transportation centers, shipping ports, our headquarters or our customer fulfillment centers may adversely affect our ability to obtain inventory and make deliveries to our customers.

Our ability to provide same-day shipping and next-day delivery of our core metalworking and MRO products is an integral component of our overall business strategy. Disruptions at transportation centers or shipping ports, including global and domestic locations, due to third-party work stoppages or labor stoppagesshortages or severe weather conditions affect both our ability to maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our customer relationships and results of operations. In addition, severe weather conditions, including winter storms, could adversely affect demand for our products in particularly hard-hit regions and impact our sales.sales and/or our ability to deliver our products. Additionally, thefurther or new implementation of shelter-in-place orders, social distancing orders, quarantines, port closures, increased border controls or closures, and other travel restrictions or government actions in response to the COVID-19 pandemic may affect both our ability to maintain core products in inventory and to deliver products to our customers on a timely basis, which may in turn adversely affect our customer relationships and results of operations.

Our business depends on our ability to attract, train and retain qualified sales and customer service personnel and metalworking specialists.

Our business depends on our ability to attract, train and retain qualified sales and customer service personnel and metalworking specialists. We greatly benefit from having associates who are familiar with the products we sell and their applications, as well as associates, and in particular metalworking specialists, who can provide technical support to our customers. Qualified individuals of the requisite caliber and number needed to fill these positions may be difficult to hire and retain in sufficient numbers. Additionally, hiring and retaining such qualified individuals may be adversely impacted by global and domestic economic uncertainty, and office closures due to the ongoing COVID-19 pandemicincreased competition for such qualified individuals. If we are unable to hire and retain associates capable of providing a high level of customer service and technical support, or if such associates are unable to work effectively or at all due to the COVID-19 pandemic, our operational capabilities and ability to provide differentiated services may be adversely affected.

The loss of key suppliers or contractors or key brands or supply chain disruptions could adversely affect our operating results.

We believe that our ability to offer a combination of well-known brand name products and competitively priced exclusive brand products is an important factor in attracting and retaining customers. Our ability to offer a wide range of products and services is dependent on obtaining adequate product supply and services from our key suppliers and contractors. The loss of, or a substantial decrease in, the availability of products or services from key suppliers or contractors at competitive prices, or the loss of a key brand, could cause our revenues and profitability to decrease. In addition, supply interruptionschain disruptions could continue to arise due to transportation disruptionsinterruptions and labor disputes.disputes or shortages. Our supply chain

has also been and may continue to be impacted by the COVID-19 pandemic, especially with respect to freight and labor availability, and may be impacted by other factors outside of our control, including macro-economic events, trade restrictions, political crises, other public health emergencies, or natural or environmental occurrences. Disruptions in our supply chain could result in a decrease in revenues and profitability.

Supply chain disruptions could adversely impact our business, operating results and operating results.financial position.

Disruptions in our supply chain due to events outside of our control, including natural and human inducedhuman-induced disasters, earthquakes, storms, hurricanes, floods, fires, droughts, tornados and other extreme weather, widespread contagious diseases or viruses such as COVID-19, geopolitical events, such as war, economic sanctions, civil unrest, rioting or terrorist attacks in the United States or countries in which we operate, in which our key suppliers are located or through which products we sell are transported or distributed, transportation disruptions, labor actions, raw material shortages, inadequate manufacturing capacity or utilization to meet demand, actions by governments and central banks that impact the flow of international goods, and the imposition of other trade limitations, prohibitions or sanctions that increase the costs of domestic and international trade and transportation, could restrict our ability to obtain products that our customers demand or to meet delivery expectations, which could adversely impact our business, operating results and operating results.financial position. For example, the outbreak of the COVID-19 pandemic and governmental actions taken in response have disrupted, and may in the future disrupt, our operations and the operations of our suppliers, customers and companies who facilitate deliveries to our customers. Any such disruption or other catastrophic event could cause our distribution channels and networks to become limited or non-operational, adversely impact our ability to obtain or deliver products to our customers in a timely manner, limit our ability to meet customer demand, result in lost sales, increased costs, penalties, order cancellations or contract terminations, or adversely impact our customer relationships. Our ability to fulfill customer orders using same-day shipping and other rapidnext-day delivery methods is an integral component of our business strategy upon which our customers rely, and any such disruption could adversely impact our business, operating results and financial position.

TradeChanges to trade policies or trade relationships could make sourcing products from overseas more difficult and/or costlier as well as negatively affect the markets we sell into.

