UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________


(Mark One)
☒x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~December 2, 2017~~May 28, 2022
OR
☐o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File ~~No.:~~Number: 1-14130

_________________

MSC INDUSTRIAL DIRECT CO., INC.

(Exact name of registrant as specified in its charter)

_________________


New York ‎(State or ~~Other Jurisdiction~~other jurisdiction of ~~Incorporation~~‎incorporation or ~~Organization)~~organization)	11-3289165 ‎(I.R.S. Employer Identification No.)

~~75 Maxess~~515 Broadhollow Road, Suite 1000, Melville, New York ‎(Address of principal executive offices)	11747 ‎(Zip Code)

(516) 812-2000

(Registrant’s telephone number, including area code)

_________________

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share	MSM	New York Stock Exchange

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 ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒x No ☐o

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.

☒

☐

Large accelerated

filer ☒x

Accelerated

filer ☐o

~~Non‑~~Non-accelerated filer ☐o
~~(Do not check if a smaller~~‎

~~reporting company)~~

Smaller reporting

company ☐o

Emerging growth

company ☐o

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒x

As of ~~December 27, 2017, 45,054,928~~June 15, 2022, 47,330,569 shares of Class A ~~common stock~~Common Stock and ~~11,402,636~~8,654,010 shares of Class B ~~common stock~~Common Stock of the registrant were outstanding.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

~~SAFE HARBOR STATEMENT~~

This Quarterly Report on Form 10-Q ~~(the~~(this “Report”) contains ~~forward‑~~forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such ~~forward‑~~forward-looking statements may be found in ~~Items~~Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of Part I and Item 1, “Legal Proceedings” and Item 1A, “Risk Factors” 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‑~~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‑~~forward-looking statements. We ~~undertake no~~expressly disclaim any obligation to publicly disclose any revisions to these ~~forward‑~~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‑~~forward-looking statements are subject to risks and uncertainties, including, without limitation, those discussed in ~~this section~~Item 2, “Management’s Discussion and ~~Items 2~~Analysis of Financial Condition and Results of Operations” and Item 3, “Quantitative and Qualitative Disclosures About Market Risk” of Part I ~~as well as in Part II,~~and Item 1, “Legal Proceedings” and Item 1A, “Risk Factors” of Part II of this Report, ~~and~~as well as in ~~Part I,~~ Item 1A, “Risk Factors” ~~and in~~of Part ~~II,~~I and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” inof Part II of our Annual Report on Form 10-K for the fiscal year ended ~~September 2, 2017.~~August 28, 2021. In addition, new risks may emerge from time to time and it is not possible for management to predict ~~all~~ such ~~risk factors~~risks or to assess the impact of such ~~risk factors~~risks on our ~~business.~~business or financial results. Accordingly, future results may differ materially from historical results or from those discussed or implied by these ~~forward‑~~forward-looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these ~~forward‑~~forward-looking statements. These risks and uncertainties include, but are not limited ~~to:~~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;

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-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 retention of key personnel;

the credit risk of our customers, including changes in credit risk as a result of the COVID-19 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 particular 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) 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 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;

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

~~changing customer and product mixes;~~

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

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

~~volatility in commodity and energy prices;~~

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

~~credit risk of our customers;~~

~~risk of cancellation or rescheduling of customer orders;~~

~~work stoppages or other business interruptions (including those due to extreme weather conditions) at transportation centers, shipping ports, our headquarters or our customer fulfillment centers;~~

dependence on our information systems and the risks of business disruptions arising from changes to our information systems and disruptions due to catastrophic events, power outages, natural disasters, computer system or network failures, computer viruses, physical or electronic break-ins and cyberattacks;

~~retention of key personnel;~~

~~risk of loss of key suppliers, key brands or supply chain disruptions;~~

~~risks associated with changes to trade policies pertaining to sourcing products;~~

~~failure to comply with applicable environmental, health and safety laws and regulations;~~

~~goodwill and intangible assets recorded as a result of our acquisitions could be impaired;~~

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

~~financial restrictions on outstanding borrowings.~~

our ability to maintain our credit 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

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.

MSC INDUSTRIAL DIRECT CO., INC.

~~INDEX~~QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MAY 28, 2022

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	~~Condensed Consolidated~~ Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of ~~December 2, 2017~~May 28, 2022 and ~~September 2, 2017~~August 28, 2021	41
	Condensed Consolidated Statements of Income for the Thirteen and Thirty-Nine Weeks Ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016~~May 29, 2021	52
	Condensed Consolidated Statements of Comprehensive Income for the Thirteen and Thirty-Nine Weeks Ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016~~May 29, 2021	63
	Condensed Consolidated ~~Statement~~Statements of Shareholders’ Equity for the Thirteen and Thirty-Nine Weeks Ended ~~December 2, 2017~~May 28, 2022 and May 29, 2021	74
	Condensed Consolidated Statements of Cash Flows for the ~~Thirteen~~Thirty-Nine Weeks Ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016~~May 29, 2021	85
	Notes to Condensed Consolidated Financial Statements	96
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1718
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2228
Item 4.	Controls and Procedures	2228
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2328
Item 1A.	Risk Factors	2328
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2329
Item 3.6.	~~Defaults Upon Senior Securities~~Exhibits	2430
~~Item 4.~~		~~Mine Safety Disclosures~~SIGNATURES	24
~~Item 5.~~	~~Other Information~~	24
~~Item 6.~~	~~Exhibits~~	24
~~SIGNATURES~~		2531

PART I. FINANCIAL INFORMATION

Item 1. ~~Condensed Consolidated~~ Financial Statements

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)



	December 2,		September 2,		May 28,		August 28,
	2017		2017		2022		2021
	(Unaudited)				(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	20,252	$	16,083	$	28,847	$	40,536
Accounts receivable, net of allowance for doubtful accounts of $13,385 and $13,278, respectively		479,391		471,795
Accounts receivable, net of allowance for credit losses of $18,561 and $18,416, respectively						667,019		560,373
Inventories		469,432		464,959		679,516		624,169
Prepaid expenses and other current assets		54,441		52,742		92,178		89,167
Total current assets		1,023,516		1,005,579		1,467,560		1,314,245
Property, plant and equipment, net		311,846		316,305		299,143		298,416
Goodwill		633,529		633,728		692,668		692,704
Identifiable intangibles, net		107,731		110,429		93,422		101,854
Operating lease assets						58,854		49,011
Other assets		31,590		32,871		7,671		5,885
Total assets	$	2,108,212	$	2,098,912	$	2,619,318	$	2,462,115
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt	$	291,679	$	331,986
Current portion of debt including obligations under finance leases					$	250,904	$	202,433
Current portion of operating lease liabilities						16,464		13,927
Accounts payable		124,917		121,266		199,477		186,330
Accrued liabilities		115,527		104,473
Accrued expenses and other current liabilities						152,961		159,238
Total current liabilities		532,123		557,725		619,806		561,928
Long-term debt		201,002		200,991
Long-term debt including obligations under finance leases						539,050		583,616
Noncurrent operating lease liabilities						43,648		36,429
Deferred income taxes and tax uncertainties		115,056		115,056		108,849		108,827
Other noncurrent liabilities						—		9,443
Total liabilities		848,181		873,772		1,311,353		1,300,243
Commitments and Contingencies
Shareholders’ Equity:
Preferred stock; $0.001 par value; 5,000,000 shares authorized; none issued and outstanding		—		—
Class A common stock (one vote per share); $0.001 par value; 100,000,000 shares authorized; 54,063,976 and 53,513,806 shares issued, respectively		54		54
Class B common stock (ten votes per share); $0.001 par value; 50,000,000 shares authorized; 11,402,636 and 11,850,636 shares issued and outstanding, respectively		11		12
MSC Industrial Shareholders’ Equity:
Preferred Stock; $0.001 par value; 5,000,000 shares authorized; NaN issued and outstanding						—		—
Class A Common Stock (one vote per share); $0.001 par value; 100,000,000 shares authorized; 48,567,273 and 48,042,901 shares issued, respectively						48		48
Class B Common Stock (10 votes per share); $0.001 par value; 50,000,000 shares authorized; 8,654,010 and 8,654,010 shares issued and outstanding, respectively						9		9
Additional paid-in capital		633,944		626,995		780,311		740,867
Retained earnings		1,201,128		1,168,812		641,444		532,315
Accumulated other comprehensive loss		(18,106)		(17,263)		(19,032)		(17,984)
Class A treasury stock, at cost, 9,010,839 and 8,972,729 shares, respectively		(557,000)		(553,470)
Class A treasury stock, at cost, 1,237,250 and 1,223,644 shares, respectively						(106,655)		(104,384)
Total MSC Industrial shareholders’ equity						1,296,125		1,150,871
Noncontrolling interest						11,840		11,001
Total shareholders’ equity		1,260,031		1,225,140		1,307,965		1,161,872
Total liabilities and shareholders’ equity	$	2,108,212	$	2,098,912	$	2,619,318	$	2,462,115

See accompanying notes to condensed consolidated financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.					See accompanying Notes to Condensed Consolidated Financial Statements.

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)


	Thirteen Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 2,		December 3,			May 28,		May 29,		May 28,		May 29,
	2017		2016			2022		2021		2022		2021
Net sales	$	768,561	$	686,271		$	958,579	$	866,294	$	2,669,648	$	2,412,193
Cost of goods sold		433,492		377,536			547,430		499,823		1,539,628		1,427,653
Gross profit		335,069		308,735			411,149		366,471		1,130,020		984,540
Operating expenses		235,791		218,135			271,046		257,336		793,600		741,156
Impairment loss (loss recovery), net							—		(20,840)		—		5,886
Restructuring and other costs							3,267		1,349		11,684		26,943
Income from operations		99,278		90,600			136,836		128,626		324,736		210,555
Other (expense) income:
Other income (expense):
Interest expense		(3,237)		(2,934)			(4,277)		(3,696)		(11,622)		(10,632)
Interest income		163		163			17		15		57		52
Other (expense) income, net		(408)		(284)
Other income, net							558		1,131		236		1,724
Total other expense		(3,482)		(3,055)			(3,702)		(2,550)		(11,329)		(8,856)
Income before provision for income taxes		95,796		87,545			133,134		126,076		313,407		201,699
Provision for income taxes		36,211		33,257			33,417		31,141		77,279		49,639
Net income	$	59,585	$	54,288			99,717		94,935		236,128		152,060
Per share information:
Less: Net income attributable to noncontrolling interest							60		501		473		1,087
Net income attributable to MSC Industrial						$	99,657	$	94,434	$	235,655	$	150,973
Per share data attributable to MSC Industrial:
Net income per common share:
Basic	$	1.06	$	0.96		$	1.78	$	1.69	$	4.23	$	2.70
Diluted	$	1.05	$	0.96		$	1.78	$	1.68	$	4.21	$	2.69
Weighted average shares used in computing net income per common share:
Weighted-average shares used in computing net income per common share:
Basic		56,287		56,381			55,914		55,944		55,748		55,814
Diluted		56,504		56,608			56,106		56,352		56,019		56,139
Cash dividends declared per common share	$	0.48	$	0.45

See accompanying notes to condensed consolidated financial statements.
See accompanying Notes to Condensed Consolidated Financial Statements.					See accompanying Notes to Condensed Consolidated Financial Statements.

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Comprehensive Income

~~(In~~(In thousands)

(Unaudited)


	Thirteen Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 2,		December 3,			May 28,		May 29,		May 28,		May 29,
	2017		2016			2022		2021		2022		2021
Net income, as reported	$	59,585	$	54,288		$	99,717	$	94,935	$	236,128	$	152,060
Other comprehensive income, net of tax:
Foreign currency translation adjustments		(843)		(1,547)			542		4,325		(682)		7,147
Comprehensive income	$	58,742	$	52,741
Comprehensive income⁽¹⁾							100,259		99,260		235,446		159,207
Comprehensive income attributable to noncontrolling interest:
Net income							(60)		(501)		(473)		(1,087)
Foreign currency translation adjustments							(453)		(299)		(366)		(509)
Comprehensive income attributable to MSC Industrial						$	99,746	$	98,460	$	234,607	$	157,611

See accompanying notes to condensed consolidated financial statements.
⁽¹⁾ There were 0 material taxes associated with other comprehensive income during the thirteen- and thirty-nine-week periods ended May 28, 2022 and May 29, 2021.					⁽¹⁾ There were 0 material taxes associated with other comprehensive income during the thirteen- and thirty-nine-week periods ended May 28, 2022 and May 29, 2021.


See accompanying Notes to Condensed Consolidated Financial Statements.					See accompanying Notes to Condensed Consolidated Financial Statements.

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated ~~Statement~~Statements of Shareholders’ Equity

~~Thirteen Weeks Ended December 2, 2017~~

(In ~~thousands)~~thousands, except per share data)

(Unaudited)

Class A
Common Stock

Class B
Common Stock

Additional

Accumulated
Other

Class A
Treasury Stock

Shares

Amount

Shares

Amount

Paid-In Capital

Retained
Earnings

Comprehensive
Loss

Shares

Amount
at Cost

Total
Balance at September 2, 2017

53,514

$
54

11,851

$
12

$
626,995

$
1,168,812

$
(17,263)

8,973

$
(553,470)

$
1,225,140
Exchange of Class B common stock for Class A common stock

448

—

(448)

(1)

—

—

—

—

—

(1)
Exercise of common stock options

36

—

—

—

2,405

—

—

—

—

2,405
Common stock issued under associate stock purchase plan

—

—

—

—

471

—

—

(13)

488

959
Issuance of restricted common stock, net of cancellations

(1)

—

—

—

—

—

—

—

—

—
Shares issued from restricted stock units, including dividend equivalent units

67

—

—

—

179

—

—

—

—

179
Stock-based compensation

—

—

—

—

3,894

—

—

—

—

3,894
Repurchases of common stock

—

—

—

—

—

—

—

51

(4,018)

(4,018)
Cash dividends on Class A common stock

—

—

—

—

—

(21,459)

—

—

—

(21,459)
Cash dividends on Class B common stock

—

—

—

—

—

(5,628)

—

—

—

(5,628)
Dividend equivalent units declared, net of cancellations

—

—

—

—

—

(182)

—

—

—

(182)
Foreign currency translation adjustment

—

—

—

—

—

—

(843)

—

—

(843)
Net income

—

—

—

—

—

59,585

—

—

—

59,585
Balance at December 2, 2017

54,064

$
54

11,403

$
11

$
633,944

$
1,201,128

$
(18,106)

9,011

$
(557,000)

$
1,260,031

See accompanying notes to condensed consolidated financial statements.