Any changesChanges to trade policies or trade relationships, including the imposition of significant restrictions, quotas, duties, tariffs, or tariffs,moratoriums on economic activity with certain countries or regions, whether because of amendments to or elimination of existing trade agreements, or the imposition of new or modified trade tariffs, or other governmental orders or sanctions, could have an adverse effect on our business. These changes and other changes to trade policies or trade relationships could adversely affect our ability to secure sufficient products to service our customers and/or result in increased product costs that we may not be able to pass on to our customers, resulting in lower margins. Additionally, these changes could adversely affect our foreign sales. These risks most recently manifested in tariffs, primarily in 2018 and 2019, either directly on products we trade in or indirectly on industries we sell into, between the United States and its trading partners, most notably China, which represents a significant source of product for North America. In addition, we move and source products within North America. Any trading disruption between Canada, the United States and Mexico, or disruption in their respective trading relationships with other nations, could adversely impact our business. 

Opening or expanding our customer fulfillment centers exposes us to risks of delays and may affect our operating results.

In the future, as part of our long-term strategic planning, we may open new customer fulfillment centers to improve our efficiency, geographic distribution and market penetration. In addition, we intend to make, as we have in the past, capital improvements and operational enhancements to certain of our existing customer fulfillment centers. Moving or opening customer fulfillment centers and effecting such improvements requires a substantial capital investment, including expenditures for real estate and construction, and opening new customer fulfillment centers requires a substantial investment in inventory. In addition,Additionally, the opening of new customer fulfillment centers or the expansion of existing customer fulfillment centers would have an adverse impact on operating expenses as a percentage of sales, inventory turnover and return on investment in the periods prior to and for some time following the commencement of operations of each new customer fulfillment center or the completion of such expansions.

We establish insurance-related healthcare reserves based on historical claims experience and actuarial estimates, which could lead to adjustments in the future based on actual claims incurred.

We retain a significant portion of the risk under our healthcare insurance program. In fiscal year 2021, we began self-insuring for costs associated with associates’ health needs, which is limited by stop-loss coverage. Our self-insurance accruals are determined on an actuarial basis, based on historical claims experience and an estimate of claims incurred but not yet reported and other relevant factors.factors. While we believe our estimation process is well designed, every estimation process is inherently subject to limitations. Fluctuations in the frequency, magnitude or number of claims make it difficult to predict the ultimate cost of claims and may lead to future adjustments of reported results of operations which, depending on the magnitude of such adjustments, may significantly affect our reported results or negatively affect the reliability of our reported results.

An interruption of operations at our headquarters or customer fulfillment centers could adversely impact our business.

Our business depends on maintaining operations at our co-located headquarters and customer fulfillment centers. A serious, prolonged interruption due to power outage, telecommunications outage, cyber-attack, terrorist attack, earthquake, storm, hurricane, flood, fire, flood,drought, tornado and other extreme weather, pandemic or other natural disaster or other interruption could have a material adverse effect on our business and financial results. Additionally, our business could be affected by people working from home due to the COVID-19 pandemic, and we could experience disruptions to our operations resulting from illness of any of our associates, including associates at our customer fulfillment centers.

Goodwill and other indefinite-lived intangible assets recorded as a result of our acquisitions could become impaired.

As of August 28, 2021,September 3, 2022, our combined goodwill and other indefinite-lived intangible assets amounted to $705.5$722.9 million. To the extent we do not generate sufficient cash flows to recover the net amount of any investments in goodwill and other indefinite-lived intangible assets recorded, the investment could be considered impaired and subject to write-off. We expect to record further goodwill and other indefinite-lived intangible assets as a result of future acquisitions we may complete. Future amortization of such assets or impairments, if any, of goodwill or other indefinite-lived intangible assets would adversely affect our results of operations in any given period. If the financial performance of our business was to decline significantly, as a result of the COVID-19 pandemic, we could incur a material non-cash charge to our income statement for the impairment of goodwill and other indefinite-lived intangible assets.

SocietalClimate change and societal and governmental responses to climate change could adversely affect our business and performance, including indirectly through impacts on our customers.

Concerns over the long-term impacts of climate change have led, and will continue to lead, to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior on their own as a result of these concerns.concerns regarding the impact of climate change, governmental regulations and public perceptions. We and our customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to us could be a drop in demand for our products and services, particularly in certain sectors. Our efforts to take these risks into account, including by increasing our business with climate-friendly companies, may not be effective in protecting us from the negative impact of new laws and regulations or changes in consumer or business behavior.

Additionally, climate change may present additional physical risks to our operations and lead to an increased frequency of unusual or extreme weather conditions, which could disrupt our supply chain or harm or disrupt our operations or those of our customers or suppliers.

Our principal shareholders exercise significant control over us.

We have two classes of common stock. Our Class A Common Stock has one vote per share and our Class B Common Stock has 10 votes per share. As of October 1, 2021,3, 2022, the Non-Executive Chairman of our Board of Directors, his sister, certain of their family members, including our President and Chief Executive Officer, and related trusts collectively owned 100% of the

outstanding shares of our Class B Common Stock and approximately 2.9%3.5% of the outstanding shares of our Class A Common Stock, giving them control over approximately 65.9% of the combined voting power of our Class A Common Stock and our Class B Common Stock. Consequently, such shareholders will be able to elect all of the directors of the Company and to determine the outcome of any matter submitted to a vote of the Company’s shareholders for approval, including amendments to our certificate of incorporation and our second amended and restated by-laws, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. Because this concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that may otherwise be beneficial to our shareholders, the market price of our Class A Common Stock couldmay be adversely affected.

Risks Related to Our Indebtedness

The terms of our credit facilities and senior notes impose operating and financial restrictions on us, which may limit our ability to respond to changing business and economic conditions.

We currently have credit facilities and outstanding senior notes. For a description of these facilities and senior notes, please see Note 9, “Debt” in the Notes to Consolidated Financial Statements. We are subject to various operating and financial covenants under the credit facilities and senior notes which restrict our ability to, among other things, incur additional indebtedness, make particular types of investments, incur certain types of liens, engage in fundamental corporate changes, enter into transactions with affiliates or make substantial asset sales. Any failure to comply with these covenants

may constitute a breach under the credit facilities and senior notes, which could result in the acceleration of all or a substantial portion of any outstanding indebtedness and the termination of revolving credit commitments. Additionally, as interest rates rise, there may be fewer alternatives to our existing credit facilities for raising additional capital or such alternatives may be more expensive.

Our inability to maintain our committed and uncommitted credit facilities could materially adversely affect our liquidity and our business.

Our ability to manage our business and execute our business strategy is dependent, in part, on the continued availability of financing. With respect to committed facilities, lenders may decline to renew or extend credit facilities, or they may require stricter terms and conditions with respect to future facilities, and we may not find these terms and conditions acceptable. With respect to uncommitted facilities, lenders may cease making loans or demand payment of outstanding loans, which may overly restrict our ability to conduct our business successfully.successfully and adversely impact our liquidity and financial position.

Uncertainty about the future of LIBOR may adversely affect our business and financial results.

Borrowings under certain of our credit facilities currently use LIBORas a benchmark for establishing the applicable interest rate. LIBOR is the subject of recent regulatory guidance and proposals for reform, which may cause LIBOR to cease to be used entirely or to perform differently than in the past. Regulators and industry groups have recommended alternatives for certain reference rates, such as the Secured Overnight Financing Rate (“SOFR”), but uncertainty remains about what. We have adopted amendments to our credit facilities which provide for the transition to SOFR as the applicable benchmark or benchmarks will replace LIBORrate. The future performance of SOFR, which is a relatively new reference rate with a limited history, may be hard to predict and when that will occur. The consequences of these developments with respectcould lead to LIBOR cannot be entirely predicted but could result inadditional volatility or an increase in the cost of our variable rate indebtedness, causing agreater than what would occur using LIBOR. The consequences of these developments with respect to LIBOR and SOFR cannot be entirely predicted but could result in negative impact onimpacts to our financial position, liquidity and results of operations.

General Risk Factors

Disruptions or breaches of our IT systems, or violations of data privacy laws, could adversely affect us.

We believe that our IT systems are an integral part of our business and growth strategies. In particular, the COVID-19 pandemic has caused us to modify our business practices, including requiring many of our office-based associates to work from home. As a result, we are increasingly dependent upon our IT systems to operate our business and our ability to effectively manage our business depends on the security, reliability and adequacy of our IT systems. We also depend upon our IT systems to help process orders, to manage inventory and accounts receivable collections, to manage financial reporting, to purchase, sell and ship products efficiently and on a timely basis, to maintain cost-effective operations, to operate our websites and to help provide superior service to our customers. Our IT systems may be vulnerable to damage or disruption caused by circumstances beyond our control or anticipation, such as catastrophic events, power outages, natural disasters, computer system or network failures, computer viruses, and physical or electronic break-ins. In addition, our IT systems may be vulnerable to cyberattacks,cyber-attacks, including the use of malicious codes, worms, phishing, spyware, denial of service attacks and ransomware, all of which are rapidly evolving and becoming increasingly sophisticated. Despite our efforts to ensure the integrity of our IT systems, as cyber-attacks evolve and become more difficult to detect and successfully defend against, one or more cyber-attacks might defeat the measures that we take to anticipate, detect, avoid or mitigate these threats. These cyber-attacks and any unauthorized access or disclosure of our customers’ information could compromise and expose sensitive

information and damage our reputation. Cyber-attacks could also cause us to incur significant remediation costs, including the possibility of government fines, disrupt our operations and divert management attention and key IT resources.