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	May 28,		May 29,		May 28,		May 29,
	2022		2021		2022		2021
Class A Common Stock
Beginning Balance	$	48	$	48	$	48	$	47
Exchange of Class B Common Stock for Class A Common Stock		—		—		—		1
Ending Balance		48		48		48		48
Class B Common Stock
Beginning Balance		9		9		9		10
Exchange of Class B Common Stock for Class A Common Stock		—		—		—		(1)
Ending Balance		9		9		9		9
Additional Paid-in Capital
Beginning Balance		766,156		712,750		740,867		690,739
Associate Incentive Plans		14,155		22,897		39,444		44,908
Repurchase and retirement of Class A Common Stock		—		(85)		—		(85)
Ending Balance		780,311		735,562		780,311		735,562
Retained Earnings
Beginning Balance		584,283		523,757		532,315		749,515
Net Income		99,657		94,434		235,655		150,973
Repurchase and retirement of Class A Common Stock		—		(47,008)		—		(47,008)
Regular cash dividends declared on Class A Common Stock		(35,455)		(35,387)		(106,060)		(105,195)
Regular cash dividends declared on Class B Common Stock		(6,491)		(6,635)		(19,472)		(20,512)
Special cash dividends declared on Class A Common Stock		—		—		—		(163,511)
Special cash dividends declared on Class B Common Stock		—		—		—		(31,840)
Dividend equivalents declared, net of cancellations		(550)		(395)		(994)		(3,656)
Ending Balance		641,444		528,766		641,444		528,766
Accumulated Other Comprehensive Loss
Beginning Balance		(19,121)		(18,806)		(17,984)		(21,418)
Foreign Currency Translation Adjustment		89		4,026		(1,048)		6,638
Ending Balance		(19,032)		(14,780)		(19,032)		(14,780)
Treasury Stock
Beginning Balance		(107,401)		(105,645)		(104,384)		(103,948)
Associate Incentive Plans		877		782		2,673		2,604
Repurchases of Class A Common Stock		(131)		(88)		(4,944)		(3,607)
Ending Balance		(106,655)		(104,951)		(106,655)		(104,951)
Total Shareholders’ Equity Attributable to MSC Industrial		1,296,125		1,144,654		1,296,125		1,144,654
Noncontrolling Interest
Beginning Balance		11,327		6,424		11,001		5,628
Foreign Currency Translation Adjustment		453		299		366		509
Net Income		60		501		473		1,087
Ending Balance		11,840		7,224		11,840		7,224
Total Shareholders’ Equity	$	1,307,965	$	1,151,878	$	1,307,965	$	1,151,878
Dividends declared per Class A Common Share	$	0.75	$	0.75	$	2.25	$	5.75
Dividends declared per Class B Common Share	$	0.75	$	0.75	$	2.25	$	5.75

See accompanying Notes to Condensed Consolidated Financial Statements.

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Thirty-Nine Weeks Ended
	May 28,		May 29,
	2022		2021
Cash Flows from Operating Activities:
Net income	$	236,128	$	152,060
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		52,426		51,575
Non-cash operating lease cost		12,583		11,650
Stock-based compensation		14,559		13,407
Loss on disposal of property, plant and equipment		489		460
Inventory write-down		—		30,091
Operating lease and fixed asset impairment due to restructuring		—		15,819
Provision for credit losses		6,255		5,303
Deferred income taxes		(341)		—
Changes in operating assets and liabilities:
Accounts receivable		(113,664)		(77,130)
Inventories		(55,866)		(82,864)
Prepaid expenses and other current assets		(2,859)		(38,658)
Operating lease liabilities		(12,674)		(25,576)
Other assets		(1,405)		585
Accounts payable and accrued liabilities		(329)		82,638
Total adjustments		(100,826)		(12,700)
Net cash provided by operating activities		135,302		139,360
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment		(44,943)		(37,598)
Net cash used in investing activities		(44,943)		(37,598)
Cash Flows from Financing Activities:
Repurchases of common stock		(4,944)		(50,700)
Payments of regular cash dividends		(125,532)		(125,707)
Payments of special cash dividends		—		(195,351)
Proceeds from sale of Class A Common Stock in connection with associate stock purchase plan		3,364		3,112
Proceeds from exercise of Class A Common Stock options		21,540		28,969
Borrowings under credit facilities		244,000		505,000
Payments under credit facilities		(239,500)		(365,000)
Borrowings under financing obligations		1,058		1,286
Payments on finance lease and financing obligations		(1,984)		(1,896)
Net cash used in financing activities		(101,998)		(200,287)
Effect of foreign exchange rate changes on cash and cash equivalents		(50)		743
Net decrease in cash and cash equivalents		(11,689)		(97,782)
Cash and cash equivalents—beginning of period		40,536		125,211
Cash and cash equivalents—end of period	$	28,847	$	27,429

Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	90,696	$	60,903
Cash paid for interest	$	10,009	$	8,776

See accompanying Notes to Condensed Consolidated Financial Statements.

Thirteen Weeks Ended

December 2,

December 3,

2017

2016
Cash Flows from Operating Activities:

Net income

$
59,585

$
54,288
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

15,749

15,447
Stock-based compensation

3,894

3,538
Loss on disposal of property, plant, and equipment

126

49
Provision for doubtful accounts

1,698

1,305
Changes in operating assets and liabilities:

Accounts receivable

(9,291)

(1,021)
Inventories

(4,259)

(10,299)
Prepaid expenses and other current assets

(1,663)

3,792
Other assets

1,252

(465)
Accounts payable and accrued liabilities

14,888

9,326
Total adjustments

22,394

21,672
Net cash provided by operating activities

81,979

75,960
Cash Flows from Investing Activities:

Expenditures for property, plant and equipment

(9,028)

(12,497)
Cash used in business acquisition

(738)

—
Net cash used in investing activities

(9,766)

(12,497)
Cash Flows from Financing Activities:

Repurchases of common stock

(4,018)

(3,207)
Payments of cash dividends

(27,087)

(25,495)
Payments on capital lease and financing obligations

(115)

(388)
Proceeds from sale of Class A common stock in connection with associate stock purchase plan

959

909
Proceeds from exercise of Class A common stock options

2,405

6,931
Borrowings under financing obligations

721

739
Borrowings under Credit Facility

24,000

15,000
Private Placement Loan financing costs

—

(142)
Payments of notes payable and revolving credit note under the Credit Facility

(65,000)

(78,500)
Net cash used in financing activities

(68,135)

(84,153)
Effect of foreign exchange rate changes on cash and cash equivalents

91

(78)
Net increase (decrease) in cash and cash equivalents

4,169

(20,768)
Cash and cash equivalents—beginning of period

16,083

52,890
Cash and cash equivalents—end of period

$
20,252

$
32,122
Supplemental Disclosure of Cash Flow Information:

Cash paid for income taxes

$
1,757

$
1,983
Cash paid for interest

$
2,068

$
1,400

See accompanying notes to condensed consolidated financial statements.

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

Note 1. Basis of Presentation

The ~~accompanying condensed consolidated financial statements include~~unaudited Condensed Consolidated Financial Statements have been prepared by the management of MSC Industrial Direct Co., Inc. ~~(“MSC”~~(together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, “MSC Industrial” or the “Company”) and in the opinion of management include all normal recurring adjustments necessary to present fairly the Company’s financial position as of ~~its subsidiaries (hereinafter referred to collectively~~May 28, 2022 and August 28, 2021, results of operations for the thirteen and thirty-nine weeks ended May 28, 2022 and May 29, 2021, and cash flows for the thirty-nine weeks ended May 28, 2022 and May 29, 2021. The financial information as of August 28, 2021 was derived from the ~~“Company”)~~Company’s audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 2021. ~~All intercompany balances~~

Certain information and ~~transactions have been eliminated~~footnote disclosures normally included in ~~consolidation.~~

~~The unaudited condensed consolidated~~ financial statements ~~have been~~ prepared in accordance with accounting principles generally accepted in the United States ~~for interim financial information~~of America have been condensed or omitted pursuant to the rules and regulations of the SEC. The Company, however, believes that the disclosures contained in this Report comply with the ~~instructions to~~requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a Quarterly Report on Form 10-Q and ~~Article 10 of Regulation S-X. Accordingly, they do not include all of~~are adequate to make the information presented not misleading. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. Operating results for the thirteen-week period ended December 2, 2017 is not necessarily indicative of the results that may be expected for the fiscal year ending September 1, 2018. For further information, refer to the financial statements and notesNotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended ~~September 2, 2017.~~August 28, 2021.

Fiscal Year

The ~~Company’s~~Company operates on a 52/53-week fiscal year ~~ends~~ending on the Saturday closest to August 31^st of each year. ~~Unless the context requires otherwise, references~~References to ~~years contained herein pertain~~“fiscal year 2022” refer to the ~~Company’s~~period from August 29, 2021 to September 3, 2022, which is a 53-week fiscal year. References to “fiscal year 2021” refer to the period from August 30, 2020 to August 28, 2021, which is a 52-week fiscal year. The ~~Company’s 2018~~ fiscal ~~year will be~~quarters ended May 28, 2022 and May 29, 2021 refer to the thirteen weeks ended as of those dates.

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements include the accounts of MSC Industrial Direct Co., Inc., its wholly owned subsidiaries and entities in which it maintains a ~~52-week accounting period that will end on September 1, 2018~~controlling financial interest. All significant intercompany balances and ~~its 2017 fiscal year was a 52-week accounting period that ended on September 2, 2017.~~

~~There~~transactions have been ~~no changes~~eliminated in consolidation.

Impact of COVID-19 and Other Economic Trends

The COVID-19 pandemic has impacted and may further impact the Company’s operations; however, demand from the Company’s traditional manufacturing end markets has recovered as certain restrictions implemented earlier in the pandemic have been lifted. In conjunction with the lifting of pandemic restrictions and economic recovery, the United States has experienced disruptions in the supply of certain products and services and disruptions in labor availability. These disruptions have contributed to ~~significant accounting policies since September 2, 2017.~~ a highly inflationary environment which has affected the price 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. Such disruptions have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations. These disruptions are also impacting the Company’s customers and their ability to conduct their business or purchase the Company’s products and services.

As a result of recent high inflation, increasing freight and fuel costs, and supply chain disruptions, the Company has implemented price realization strategies in response to increased costs the Company faces. Furthermore, in light of 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 ~~adoption~~business, financial condition and results of ~~Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting in~~operations is highly uncertain. Therefore, the ~~second quarter~~Company cannot reasonably estimate the full future impacts of ~~fiscal 2017, adjustments were recorded to the thirteen-week period ended December 3, 2016, which was the beginning of the annual period of adoption.~~these matters at this time.

~~Recently Adopted Accounting Pronouncements~~
‎

~~Share-based Payments~~

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The Company early adopted ASU 2016-09 in the second quarter of fiscal 2017, which required us to reflect any adjustments as of September 4, 2016, the beginning of the annual period that includes the interim period of adoption. ~~Prior fiscal year periods were not retrospectively adjusted.~~

~~Adoption of the new standard affected our previously reported fiscal first quarter of 2017 net income per share as follows:~~

Thirteen Weeks Ended

December 3, 2016

As Reported

As Adjusted
Condensed Consolidated Statements of Income:

(in thousands, except per share data)
Provision for income taxes

$
33,442

$
33,257
Net income

$
54,103

$
54,288
Per share information:

Net income per common share:

Basic

$
0.96

$
0.96
Diluted

$
0.95

$
0.96
Weighted average shares used in computing net income per common share:

Basic

56,381

56,381
Diluted

56,572

56,608

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

~~Deferred Taxes~~Accounting Pronouncements Not Yet Adopted

In November ~~2015,~~2021, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued ~~ASU No. 2015-17, Balance Sheet Classification~~Accounting Standards Update 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which provides for additional disclosures and added transparency for entities which receive government assistance. This includes disclosure of ~~Deferred Taxes.~~the type of government assistance received, the entity’s method of accounting, and the impact on the entity’s financial statements. This ~~update requires an entity to classify deferred tax liabilities and assets as non-current within a classified balance sheet. ASU 2015-17~~guidance is effective for all entities with annual ~~reporting~~ periods ~~and interim periods therein,~~ beginning after December 15, ~~2016. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.~~2021. The ~~FASB allowed early adoption~~Company is currently evaluating the effect of ~~this standard and, therefore,~~ the ~~Company prospectively adopted ASU 2015-17 during~~new guidance on its first quarter of fiscal 2017. As a result of adopting this standard, $46,627 of deferred income taxes that were previously presented as a current asset are now included within long-term liabilities, as the Company was in a net deferred tax liability position in its first quarter of fiscal 2017 which was the time of adoption. Prior periods were not retrospectively adjusted.annual disclosures.

~~Simplifying the Measurement of Inventory~~

~~In July 2015,~~Other pronouncements issued by the FASB ~~issued ASU No. 2015-11, Simplifying the Measurement of Inventory~~ (Topic 330), which requires an entity to measure inventory at the lower of cost and net realizable value, which consists of the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public entities, the updated guidance isor other authoritative accounting standards groups with future effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The guidance is to be applied prospectively with earlier application permitted as of the beginning of an interimdates are either not applicable or ~~annual reporting period. The Company adopted ASU 2015-11 during the first quarter of fiscal 2018 and the adoption~~ ~~did~~are not ~~have any impact on its consolidated financial statements.~~

~~Accounting Pronouncements Not Yet Adopted~~

~~Goodwill Impairment~~

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 in the goodwill impairment test that required an entity to calculate the implied fair value of goodwill. An entity will now apply a one-step quantitative test and record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is ~~effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019~~. The new standard is effective for the Company for its fiscal 2021 fourth quarter goodwill impairment test. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. ~~The Company does not expect the adoption of ASU 2017-04~~expected to have a material impact on ~~its consolidated financial statements.~~the Company’s unaudited Condensed Consolidated Financial Statements.

~~Business Combinations~~Note 2. Revenue

~~In January 2017,~~Revenue Recognition

Net sales include product revenue and shipping and handling charges, net of estimated sales returns and any related sales incentives. Revenue is measured as the ~~FASB issued ASU No. 2017-01, Business Combinations – Clarifying the Definition~~amount of a Business. ASU 2017-01 clarifies the definition of a business to assist entities with evaluating when a set of transferred assets and activities is considered a business. The amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new standard is effective forconsideration the Company expects to receive in exchange for ~~its fiscal year 2019, with early adoption permitted. The amendments are to be applied prospectively to business combinations that occur after the effective date.~~

~~Leases~~

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities. ASU 2016-02 requires reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. ASU 2016-02transferring products. All revenue is ~~effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018. The new standard is effective for~~recognized when the Company ~~for~~satisfies its ~~fiscal year 2020.~~performance obligations under the contract, and invoicing occurs at approximately the same point in time. The ~~guidance will be applied~~Company recognizes revenue once the customer obtains control of the products. The Company’s product sales have standard payment terms that do not exceed one year. The Company considers shipping and handling as activities to fulfill its performance obligations. Substantially all of the Company’s contracts have a single performance obligation, to deliver products, and are short-term in nature. The Company estimates product returns based on historical return rates. Total accrued sales returns were $6,579 and $5,759 as of May 28, 2022 and August 28, 2021, respectively, and are reported as Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheets. Sales taxes and value-added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a ~~modified retrospective~~net basis ~~beginning with the earliest period presented.~~ and therefore are excluded from net sales.

Consideration Payable to Customers

The Company offers customers sales incentives, which primarily consist of volume rebates, and upfront sign-on payments. These volume rebates and sign-on payments are not in exchange for a distinct good or service and result in a reduction of net sales from the goods transferred to the customer at the later of when the related revenue is ~~currently evaluating this standard~~recognized or when the Company promises to ~~determine~~pay the ~~impact~~consideration. The Company estimates its volume rebate accruals and records its sign-on payments based on various factors, including contract terms, historical experience, and performance levels. Total accrued sales incentives, primarily related to volume rebates, were $21,653 and $16,844 as of ~~adoption~~May 28, 2022 and August 28, 2021, respectively, and are included in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheets. Sign-on payments, not yet recognized as a reduction of revenue, are recorded in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheets and were $1,993 and $2,547 as of May 28, 2022 and August 28, 2021, respectively.

Contract Assets and Liabilities

The Company records a contract asset when it has a right to payment from a customer that is conditioned on events other than the passage of time. The Company records a contract liability when customers prepay but the Company has not yet satisfied its ~~consolidated financial statements.~~performance obligations. The Company did 0t have material unsatisfied performance obligations or contract assets as of May 28, 2022 and August 28, 2021.