Any material cyber-attack or failure of our IT systems to perform as we anticipate could disrupt our business and operations, result in transaction errors, loss of data, processing inefficiencies, downtime, litigation, government investigation or fines, substantial remediation costs (including potential liability for stolen assets or information and the costs of repairing system damage), the loss of sales and customers, and damage our reputation. In addition, changes to our IT systems could disrupt our business operations. Any one or more of these consequences could have a material adverse effect on our business, financial condition and results of operations. Additionally, our suppliers and customers also rely upon IT systems to operate their respective businesses. If any of them experience a cyber-attack or other cyber incident, this could adversely impact their operations, which may in turn impact or adversely affect our operations.

In addition, regulatoryRegulatory authorities have increased their focus on how companies collect, process, use, store, share and transmit personal data. New privacy security laws and regulations, including the United Kingdom’s Data Protection Act 2018 (DPA),

the European Union General Data Protection Regulation 2016 (GDPR) that became effective May 2018, the California Consumer Protection Act that becomebecame effective on January 1, 2020, and other similar state privacy laws, pose increasingly complex compliance challenges, which may increase compliance costs, and any failure to comply with data privacy laws and regulations could result in significant penalties.

Our success is dependent on certain key management personnel.

Our success depends largely on the efforts and abilities of certain key senior management. The loss or disruption of the services of one or more of such key personnel including as a result of the COVID-19 pandemic, could have a material adverse effect on our business and financial results. We do not maintain any key-man insurance policies with respect to any of our executive officers.

We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our business.

From time to time, we are involved in lawsuits or other legal proceedings that arise from business transactions or the operation of our business. Due to the nature of our business, these proceedings may, for example, relate to product liability claims, commercial disputes or employment matters. In addition, we could face claims over other matters, such as claims arising from our status as a government contractor, intellectual property matters, or corporate or securities law matters. The defense and ultimate outcome of lawsuits or other legal proceedings may result in higher operating expenses, which could have a material adverse effect on our business, financial condition or results of operations.

We may encounter difficulties with acquisitions and other strategic transactions which could harm our business.

We have completed several acquisitions and we expect to continue to pursue acquisitions and other strategic transactions, such as joint ventures, that we believe will either expand or complement our business in new or existing markets or further enhance the value and offerings we are able to provide to our existing or future potential customers.

Acquisitions and other strategic transactions present numerous risks and challenges, which could harm our business:business, including:

diversion of management’s attention from the normal operation of our business;

potential loss of key associates and customers of the acquired companies;

difficulties managing and integrating operations in geographically dispersed locations;

the potential for deficiencies in internal controls at the acquired companies;

increases in our expenses and working capital requirements, which reduce our return on invested capital;

lack of experience operating in the geographic market or industry sector of the acquired business;companies; and

exposure to unanticipated liabilities of the acquired companies.

To integrate acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. The difficulties of this integration may be further complicated by geographic distances, as well as challenges arising from the COVID-19 pandemic.distances. The integration of acquired businesses may not be successful and could result in disruption to other parts of our business.

We are subject to environmental, health and safety laws and regulations.

We are subject to federal, state, local, foreign and provincial environmental, health and safety laws and regulations. Fines and penalties may be imposed for non-compliance with applicable environmental, health and safety requirements and the failure to have or to comply with the terms and conditions of required permits. The failure by us to comply with applicable environmental, health and safety requirements could result in fines, penalties, enforcement actions, third-party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders requiring corrective measures, which could have a material adverse effect on our business, financial condition or results of operations.operations. Additionally, such actions could negatively impact our reputation in the impacted geographic market and more broadly.

Social and environmental responsibility policies and provisions may be difficult to comply with and may impose costs on us.

There is an increasing focus on corporate social and environmental responsibility in our industry. An increasing number of our customers have adopted, or may adopt, procurement policies that include social and environmental responsibility provisions that their suppliers should comply with, or they may seek to include such provisions in their procurement terms and conditions. This corporate social and environmental responsibility influence is expanding intoto other

stakeholders such as investors, suppliers, associates and communities. We currently voluntarily comply with the sustainability standards set forth by various sustainability initiatives and organizations. These social and environmental responsibility practices, policies, provisions and initiatives are subject to change, can be unpredictable, and may be difficult and expensive for us to comply with. In addition, the failure by us to take action or otherwise comply with the policies of our customers may negatively impact our customer relationships or reputation, which may adversely impact our business and results of operations.

Our common stock price may be volatile.

We believe factors such as fluctuations in our operating results or the operating results of our competitors, changes in economic conditions in the market sectors in which our customers operate, notably the durable and non-durable goods manufacturing industry, which accounts for a substantial portion of our revenues, and changes in general market conditions, including as a result of theinflation, rising interest rates, a surge in COVID-19 pandemic,infections and geopolitical events could cause the market price of our Class A Common Stock to fluctuate substantially.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

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ITEM 2. PROPERTIES.

We have customer fulfillment centers in or near the following locations:

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

MSC’s Class A Common Stock is traded on the NYSE under the symbol “MSM.” MSC’s Class B Common Stock is not traded in any public market.

In 2003, our Board of Directors instituted a policy of paying regular quarterly cash dividends to our shareholders. The Company paid aggregate annual regular cash dividends of $3.00 per share in fiscal year 2022. The Company paid aggregate annual cash dividends of $6.50 per share in fiscal year 2021, consisting of a special cash dividend of $3.50 per share and total quarterly regular cash dividends of $3.00 per share. The Company paid total quarterly regular cash dividends of $3.00 per share and a special cash dividend of $5.00 per share in fiscal year 2020. The Company expects its practice of paying quarterly cash dividends on its common stock will continue, although the payment of future dividends is at the discretion of the Company’s Board of Directors and will depend upon itsthe Company’s earnings, capital requirements, financial condition and other factors.

On October 14, 2021,11, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.75$0.79 per share, payable on November 30, 202129, 2022 to shareholders of record at the close of business on November 16, 2021.15, 2022. The dividend will result in a payout of approximately $41.6$44.1 million, based on the number of shares outstanding at October 1, 2021.3, 2022.

The approximate number of holders of record of MSC’s Class A Common Stock as of October 1, 20213, 2022 was 511.532. The number of holders of record of MSC’s Class B Common Stock as of October 1, 20213, 2022 was 17.19.

Purchases of Equity Securities

The following table sets forth repurchases by the Company of its outstanding shares of Class A Common Stock, which are listed on the NYSE, during the quarter ended August 28, 2021:September 3, 2022:

________________________

⁽¹⁾During the fiscal quarter ended August 28, 2021, 2,240September 3, 2022, 3,748 shares of our Class A Common Stock were withheld by the Company as payment to satisfy our associates’ tax withholding liability associated with our share-based compensation program and are included in the total number of shares purchased.

⁽²⁾ Activity is reported on a trade date basis.

⁽³⁾On June 29, 2021, the Company’s Board of Directors terminated the MSC Stock Repurchase Plan, which was established during fiscal year 1999, and authorized a new share repurchase program (the “Share Repurchase Program”) to purchase up to 5,000,000 shares of the Company’s Class A Common Stock. There is no expiration date governing the period over which the Company can repurchase shares underfor the Share Repurchase Program. As of August 28, 2021,September 3, 2022, the maximum number of shares of the Company’s Class A Common Stock that may yet be repurchased under the Share Repurchase Program was 5,000,0004,700,000 shares.

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Performance Graph

The following stock price performance graph and accompanying information is not deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any filings under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, or be subject to the liabilities of Section 18 of the Exchange Act, regardless of any general incorporation language in any such filing.

The following graph compares the cumulative total return on an investment in our Class A Common Stock with the cumulative total return on an investment in each of the S&P Midcap 400 Index and the Dow Jones US Industrial Supplier Index.

The graph assumes $100 invested at the closing price of our Class A Common Stock on the NYSE and each index on September 3, 20162, 2017 and assumes that all dividends paid on such securities during the applicable fiscal years were reinvested. Indices are calculated on a month-end basis. The comparisons in this table are based on historical data and are not intended to forecast or to be indicative of the possible future performance of our Class A Common Stock.

Cumulative Total StockholderShareholder Return

for the Period from September 2, 2017 through September 3, 2016 through August 28, 20212022

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

MSC is a leading North American distributor of a broad range of metalworking and MRO products and services. We help our customers drive greater productivity, profitability and growth with approximately 1.92.1 million products, inventory management and other supply chain solutions, and deep expertise from more than 80 years of working with customers across industries. We continue to implement our strategies to gain market share, generate new customers, increase sales to existing customers, and diversify our customer base.