Disaggregation of Revenue

The Company operates in 1 operating and reportable segment as a distributor of metalworking and maintenance, repair and operations products and services. The Company serves a large number of customers in diverse industries, which are subject to different economic and industry factors. The Company’s presentation of net sales by customer end-market most reasonably depicts how the nature, amount, timing and uncertainty of Company revenue and cash flows are affected by

107

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

~~Revenue from Contracts with Customers~~economic and industry factors. The Company does not disclose net sales information by product category as it is impracticable to do so as a result of its numerous product offerings and the way its business is managed.

~~In May 2014,~~The following table presents the ~~FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount~~Company’s percentage of ~~revenue to which it expects to be entitled~~net sales by customer end-market for the ~~transfer of promised goods or services~~thirteen- and thirty-nine-week periods ended May 28, 2022 and May 29, 2021:


	Thirteen Weeks Ended		Thirteen Weeks Ended
	May 28, 2022		May 29, 2021
Manufacturing Heavy	48	%	48	%
Manufacturing Light	21	%	21	%
Government	7	%	9	%
Retail/Wholesale	7	%	7	%
Commercial Services	4	%	4	%
Other ⁽¹⁾	13	%	11	%
Total net sales	100	%	100	%

(1)The Other category primarily includes individual customer and small business net sales not assigned to ~~customers.~~ a specific industry classification.


	Thirty-Nine Weeks Ended		Thirty-Nine Weeks Ended
	May 28, 2022		May 29, 2021
Manufacturing Heavy	48	%	47	%
Manufacturing Light	21	%	20	%
Government	7	%	10	%
Retail/Wholesale	7	%	7	%
Commercial Services	4	%	4	%
Other ⁽¹⁾	13	%	12	%
Total net sales	100	%	100	%

(1)The ~~ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective.~~ Other category primarily includes individual customer and small business net sales not assigned to a specific industry classification.

The ~~new standard is effective~~Company’s net sales originating from the following geographic areas were as follows for the Company for its fiscal year 2019. Early adoption is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. To date, the Company has performed a preliminary detailed review of key contractsthirteen- and ~~compared historical accounting policies~~thirty-nine-week periods ended May 28, 2022 and ~~practices~~May 29, 2021:



	Thirteen Weeks Ended				Thirteen Weeks Ended
	May 28, 2022				May 29, 2021
United States	$	911,609	95	%	$	813,049	94	%
Mexico		19,612	2	%		26,051	3	%
United Kingdom		13,908	2	%		14,688	2	%
Canada		13,450	1	%		12,506	1	%
Total net sales	$	958,579	100	%	$	866,294	100	%


	Thirty-Nine Weeks Ended				Thirty-Nine Weeks Ended
	May 28, 2022				May 29, 2021
United States	$	2,527,710	95	%	$	2,268,153	94	%
Mexico		62,486	2	%		68,219	3	%
United Kingdom		42,049	2	%		40,575	2	%
Canada		37,403	1	%		35,246	1	%
Total net sales	$	2,669,648	100	%	$	2,412,193	100	%

MSC INDUSTRIAL DIRECT CO., INC.

Notes to the new standard. While the Company is still evaluating this standard, it is not expected that this standard will have a material impact on the Company’s consolidated financial statements. The Company will continue to evaluate ASU 2014-09Condensed Consolidated Financial Statements

(Dollar amounts and ~~other amendments and related interpretive guidance through the date of adoption. The Company expects to adopt ASU 2014-09 under the modified retrospective approach~~shares in ~~the first quarter of fiscal 2019.~~thousands, except per share data)

(Unaudited)

Note 2.3. Net Income per Share

~~The~~Net income per share is computed by dividing net income by the weighted-average number of shares of the Company’s ~~non-vested restricted stock awards contain non-forfeitable rights to dividends~~Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), and ~~meet~~ the ~~criteria of a participating security as defined by~~ ~~Accounting Standards Codification~~Company’s Class B Common Stock, par value $0.001 per share (“~~ASC”~~Class B Common Stock” and, together with Class A Common Stock, “Common Stock”) ~~Topic~~ ~~260, “Earnings Per Share”. Under~~, outstanding during the ~~two-class method,~~period. Diluted net income per share is computed by dividing net income ~~allocated to common shareholders~~ by the ~~weighted average~~weighted-average number of ~~common~~ shares of Common Stock outstanding ~~for~~during the period, including potentially dilutive shares of Common Stock equivalents outstanding during the period. ~~In applying~~The dilutive effect of potential shares of Common Stock is determined using the ~~two-class method, net income is allocated to both common shares and participating securities based on their respective weighted average shares outstanding for the period.~~

treasury stock method. The following table sets forth the computation of basic and diluted net income per common share under the ~~two-class~~treasury stock methodfor the ~~thirteen weeks~~thirteen- and thirty-nine-week periods ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016, respectively:~~May 29, 2021.


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	May 28,		May 29,		May 28,		May 29,
	2022		2021		2022		2021
Numerator:
Net income attributable to MSC Industrial as reported	$	99,657	$	94,434	$	235,655	$	150,973
Denominator:
Weighted-average shares outstanding for basic net income per share		55,914		55,944		55,748		55,814
Effect of dilutive securities		192		408		271		325
Weighted-average shares outstanding for diluted net income per share		56,106		56,352		56,019		56,139
Net income per share:
Basic	$	1.78	$	1.69	$	4.23	$	2.70
Diluted	$	1.78	$	1.68	$	4.21	$	2.69

Potentially dilutive securities		330		3		363		884

Thirteen Weeks Ended

December 2,

December 3,

2017

2016

Net income as reported

$
59,585

$
54,288

Less: Distributed net income available to participating securities

(34)

(77)

Less: Undistributed net income available to participating securities

(69)

(114)

Numerator for basic net income per share:

Undistributed and distributed net income available to common shareholders

$
59,482

$
54,097

Add: Undistributed net income allocated to participating securities

69

114

Less: Undistributed net income reallocated to participating securities

(69)

(114)

Numerator for diluted net income per share:

Undistributed and distributed net income available to common shareholders

$
59,482

$
54,097

Denominator:

Weighted average shares outstanding for basic net income per share

56,287

56,381

Effect of dilutive securities

217

227

Weighted average shares outstanding for diluted net income per share

56,504

56,608

Net income per share Two-class method:

Basic

$
1.06

$
0.96

Diluted

$
1.05

$
0.96

~~Antidilutive~~

Potentially dilutive securities attributable to outstanding stock options ~~of 957~~ and ~~606 were not included in~~restricted stock units are excluded from the ~~computation~~calculation of diluted ~~earnings~~net income per share ~~for~~when the ~~thirteen-week periods ended December 2, 2017~~combined exercise price and ~~December 3, 2016, respectively.~~

~~MSC INDUSTRIAL DIRECT CO., INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Dollar amounts~~average unamortized fair value are greater than the average market price of Class A Common Stock, and, ~~shares in thousands, except per share data)~~therefore, their inclusion would be anti-dilutive.

~~(Unaudited)~~

Note 3.4. Stock-Based Compensation

The Company accounts for all ~~share-based~~stock-based payments in accordance with ~~ASC~~Accounting Standards Codification Topic 718, ~~"Compensation—~~“Compensation—Stock ~~Compensation" ("ASC 718").~~ ~~Stock‑~~Compensation,” as amended. Stock-based compensation expense included in ~~operating~~Operating expenses for the ~~thirteen-week~~thirteen- and thirty-nine-week periods ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016~~May 29, 2021 was as follows:


	Thirteen Weeks Ended				Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	December 2,		December 3,		May 28,		May 29,		May 28,		May 29,
	2017		2016		2022		2021		2022		2021
Stock options	$	1,194	$	1,112	$	214	$	539	$	1,019	$	1,760
Restricted share awards		902		1,322
Restricted stock units		1,754		1,042		3,212		3,486		11,221		10,604
Performance share units						873		325		2,070		883
Associate Stock Purchase Plan		44		62		71		63		249		160
Total		3,894		3,538		4,370		4,413		14,559		13,407
Deferred income tax benefit		(1,480)		(1,344)		(1,120)		(1,094)		(3,596)		(3,298)
Stock-based compensation expense, net	$	2,414	$	2,194	$	3,250	$	3,319	$	10,963	$	10,109

‎

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

Stock ~~options~~Options

The Company discontinued its grants of stock options in fiscal year 2020. The fair value of each option grant isin previous fiscal years was estimated on the date of grant using the ~~Black‑~~Black-Scholes option pricing ~~model with the following assumptions:~~model.

Thirteen Weeks Ended

December 2,

December 3,

2017

2016
Expected life (in years)

4.0

4.1

Risk-free interest rate

1.87
%

1.16
%
Expected volatility

22.13
%

20.50
%
Expected dividend yield

2.30
%

2.40
%
Weighted-average grant-date fair value

$12.25

$9.29

A summary of the Company’s stock option activity for the ~~thirteen-week~~ thirty-nine-week period ended ~~December 2, 2017~~May 28, 2022 is as follows:


	Options	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on August 28, 2021	1,130	$	76.38
Granted	—		—
Exercised	(310)		69.51
Canceled/Forfeited	(37)		83.06
Outstanding on May 28, 2022	783	$	78.78	2.1	$	5,051
Exercisable on May 28, 2022	716	$	78.37	2.0	$	4,917

Options

Weighted-Average Exercise Price per Share

Weighted-Average Remaining Contractual Term (in years)

Aggregate Intrinsic Value
Outstanding on September 2, 2017
1,743

$
70.88

Granted
436

79.60

Exercised
(36)

66.53

Canceled/Forfeited
(17)

73.25

Outstanding on December 2, 2017
2,126

$
72.72

4.9

$
37,520
Exercisable on December 2, 2017
959

$
73.19

3.7

$
16,480

The unrecognized ~~share‑~~stock-based compensation cost related to stock option expense at ~~December 2, 2017~~May 28, 2022 was ~~$11,149~~$340 and will be recognized over a ~~weighted average~~weighted-average period of ~~2.9~~0.4 years. The total intrinsic value of options exercised, which represents the difference between the exercise price and the market value of ~~common stock~~Class A Common Stock measured at each individual exercise date, during the ~~thirteen-week~~thirty-nine-week periods ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016~~May 29, 2021 was ~~$577~~$4,771 and ~~$1,596,~~$5,719, respectively.

Performance Share Units

~~MSC INDUSTRIAL DIRECT CO., INC.~~

~~Notes~~In fiscal year 2020, the Company began granting performance share units (“PSUs”) as part of its long-term stock-based compensation program. PSUs cliff vest after a three year performance period based on the achievement of specific performance goals as set forth in the applicable award agreement. Based on the extent to ~~Condensed Consolidated Financial Statements~~

~~(Dollar amounts and~~which the performance goals are achieved, vested shares ~~in thousands, except per share data)~~

~~(Unaudited)~~

~~Restricted share awards~~

~~A summary~~may range from 0% to 200% of the ~~non‑vested restricted share~~target award ~~(“RSA”) activity~~amount.

The following table summarizes all transactions related to PSUs under the ~~Company’s 2005 Omnibus Incentive Plan and~~MSC Industrial Direct Co., Inc. 2015 Omnibus Incentive Plan (the “2015 Omnibus Incentive Plan”) (based on target award amounts) for the ~~thirteen-week~~thirty-nine-week period ended ~~December 2, 2017 is as follows:~~May 28, 2022:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested PSUs at August 28, 2021	58	$	75.52
Granted	46		84.96
Vested	—		—
Canceled/Forfeited	(11)		76.51
Non-vested PSUs at May 28, 2022 ⁽¹⁾	93	$	80.06

⁽¹⁾Excludes approximately 11 shares of accrued incremental dividend equivalent rights on outstanding PSUs granted under the 2015 Omnibus Incentive Plan.

Shares

Weighted-Average Grant-Date Fair Value
Non-vested restricted share awards at September 2, 2017
160

$
80.49
Granted
—

—
Vested
(86)

79.45
Canceled/Forfeited
(1)

82.27
Non-vested restricted share awards at December 2, 2017
73

$
81.56

The fair value of each ~~RSA~~PSU is the closing stock price on the New York Stock Exchange (the “NYSE”) of ~~the Company’s~~ Class A ~~common stock~~Common Stock on the date of grant. PSUs are expensed over the three year performance period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting PSU forfeitures and records stock-based compensation expense only for PSU awards that are expected to vest. Upon vesting, subject to the achievement of specific performance goals, a portion of the ~~RSA~~PSU award may be withheld to satisfy the statutory income tax withholding ~~obligation. The~~obligation, and the remaining ~~RSAs~~PSUs will be settled in shares of ~~the Company’s~~ Class A ~~common~~Common Stock. These awards accrue dividend equivalents on the underlying PSUs (in the form of additional stock ~~when vested.~~units) based on dividends declared on Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying PSUs, subject to the same performance vesting requirements. The unrecognized stock-based compensation cost related to ~~RSAs~~the PSUs at ~~December 2, 2017~~May 28, 2022 was ~~$3,966~~$4,637 and ~~will~~is expected to be recognized over a ~~weighted average~~weighted-average period of ~~1.6~~1.7 years.

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

Restricted ~~stock units~~Stock Units

A summary of the Company’s non-vested ~~Restricted Stock Unit~~restricted stock unit (“RSU”) award activity under the 2015 Omnibus Incentive Plan for the ~~thirteen-week~~thirty-nine-week period ended ~~December 2, 2017~~May 28, 2022 is as follows:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested RSUs at August 28, 2021	524	$	76.69
Granted	177		84.73
Vested	(180)		76.77
Canceled/Forfeited	(49)		77.28
Non-vested RSUs at May 28, 2022 ⁽¹⁾	472	$	79.61

⁽¹⁾Excludes approximately 59 shares of accrued incremental dividend equivalent rights on outstanding RSUs granted under the 2015 Omnibus Incentive Plan.

Shares

Weighted-Average Grant-Date Fair Value
Non-vested restricted stock unit awards at September 2, 2017
313

$
66.66
Granted
152

79.60
Vested
(65)

65.04
Canceled/Forfeited
(6)

69.90
Non-vested restricted stock unit awards at December 2, 2017
394

$
71.88

The fair value of each RSU is the closing stock price on the ~~New York Stock Exchange~~NYSE of ~~the Company’s~~ Class A ~~common stock~~Common Stock on the date of grant. RSUs are expensed over the vesting period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting RSU forfeitures and records stock-based compensation expense only for RSU awards that are expected to vest. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding ~~obligation. The~~obligation, and the remaining RSUs will be settled in shares of ~~the Company’s~~ Class A ~~common stock when vested.~~Common Stock. These awards accrue dividend equivalents on ~~outstanding units~~the underlying RSUs (in the form of additional stock units) based on dividends declared on ~~the Company’s~~ Class A ~~common stock~~Common Stock and these dividend equivalents ~~convert~~are paid to the award recipient in the form of unrestricted ~~common stock~~shares of Class A Common Stock on the vesting dates of the underlying RSUs. The ~~dividend equivalents are not included in the RSU table above. The~~ unrecognized stock-based compensation cost related to the RSUs at ~~December 2, 2017~~May 28, 2022 was ~~$23,744~~$28,501 and is expected to be recognized over a ~~weighted average~~weighted-average period of ~~3.8~~2.6years.

Note 4.5. Fair Value

Fair value accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The ~~following~~below fair value hierarchy prioritizes the inputs used to measure fair value into three levels, with Level 1 being of the highest priority. The three levels of inputs used to measure fair value are as follows:

~~Level 1~~—
	Level 1—	Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
~~Level 2~~—	Level 2—	Include other inputs that are directly or indirectly observable in the marketplace.
~~Level 3~~—	Level 3—	Unobservable inputs which are supported by little or no market activity.