Our experienced team of more than 6,500approximately 7,000 associates works with our customers to help drive results for their businesses, from keeping operations running efficiently today to continuously rethinking, retooling and optimizing for a more productive tomorrow. We offer approximately 1.92.1 million active, saleable SKUs through our catalogs; our brochures; our eCommerce channels, including the MSC website; our inventory management solutions; and our callcustomer care centers, branch offices, customer fulfillment centers, and regional inventory centers.centers and warehouses. We service our customers from 11six customer fulfillment centers, (seven customer fulfillment centers are located in the United States which includes five primary customer fulfillment centers, three are located in Canada and one is located in the United Kingdom), seven10 regional inventory centers and 28 branch offices.38 warehouses. Many 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.

Our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our customers’ needs. We focus on offering inventory, process and procurement solutions that reduce MRO supply chain costs and improve plant floor productivity for our customers. We will seek to continue to achieve cost reductions throughout our business through cost-saving strategies and increased leverage from our existing infrastructure, and continue to provide additional procurement cost-savings solutions to our customers through technology such as our CMI, VMI and vending programs. Our field sales and service associate headcount was 2,536 at September 3, 2022 compared to 2,398 at August 28, 2021 compared toand 2,263 at August 29, 2020 and 2,414 at August 31, 2019. 2020.We have migrated our sales force from one designed to sell a spot buy value proposition to one prepared to deliver upon the new, more complex and high-touch role that we play driving value for our customers by enabling them to achieve higher levels of growth, profitability and productivity.

The chart below displays a two-year comparison of our net sales from fiscal year 20202021 through fiscal year 2021:2022:

⁽¹⁾Pricing and other is comprised of changes in customer and product mix, discounting and other items.

⁽²⁾Fiscal year 2022 includes a 53^rd week during the reporting period, including the net sales of acquisitions during the 53^rd week.

Highlights

Highlights during fiscal year 20212022 include the following:

We generated $224.5$246.2 million of cash from operations.operations compared to $224.5 million in fiscal year 2021.

We repurchased and immediately retired $67.5$22.1 million of MSCMSC’s Class A Common Stock.Stock compared to $67.5 million in fiscal year 2021.

We paid out $167.4 million in regular cash dividends compared to $362.7 million in cash dividends in fiscal year 2021, comprised of special and regular cash dividends of $195.4 million and $167.3 million, respectively, compared to $444.2 million in cash dividends in fiscal year 2020, comprised of special and regular cash dividends of $277.6 million and $166.5 million, respectively.

In June 2021,2022, we acquired 80% of the outstanding shares of HurstEngman-Taylor for aggregate consideration of $15.3$24.8 million.

In July 2022, the sale of our Long Island CSC closed, resulting in a gain on sale of $10.1 million.

In August 2022, we acquired Tower Fasteners for aggregate consideration of $33.9 million, which includedincludes a post-closing working capital adjustment of $0.1approximately $1.0 million paid out in August 2021.

In July 2021, MSC Mexico acquired additional assets of TAC in conjunction with the acquisition of its outsourcing and logistics businesses for aggregate consideration of $8.0 million, which included $6.7 million of cash paid and $1.3 million of contingent consideration. Following this acquisition, the Company retained its 75% interest in MSC Mexico.that is subject to finalization.

We incurred $15.8 million in restructuring and other costs compared to $31.4 million in restructuringfiscal year 2021. Restructuring and other costs comprisedprimarily consisted of $15.0 million inconsulting-related costs associated with the optimization of the Company’s operations, associate severance and separation costs, and equity award acceleration costs. The prior fiscal year also included operating lease asset impairment charges, net of gains related to settlement of lease liabilities, $4.5 million in associate severance and separation costs, $3.3 million in other exit-related costs primarily relatedassociated with our internal restructuring due to our sales workforce realignment and enhanced customer support model, and $8.6 million in consulting costs related to the optimization of the Company’s operations.

We incurred a $26.7 million impairment charge relating to the sourcing of nitrile gloves. The Company subsequently recorded $20.8 million of loss recovery related to this PPE prepayment impairment for a net impairment charge of $5.9 million.

We incurred PPE-related inventory write-downs of $30.1 million in the second quarter to reduce the carrying value of certain PPE-related inventory to its estimated net realizable value as a result of increased supply in the market of such products and an expected inability to sell excess safety-related products.model.

Recent Developments

Progress on Mission Critical

As previously disclosed, we initiated a company-wide project, which we refer to as “Mission Critical,” to accelerate market share capture and improve profitability over the period through fiscal year 2023. Among the Mission Critical initiatives to realize growth, we began and expect to continue investing in our market-leading metalworking business by adding to our metalworking specialist team, introducing value-added services to our customers, expanding our vending, VMI and in-plant solutions programs, building out our sales force, and diversifying our customers and end markets.end-markets. We also are focused on improving profitability through the implementation of various pricing strategies and critical structural cost reductions in order to improve return on invested capital. We anticipate that thesethe cost reductions will be comprised of savings in the areas of sales and service, supply chain and general and administrative expenses, and include initiatives to optimize our distribution center network and real estate footprint, renegotiate supplier contracts, and redesign our talent acquisition and retention approach.

Enhanced Customer Support Model

In January 2021, as part of Mission Critical, we announced an enhanced customer support model, including a transition from the branch office network to virtual customer care hubs. This move is expected to provide personalized support to customers, regardless of their physical location. Along with this transition, we closed 73 branch offices and realigned certain existing locations from branch offices to regional inventory centers during fiscal year 2021. Restructuring associated with this enhanced model included one-time impairment charges for operating lease assets, net of gains related to settlement of lease liabilities, associate severance and separation costs, and other exit-related costs.

Relocation and Pending Sale of Long Island CSC

In December 2020, we announced plans to relocate our Long Island CSC to a smaller facility. In connection with the announcement, we signed a 10-year lease to occupy approximately 26,000 square feet in an office building in Melville, New York, which commenced in September 2021. In furtherance of these plans, we entered into a Purchase and Sale Agreement to

sell our Long Island CSC. This transaction is currently within a permitting period as outlined withinclosed during the Purchase and Sale Agreement.fourth quarter of fiscal year 2022.

Impact of COVID-19 on Our Businessand Other Economic Trends

The COVID-19 pandemic has resulted, and will continue to result, in significant economic disruption and has and will likely continue to adversely affect our business. The following events related to the COVID-19 pandemic have resulted, and will continue to result, in lost or delayed revenue to the Company: limitations on the ability of manufacturers to manufacture the products we sell; limitations on the ability of our suppliers to obtain the products we sell or to meet delivery requirements and commitments; limitations on the ability to import products into the United States; limitations on the ability of our associates to perform their work due to illness caused by the pandemic or federal, state or local orders requiring associates to remain at home; limitations on the ability of UPS, LTL carriers and other carriers to deliver our packages to customers; limitations on the ability of our customers to conduct their business and purchase our products and services; disruptions to our customers’ supply chains or purchasing patterns; and limitations on the ability of our customers to pay us on a timely basis.

To meet anticipated demand for PPE products during the COVID-19 pandemic, the Company used a number of distributors and brokers to source PPE products, including purchasing products from manufacturers outside its typical programs and under non-standard payment terms. In September 2020, we prepaid approximately $26.7 million for the purchase of nitrile gloves to be sourced from manufacturers in Asia and experienced significant delays in obtaining possession of this PPE. We evaluated the potential recoverability of these assets and, as a result, recorded an impairment charge of $26.7 million in the first quarter of fiscal year 2021 to reflect the fact that the Company would not ultimately obtain this PPE or recover its related prepayment. During fiscal year 2021, the Company entered into a legal settlement agreement with a vendor and, as a result, received $20.8 million of loss recovery in its Consolidated Statements of Income related to this PPE prepayment impairment. The Company continues to pursue its legal avenues for recovery of the remaining prepayment. Furthermore, the Company has realized lower product margins as well as inventory write-downs, each as a result of the COVID-19 pandemic, primarily due to the increased supply of competing products from manufacturers and an expected inability to sell excess inventory of safety-related products ordered from manufacturers earlier in the COVID-19 pandemic. The Company incurred PPE-related inventory write-downs of $30.1 million during the second quarter of fiscal year 2021 to reduce the carrying value of certain PPE-related inventory to its estimated net realizable value. The extent to which the COVID-19 pandemic will continue to impact our business, financial condition and results of operations will depend on future developments, which are highly uncertain and depend on, among other things, the duration, spread, severity and impact of the COVID-19 pandemic and the success and speed of vaccination efforts both in the United States and globally, the effects of the COVID-19 pandemic on the Company’s customers, suppliers and vendors and the remedial actions and stimulus measures adopted by local and federal governments, and the pace and the extent to which normal economic and operating conditions can resume.

Our number one priority is the health and safety of our associates and their families, our customers, and our other partners. We have taken and will continue to take measures to reduce the risk of infection and to protect our associates and our business, in line with guidelines issued by the authorities in the jurisdictions in which we operate, including federal, state and local governments and the Centers for Disease Control and Prevention. We have instituted enhanced safety procedures to safeguard the health and safety of our associates, including the use of additional protective equipment and the frequent cleaning of our facilities. We have restricted non-associate access to our sites, reorganized our workflows where permitted to maximize social distancing, implemented extensive restrictions on associate travel, and utilized remote working strategies where possible.