~~MSC INDUSTRIAL DIRECT CO., INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Dollar amounts~~The Company’s financial instruments include cash and ~~shares~~cash equivalents, accounts receivable, accounts payable and outstanding indebtedness. Cash and cash equivalents include investments in ~~thousands, except per share data)~~

~~(Unaudited)~~

In connection with the construction of the Company’s customer fulfillment center in Columbus, Ohio, the Company entered into an arrangement during fiscal 2013 with the Columbus-Franklin County Finance Authority (“Finance Authority”) which provides savings on state and local sales taxes imposed on construction materials to entities that finance the transactions through them. Under this arrangement, the Finance Authority issued taxable bonds to finance the structure and site improvements of the Company’s customer fulfillment center. The bonds ($27,025 outstanding at both December 2, 2017 and September 2, 2017) are classified as available for sale securities in accordance with ASC Topic 320. The securities are recorded at fair value in Other Assets in the Condensed Consolidated Balance Sheet. The fair values of these securities are based on observable inputs in non-active markets,a money market fund which are therefore classified as Level 2 in the hierarchy. The Company did not record any gains or losses on these securities during the thirteen-week period ended December 2, 2017. The outstanding principal amount of each bond bears interestreported at ~~the rate of 2.4% per year. Interest is payable on a semiannual basis in arrears on each interest payment date.~~

~~In addition, based on borrowing rates currently available to the Company for borrowings with similar terms, the carrying values of the Company’s capital lease obligations also approximate~~ fair value. The fair value of ~~the Company’s short-term and long-term debt~~money market funds is ~~estimated based on~~determined using quoted ~~market~~ prices for identical investments in active markets, which are considered to be Level 1 inputs within the ~~same or~~fair value hierarchy. The Company uses a market approach to determine the fair value of its debt instruments, utilizing quoted prices in active markets, interest rates and other relevant information generated by market transactions involving similar ~~issues or on current rates offered~~instruments. Therefore, the inputs used to measure the ~~Company for debt of the same remaining maturities. The carrying amount~~fair value of the Company’s debt ~~at December~~instruments are classified as Level 2 ~~2017 approximates its~~within the fair ~~value.~~

value hierarchy. The reported carrying amounts of the Company’s financial instruments other than those presented in the disclosure above, include cash, receivables, accounts payable, and accrued liabilities. Management believes the carrying amount of the aforementioned financial instruments is a reasonable estimate ofapproximated their fair ~~value~~values as of ~~December 2, 2017~~May 28, 2022 and ~~September 2, 2017 due to the short-term maturity of these items.~~May 29, 2021.

During the ~~thirteen weeks~~thirteen- and thirty-nine-week periods ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016,~~May 29, 2021, the Company had ~~no measurements~~0 material remeasurements of non-financial assets or liabilities at fair value on a non-recurring basis subsequent to their initial recognition. See Note 9, “Asset Impairments” for further information on the PPE impairment and inventory write-downs which occurred during the first two quarters of fiscal year 2021.

Assets Held for Sale

The Company classifies an asset as held for sale when management, having the authority to approve the action, commits to a plan to sell the asset, the sale is probable within one year, and the asset is available for immediate sale in its

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

present condition. The Company initially measures an asset that is classified as held for sale at the lower of its carrying amount or fair value less costs to sell. The Company assesses the fair value of an asset less costs to sell each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying amount of the asset, as long as the new carrying amount does not exceed the carrying amount of the asset at the time it was initially classified as held for sale. Assets are not depreciated or amortized while they are classified as held for sale.

During fiscal year 2021, the Company commenced plans to sell its 170,000-square foot Long Island Customer Service Center (“CSC”) in Melville, New York. The Company subsequently entered into a Purchase and Sale Agreement to sell the Long Island CSC. This transaction is expected to close during the fourth quarter of fiscal year 2022. As of May 28, 2022, the related assets had a carrying value of approximately $15,300, which is comprised of approximately $11,600 of building and improvements and $3,700 of land, which is included in Property, plant and equipment, net in the unaudited Condensed Consolidated Balance Sheet as of such date. As a result of the above, the Company determined that all of the criteria to classify the building as held for sale had been met as of May 28, 2022. Fair value was determined based upon the anticipated sales price of these assets based on current market conditions and assumptions made by management, which may differ from actual results and may result in an impairment if market conditions deteriorate. No impairment charge was recorded as the fair value less costs to sell was in excess of the carrying amount of the net assets.

Note 5.6. Debt ~~and Capital Lease Obligations~~

Debt at ~~December 2, 2017~~May 28, 2022 and ~~September 2, 2017~~August 28, 2021 consisted of the following:


	May 28,			August 28,
	2022			2021
Amended Revolving Credit Facility	$	240,000		$	234,000
Uncommitted Credit Facilities		200,000			201,500
Long-Term Note Payable		4,750			4,750
Private Placement Debt:
2.65% Senior Notes, Series A, due July 28, 2023		75,000			75,000
2.90% Senior Notes, Series B, due July 28, 2026		100,000			100,000
3.79% Senior Notes, due June 11, 2025		20,000			20,000
2.60% Senior Notes, due March 5, 2027		50,000			50,000
3.04% Senior Notes, due January 12, 2023⁽¹⁾		50,000			50,000
2.40% Series 2019A Notes, due March 5, 2024⁽¹⁾		50,000			50,000
Financing arrangements		264			191
Obligations under finance leases		1,468			2,461
Less: unamortized debt issuance costs		(1,528)			(1,853)
Total debt, including obligations under finance leases	$	789,954		$	786,049
Less: current portion		(250,904)	⁽²⁾		(202,433)	⁽³⁾
Total long-term debt, including obligations under finance leases	$	539,050		$	583,616

December 2,

September 2,

2017

2017

(Dollars in thousands)
Credit Facility:

   Revolver

$
291,000

$
332,000
Private Placement Debt:

   Senior notes, series A

75,000

75,000
   Senior notes, series B

100,000

100,000
Capital lease and financing obligations

28,436

27,829
   Less: unamortized debt issuance costs

(1,755)

(1,852)
Total debt

$
492,681

$
532,977
   Less: short-term debt(1)

(291,679)

(331,986)
Long-term debt

$
201,002

$
200,991

~~____________________~~

~~(1)~~

~~Net of unamortized debt issuance costs expected to be amortized in the next twelve months.~~

⁽¹⁾ Represents private placement debt issued under Shelf Facility Agreements (as defined below).

⁽²⁾Consists of $200,000 from the Uncommitted Credit Facilities (as defined below), $50,000 from the 3.04% Senior Notes due January 12, 2023, $264 from financing arrangements, $1,049 from obligations under finance leases and net of unamortized debt issuance costs of $409 expected to be amortized in the next 12 months.

⁽³⁾Consists of $201,500 from the Uncommitted Credit Facilities, $87 from financing arrangements, $1,273 from obligations under finance leases and net of unamortized debt issuance costs of $427 expected to be amortized in the next 12 months.

Amended Revolving Credit Facility

In April 2017, the Company entered into a $600,000 revolving credit facility, ~~(the “Credit~~which was subsequently amended and extended in August 2021 (as amended, the “Amended Revolving Credit Facility”). The Amended Revolving Credit Facility, which matures on ~~April 14, 2022,~~August 24, 2026, provides for a ~~five-year~~five year unsecured revolving loan facility on a committed basis. The interest rate for borrowings under the Amended Revolving Credit Facility is based on either LIBOR or a base rate, plus a spread based on the Company’s consolidated leverage ratio at the end of each fiscal reporting quarter. The Amended Revolving Credit Facility also includes procedures for the succession from LIBOR to an alternative benchmark rate. Depending on the interest period the Company selects, interest may be payable every one, two or three months. Interest

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

is reset at the ~~aggregate amount~~end of ~~$600,000.~~ each interest period. The Company currently elects to have loans under the Amended Revolving Credit Facility bear interest based on LIBOR with one-month interest periods.

The Amended Revolving Credit Facility permits up to $50,000 to be used to fund letters of credit. The Amended Revolving Credit Facility also permits the Company to request one or more incremental term loan facilities and/or to increase the revolving loan commitments in an aggregate amount not to exceed $300,000. Subject to certain limitations, each such incremental term loan facility or

~~MSC INDUSTRIAL DIRECT CO., INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Dollar amounts and shares in thousands, except per share data)~~

~~(Unaudited)~~

revolving loan commitment increase will be on terms as agreed to by the Company, the ~~Administrative Agent~~administrative agent and the lenders providing such financing. Outstanding letters of credit were $5,269 and $4,235 at May 28, 2022 and August 28, 2021, respectively.

Uncommitted Credit Facilities

During the first three quarters of fiscal year 2022, the Company amended and extended all three of its uncommitted credit facilities. All three of these amendments implemented the Secured Overnight Financing Rate as the replacement of the LIBOR benchmark. These facilities (collectively, the “Uncommitted Credit Facilities” and, together with the Amended Revolving Credit Facility, the “Credit Facilities”) total $208,000 in aggregate maximum uncommitted availability, under which $200,000 and $201,500 was outstanding at May 28, 2022 and August 28, 2021, respectively, and are included in the Current portion of debt including obligations under finance leases on the Company’s unaudited Condensed Consolidated Balance Sheets. Borrowings under the Uncommitted Credit ~~Facility bear interest,~~Facilities are due at the ~~Company’s option, either at (i) the LIBOR (London Interbank Offered Rate) rate plus~~end of the applicable margin for LIBOR loans ranging from 1.00% to 1.375%, based on the Company’s consolidated leverage ratio; or (ii) the greatest of (a) the Administrative Agent’s prime rate in effect on such day, (b) the federal funds effective rate in effect on such day, plus 0.50% and (c) the LIBOR rate that would be calculated as of such day in respect of a proposed LIBOR loan with a one-month interest period, ~~plus 1.00%, plus,~~which is typically one month but may be up to six months and may be rolled over to a new interest period at the option of the applicable lender. The Company’s lenders have, in the ~~case of each of clauses (a) through (c), an applicable margin ranging from 0.00%~~past, been willing to ~~0.375%, based on~~roll over the Company’s consolidated leverage ratio. The Company is required to pay a quarterly undrawn fee ranging from 0.10% to 0.20% per annum on the unutilized portion of the Credit Facility, based on the Company’s consolidated leverage ratio. The Company is also required to pay quarterly letter of credit usage fees ranging between 1.00% to 1.375% (based on the Company’s consolidated leverage ratio) on theprincipal amount of the daily average outstanding letters of credit, and a quarterly fronting fee of 0.125% per annum on the undrawn and unexpired amount of each letter of credit. The weighted average applicable borrowing rate for the Company for any borrowings outstanding under the Uncommitted Credit Facility at December 2, 2017 was 2.46% which represents LIBOR plus 1.125%. Based on the interest period the Company selects, interest may be payable every one, two, three or six months. Interest is resetFacilities at the end of each interest ~~period.~~period but may not do so in the future. Each Uncommitted Credit Facility matures within one year of entering into such Uncommitted Credit Facility and contains certain limited covenants which are substantially the same as the limited covenants contained in the Amended Revolving Credit Facility. All of the Uncommitted Credit Facilities are unsecured and rank equally in right of payment with the Company’s other unsecured indebtedness.

Because the interest rates on the Uncommitted Credit Facilities have recently been lower than the interest rates which are available on the Company’s other sources of financing, the Company has used, and intends to use in the future, the Uncommitted Credit Facilities for opportunistic refinancing of the Company’s existing indebtedness. The Company ~~currently elects~~does not presently view the Uncommitted Credit Facilities as sources of incremental debt financing of the Company due to ~~have loans~~the uncommitted nature of the Uncommitted Credit Facilities, but reserves the right to use the Uncommitted Credit Facilities to incur additional debt where it considers it appropriate under the then-existing credit market conditions.

During the thirty-nine-week period ended May 28, 2022, the Company borrowed an aggregate $244,000 and repaid an aggregate $239,500 under the Credit ~~Facility bear~~Facilities. As of May 28, 2022 and August 28, 2021, the weighted-average interest ~~based~~rates on ~~LIBOR with one-month interest periods.~~

~~During the thirteen-week period ended December 2, 2017, the Company borrowed $24,000 and repaid $65,000~~borrowings under the ~~revolving loan facility.~~ Credit Facilities were 1.87% and 1.11%, respectively.

Private Placement Debt

In July 2016, ~~in connection with the Company’s “modified Dutch auction” tender offer,~~ the Company completed the issuance and sale of $75,000 aggregate principal amount of 2.65% Senior Notes, Series A, due July 28, 2023, and $100,000 aggregate principal amount of 2.90% Senior Notes, Series B, due July 28, 2026; in June 2018, the ~~following unsecured senior notes~~Company completed the issuance and sale of $20,000 aggregate principal amount of 3.79% Senior Notes, due June 11, 2025; and, in March 2020, the Company completed the issuance and sale of $50,000 aggregate principal amount of 2.60% Senior Notes, due March 5, 2027 (collectively, the “Private Placement Debt”):

~~$75,000 aggregate principal amount of 2.65% Senior Notes, Series A, due July 28, 2023 (“Senior notes, series A”); and~~

~~$100,000 aggregate principal amount of 2.90% Senior Notes, Series B, due July 28, 2026 (“Senior notes, series B”)~~.

~~The Private Placement Debt is due, in full, on the stated maturity dates.~~ Interest is payable semiannually at the fixed stated interest rates.

~~The Credit Facility and~~ All of the Private Placement Debt ~~contain~~is unsecured.

Shelf Facility Agreements

In January 2018, the Company entered into Note Purchase and Private Shelf Agreements with MetLife Investment Advisors, LLC (the “Met Life Note Purchase Agreement”) and PGIM, Inc. (the “Prudential Note Purchase Agreement” and, together with the Met Life Note Purchase Agreement, the “Shelf Facility Agreements”). Each of the MetLife Note Purchase Agreement and the Prudential Note Purchase Agreement provides for an uncommitted facility for the issuance and sale of up to an aggregate total of $250,000 of unsecured senior notes, at a fixed rate. Pursuant to the terms of the Shelf Facility Agreements, no new unsecured senior notes may be issued and sold after January 12, 2021. As of May 28, 2022, $50,000 aggregate principal amount of 3.04% Senior Notes, due January 12, 2023 (which is included in the Current portion of debt including obligations under finance leases on the Company’s unaudited Condensed Consolidated Balance Sheet as of May

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

28, 2022), and $50,000 aggregate principal amount of 2.40% Series 2019A Notes, due March 5, 2024, were outstanding under notes issued in private placements pursuant to the Shelf Facility Agreements.

Covenants

Each of the Credit Facilities, the Private Placement Debt and the Shelf Facility Agreements imposes several restrictive covenants, including the requirement that the Company maintain a maximum consolidated leverage ratio of total indebtedness to EBITDA (earnings before interest expense, taxes, depreciation, amortization and stock-based compensation) of no more than 3.00 to 1.00 (or, at the election of the Company after it consummates a material acquisition, a four-quarter temporary increase to 3.50 ~~to1.00)~~to 1.00), and a minimum consolidated interest coverage ratio of EBITDA to total interest expense of at least 3.00 to 1.00, during the terms of the Credit ~~Facility and~~Facilities, the Private Placement ~~Debt.~~

~~At December 2, 2017,~~Debt and the Shelf Facility Agreements. As of May 28, 2022, the Company was in compliance with the operating and financial covenants of the Credit ~~Facility and~~Facilities, the Private Placement ~~Debt.~~

~~Capital Lease~~Debt and ~~Financing Obligations~~

~~In connection with~~ the construction of the Company’s customer fulfillment center in Columbus, Ohio, the Finance Authority holds the title to the building and entered into a long-term lease with the Company. The lease has a 20-year term with a prepayment option without penalty between 7 and 20 years. At the end of the lease term, the building’s title is transferred to the Company for a nominal amount when the principal of and interest on the bonds have been fully paid. The lease has been classified as a capital lease in accordance with ASC Topic 840. At December 2, 2017 and September 2, 2017, the capital lease obligation was approximately $27,025. Shelf Facility Agreements.

From time to time, the Company enters into capital leases and financing arrangements with vendors to purchase certain IT equipment or software. The equipment or software acquired from these vendors is paid over a specified period of

~~MSC INDUSTRIAL DIRECT CO., INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Dollar amounts and shares in thousands, except per share data)~~

~~(Unaudited)~~

time based on the terms agreed upon. During the thirteen-week period ended December 2, 2017, the Company entered into a financing obligation for certain software totaling $721. The gross amount of property and equipment acquired under this financing obligation at December 2, 2017 was approximately $721. Related accumulated amortization totaled $120 as of December 2, 2017.

Note 6.7. Shareholders’ Equity

~~The Company paid cash dividends of $0.48 per common share totaling $27,087 for~~Common Stock Repurchases and Treasury Stock

On June 29, 2021, the ~~thirteen weeks ended December 2, 2017. For the thirteen weeks ended December 3, 2016, the Company paid cash dividends of $0.45 per common share totaling $25,495. On January 2, 2018, the~~Company’s Board of Directors declared a quarterly cash dividend of $0.58 per share payable on January 30, 2018 to shareholders of record at the close of business on January 16, 2018. The dividend will result in a payout of approximately $32,745, based on the number of shares outstanding at December 27, 2017.

~~The Board of Directors established~~terminated the MSC Stock Repurchase Plan, which was established during fiscal year 1999, and authorized a new share repurchase program (the ~~“Repurchase Plan”~~“Share Repurchase Program”) ~~which~~to purchase up to 5,000 shares of Class A Common Stock. There is no expiration date for the Share Repurchase Program. As of May 28, 2022, the maximum number of shares that may yet be repurchased under the Share Repurchase Program was 5,000 shares of Class A Common Stock. The Share Repurchase Program allows the Company to repurchase shares at any time and in ~~such amounts as~~any increments it deems appropriate in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as ~~amended.~~ amended.

During the ~~thirteen-week period~~thirteen- and thirty-nine-week periods ended ~~December 2, 2017,~~ May 28, 2022, the Company repurchased 512 shares and 59 shares, respectively, of ~~its~~ Class A ~~common stock~~Common Stock for ~~$4,018, which is reflected at cost as treasury stock in the accompanying condensed consolidated financial statements.~~ $131 and $4,944, respectively. All of these shares were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its share-based compensation ~~program.~~ program and are reflected at cost as treasury stock in the unaudited Condensed Consolidated Financial Statements for the thirteen- and thirty-nine-week periods ended May 28, 2022. During the thirteen- and thirty-nine-week periods ended May 29, 2021, the Company repurchased 508 shares and 558 shares, respectively, of Class A Common Stock for $47,181 and $50,700, respectively. From these totals, 507 shares were immediately retired for both the thirteen and thirty-nine weeks ended May 29, 2021, and 1 shares and 51 shares were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its stock-based compensation program and are reflected at cost as treasury stock in the unaudited Condensed Consolidated Financial Statements for the thirteen- and thirty-nine-week periods ended May 29, 2021.

The Company reissued 15 shares and 45 shares of treasury stock during the thirteen- and thirty-nine-week periods ended May 28, 2022,respectively, and reissued 13 shares and 44 shares of treasury stock during the thirteen- and thirty-nine-week periods ended May 29, 2021, respectively, to fund the MSC Industrial Direct Co., Inc. Amended and Restated Associate Stock Purchase Plan.

Dividends on Common Stock

The Company paid aggregate regular cash dividends of $2.25 per common share totaling approximately $125,532 for the thirty-nine weeks ended May 28, 2022. For the thirty-nine weeks ended May 29, 2021, the Company paid a special cash dividend of $3.50 per common share totaling approximately $195,351 and regular cash dividends of $2.25 per common share totaling approximately $125,707.

On ~~January 9, 2018,~~June 21, 2022, the Company’s Board of Directors ~~authorized~~declared a quarterly cash dividend of $0.75 per share, payable on July 26, 2022, to shareholders of record at the ~~repurchase~~close of ~~an additional 2,000 shares~~business on July 12, 2022. The dividend is expected to result in aggregate payments of ~~Class A common stock under~~approximately $41,988, based on the ~~Company’s ongoing Repurchase Plan, bringing the total~~ number of shares outstanding at June 15, 2022.

‎

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

Note 8. Restructuring and Other Costs

Optimization of ~~Class A common stock authorized~~Company Operations and Profitability Improvement

The Company identified opportunities for ~~future repurchase~~improvements in its workforce realignment, strategy and staffing, and increased its focus on performance management, to ensure it has the right skillsets and number of associates to execute its long-term vision. As such, the Company extended voluntary and involuntary severance and separation benefits to certain associates in order to facilitate its workforce realignment. In addition, the Company engaged consultants to assist in reviewing the optimization of the Company’s operations and improving profitability with executing on its Company-wide initiative, referred to as Mission Critical, through fiscal year 2023.

Enhanced Customer Support Model

In fiscal year 2021, the Company announced an enhanced customer support model, including a transition from the branch office network to virtual customer care hubs. Along with this transition, the Company closed 73 branch offices and realigned certain existing locations from branch offices to regional inventory centers. Restructuring and other costs consist of 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.

The following table summarizes restructuring and other costs:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	May 28,		May 29,		May 28,		May 29,
	2022		2021		2022		2021
Operating lease asset impairment loss	$	—	$	—	$	—	$	17,411
Settlement of lease liabilities (gain)		—		(2,278)		—		(2,953)
Consulting-related costs		3,150		2,000		5,670		5,790
Associate severance and separation costs		117		442		4,149		4,421
Equity award acceleration costs associated with severance		—		7		1,729		251
Other exit-related costs		—		1,178		136		2,023
Total restructuring and other costs	$	3,267	$	1,349	$	11,684	$	26,943

Liabilities associated with restructuring and other costs are included in Accrued expenses and other current liabilities in the unaudited Condensed Consolidated Balance Sheet as of May 28, 2022. The following table summarizes activity related to liabilities associated with restructuring and other costs:


	Consulting-related costs		Severance and separation costs		Other exit-related costs		Total
Balance at August 28, 2021	$	3,328	$	367	$	441	$	4,136
Additions		5,670		4,149		136		9,955
Payments and other adjustments		(8,158)		(3,530)		(577)		(12,265)
Balance at May 28, 2022	$	840	$	986	$	—	$	1,826

Note 9. Asset Impairments

Prior Year PPE-Related Inventory Write-Down

In fiscal year 2021, the Company 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. During the thirteen- and thirty-nine-week periods ended May 29, 2021, the Company incurred PPE-related inventory write-downs of $30,091 to reduce the carrying value of certain PPE-related inventory to its net realizable value. These inventory write-downs were reflected in the unaudited Condensed Consolidated Statement of Income during the

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

second quarter of fiscal year 2021. There were 0 such inventory write-downs during the thirteen- and thirty-nine-week periods ended May 28, 2022.

Prior Year Impairment Loss, Net

To meet anticipated demand for PPE products during the COVID-19 pandemic, the Company purchased products from manufacturers outside its typical programs and under non-standard payment terms. Given the high demand for PPE products and related challenges in sourcing PPE products as well as the imperative to quickly obtain such products based on customer demand, the Company used a number of distributors and brokers to source PPE products. In September 2020, the Company prepaid approximately ~~2,800 shares.~~$26,726 for the purchase of nitrile gloves to be sourced from manufacturers in Asia and experienced significant delays in obtaining possession of this PPE. The Company evaluated the potential recoverability of these assets and, as a result, recorded an impairment charge of $26,726 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. This impairment charge was reflected in the unaudited Condensed Consolidated Statement of Income during the first quarter of fiscal year 2021. During the thirteen weeks ended May 29, 2021, the Company entered into a legal settlement agreement with a vendor and, as a result, received $20,840 of loss recovery related to this prepayment, which resulted in a net impairment charge of $5,886 for the thirty-nine weeks ended May 29, 2021. The Company continues to pursue its legal avenues for recovery of the remaining loss.

Note 7.10. Product Warranties

The Company generally offers a maximum ~~one-year~~one year warranty, including parts and labor, for some of its machinery products. The specific terms and conditions of those warranties vary depending upon the product sold. The Company may be able to recoup some of these costs through product warranties it holds with its original equipment manufacturers, which typically range from ~~thirty~~30 days to ~~ninety~~90 days. In general, many of the Company’s general merchandise products are covered by third-party original equipment manufacturers’ warranties. The Company’s warranty expense for the ~~thirteen-week~~thirteen- and thirty-nine-week periods ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016~~May 29, 2021 was ~~minimal.~~immaterial.

Note 8.11. Income Taxes

During the ~~thirteen-week~~thirty-nine-week period ended~~December 2, 2017,~~May 28, 2022, there were no0 material changes in unrecognized tax benefits.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law, which is intended to provide economic relief to those impacted by the COVID-19 pandemic. On March 11, 2021, the American Rescue Plan Act (the “ARPA”) was signed into law. The ARPA includes several provisions, such as measures that extend and expand the Employee Retention Credit (the “ERC”) provision, previously enacted under the CARES Act, through December 31, 2021. The Company has filed a refund claim in connection with the ERC and will account for the potential ERC refund, if any, upon approval and receipt.

The CARES Act provides for the deferral of the employer-paid portion of social security payroll taxes. The Company elected to defer the employer-paid portion of social security payroll taxes through December 31, 2020 of $18,887. Of this amount, half was remitted in December 2021 and half will be remitted by December 31, 2022.

The Company’s effective tax rate was 24.7% for the thirty-nine-week period ended May 28, 2022, as compared to 24.6% for the thirty-nine-week period ended May 29, 2021.

Note 9.12. Legal Proceedings

~~There~~In the ordinary course of business, there are various claims, lawsuits and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters, both individually and in aggregate, is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

‎

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

Note 13. Subsequent Events

~~Note 10. Subsequent Event~~

~~On December 22, 2017, President Trump signed into law~~In June 2022, the ~~“Tax Cut~~Company acquired certain assets and ~~Jobs Act” (the “Act”~~assumed certain liabilities of Engman-Taylor Company, Inc. (“Engman-Taylor”)~~. The Act lowers the corporate tax rate~~, a Menomonee Falls, Wisconsin-based distributor of metalworking tools and supplies, for ~~C corporations from 35%~~aggregate consideration of $25,500, subject to ~~21% effective January 1, 2018.~~customary post-closing working capital adjustments. The Company ~~expects~~plans to ~~recognize a net one-time tax benefit in its second quarter~~operate the assets acquired from Engman-Taylor under the name of, ~~fiscal 2018 for the re-valuation of its net deferred tax liabilities primarily related~~and it will continue to ~~the lower Federal corporate tax rate, partially offset by the lower Federal benefit for state taxes and the change from a worldwide tax system~~go to ~~a territorial tax system.~~ market as, Engman-Taylor, an MSC Industrial Company.

1617

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is intended to update the information contained in MSC Industrial Direct Co., Inc.’s (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, “MSC,” “MSC Industrial,” the ~~Company’s~~“Company,” “we,” “us” or “our”) Annual Report on Form 10-K for the fiscal year ended ~~September 2, 2017~~August 28, 2021 and presumes that readers have access to, and will have read, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~contained in~~of Part II of such Annual Report on Form 10-K.

Overview

MSC ~~Industrial Direct Co., Inc. (together with its subsidiaries, “MSC,” the “Company,” “we,” “our,” or “us”)~~ is a leading North American distributor of a broad range of metalworking and maintenance, repair and operations (“MRO”) products and services. We help our customers drive greater productivity, profitability and growth with ~~more than 1.5 million products,~~ inventory management and other supply chain solutions and deep expertise from more than 7580 years of working with customers across industries. We offer approximately 2.0 million active, saleable SKUs through our catalogs; our brochures; our eCommerce channels, including our website, www.mscdirect.com (the “MSC website”); our inventory management solutions; and our call centers, branch offices, customer fulfillment centers and regional inventory centers. We service our customers from 11 customer fulfillment centers (seven customer fulfillment centers located in the United States, including five primary customer fulfillment centers, one located in the United Kingdom and three located in Canada), six regional inventory centers, and 25 branch offices. 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 over 6,500 associates works with~~business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet 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 1,562,000 active, saleable stock-keeping units (“SKUs”) through our catalogs; brochures; eCommerce channels, including our website, mscdirect.com (“MSC website”); our inventory management solutions; and call-centers and branches. We service our customers from 12 customer fulfillment centers (eight customer fulfillment centers are located within the United States which includes five primary customer fulfillment centers, one is located in the United Kingdom (the “U.K.”), and three are located in Canada) and 93 branch offices.customers’ needs. 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 ~~drive~~achieve cost ~~reduction~~reductions throughout our business through cost-saving strategies and increased leverage from our existing ~~infrastructure, and continue to~~infrastructure. Furthermore, we provide additional procurement ~~cost-savings~~cost-saving solutions to our customers through technology such as our ~~Customer Managed Inventory~~Electronic Data Interchange (“~~CMI”~~EDI”)~~, Vendor Managed Inventory~~ systems, vendor-managed inventory (“VMI”), systems and vending programs.

Our field sales and service associate headcount was ~~2,337~~2,448 at ~~December 2, 2017,~~May 28, 2022, compared to ~~2,352~~2,320 at May 29, 2021. 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 productivity, profitability and growth.

Highlights

Highlights during the thirty-nine-week period ended May 28, 2022 include the following:

We generated $135.3 million of cash from operations, compared to $139.4 million for the same period in the prior fiscal year.

We had net borrowings of $4.5 million on our credit facilities, compared to net borrowings of $140.0 million for the same period in the prior fiscal year.

We paid out an aggregate $125.5 million in regular cash dividends, compared to an aggregate $321.1 million in cash dividends comprised of special and regular cash dividends of approximately $195.4 million and $125.7 million, respectively, in the same period in the prior fiscal year.

We incurred $11.7 million in restructuring and other costs, compared to $26.9 million for the same period in the prior fiscal year. Restructuring and other costs primarily consisted of severance and separation costs, equity award acceleration costs and consulting costs. The prior year period also included operating lease asset impairment charges, net of gains related to settlement of lease liabilities, and other exit-related costs associated with our internal restructuring due to our sales workforce realignment and enhanced customer support 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. 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 the 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.

Relocation and Pending Sale of Long Island Customer Service Center

In December ~~3, 2016. We~~2020, we announced plans to relocate our Long Island Customer Service Center (“CSC”) to a smaller facility in Melville, New York. 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 expected to close during the fourth quarter of fiscal year 2022.

Impact of COVID-19 and Other Economic Trends

The COVID-19 pandemic has impacted and may further impact the Company’s operations; however, demand from our traditional manufacturing end markets has recovered as certain restrictions implemented earlier in the pandemic have been lifted. In conjunction with the lifting of pandemic restrictions and economic recovery, the United States has experienced disruptions in the supply of certain products and services and disruptions in labor availability. These disruptions have contributed to a highly inflationary environment which has affected the price 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. Such disruptions have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations. These disruptions are also impacting our customers and their ability to conduct their business or purchase our products and services.

~~Recent Developments~~

The U.S. Congress passed the “Tax Cut and Jobs Act” tax reform legislation (the “Act”), which was signed into law by President Trump on December 22, 2017. Under the Act, the U.S. corporate tax rate will be reduced to 21% from 35% effective January 1, 2018. ~~Our fiscal second quarter effective income tax rate will reflect a benefit to adjust the first quarter rate down to the new estimated prorated full year rate. In addition,~~ ~~at December 2, 2017,~~results of operations is highly uncertain. Therefore, the Company ~~had~~cannot reasonably estimate the full future impacts of these matters at this time.

Acquisition of Engman-Taylor Assets

In June 2022, the Company acquired certain assets and assumed certain liabilities of Engman-Taylor Company, Inc. (“Engman-Taylor”), a ~~net deferred tax liability~~Menomonee Falls, Wisconsin-based distributor of ~~approximately $109.1~~metalworking tools and supplies, for aggregate consideration of $25.5 million, ~~based on a combined U.S. federal~~subject to customary post-closing working capital adjustments. We plan to operate the assets acquired from Engman-Taylor under the name of, and ~~state tax rate of 38%. This liability~~it will ~~be revalued at the lower rate, resulting in a benefit~~continue to income tax expense in continuing operations and a corresponding reduction in the deferred tax liability in our second quarter of fiscal 2018, the period in which the tax legislation was enacted, and is expected go to ~~result in a net one-time favorable impact to tax expense of~~market as, Engman-Taylor, an estimated $38 million to $40 million in our fiscal second quarter. The actual amounts recognized will be impacted by the further analysis of a number of provisions in the legislation and our fiscal second quarter financial results.MSC Industrial Company.

Our Strategy

Our primary objective is ~~to continue~~ to grow sales profitably while ~~helping~~offering our customers ~~become more productive~~highly technical and ~~profitable by reducing~~high-touch solutions to solve their ~~total cost for purchasing, using and maintaining MRO supplies.~~most complex challenges on the plant floor. Our strategy is to complete the transition from being a spot-buy supplier to a mission-critical partner to our customers. We ~~continue to~~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.~~activity, including the Metalworking Business Index (the “MBI”) and the Industrial Production (“IP”) index. Approximately ~~68%~~69% of our revenues came from sales in the manufacturing sector during the ~~first quarter of our fiscal year 2018, including certain national account customers.~~thirty-nine weeks ended May 28, 2022. Through statistical analysis, we have found that trends in our customers’ activity ~~is most strongly~~have correlated to changes in the ~~Metalworking Business Index (“MBI”).~~MBI and the IP index. The MBI is a sentiment index developed from a monthly survey of the USU.S. metalworking industry, focusing on durable goods manufacturing. ~~We have experienced the highest correlation between our sales trends and the MBI by using the rolling 12-month MBI average on a four-month lag basis.~~ 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 index trends remain comparable to those prior to the revision. The MBI and the IP index over the ~~last~~ three months ended May 2022 and the average for the ~~past~~three- and 12-month ~~period was~~periods ended May 2022 were as follows:


Period	MBI	IP Index
March	61.2	104.1
April	59.3	105.5
May	56.8	105.7

Fiscal Year 2022 Q3 average	59.1	105.1
12-month average	60.3	102.4


~~Period~~		~~MBI~~
~~September~~		~~56.2~~
~~October~~		~~57.9~~
~~November~~		~~55.2~~

~~Fiscal 2018 Q1 average~~		~~56.4~~
~~12-month average~~		~~55.3~~

During the three-month period ended May 28, 2022, the MBI average remained above 50.0, which indicated growth in manufacturing during the period. The ~~MBI spiked up~~average IP index for the three months ended May 28, 2022 increased to 105.1. The recent trending in ~~October~~these indices remains in line with the first half of fiscal year 2022, primarily due to ~~57.9,~~ the ~~highest MBI reading~~recovery in ~~over five years, then decreased~~economic conditions related to ~~55.2 in November. Throughout~~ the ~~quarter, MBI levels remained in excess~~gradual lifting of government-imposed restrictions on economic activity and the abatement of the ~~trailing 12-month average~~COVID-19 pandemic. See “Impact of ~~55.3. Details released with~~ ~~the~~ ~~November MBI indicate an expanding metalworking environment, supported by new orders, production, employment,~~COVID-19 and ~~supplier deliveries.~~Other Economic Trends” above. Beginning in the second half of calendar year 2021 and continuing into calendar year 2022, the United States has experienced supply chain disruptions and significant levels of inflation, which has included higher prices for labor, freight, fuel, and the products that the Company sells. The ~~most recent December MBI reading of 56.2 displays continued expansion, representing~~Company has implemented price realization strategies in response to increased costs the 12th ~~consecutive month above 50.0.~~Company faces. We will continue to monitor the currenteconomic conditions for ~~its~~the impact on our customers and markets and ~~continue to~~ assess both risks and opportunities that may affect our ~~business.~~business and operations.

Thirteen-Week Period Ended ~~December 2, 2017~~May 28, 2022 Compared to the Thirteen-Week Period Ended ~~December 3, 2016~~May 29, 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:


	Thirteen Weeks Ended
	May 28, 2022			May 29, 2021			Change

		$	%		$	%		$	%
Net sales	$	958,579	100.0%	$	866,294	100.0%	$	92,285	10.7%
Cost of goods sold		547,430	57.1%		499,823	57.7%		47,607	9.5%
Gross profit		411,149	42.9%		366,471	42.3%		44,678	12.2%
Operating expenses		271,046	28.3%		257,336	29.7%		13,710	5.3%
Impairment loss recovery		-	0.0%		(20,840)	(2.4)%		20,840	(100.0)%
Restructuring and other costs		3,267	0.3%		1,349	0.2%		1,918	142.2%
Income from operations		136,836	14.3%		128,626	14.8%		8,210	6.4%
Total other expense		(3,702)	(0.4)%		(2,550)	(0.3)%		(1,152)	45.2%
Income before provision for income taxes		133,134	13.9%		126,076	14.6%		7,058	5.6%
Provision for income taxes		33,417	3.5%		31,141	3.6%		2,276	7.3%
Net income		99,717	10.4%		94,935	11.0%		4,782	5.0%
Less: Net income attributable to noncontrolling interest		60	0.0%		501	0.1%		(441)	(88.0)%
Net income attributable to MSC Industrial	$	99,657	10.4%	$	94,434	10.9%	$	5,223	5.5%

Thirteen Weeks Ended

December 2, 2017

December 3, 2016

Change

$

%

$

%

$

%
Net sales

$
768,561

100.0%

$
686,271

100.0%

$
82,290

12.0%
Cost of goods sold

433,492

56.4%

377,536

55.0%

55,956

14.8%
Gross profit

335,069

43.6%

308,735

45.0%

26,334

8.5%
Operating expenses

235,791

30.7%

218,135

31.8%

17,656

8.1%
Income from operations

99,278

12.9%

90,600

13.2%

8,678

9.6%
Total other expense

(3,482)

(0.4)%

(3,055)

(0.4)%

(427)

14.0%
Income before provision for income taxes

95,796

12.5%

87,545

12.8%

8,251

9.4%
Provision for income taxes

36,211

4.7%

33,257

4.8%

2,954

8.9%
Net income

$
59,585

7.8%

$
54,288

7.9%

$
5,297

9.8%

Net Sales

Net sales increased ~~12.0%~~10.7%, or ~~approximately $82.3~~$92.3 million, to $958.6 million for the thirteen-week period ended ~~December 2, 2017,~~May 28, 2022, as compared to $866.3 million for the ~~thirteen-week~~same period ~~ended December 3, 2016. We estimate that this $82.3~~in the prior fiscal year. The $92.3 million increase in net sales iswas comprised of ~~(i)~~ approximately ~~$53.7 million of higher sales volume, excluding DECO operations; (ii) approximately $29.7~~$54.1 million from ~~DECO operations, which we acquired in July 2017; and (iii) approximately $1.2 million from foreign exchange impact; partially offset by (iv) approximately $2.3 million in reductions from~~improved pricing, ~~resulting from~~inclusive of changes in customer and product mix, discounting and other ~~items.~~items, approximately $33.9 million of higher sales volume, and approximately $5.8 million of net sales from fiscal year 2021 acquisitions, partially offset by approximately $1.5 million of unfavorable foreign exchange impact. Of the ~~above $82.3~~$92.3 million increase in net sales during the thirteen-week period ended May 28, 2022, national account customer sales increased by approximately $56.2 million, sales to our ~~government~~core and ~~national account programs (“Large Account Customers”)~~other customers increased by approximately ~~$33.0~~$39.1 million

and sales ~~other than to~~from fiscal year 2021 acquisitions were approximately $5.8 million, partially offset by a decrease in our ~~Large Account Customers increased~~government customer sales by approximately ~~$49.3~~$8.8 million.

The table below shows, among other things, the change in our average daily sales (“ADS”) by total ~~company~~Company and by customer type for the ~~thirteen- week~~thirteen-week period ended ~~December 2, 2017~~May 28, 2022, as compared to the same period in the prior fiscal year:


ADS Percentage Change
(Unaudited)
	Thirteen Weeks Ended
	May 28, 2022		May 29, 2021
Net Sales (in thousands)	$	958,579	$	866,294
Sales Days		65		65
ADS⁽¹⁾(in millions)	$	14.7	$	13.3
Total Company ADS Percent Change		10.7%		2.2%

Manufacturing Customers ADS Percent Change		9.8%		18.8%
Manufacturing Customers Percent of Total Net Sales		69%		69%

Non-Manufacturing Customers ADS Percent Change		12.8%		-21.9%
Non-Manufacturing Customers Percent of Total Net Sales		31%		31%

⁽¹⁾ADS is calculated using the number of business days in the United States for the periods indicated.

Average Daily Sales Percentage Change
(unaudited)

2018 vs. 2017 Fiscal Period

Thirteen Week Period Ended Fiscal Q1

% of Total Business

Total Company

12.0
%

Manufacturing Customers(1)

11.4
%

68
%
Non-Manufacturing Customers(1)

13.1
%

32
%

~~_____________~~

~~(1)~~

~~Excludes U.K. operations.~~

We believe that our ability to transact business with our customers ~~through various electronic portals and~~ directly through the MSC website as well as through various other electronic portals gives us a competitive advantage over smaller suppliers. Sales made through our eCommerce platforms, including sales made through ~~Electronic Data Interchange (“EDI”)~~EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, ~~machine systems,~~ hosted systems and other electronic portals, ~~(“eCommerce platforms”),~~ represented ~~59.8%~~62.0% of consolidated net sales for the thirteen-week period ended ~~December 2, 2017,~~May 28, 2022, as compared to ~~59.6%~~60.2% of consolidated net sales for the same period in the prior fiscal year. ~~This increase was primarily associated with the MSC website and vending machine systems.~~ These percentages of consolidated net sales do not include eCommerce sales from our recent acquisitions.

Gross Profit

Gross profit ~~margin was 43.6%~~of $411.1 million for the thirteen-week period ended ~~December 2, 2017~~May 28, 2022 increased $44.7 million, or 12.2%, compared to the same period in the prior fiscal year. Gross profit margin was 42.9% for the thirteen-week period ended May 28, 2022, as compared to ~~45.0%~~42.3% for the same period in the prior fiscal year. The increase in gross profit margin was the result of improved price realization and positive spread between sales price and cost of goods sold.

Operating Expenses

Operating expenses increased 5.3%, or $13.7 million, to $271.0 million for the thirteen-week period ended May 28, 2022, as compared to $257.3 million for the same period in the prior fiscal year. Operating expenses were 28.3% of net sales for the thirteen-week period ended May 28, 2022, as compared to 29.7% for the same period in the prior fiscal year. The increase in Operating expenses was primarily due to higher payroll and payroll-related costs as well as higher freight costs.

Payroll and payroll-related costs for the thirteen-week period ended May 28, 2022 were 57.7% of total Operating expenses, as compared to 57.0% for the same period in the prior fiscal year. Payroll and payroll-related costs, which include salary, incentive compensation, sales commission, and fringe benefit costs, increased $9.6 million for the thirteen-week period ended May 28, 2022. All of these costs, with the exception of sales commissions, increased for the thirteen-week period ended May 28, 2022, as compared to the same period in the prior fiscal year.

Freight expense was $40.0 million for the thirteen-week period ended May 28, 2022, as compared to $36.1 million for the same period in the prior fiscal year. The primary ~~driver~~drivers of the ~~decline came~~increase in freight expense were increased sales volume and higher fuel-related charges due to increased commodity costs.

Prior Year Impairment Loss Recovery

In September 2020, the Company 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. The Company evaluated the ~~DECO business we acquired~~potential recoverability of these assets and, as a result, recorded an impairment charge of $26.7 million in the ~~fiscal fourth~~first quarter of ~~2017, which resulted~~fiscal year 2021 to reflect the fact that the Company would not ultimately obtain this PPE or recover its related prepayment. During the thirteen weeks ended May 29, 2021, the Company entered into a legal settlement agreement with a vendor that was finalized in June 2021 and, as a ~~90 basis point negative impact~~result, recorded $20.8 million of loss recovery for a net impairment charge of $5.9 million. The impairment and subsequent loss recovery are recorded in Impairment loss (loss recovery), net on the unaudited Condensed Consolidated Statements of Income. The Company continues to ~~our gross margin~~pursue its legal avenues for recovery of the remaining loss.

Restructuring and Other Costs

We incurred $3.3 million in restructuring and other costs for the thirteen-week period ended ~~December 2, 2017. In addition,~~May 28, 2022, as compared to $1.3 million for the ~~decline was a result~~same period in the prior fiscal year. These charges include associate severance and separation costs and consulting costs. Restructuring and other costs for the same period in the prior fiscal year also include gains related to settlement of ~~changes~~lease liabilities and other exit-related costs. See Note 8, “Restructuring and Other Costs” in ~~net pricing and customer and product mix. We experienced growth in both our vending program and Large Account Customer sales, which are typically transacted at lower gross margins.~~ the Notes to Condensed Consolidated Financial Statements for additional information.

~~Operating Expenses~~Income from Operations

~~Operating expenses~~Income from operations increased ~~8.1%~~6.4%, or $8.2 million, to ~~$235.8~~$136.8 million for the thirteen-week period ended ~~December 2, 2017,~~May 28, 2022, as compared to ~~$218.1~~$128.6 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales decreased to 14.3% for the thirteen-week period ended May 28, 2022, as compared to 14.8% for the same period in the prior fiscal year. This decrease was primarily attributable to the prior year impairment loss recovery which did not recur in the current fiscal year, partially offset by an overall increase in sales and gross margin during the thirteen-week period ended May 28, 2022.

Provision for Income Taxes

The Company’s effective tax rate for the thirteen-week period ended May 28, 2022 was 25.1%, as compared to 24.7% for the same period in the prior fiscal year. The increase in the effective tax rate was primarily due to an increase in unfavorable permanent tax items.

Net Income

The factors which affected net income for the thirteen-week period ended May 28, 2022, as compared to the same period in the prior fiscal year, have been discussed above.

Thirty-Nine-Week Period Ended May 28, 2022 Compared to the Thirty-Nine-Week Period Ended May 29, 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:


	Thirty-Nine Weeks Ended
	May 28, 2022			May 29, 2021			Change

		$	%		$	%		$	%
Net sales	$	2,669,648	100.0%	$	2,412,193	100.0%	$	257,455	10.7%
Cost of goods sold		1,539,628	57.7%		1,427,653	59.2%		111,975	7.8%
Gross profit		1,130,020	42.3%		984,540	40.8%		145,480	14.8%
Operating expenses		793,600	29.7%		741,156	30.7%		52,444	7.1%
Impairment loss, net		-	0.0%		5,886	0.2%		(5,886)	(100.0)%
Restructuring and other costs		11,684	0.4%		26,943	1.1%		(15,259)	(56.6)%
Income from operations		324,736	12.2%		210,555	8.7%		114,181	54.2%
Total other expense		(11,329)	(0.4)%		(8,856)	(0.4)%		(2,473)	27.9%
Income before provision for income taxes		313,407	11.7%		201,699	8.4%		111,708	55.4%
Provision for income taxes		77,279	2.9%		49,639	2.1%		27,640	55.7%
Net income		236,128	8.8%		152,060	6.3%		84,068	55.3%
Less: Net income attributable to noncontrolling interest		473	0.0%		1,087	0.0%		(614)	(56.5)%
Net income attributable to MSC Industrial	$	235,655	8.8%	$	150,973	6.3%	$	84,682	56.1%

Net Sales

Net sales increased 10.7%, or $257.5 million, to $2,669.6 million for the thirty-nine-week period ended May 28, 2022, as compared to $2,412.2 million for the same period in the prior fiscal year. The $257.5 million increase ~~is primarily the result~~in net sales was comprised of ~~increased payroll and payroll-related costs and increased freight costs associated with~~approximately $139.3 million of higher sales ~~volume. Operating expenses also~~volume, approximately $104.0 million from improved pricing, inclusive of changes in customer and product mix, discounting and other items, and approximately $14.6 million of net sales from fiscal year 2021 acquisitions, partially offset by approximately $0.4 million of unfavorable foreign exchange impact. Of the $257.5 million increase in net sales during the thirty-nine-week period ended May 28, 2022, national account customer sales increased ~~due~~by approximately $136.4 million, sales to our core and other customers increased by approximately $144.0 million and sales from fiscal year 2021 acquisitions were approximately $14.6 million, partially offset by a decrease in our government customer sales by approximately $37.5 million.

The table below shows, among other things, the change in our ADS by total Company and by customer type for the thirty-nine-week period ended May 28, 2022, as compared to the ~~acquisition~~same period in the prior fiscal year:


ADS Percentage Change
(Unaudited)
	Thirty-Nine Weeks Ended
	May 28, 2022		May 29, 2021
Net Sales (in thousands)	$	2,669,648	$	2,412,193
Sales Days		190		188
ADS⁽¹⁾(in millions)	$	14.1	$	12.8
Total Company ADS Percent Change		9.5%		-1.9%

Manufacturing Customers ADS Percent Change		11.2%		-0.7%
Manufacturing Customers Percent of Total Net Sales		69%		67%

Non-Manufacturing Customers ADS Percent Change		6.0%		-4.2%
Non-Manufacturing Customers Percent of Total Net Sales		31%		33%

⁽¹⁾ ADS is calculated using the number of business days in the United States for the periods indicated.

We believe that our ability to transact business with our customers directly through the MSC website as well as through various other electronic portals gives us a competitive advantage over smaller suppliers. Sales made through our eCommerce platforms, including sales made through EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 61.1% of DECO in our fourth quarter of fiscal 2017, including the non-recurring integration costs resulting from the acquisition. DECO’s operating expenses, including non-recurring integration costs, accounted for approximately $5.9 million of total operating expenses for the thirteen-week period ended December 2, 2017. Operating expenses were 30.7% ofconsolidated net sales for the ~~thirteen-week~~thirty-nine-week period ended ~~December 2, 2017~~May 28, 2022, as compared to ~~31.8%~~60.1% of consolidated net sales for the same period in the prior fiscal year. These percentages of consolidated net sales do not include eCommerce sales from our recent acquisitions.

Gross Profit

Gross profit of $1,130.0 million for the thirty-nine-week period ended May 28, 2022 increased $145.5 million, or 14.8%, compared to the same period in the prior fiscal year. Gross profit margin was 42.3% for the thirty-nine-week period ended May 28, 2022, as compared to 40.8% for the same period in the prior fiscal year. The increase in gross profit margin was the result of improved price realization and positive spread between sales price and cost of goods sold. In addition, results for the thirty-nine-week period ended May 29, 2021 include the prior year PPE-related inventory write-downs of $30.1 million, which reduced the carrying value of certain PPE-related inventory to their estimated net realizable value. No such inventory write-downs occurred for the thirty-nine-week period ended May 28, 2022.

Operating Expenses

Operating expenses increased 7.1%, or $52.4 million, to $793.6 million for the thirty-nine-week period ended May 28, 2022, as compared to $741.2 million for the same period in the prior fiscal year. Operating expenses were 29.7% of net sales for the thirty-nine-week period ended May 28, 2022, as compared to 30.7% for the same period in the prior fiscal year. The increase in Operating expenses was primarily due to higher payroll and payroll-related costs as well as higher freight costs.

Payroll and payroll-related costs ~~were approximately 56.8% of total operating expenses~~ for the ~~thirteen-week~~thirty-nine-week period ended ~~December 2, 2017,~~May 28, 2022 were 57.5% of total Operating expenses, as compared to ~~approximately 56.3%~~56.8% for the ~~thirteen-week~~same period ~~ended December 3, 2016. Included~~ in ~~payroll~~the prior fiscal year. Payroll and payroll-related costs, ~~are~~which include salary, incentive compensation, sales commission, and fringe benefit ~~costs.~~ costs, increased $35.2 million for the thirty-nine-week period ended May 28, 2022. All of these costs, with the exception of sales commissions, increased for the ~~thirteen-week~~thirty-nine-week period ended ~~December 2, 2017,~~May 28, 2022, as compared to the same period in the prior fiscal year.

Freight expense was $112.8 million for the thirty-nine-week period ended May 28, 2022, as compared to $100.4 million for the same period in the prior fiscal year. The primary drivers of the increase in freight expense were increased sales volume and higher fuel-related charges due to increased commodity costs.

Prior Year Impairment Loss, Net

In September 2020, the Company 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. The Company 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 the thirty-nine weeks ended May 29, 2021, the Company entered into a legal settlement agreement with a vendor that was finalized in June 2021 and, as a result, recorded $20.8 million of loss recovery for a net impairment charge of $5.9 million. The impairment and subsequent loss recovery are recorded in Impairment loss (loss recovery), net on the unaudited Condensed Consolidated Statements of Income. We also incurred $1.4 million of legal costs associated with this matter during the thirty-nine-week period ended May 29, 2021 that are included in Operating expenses for that period. The Company continues to pursue its legal avenues for recovery of the remaining loss.

Restructuring and Other Costs

We incurred $11.7 million in restructuring and other costs for the thirty-nine-week period ended May 28, 2022, as compared to $26.9 million for the same period in the prior fiscal year. These charges include associate severance and separation costs, equity award acceleration costs, consulting costs and other exit-related costs. Restructuring and other costs for the same period in the prior fiscal year also include impairment charges for operating lease assets, net of gains related to settlement of lease liabilities of $14.5 million.More specifically, in the second quarter of fiscal year 2021, the Company announced an enhanced customer support model, including a transition from the branch office network to virtual customer care hubs. This transition included the closure of 73 branch offices, all of which were under operating leases. See Note 8, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.

Income from Operations

Income from operations increased 54.2%, or $114.2 million, to $324.7 million for the thirty-nine-week period ended May 28, 2022, as compared to $210.6 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales increased to 12.2% for the thirty-nine-week period ended May 28, 2022, as compared to 8.7% for the same period in the prior fiscal year. This increase was primarily attributable to the increase in sales and gross margin during the thirty-nine-week period ended May 28, 2022 and the impacts of the prior year impairment loss, PPE-related inventory write-down within gross margin and impairment charges for operating lease assets within restructuring and other costs as discussed above.

Provision for Income Taxes

The Company’s effective tax rate for the thirty-nine-week period ended May 28, 2022 was 24.7%, as compared to 24.6% for the same period in the prior fiscal year.

Net Income

The factors which affected net income for the thirty-nine-week period ended May 28, 2022, as compared to the same period in the prior fiscal year, with the majority of the increase attributable to sales commissions from higher sales. Also contributing to the increase in payroll and payroll-related costs were increased costs associated with the acquired DECO operations, increased fringe costs associated with higher medical costs, and an increase in our salary levels primarily related to annual merit increases.

Freight expense was approximately $31.5 million and $28.7 million for the thirteen-week periods ended December 2, 2017 and December 3, 2016, respectively. The primary driver of this increase was increased sales.

~~Income from Operations~~

Income from operations increased 9.6% to $99.3 million for the thirteen-week period ended December 2, 2017, as compared to $90.6 million for the same period in the prior fiscal year. This was primarily attributable to the increase in net sales and gross profit, offset in part by the increases in operating expenses as described above. Income from operations as a percentage of net sales decreased to 12.9% for the thirteen-week period ended December 2, 2017, as compared to 13.2% for the same period in the prior fiscal year, primarily the result of the net pricing and mix-driven gross margin decrease.

~~Provision for Income Taxes~~

The effective tax rate for the thirteen-week period ended December 2, 2017 was 37.8%, as compared to 38.0% for the same period in the prior fiscal year. The decrease in the effective tax rate is primarily due to larger share-based compensation net excess tax benefits recognized through income tax expense during the thirteen-week period ended December 2, 2017 as compared to the same period in the prior fiscal year.

~~Net Income~~

~~The factors which affected net income for the thirteen-week period ended December 2, 2017, as compared to the same period in the previous fiscal year,~~ have been discussed above.

Liquidity and Capital Resources



	December 2,		September 2,				May 28,		August 28,
	2017		2017		$ Change		2022		2021		$ Change
	(Dollars in thousands)						(Dollars in thousands)
Total debt	$	492,681	$	532,977	$	(40,296)	$	789,954	$	786,049	$	3,905
Less: Cash and cash equivalents		(20,252)		(16,083)		(4,169)		28,847		40,536		(11,689)
Net debt	$	472,429	$	516,894	$	(44,465)	$	761,107	$	745,513	$	15,594
Equity	$	1,260,031	$	1,225,140	$	34,891	$	1,307,965	$	1,161,872	$	146,093

As of ~~December 2, 2017,~~May 28, 2022, we ~~held $20.3~~had $28.8 million in cash and cash equivalents, substantially all with well-known financial institutions. Historically, our primary ~~capital~~financing needs have been to fund our working capital requirements necessitated by our sales growth and the costs of acquisitions, new products, new facilities, facility expansions, investments in vending solutions, technology investments, and productivity investments. Cash generated from operations, together with borrowings under our credit facilities and ~~Private Placement Debt,~~net proceeds from the private placement notes, have been used to fund these needs, to repurchase shares of ~~our~~the Company’s Class A ~~common stock,~~Common Stock, par value $0.001 per share (“Class A Common Stock”) from time to time, and to pay ~~dividends.~~ ~~At December 2, 2017,~~dividends to our shareholders.

As of May 28, 2022, total borrowings outstanding, representing amounts due under ~~the Credit Facility~~our credit facilities and ~~Private Placement Debt,~~notes, as well as all ~~capital~~finance leases and financing arrangements, were approximately ~~$492.7~~$790.0 million, net of unamortized debt issuance costs of ~~$1.8 million. At September 2, 2017,~~$1.5 million, as compared to total borrowings ~~outstanding, representing amounts due under the Credit Facility and Private Placement Debt, as well as all capital leases and financing arrangements, were~~of approximately ~~$533.0~~$786.0 million, net of unamortized debt issuance costs of $1.9 ~~million.~~ million, as of the end of fiscal year 2021. The increase was driven by higher net borrowings under our committed credit facility. See Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these balances.

We believe, based on our current business plan, that our existing cash, ~~funds available under our revolving credit facility,~~financial resources and cash flow from operations will be sufficient to fund ~~our planned~~necessary capital expenditures and operating cash requirements for at least the next 12 months. The Company further believes that its financial resources, along with managing discretionary expenses, will allow us to manage the anticipated further impact of the COVID-19 pandemic on our business operations for the foreseeable future, which will include reduced sales and net income levels for the Company. We will continue to evaluate our financial position in light of future developments, particularly those relating to the COVID-19 pandemic, and to take appropriate action as it is warranted.

‎

The table below summarizes certain information regarding the Company’s ~~liquidity and capital resources:~~cash flows for the periods indicated:


	Thirty-Nine Weeks Ended
	May 28,		May 29,
	2022		2021
	(Dollars in thousands)
Net cash provided by operating activities	$	135,302	$	139,360
Net cash used in investing activities		(44,943)		(37,598)
Net cash used in financing activities		(101,998)		(200,287)
Effect of foreign exchange rate changes on cash and cash equivalents		(50)		743
Net decrease in cash and cash equivalents	$	(11,689)	$	(97,782)

Thirteen Weeks Ended

December 2,

December 3,

2017

2016

(Dollars in thousands)
Net cash provided by operating activities

$
81,979

$
75,960
Net cash used in investing activities

(9,766)

(12,497)
Net cash used in financing activities

(68,135)

(84,153)
Effect of foreign exchange rate changes on cash and cash equivalents

91

(78)
Net increase (decrease) in cash and cash equivalents

$
4,169

$
(20,768)

Cash Flows from Operating Activities

Net cash provided by operating activities was $135.3 million for the ~~thirteen-week periods~~thirty-nine weeks ended ~~December 2, 2017 and December 3, 2016~~May 28, 2022 compared to $139.4 million for the thirty-nine weeks ended May 29, 2021. The decrease was ~~$82.0 million and $76.0 million, respectively. There are various increases and decreases contributing~~primarily due to ~~this change. An~~the following:

an increase in ~~net income,~~the change in accounts receivable primarily attributable to higher sales volume; and

a decrease in the change in accounts payable and accrued liabilities due to a greater increase in accounts payable in the prior year from fiscal year 2020 levels due to the COVID-19 pandemic that did not repeat in the current fiscal year; partially offset by

an increase in net income as described above.

The table below summarizes certain information regarding the Company’s operations as of the periods indicated:




	May 28,		August 28,		May 29,
	2022		2021		2021
	(Dollars in thousands)
Working Capital ⁽¹⁾	$	847,754	$	752,317	$	538,851
Current Ratio ⁽²⁾		2.4		2.3		1.7

Days’ Sales Outstanding ⁽³⁾		63.5		61.1		58.7
Inventory Turnover ⁽⁴⁾		3.2		3.4		3.4

⁽¹⁾ Working Capital is calculated as current assets less current liabilities.

⁽²⁾Current Ratio is calculated as dividing total current assets by total current liabilities.

⁽³⁾ Days’ Sales Outstanding is calculated as accounts receivable divided by net sales.

⁽⁴⁾ Inventory Turnover is calculated as total cost of goods sold divided by inventory using a 13-month trailing average inventory.

Working capital and ~~accrued liabilities,~~the current ratio both increased relative to both August 28, 2021 and ~~a smaller~~May 29, 2021. The increases from both periods presented in the table above were primarily due to increases in both accounts receivable and inventories, partially offset by an increase in the change in inventories contributed to the increase in net cash provided by operating activities. This was partially offset by a greater increase in our accounts receivable, which is discussed in further detail below.current portion of debt.

December 2,

September 2,

December 3,

2017

2017

2016

(Dollars in thousands)
Working Capital

$
491,393

$
447,854

$
460,788
Current Ratio

1.9

1.8

2.0

Days Sales Outstanding (excluding DECO)

57.5

54.0

52.5
Inventory Turnover (excluding DECO)

3.5

3.5

3.3

The increase in ~~working capital at December 2, 2017~~days’ sales outstanding as of May 28, 2022 as compared to ~~September 2, 2017 is~~August 28, 2021 and May 29, 2021 was primarily due to the ~~paydown of the Company’s short-term debt. The current ratio has remained relatively consistent during the past 12 months.~~

~~The increase in days sales outstanding (“DSO”) is primarily due to a~~ receivables portfolio consisting of a greater percentage of ~~Large Account Customer~~our national account program sales, which ~~are~~ typically athave longer payment terms. ~~We expect our DSO~~

Inventory turnover as of May 28, 2022 declined relative to ~~improve slightly through fiscal 2018. Inventory turns, calculated using~~both August 28, 2021 and May 29, 2021 due to increasing inventory levels as a ~~thirteen-point average inventory balance, improved slightly in our fiscal first quarter~~result of ~~2018 as compared to the same period~~ongoing challenges in the ~~previous fiscal year due~~supply chain and to ~~sales volume increasing.~~meet customer demand.

Cash Flows from Investing Activities

Net cash used in investing activities for the ~~thirteen-week~~thirty-nine-week periods ended ~~December 2, 2017~~May 28, 2022 and ~~December 3, 2016~~May 29, 2021 was ~~$9.8~~$44.9 million and ~~$12.5~~$37.6 million, respectively. The ~~majority of the~~ use of cash for both periods was ~~attributable~~primarily due to expenditures for property, plant and ~~equipment. In addition, the Company recorded a post-closing working capital adjustment in the amount of $0.7 million, which was paid out to DECO, in October 2017,~~equipment primarily related to ~~the acquisition closed in fiscal 2017.~~vending programs and Mission Critical projects.

Cash Flows from Financing Activities

Net cash used in financing activities was $102.0 million for the ~~thirteen-week periods~~thirty-nineweeks ended ~~December 2, 2017 and December 3, 2016 was $68.1~~May 28, 2022 compared to $200.3 million ~~and $84.2 million, respectively. The major components contributing~~for the thirty-nine weeks ended May 29, 2021, primarily due to the ~~use~~following:

$125.5 million of ~~cash for~~regular dividends paid during the ~~thirteen-week period~~thirty-nine weeks ended ~~December 2, 2017 were repayments on~~May 28, 2022 compared to $321.1 million of regular and special dividends paid during the thirty-nine weeks ended May 29, 2021;

net borrowings under our credit facilities of ~~$41.0~~$4.5 million during the thirty-nine weeks ended May 28, 2022 compared to net borrowings of ~~borrowings,~~$140.0 million during the thirty-nine weeks ended May 29, 2021; and ~~cash dividends paid~~

$50.7 million in aggregate repurchases of ~~$27.1 million. This was partially offset by proceeds from~~our Class A Common Stock during the ~~exercise of common stock options of $2.4 million.~~ ~~The major components contributing~~thirty-nine weeks ended May 29, 2021, which did not recur during the thirty-nine weeks ended May 28, 2022.

Capital Expenditures

We continue to ~~the use of cash for thethirteen-week period ended December 3, 2016 were repayments on our previous~~ invest in sales productivity initiatives, eCommerce and vending platforms, customer fulfillment centers and distribution network, and other infrastructure and technology.

Long-Term Debt

Credit ~~Facility of $63.5 million, net of borrowings, related to both the revolving loan facility and term loan facility and cash dividends paid of $25.5 million.~~ ~~This was partially offset by proceeds from the exercise of common stock options of $6.9 million.~~Facilities

~~Long-term Debt~~

~~Credit Facility~~

In April 2017, the Company entered into a $600.0 million revolving credit facility, ~~(the “Credit Facility”).~~ which was subsequently amended and extended in August 2021. As of May 28, 2022, the Company also had three uncommitted credit facilities, totaling $208.0 million of aggregate maximum uncommitted availability. See Note ~~5 “Debt and Capital LeaseObligations”~~6, “Debt” in the Notes to ~~the~~ Condensed Consolidated Financial Statements for more information about~~the Credit Facility.~~

~~At December 2, 2017,~~ our credit facilities. As of May 28, 2022, we were in compliance with the operating and financial covenants of ~~the Credit Facility. The Company had additional borrowings of $12.0 million, net of repayments in December 2017.~~our credit facilities. The current unused balance of ~~$294.0~~$354.7 million offrom the ~~Credit Facility,~~revolving credit facility, which is reduced by outstanding letters of credit, is available for working capital purposes if necessary. See Note 6, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these balances.

Private Placement Debt and Shelf Facility Agreements

In July 2016, ~~in connection with our tender offer and stock purchase,~~ we completed the issuance and sale of unsecured senior notes. In January 2018, we entered into two note purchase and private shelf facility agreements (together, the “Shelf Facility Agreements”).In June 2018 and March 2020, we entered into additional note purchase agreements. Pursuant to the terms of the Shelf Facility Agreements, no new unsecured senior notes may be issued and sold after January 12, 2021. See Note ~~5 “Debt and Capital Lease Obligations”~~6, “Debt” in the Notes to ~~the~~ Condensed Consolidated Financial Statements for more information about ~~this transaction.~~these transactions.

~~Contractual Obligations~~

~~Capital Lease~~Leases and Financing Arrangements

From time to time, we enter into capital leases and financing arrangements. See Note 5 “Debt and Capital Lease Obligations” in the Notes to the Condensed Consolidated Financial Statements for more information about our capital lease and financing arrangements.

~~Operating Leases~~

As of ~~December 2, 2017,~~May 28, 2022, certain of our operations ~~are~~were conducted on leased premises. These leases are for varying periods, the longest extending to fiscal ~~2027.~~year 2031. In addition, we are obligated under certain equipment and automobile operating and finance leases, which expire on varying dates through fiscal ~~2021.~~year 2026.

~~Off-Balance Sheet Arrangements~~From time to time, we enter into financing arrangements with vendors to purchase certain information technology equipment or software.

~~We have not entered into any off-balance sheet arrangements.~~

Critical Accounting Estimates

On an ongoing basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition, inventory valuation, allowance for ~~doubtful accounts,~~credit losses, warranty reserves, contingencies and litigation, income taxes, and accounting for goodwill and long-lived ~~assets, stock-based compensation, and business combinations.~~assets. We make estimates, judgments and assumptions in determining the amounts reported in the ~~condensed consolidated financial statements~~unaudited Condensed Consolidated Financial Statements and accompanying ~~notes.~~Notes. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The estimates are used to form the basis for making judgments about the carrying values of assets and liabilities and the amount of revenues and expenses reported that are not readily apparent from other sources. Actual results may differ from these estimates.

There have been no material changes outside the ordinary course of business in the Company’s ~~Critical Accounting Policies,~~critical accounting policies, as disclosed in its Annual Report on Form 10-K for the fiscal year ended ~~September 2, 2017.~~August 28, 2021.

Recently Issued Accounting Standards

See Note 1, “Basis of Presentation” in the Notes to ~~the~~ Condensed Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~There have been no material changes~~For information regarding our exposure to ~~our exposures to~~certain market risks, ~~since September 2, 2017. Please refer to the~~see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Interest Rate Risks” under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of Part II of our Annual Report on Form 10-K for the fiscal year ended ~~September~~August 28, 2021. Except as described in Item 2, ~~2017 for a complete discussion~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this Report, there have been no significant changes in our ~~exposures to market risks.~~financial instrument portfolio or interest rate risk since our August 28, 2021 fiscal year-end.

Item 4. Controls and Procedures

Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange ~~Act)~~Act of 1934, as amended (the “Exchange Act”)) designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, with the participation of ~~the~~our Chief Executive Officer and our Chief Financial Officer, as well as other key members of our management, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this ~~report.~~Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this ~~report,~~Report, to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

NoChanges in Internal Control Over Financial Reporting

There were no changes ~~occurred~~ in our internal ~~controls~~control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act) during the fiscal quarter ended ~~December 2, 2017~~May 28, 2022 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the ~~factors~~risks and the uncertainties discussed in Item 1A, “Risk Factors” of Part I ~~“Item 1A. Risk Factors” in~~of our Annual Report on Form 10-K for the fiscal year ended ~~September 2, 2017,~~August 28, 2021, which could materially affect our business, financial condition or future results. The risks described in ~~the aforementioned report~~our Annual Report on Form 10-K are not the only risks facing ~~us.~~the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be not material also may materially and adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth repurchases by the Company of its outstanding shares of Class A ~~common stock~~Common Stock, which are listed on the New York Stock Exchange, during the thirteen-week period ended ~~December 2, 2017:~~May 28, 2022:

Issuer Purchases of Equity Securities

Period

Total Number of Shares Purchased(1)

Average Price Paid Per Share(2)

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
9/3/17 - 10/2/17

318

$
70.67

—

802,334
10/3/17 - 11/2/17

49,837

78.91

—

802,334
11/3/17 - 12/2/17

805

77.70

—

802,334
Total

50,960

$
78.84

—


Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share⁽²⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽³⁾
2/27/22-3/29/22	1,546	$	77.45	—	5,000,000
3/30/22-4/28/22	105	$	85.04	—	5,000,000
4/29/22-5/28/22	21	$	78.99	—	5,000,000
Total	1,672			—

~~____________________~~

(1)During the thirteen weeks ended May 28, 2022, 1,672 shares of Class A Common Stock were withheld by the Company as payment to satisfy our associates’ tax withholding liability associated with our stock-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 Class A Common Stock. There is no expiration date for the Share Repurchase Program. As of May 28, 2022, the maximum number of shares that may yet be repurchased under the Share Repurchase Program was 5,000,000 shares of Class A Common Stock.

‎

~~(1)~~

During the thirteen weeks ended December 2, 2017, 50,960 shares of our 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)~~

During fiscal year 1999, the Board of Directors established the MSC Stock Repurchase Plan, which we refer to as the “Repurchase Plan.” The total number of shares of our Class A common stock initially authorized for future repurchase was set at 5,000,000 shares. On January 8, 2008, the Board of Directors reaffirmed and replenished the Repurchase Plan and set the total number of shares of Class A common stock authorized for future repurchase at 7,000,000 shares. On October 21, 2011, the Board of Directors reaffirmed and replenished the Repurchase Plan and set the total number of shares of Class A common stock authorized for future repurchase at 5,000,000 shares. As of December 2, 2017, the maximum number of shares that may yet be repurchased under the Repurchase Plan was 802,334 shares. On January 9, 2018, the Board of Directors authorized the repurchase of an additional 2,000,000 shares of Class A common stock under the Company’s ongoing Repurchase Plan, bringing the total number of shares of Class A common stock authorized for future repurchase to approximately 2,800,000 shares. There is no expiration date for this program.

2329

~~Item 3. Defaults Upon Senior Securities~~

~~None.~~

~~Item 4. Mine Safety Disclosures~~

~~Not Applicable.~~

~~Item 5. Other Information~~

~~None.~~

Item 6. Exhibits

EXHIBIT INDEX



~~Exhibit No.~~	~~Exhibit~~
Exhibit No.	Description
31.1	~~Chief~~Certification of Principal Executive ~~Officer’s Certificate,~~Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
31.2	~~Chief~~Certification of Principal Financial ~~Officer’s Certificate,~~Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of ~~Chief~~Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2	Certification of ~~Chief~~Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS	Inline XBRL Instance Document.*
101.SCH	Inline XBRL Taxonomy Extension Schema Document.*
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*

*	Filed herewith.
**	Furnished herewith.

~~__________________________~~


*	~~Filed herewith.~~
**	~~Furnished herewith.~~

‎

2430

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MSC Industrial Direct Co., Inc. (Registrant)
Dated: ~~January 10, 2018~~June 29, 2022	By:	/s/ ERIK GERSHWIND Erik Gershwind President and Chief Executive Officer ‎(Principal Executive Officer)
Dated: ~~January 10, 2018~~June 29, 2022	By:	/s/ ~~RUSTOM JILLA~~KRISTEN ACTIS-GRANDE Kristen Actis-Grande Executive Vice President and Chief Financial Officer ‎(Principal Financial Officer)

2531



	Class A Common Stock			Class B Common Stock			Additional				Accumulated Other		Class A Treasury Stock
	Shares	Amount		Shares	Amount		Paid-In Capital		Retained Earnings		Comprehensive Loss		Shares	Amount at Cost		Total
Balance at September 2, 2017	53,514	$	54	11,851	$	12	$	626,995	$	1,168,812	$	(17,263)	8,973	$	(553,470)	$	1,225,140
Exchange of Class B common stock for Class A common stock	448		—	(448)		(1)		—		—		—	—		—		(1)
Exercise of common stock options	36		—	—		—		2,405		—		—	—		—		2,405
Common stock issued under associate stock purchase plan	—		—	—		—		471		—		—	(13)		488		959
Issuance of restricted common stock, net of cancellations	(1)		—	—		—		—		—		—	—		—		—
Shares issued from restricted stock units, including dividend equivalent units	67		—	—		—		179		—		—	—		—		179
Stock-based compensation	—		—	—		—		3,894		—		—	—		—		3,894
Repurchases of common stock	—		—	—		—		—		—		—	51		(4,018)		(4,018)
Cash dividends on Class A common stock	—		—	—		—		—		(21,459)		—	—		—		(21,459)
Cash dividends on Class B common stock	—		—	—		—		—		(5,628)		—	—		—		(5,628)
Dividend equivalent units declared, net of cancellations	—		—	—		—		—		(182)		—	—		—		(182)
Foreign currency translation adjustment	—		—	—		—		—		—		(843)	—		—		(843)
Net income	—		—	—		—		—		59,585		—	—		—		59,585
Balance at December 2, 2017	54,064	$	54	11,403	$	11	$	633,944	$	1,201,128	$	(18,106)	9,011	$	(557,000)	$	1,260,031

See accompanying notes to condensed consolidated financial statements.


	Thirteen Weeks Ended
	December 3, 2016
	As Reported		As Adjusted
Condensed Consolidated Statements of Income:	(in thousands, except per share data)
Provision for income taxes	$	33,442	$	33,257
Net income	$	54,103	$	54,288
Per share information:
Net income per common share:
Basic	$	0.96	$	0.96
Diluted	$	0.95	$	0.96
Weighted average shares used in computing net income per common share:
Basic		56,381		56,381
Diluted		56,572		56,608


	Shares	Weighted-Average Grant-Date Fair Value
Non-vested restricted share awards at September 2, 2017	160	$	80.49
Granted	—		—
Vested	(86)		79.45
Canceled/Forfeited	(1)		82.27
Non-vested restricted share awards at December 2, 2017	73	$	81.56


	Shares	Weighted-Average Grant-Date Fair Value
Non-vested restricted stock unit awards at September 2, 2017	313	$	66.66
Granted	152		79.60
Vested	(65)		65.04
Canceled/Forfeited	(6)		69.90
Non-vested restricted stock unit awards at December 2, 2017	394	$	71.88




	Thirteen Weeks Ended
	December 2, 2017			December 3, 2016			Change

		$	%		$	%		$	%
Net sales	$	768,561	100.0%	$	686,271	100.0%	$	82,290	12.0%
Cost of goods sold		433,492	56.4%		377,536	55.0%		55,956	14.8%
Gross profit		335,069	43.6%		308,735	45.0%		26,334	8.5%
Operating expenses		235,791	30.7%		218,135	31.8%		17,656	8.1%
Income from operations		99,278	12.9%		90,600	13.2%		8,678	9.6%
Total other expense		(3,482)	(0.4)%		(3,055)	(0.4)%		(427)	14.0%
Income before provision for income taxes		95,796	12.5%		87,545	12.8%		8,251	9.4%
Provision for income taxes		36,211	4.7%		33,257	4.8%		2,954	8.9%
Net income	$	59,585	7.8%	$	54,288	7.9%	$	5,297	9.8%


Average Daily Sales Percentage Change
(unaudited)

2018 vs. 2017 Fiscal Period	Thirteen Week Period Ended Fiscal Q1		% of Total Business

Total Company	12.0	%
Manufacturing Customers(1)	11.4	%	68	%
Non-Manufacturing Customers(1)	13.1	%	32	%


Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share(2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
9/3/17 - 10/2/17	318	$	70.67	—	802,334
10/3/17 - 11/2/17	49,837		78.91	—	802,334
11/3/17 - 12/2/17	805		77.70	—	802,334
Total	50,960	$	78.84	—