We continue to experience limited disruptions in our business as we have implemented modifications to associate travel and associate work locations and in-person events, among other modifications. We have taken many actions to reduce spending more broadly across the Company, including limiting our operating and capital spending on critical items and reducing hiring and discretionary expenses. We have developed contingency plans that we anticipate would reduce costs further if business and financial conditions deteriorate. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state and local, and foreign authorities, or that we determine are in the best interests of our associates, customers, suppliers and shareholders.

As the impact ofrecent years, the COVID-19 pandemic has begun to abate, andimpacted the Company’s operations; however, demand from our traditional manufacturing end markets has recovered as most restrictions on business and commercial activityimplemented earlier in the pandemic have been lifted,lifted. In conjunction with the economy inlifting of pandemic restrictions and the ensuing economic recovery, the United States has experienced acute increasesand continues to experience disruptions in demand forthe supply of certain products and services includingand disruptions in labor availability. These disruptions have contributed to a highly inflationary environment which has affected the demandprice and, at times, the availability of certain products and services necessary for the Company’s operations, including fuel, labor and certain products the Company sells or the inputs for such products. In some cases, this has ledSuch disruptions have impacted, and may continue to shortages of fuel, labor and certain such products. While such shortages have not yet had a material impact onin the future, the Company’s business, orfinancial condition and results of operations, they may do so in the futureoperations. These disruptions are also impacting our customers and their ability to conduct their business or purchase our products and services.

As a result of recent high inflation, increasing freight, labor and fuel costs, and supply chain disruptions, the Company cannot reasonably estimatehas implemented price realization strategies in response to increased costs the future impactsCompany faces. Furthermore, in light of such shortages at this time.disruptions to availability and increased or uncertain shipping times, the Company is maintaining higher purchasing levels to ensure sufficient inventory supply to meet customer demand. The extent to which the COVID-19 pandemic and the

evolving macroeconomic environment will continue to impact the Company’s business, financial condition and results of operations is highly uncertain.

Acquisitions of Engman-Taylor and Tower Fasteners

In June 2022, the Company acquired certain assets and assumed certain liabilities of Engman-Taylor, a Menomonee Falls, Wisconsin-based distributor of metalworking tools and supplies, for aggregate consideration of $24.8 million. Engman-Taylor will continue to go to market under its current name as an MSC company.

In August 2022, the Company acquired 100% of the outstanding equity of Tower Fasteners, a Holtsville, New York-based distributor of OEM fasteners and components, for aggregate consideration of $33.9 million, which includes a post-closing working capital adjustment of approximately $1.0 million that is subject to finalization. The acquisition, which was made through the Company’s subsidiary, AIS, complements and expands the Company’s presence in the OEM fastener market. Tower Fasteners will continue to go to market under its current name as an MSC company.

Our Strategy

Our primary objective is to grow sales profitably while offering our customers highly technical and high-touch solutions to solve their most complex challenges on the plant floor. Our strategy is to complete the transition from being a spot buyspot-buy supplier to a mission-critical partner to our customers. We will selectively pursue strategic acquisitions that expand or complement our business in new and existing markets or further enhance the value and offerings we provide.

Business Environment

We utilize various indices when evaluating the level of our business activity, including the Metalworking Business Index (the “MBI”) and the Industrial Production (“IP”) index. Approximately 70% of our revenues came from sales in the manufacturing sector during the fourth quarter of fiscal year 2021.2022. Through statistical analysis, we have found that trends in our customers’ activity have correlated to changes in the MBI and the IP index. The MBI is a sentiment index developed from a monthly survey of the U.S. metalworking industry, focusing on durable goods manufacturing. For the MBI, a value below 50.0 generally indicates contraction and a value above 50.0 generally indicates expansion. The IP index measures short-term changes in industrial production. Growth in the IP index from month to month indicates growth in the manufacturing, mining and utilities industries. Note that the composition of the IP index was revised by the Federal Reserve in May 2021 which adjusted, among other factors, the base year with which the IP index is calculated. This resulted in a lower level for the historical index in recent years, however the trend in the index continues to show growth as noted above. The MBI and the IP index over the fourth quarter of fiscal year 20212022 and the fourth quarter and fiscal year averages were as follows:

Results of Operations

Fiscal Year Ended August 28, 2021September 3, 2022 Compared to the Fiscal Year Ended August 29, 202028, 2021

The table below summarizes the Company’s results of operations both in dollars (in thousands) and as a percentage of net sales for the periods indicated:

The table below shows, among other things, the change in our fiscal quarterly and annual 20212022 average daily sales (“ADS”) by total company and by customer type compared to the same periods in the prior fiscal year: