Msc Industrial Direct Co Inc 10-Q for FY2024 Q1
Msc Industrial Direct Co Inc (MSM)
10-Q
2024-01-09
For: 2023-12-02
View Original
Added on
April 08, 2026
About this 10-Q
Msc Industrial Direct Co Inc filed this 10-Q on January 9, 2024, covering the quarter ended December 2, 2023 (FY2024 Q1).
Headline figures
Quarter ended December 2, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $953.97M
- down 0.4% from $957.75M a year earlier
- Net income
- $69.35M
- down 14.7% from net income of $81.31M a year earlier
- Diluted EPS
- $1.22
- down 15.9% from $1.45 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
______________________________
| (Mark One) | |||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended | |||||
| OR | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _____ to _____
Commission File Number: 1-14130
__________________
(Exact name of registrant as specified in its charter)
__________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (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 | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No 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.
Accelerated filer o | Non-accelerated filer o | 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 20, 2023, 56,400,388 shares of Class A Common Stock of the registrant were outstanding.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward‑looking statements may be found in Item 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‑looking statements. In addition, statements which refer to expectations, projections or other characterizations of future events or circumstances, statements involving a discussion of strategy, plans or intentions, statements about management’s assumptions, projections or predictions of future events or market outlook and any other statement other than a statement of present or historical fact are forward‑looking statements. We expressly disclaim any obligation to publicly disclose any revisions to these forward‑looking statements to reflect events or circumstances occurring subsequent to filing this Report with the United States Securities and Exchange Commission (the “SEC”), except to the extent required by applicable law. These forward‑looking statements are subject to risks and uncertainties, including, without limitation, those discussed in Item 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 in Item 1A, “Risk Factors” of Part I and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and 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 2, 2023. In addition, new risks may emerge from time to time and it is not possible for management to predict such risks or to assess the impact of such risks on our business or financial results. Accordingly, future results may differ materially from historical results or from those discussed or implied by these forward‑looking statements. Given these risks and uncertainties, the reader should not place undue reliance on these forward‑looking statements. These risks and uncertainties include, but are not limited to, the following:
•general economic conditions in the markets in which we operate;
•changing customer and product mixes;
•volatility in commodity and energy prices, the impact of prolonged periods of low, high or rapid inflation, and fluctuations in interest rates;
•competition, including the adoption by competitors of aggressive pricing strategies or 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;
•our ability to realize the expected cost savings and benefits from our restructuring activities and structural cost reductions;
•the retention of key management personnel;
•the credit risk of our customers;
•the risk of customer cancellation or rescheduling of orders;
•difficulties in calibrating customer demand for our 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 disruptions, including those due to extreme weather conditions, at transportation centers, shipping ports, our headquarters or our customer fulfillment centers;
•disruptions or breaches of our information technology systems or violations of data privacy laws;
•our ability to attract, train and retain qualified sales and customer service personnel and metalworking and specialty sales specialists;
•the risk of loss of key suppliers or contractors or key brands or supply chain disruptions;
•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;
•our ability to maintain our credit facilities or incur additional borrowings on terms we deem attractive;
•the failure to comply with applicable environmental, health and safety laws and regulations and other laws applicable to our business;
•the outcome of government or regulatory proceedings;
•goodwill and other indefinite-lived intangible assets recorded as a result of our acquisitions could become impaired;
•our common stock price may be volatile due to factors outside of our control;
•the significant influence that our principal shareholders will continue to have over our decisions; and
•our ability to realize the desired benefits from the Reclassification (as defined in Note 8, “Shareholders’ Equity”).
MSC INDUSTRIAL DIRECT CO., INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 2, 2023
TABLE OF CONTENTS
| Page | ||||||||
| Item 5. | ||||||||
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| December 2, 2023 | September 2, 2023 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Identifiable intangibles, net | |||||||||||
| Operating lease assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Current portion of debt including obligations under finance leases | $ | $ | |||||||||
| Current portion of operating lease liabilities | |||||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt including obligations under finance leases | |||||||||||
| Noncurrent operating lease liabilities | |||||||||||
| Deferred income taxes and tax uncertainties | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies | |||||||||||
| Shareholders’ Equity: | |||||||||||
| MSC Industrial Shareholders’ Equity: | |||||||||||
Preferred Stock; $ | |||||||||||
Class A Common Stock ( | |||||||||||
Class B Common Stock ( | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Class A treasury stock, at cost, | ( | ( | |||||||||
| Total MSC Industrial shareholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| Net sales | $ | $ | |||||||||||||||||||||
| Cost of goods sold | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Restructuring and other costs | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense | ( | ( | |||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Other expense, net | ( | ( | |||||||||||||||||||||
| Total other expense | ( | ( | |||||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Less: Net loss attributable to noncontrolling interest | ( | ( | |||||||||||||||||||||
| Net income attributable to MSC Industrial | $ | $ | |||||||||||||||||||||
| Per share data attributable to MSC Industrial: | |||||||||||||||||||||||
| Net income per common share: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
| Weighted-average shares used in computing net income per common share: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| Net income, as reported | $ | $ | |||||||||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||
Comprehensive income(1) | |||||||||||||||||||||||
| Comprehensive income attributable to noncontrolling interest: | |||||||||||||||||||||||
| Net loss | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||||||||
| Comprehensive income attributable to MSC Industrial | $ | $ | |||||||||||||||||||||
(1)There were no
See accompanying Notes to Condensed Consolidated Financial Statements.
3
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
(Unaudited)
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| Class A Common Stock | |||||||||||||||||||||||
| Beginning Balance | $ | $ | |||||||||||||||||||||
| Associate Incentive Plans | |||||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock | ( | ||||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | |||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Class B Common Stock | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | ( | ||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Additional Paid-in Capital | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Associate Incentive Plans | |||||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock | ( | ( | |||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | |||||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Retained Earnings | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Repurchase and retirement of Class A Common Stock | ( | ( | |||||||||||||||||||||
| Regular cash dividends declared on Class A Common Stock | ( | ( | |||||||||||||||||||||
| Regular cash dividends declared on Class B Common Stock | ( | ||||||||||||||||||||||
| Reclassification of Class B Common Stock to Class A Common Stock | ( | ||||||||||||||||||||||
| Dividend equivalents declared, net of cancellations | ( | ( | |||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Accumulated Other Comprehensive Loss | |||||||||||||||||||||||
| Beginning Balance | ( | ( | |||||||||||||||||||||
| Foreign Currency Translation Adjustment | |||||||||||||||||||||||
| Ending Balance | ( | ( | |||||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||
| Beginning Balance | ( | ( | |||||||||||||||||||||
| Associate Incentive Plans | |||||||||||||||||||||||
| Repurchase of Class A Common Stock | ( | ( | |||||||||||||||||||||
| Ending Balance | ( | ( | |||||||||||||||||||||
| Total Shareholders’ Equity Attributable to MSC Industrial | |||||||||||||||||||||||
| Noncontrolling Interest | |||||||||||||||||||||||
| Beginning Balance | |||||||||||||||||||||||
| Foreign Currency Translation Adjustment | ( | ||||||||||||||||||||||
| Net Loss | ( | ( | |||||||||||||||||||||
| Ending Balance | |||||||||||||||||||||||
| Total Shareholders’ Equity | $ | $ | |||||||||||||||||||||
| Dividends declared per Class A Common Share | $ | $ | |||||||||||||||||||||
| Dividends declared per Class B Common Share | $ | $ | |||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
MSC INDUSTRIAL DIRECT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Thirteen Weeks Ended | |||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Non-cash operating lease cost | |||||||||||
| Stock-based compensation | |||||||||||
| Loss on disposal of property, plant and equipment | |||||||||||
| Non-cash changes in fair value of estimated contingent consideration | |||||||||||
| Provision for credit losses | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | |||||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable and accrued liabilities | ( | ||||||||||
| Total adjustments | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Expenditures for property, plant and equipment | ( | ( | |||||||||
| Cash used in business acquisitions, net of cash acquired | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Repurchases of Class A Common Stock | ( | ( | |||||||||
| Payments of regular cash dividends | ( | ( | |||||||||
| Proceeds from sale of Class A Common Stock in connection with Associate Stock Purchase Plan | |||||||||||
| Proceeds from exercise of Class A Common Stock options | |||||||||||
| Borrowings under credit facilities | |||||||||||
| Payments under credit facilities | ( | ( | |||||||||
| Borrowings under financing obligations | |||||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | |||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents—beginning of period | |||||||||||
| Cash and cash equivalents—end of period | $ | $ | |||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Cash paid for interest | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
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 unaudited Condensed Consolidated Financial Statements have been prepared by the management of MSC Industrial Direct Co., Inc. (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 December 2, 2023 and September 2, 2023, results of operations for the thirteen weeks ended December 2, 2023 and December 3, 2022, and cash flows for the thirteen weeks ended December 2, 2023 and December 3, 2022. The financial information as of September 2, 2023 was derived from the Company’s audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 2, 2023.
Fiscal Year
The Company operates on a 52/53-week fiscal year ending on the Saturday closest to August 31st of each year. References to “fiscal year 2024” refer to the period from September 3, 2023 to August 31, 2024, which is a 52-week fiscal year. References to “fiscal year 2023” refer to the period from September 4, 2022 to September 2, 2023, which is a 52-week fiscal year. The fiscal quarters ended December 2, 2023 and December 3, 2022 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 controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
Accounting Standards Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker, among other provisions. The ASU is effective for fiscal year periods beginning after December 15, 2023, including subsequent interim periods, with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the standard to determine the impact of adoption to its consolidated financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. The ASU primarily enhances and expands both the income tax rate reconciliation disclosure and the income taxes paid disclosure. The ASU is effective for annual periods beginning after December 15, 2024 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the standard to determine the impact of adoption to its consolidated financial statements and disclosures.
6
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 2. Revenue
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 amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies its performance obligations under the contract, which is determined to occur when the customer obtains control of the products, and invoicing occurs at approximately the same point in time. 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 $8,553 and $8,632 as of December 2, 2023 and September 2, 2023, 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 net basis 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 recognized or when the Company promises to pay the 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 $29,105 and $31,954 as of December 2, 2023 and September 2, 2023, 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 net sales, are recorded in prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheets and were $3,575 and $3,733 as of December 2, 2023 and September 2, 2023, 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 performance obligations. The Company did not
Disaggregation of Revenue
The Company operates in one
7
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
The following table presents the Company’s percentage of revenue by customer end-market for the thirteen-week periods ended December 2, 2023 and December 3, 2022:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| Manufacturing Heavy | % | % | |||||||||||||||||||||
| Manufacturing Light | % | % | |||||||||||||||||||||
| Public Sector | % | % | |||||||||||||||||||||
| Retail/Wholesale | % | % | |||||||||||||||||||||
| Commercial Services | % | % | |||||||||||||||||||||
Other (1) | % | % | |||||||||||||||||||||
| Total | % | % | |||||||||||||||||||||
(1)The Other category primarily includes individual customer and small business net sales not assigned to a specific industry classification.
The Company groups customers into three categories by type of customer: national account, public sector and core and other. National account customers are Fortune 1000 companies, large privately held companies, and international companies primarily doing business in North America. Public sector customers are governments and their instrumentalities such as federal agencies, state governments, and public sector healthcare providers. Federal government customers include the United States Marine Corps, the United States Coast Guard, the United States Postal Service, the United States General Services Administration, the United States Department of Defense, the United States Department of Energy, large and small military bases, Veterans Affairs hospitals, and correctional facilities. The Company has individual state and local contracts, as well as contracts through partnerships with several state co-operatives. Core and other customers are those customers that are not national account customers or public sector customers.
The following table presents the Company’s percentage of revenue by customer type for the thirteen-week periods ended December 2, 2023 and December 3, 2022:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| National Account Customers | % | % | |||||||||||||||||||||
| Public Sector Customers | % | % | |||||||||||||||||||||
| Core and Other Customers | % | % | |||||||||||||||||||||
| Total | % | % | |||||||||||||||||||||
The Company’s revenue originating from the following geographic areas was as follows for the thirteen-week periods ended December 2, 2023 and December 3, 2022:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| United States | % | % | |||||||||||||||||||||
| Mexico | % | % | |||||||||||||||||||||
| Canada | % | % | |||||||||||||||||||||
| North America | % | % | |||||||||||||||||||||
| Other foreign countries | % | % | |||||||||||||||||||||
| Total | % | % | |||||||||||||||||||||
8
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 3. Net Income per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of the Company’s Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), and the Company’s Class B Common Stock, par value $0.001 per share (“Class B Common Stock” and, together with Class A Common Stock, “Common Stock”), outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of Common Stock outstanding during the period, including potentially dilutive shares of Common Stock equivalents outstanding during the period. The dilutive effect of potential shares of Common Stock is determined using the treasury stock method. The following table sets forth the computation of basic and diluted net income per common share under the treasury stock method for the thirteen-week periods ended December 2, 2023 and December 3, 2022:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to MSC Industrial as reported | $ | $ | |||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares outstanding for basic net income per share | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Weighted-average shares outstanding for diluted net income per share | |||||||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | $ | |||||||||||||||||||||
| Diluted | $ | $ | |||||||||||||||||||||
| Potentially dilutive securities | |||||||||||||||||||||||
Potentially dilutive securities attributable to outstanding share-based awards are excluded from the calculation of diluted net income per share when the combined exercise price and average unamortized fair value are greater than the average market price of Class A Common Stock, and, therefore, their inclusion would be anti-dilutive.
Note 4. Stock-Based Compensation
The Company accounts for all stock-based payments in accordance with Accounting Standards Codification Topic 718, “Compensation—Stock Compensation,” as amended. Stock-based compensation expense, net included in Operating expenses for the thirteen-week periods ended December 2, 2023 and December 3, 2022 was as follows:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| Stock options | $ | $ | |||||||||||||||||||||
Restricted stock units (1) | |||||||||||||||||||||||
Performance share units (1) | |||||||||||||||||||||||
| Associate Stock Purchase Plan | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Deferred income tax benefit | ( | ( | |||||||||||||||||||||
| Stock-based compensation expense, net | $ | $ | |||||||||||||||||||||
9
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Stock Options
The Company discontinued its grants of stock options in fiscal year 2020. The fair value of each option grant in previous fiscal years was estimated on the date of grant using the Black-Scholes option pricing model.
A summary of the Company’s stock option activity for the thirteen-week period ended December 2, 2023 is as follows:
| Shares | Weighted-Average Exercise Price per Share | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding on September 2, 2023 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Canceled/Forfeited/Expired | |||||||||||||||||||||||
| Outstanding on December 2, 2023 | $ | $ | |||||||||||||||||||||
| Exercisable on December 2, 2023 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value of options exercised, which represents the difference between the exercise price and the market value of Class A Common Stock measured at each individual exercise date, during the thirteen-week periods ended December 2, 2023 and December 3, 2022 was $1,499 and $970 , respectively. There were no unrecognized stock‑based compensation costs related to stock options at December 2, 2023.
Performance Share Units
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 which the performance goals are achieved, vested shares may range from 0 % to 200 % of the target award amount.
The following table summarizes all transactions related to PSUs under the MSC Industrial Direct Co., Inc. 2015 Omnibus Incentive Plan (the “2015 Omnibus Incentive Plan”) and the MSC Industrial Direct Co., Inc. 2023 Omnibus Incentive Plan (the “2023 Omnibus Incentive Plan”) (based on target award amounts) for the thirteen-week period ended December 2, 2023:
| Shares | Weighted-Average Grant Date Fair Value | |||||||||||||
| Non-vested PSUs at September 2, 2023 | $ | |||||||||||||
| Granted | ||||||||||||||
PSU adjustment (1) | ||||||||||||||
| Vested | ( | |||||||||||||
| Canceled/Forfeited | ( | |||||||||||||
Non-vested PSUs at December 2, 2023 (2) | $ | |||||||||||||
(1)PSU adjustment represents the net PSUs awarded above or below their target grants resulting from the achievement of performance goals above or below the performance targets established at grant. One grant goal was achieved at 200 % of its target based on fiscal year 2021 through fiscal year 2023 financial results.
(2)Excludes approximately 5 shares of accrued incremental dividend equivalent rights on outstanding PSUs granted under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan.
10
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
The fair value of each PSU is the closing stock price on the New York Stock Exchange (the “NYSE”) of Class A 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 estimated forfeitures. 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 PSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining PSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying PSUs (in the form of additional stock 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 costs related to the PSUs at December 2, 2023 were $7,201 , which are expected to be recognized over a weighted-average period of 2.0 years.
Restricted Stock Units
A summary of the Company’s non-vested restricted stock unit (“RSU”) award activity under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan for the thirteen-week period ended December 2, 2023 is as follows:
| Shares | Weighted-Average Grant Date Fair Value | |||||||||||||
| Non-vested RSUs at September 2, 2023 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
| Canceled/Forfeited | ( | |||||||||||||
Non-vested RSUs at December 2, 2023 (1) | $ | |||||||||||||
(1)Excludes approximately 27 shares of accrued incremental dividend equivalent rights on outstanding RSUs granted under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan.
The fair value of each RSU is the closing stock price on the NYSE of Class A 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 estimated forfeitures. 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, and the remaining RSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying RSUs (in the form of additional stock 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 RSUs. The unrecognized stock-based compensation costs related to the RSUs at December 2, 2023 were $35,800 , which are expected to be recognized over a weighted-average period of 3.1 years.
Note 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 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— Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2— Include other inputs that are directly or indirectly observable in the marketplace.
Level 3— Unobservable inputs which are supported by little or no market activity.
11
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and outstanding indebtedness. Cash and cash equivalents include investments in a money market fund which are reported at fair value. The fair value of money market funds is determined using quoted prices for identical investments in active markets, which are considered to be Level 1 inputs within the 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 instruments. Therefore, the inputs used to measure the fair value of the Company’s debt instruments are classified as Level 2 within the fair value hierarchy. The reported carrying amounts of the Company’s financial instruments approximated their fair values as of December 2, 2023 and December 3, 2022.
Note 6. Accounts Receivable
Accounts receivables at December 2, 2023 and September 2, 2023 consisted of the following:
| December 2, 2023 | September 2, 2023 | ||||||||||
| Accounts receivable | $ | $ | |||||||||
| Less: allowance for credit losses | |||||||||||
| Accounts receivable, net | $ | $ | |||||||||
In fiscal year 2023, the Company entered into a Receivables Purchase Agreement (the “RPA”), by and among MSC A/R Holding Co., LLC, a wholly owned subsidiary of the Company (the “Receivables Subsidiary”), as seller, the Company, as master servicer, certain purchasers from time to time party thereto (collectively, the “Purchasers”), and Wells Fargo Bank, National Association, as administrative agent. Under the RPA, the Receivables Subsidiary may sell receivables to the Purchasers in amounts up to $300,000 . During the second quarter of fiscal year 2023, the amount sold to the Purchasers was $300,000 which was derecognized from the Condensed Consolidated Balance Sheet as of that date. The RPA matures on December 19, 2025 and is subject to customary termination events related to transactions of this type.
The Company continues to be involved with the receivables sold to the Purchasers by providing collection services. As cash is collected on sold receivables, the Receivables Subsidiary continuously sells new qualifying receivables to the Purchasers so that the total principal amount outstanding of receivables sold is approximately $300,000 . The total principal amount outstanding of receivables sold was approximately $300,000 as of December 2, 2023 and September 2, 2023. The amount of receivables pledged as collateral as of December 2, 2023 and September 2, 2023 was $337,126 and $352,385 , respectively.
The following table summarizes the activity and amounts outstanding under the RPA for the thirteen-week periods ended December 2, 2023 and December 3, 2022:
| Thirteen Weeks Ended | |||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||
| Receivables sold under the RPA | $ | $ | |||||||||
| Cash collected on sold receivables under the RPA | $ | $ | |||||||||
The receivables sold incurred fees due to the Purchasers of $4,611 and $0 during the thirteen-week periods ended December 2, 2023 and December 3, 2022, respectively, which were recorded within Other expense, net in the Condensed Consolidated Statements of Income. The financial covenants under the RPA are substantially the same as those under the Credit Facilities, the Private Placement Debt and the Shelf Facility Agreements (each, as defined below). See Note 7, “Debt” for more information about these financial covenants.
12
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 7. Debt
Debt at December 2, 2023 and September 2, 2023 consisted of the following:
| December 2, 2023 | September 2, 2023 | |||||||||||||
| Amended Revolving Credit Facility | $ | $ | ||||||||||||
| Uncommitted Credit Facilities | ||||||||||||||
| Long-Term Note Payable | ||||||||||||||
| Private Placement Debt: | ||||||||||||||
| Financing arrangements | ||||||||||||||
| Obligations under finance leases | ||||||||||||||
| Less: unamortized debt issuance costs | ( | ( | ||||||||||||
| Total debt, including obligations under finance leases | $ | $ | ||||||||||||
| Less: current portion | ( | (2) | ( | (3) | ||||||||||
| Total long-term debt, including obligations under finance leases | $ | $ | ||||||||||||
(1)Represents private placement debt issued under the Shelf Facility Agreements.
(2)Consists of $193,000 from the Uncommitted Credit Facilities (as defined below), $50,000 from the 2.40 % Series 2019A Notes, due March 5, 2024, $1,261 from financing arrangements, $135 from obligations under finance leases and net of unamortized debt issuance costs of $348 expected to be amortized in the next 12 months.
(3)Consists of $180,000 from the Uncommitted Credit Facilities, $50,000 from the 2.40 % Series 2019A Notes, due March 5, 2024, $37 from financing arrangements, $249 351 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, which was subsequently amended and extended in August 2021 (as amended and extended, the “Amended Revolving Credit Facility”). The Amended Revolving Credit Facility, which matures on August 24, 2026, provides for a 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 the Adjusted Term SOFR Rate (as defined in the Amended Revolving Credit Facility) or a base rate, plus a spread based on the Company’s consolidated leverage ratio at the end of each fiscal reporting quarter. The Company currently elects to have loans under the Amended Revolving Credit Facility bear interest based on the Adjusted Term SOFR Rate 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 revolving loan commitment increase will be on terms as agreed to by the Company, the administrative agent and the lenders providing such financing. Outstanding letters of credit were $5,269
Uncommitted Credit Facilities
During fiscal year 2023, the Company extended all three of its uncommitted credit facilities. These facilities (collectively, the “Uncommitted Credit Facilities” and, together with the Amended Revolving Credit Facility, the “Credit Facilities”) total $203,000 in aggregate maximum uncommitted availability, under which $193,000 and $180,000 were
13
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
outstanding at December 2, 2023 and September 2, 2023, respectively, and are included in current portion of debt including obligations under finance leases in the unaudited Condensed Consolidated Balance Sheets. The interest rate on the Uncommitted Credit Facilities is based on the Secured Overnight Financing Rate. Borrowings under the Uncommitted Credit Facilities are due at the end of the applicable interest period, 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 past, been willing to roll over the principal amount outstanding under the Uncommitted Credit Facilities at the end of each interest 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.
During the thirteen-week period ended December 2, 2023, the Company borrowed an aggregate $148,000 and repaid an aggregate $65,000 under the Credit Facilities. As of December 2, 2023 and September 2, 2023, the weighted-average interest rates on borrowings under the Credit Facilities were 6.25 % and 6.17 %, respectively.
Private Placement Debt
In July 2016, the Company completed the issuance and sale of $100,000 aggregate principal amount of 2.90 % Senior Notes, Series B, due July 28, 2026; in June 2018, the 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”). Interest is payable semiannually at the fixed stated interest rates. All of the Private Placement Debt is unsecured.
Shelf Facility Agreements
In January 2018, the Company entered into Note Purchase and Private Shelf Agreements with MetLife Investment Advisors, LLC (the “MetLife Note Purchase Agreement”) and PGIM, Inc. (the “Prudential Note Purchase Agreement” and, together with the MetLife 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. As of December 2, 2023, $50,000 aggregate principal amount of 2.40 % Series 2019A Notes, due March 5, 2024, was outstanding under notes issued in private placements pursuant to the Shelf Facility Agreements.
Covenants
Note 8. Shareholders’ Equity
Common Stock Repurchases and Treasury Stock
In June 2021, the Board of Directors of the Company (the “Board”) terminated the existing share repurchase plan and authorized a new share repurchase plan (the “Share Repurchase Plan”) to purchase up to 5,000 shares of Class A Common Stock. There is no expiration date for the Share Repurchase Plan. As of December 2, 2023, the maximum number of shares of Class A Common Stock that may yet be repurchased under the Share Repurchase Plan was 2,443 shares. The Share Repurchase Plan allows the Company to repurchase shares at any time and in any increments it deems appropriate in accordance with Rule 10b-18 under the Exchange Act.
During the thirteen-week period ended December 2, 2023, the Company repurchased 1,367 shares of Class A Common Stock for $132,045 . From this total, 87 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
14
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
treasury stock in the unaudited Condensed Consolidated Financial Statements for the thirteen-week period ended December 2, 2023 and the remainder were immediately retired. During the thirteen-week period ended December 3, 2022, the Company repurchased 233 shares of Class A Common Stock for $18,539 . From this total, 52 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-week period ended December 3, 2022 and the remainder were immediately retired.
The Company reissued 13 shares and 14 shares of treasury stock during the thirteen-week periods ended December 2, 2023 and December 3, 2022, 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 $0.83 per share totaling $47,192 for the thirteen weeks ended December 2, 2023. For the thirteen weeks ended December 3, 2022, the Company paid aggregate regular cash dividends of $0.79 per share totaling $44,207 .
On December 15, 2023, the Board declared a regular cash dividend of $0.83 per share, payable on January 23, 2024, to shareholders of record at the close of business on January 9, 2024. The dividend is expected to result in aggregate payments of $46,812 , based on the number of shares outstanding at December 20, 2023.
Reclassification
In October 2023, the Company completed its previously announced reclassification (the “Reclassification”) of the Common Stock to eliminate the Class B Common Stock, effective at the time that the Company’s Restated Certificate of Incorporation was duly filed with the Secretary of State of the State of New York (the “Effective Time”), as contemplated by that certain Reclassification Agreement, dated as of June 20, 2023 (the “Reclassification Agreement”), with Mitchell Jacobson, Erik Gershwind, other members of the Jacobson / Gershwind family and certain entities affiliated with the Jacobson / Gershwind family (collectively, the “Jacobson / Gershwind Family Shareholders”). Pursuant to the Reclassification, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time was reclassified, exchanged and converted into 1.225 shares of Class A Common Stock. The issuance of Class A Common Stock in connection with the Reclassification was registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Company’s Registration Statement on Form S‐4 (File No. 333-273418).
As contemplated by the Reclassification Agreement, a number of corporate governance changes were implemented, including the following:
•the Jacobson / Gershwind Family Shareholders have the right to designate (i) two individuals (one of whom will be Mr. Erik Gershwind so long as he is the Company’s Chief Executive Officer) for nomination for election to the Board so long as the Jacobson / Gershwind Family Shareholders own 10 % or more of the issued and outstanding shares of Class A Common Stock and (ii) one individual for nomination for election to the Board so long as the Jacobson / Gershwind Family Shareholders own less than 10 % but more than 5 % of the issued and outstanding shares of Class A Common Stock;
•the Jacobson / Gershwind Family Shareholders have each granted an irrevocable proxy authorizing the Company to vote such pro rata portion of shares of Class A Common Stock beneficially owned by the Jacobson / Gershwind Family Shareholders or their permitted transferees in excess of 15 % of the issued and outstanding shares of Class A Common Stock in proportion to the votes of other holders (i.e., excluding any Jacobson / Gershwind Family Shareholders and their permitted transferees) entitled to vote and that do in fact vote;
•certain standstill and lock-up provisions for the Jacobson / Gershwind Family Shareholders;
•the transition of the approval standard for certain significant transactions (including mergers, asset sales, share exchanges and dissolution) from a two-thirds supermajority to a majority of the issued and outstanding shares of Class A Common Stock entitled to vote thereon;
•the adoption of a “majority of the votes cast” standard for uncontested director elections; and
•the designation of (i) the New York Supreme Court as the exclusive forum for (a) certain derivative claims, (b) claims asserting breach of fiduciary duties, (c) claims pursuant to the New York Business Corporation
15
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Law, the Company’s Restated Certificate of Incorporation or the Company’s Third Amended and Restated By-Laws or (d) claims governed by the internal affairs doctrine and (ii) the U.S. federal district courts as the exclusive forum for claims under the Securities Act.
Note 9. Restructuring and Other Costs
Optimization of Company Operations and Profitability Improvement
The Company continues to identify opportunities for improvements in its workforce realignment, strategy and staffing, and its focus on performance management, to ensure it has the right skill sets and number of associates to execute its long-term vision. As such, the Company extends voluntary and involuntary severance and separation benefits to certain associates in order to facilitate its workforce realignment. In addition, from time to time, the Company engages consultants to assist in reviewing the optimization of the Company’s operations and improving profitability.
The following table summarizes restructuring and other costs for the thirteen-week periods ended December 2, 2023 and December 3, 2022:
| Thirteen Weeks Ended | |||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||||||||||||||
| Consulting-related costs | $ | $ | |||||||||||||||||||||
| Associate severance and separation costs | |||||||||||||||||||||||
| Equity award acceleration costs associated with severance | |||||||||||||||||||||||
| Total restructuring and other costs | $ | $ | |||||||||||||||||||||
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 December 2, 2023. The following table summarizes activity related to liabilities associated with restructuring and other costs for the thirteen-week period ended December 2, 2023:
| Consulting-related costs | Associate severance and separation costs | Total | |||||||||||||||
| Balance at September 2, 2023 | $ | $ | $ | ||||||||||||||
| Additions | |||||||||||||||||
| Payments and other adjustments | ( | ( | ( | ||||||||||||||
| Balance at December 2, 2023 | $ | $ | $ | ||||||||||||||
Note 10. Income Taxes
During the thirteen-week period ended December 2, 2023, there were no material changes in unrecognized tax benefits.
The United States government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act provides tax relief, along with other stimulus measures, including the Employee Retention Credit (the “ERC”) provision, which allows for employers to claim a refundable tax credit against the employer share of Social Security taxes equal to 50% of qualified wages paid to qualified employees between March 13, 2020 and December 31, 2020 and 70% of qualified wages paid to qualified employees after December 31, 2020 through September 30, 2021. The ERC was designed to encourage businesses to keep employees on the payroll during the COVID-19 pandemic. During fiscal year 2023, the Company received funds related to ERC claims previously submitted. As there is no authoritative guidance under accounting principles generally accepted in the United States of America on accounting for government assistance to for-profit business entities, the Company accounts for the
16
MSC INDUSTRIAL DIRECT CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
ERC by analogy to International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance. Management determined the probability threshold has not been met for $5,129 of the funds received in fiscal year 2023, and, as such, that portion of the funds remains in accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet as of December 2, 2023. This amount will be recognized in the Condensed Consolidated Statement of Income when the probability threshold has been met, which the Company has determined to be the earlier of a completed audit or the lapse of the relevant statute of limitations.
Note 11. Legal Proceedings
17
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,” “we,” “us” or “our”) Annual Report on Form 10-K for the fiscal year ended September 2, 2023 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” of Part II of such Annual Report on Form 10-K.
Overview
MSC 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 inventory management and other supply chain solutions and deep expertise from more than 80 years of working with customers across industries. We offer approximately 2.4 million active, saleable stock-keeping units (“SKUs”) through our catalogs; our brochures; our E-commerce channels, including our website, www.mscdirect.com (the “MSC website”); our inventory management solutions; and our customer care centers, customer fulfillment centers, regional inventory centers and warehouses. We service our customers from six customer fulfillment centers, 10 regional inventory centers, 38 warehouses, and four manufacturing locations. We continue to implement our strategies to gain market share, generate new customers, increase sales to existing customers, and diversify our customer base.
Our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our 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.
We focus on offering inventory, process and procurement solutions that reduce MRO supply chain costs and improve plant floor productivity for our customers. We will seek to continue to achieve cost reductions throughout our business through cost-saving strategies and increased leverage from our existing infrastructure, and to continue to provide additional procurement cost-saving solutions to our customers through technology such as our Electronic Data Interchange (“EDI”) systems, vendor-managed inventory (“VMI”) systems and vending programs. Our field sales and service associate headcount was 2,619 at December 2, 2023, compared to 2,545 at December 3, 2022.
Highlights
Highlights during the thirteen weeks ended December 2, 2023 include the following:
•We generated $81.2 million of cash from operations, compared to $76.0 million for the same period in the prior fiscal year.
•We had net borrowings of $83.0 million on our credit facilities, private placement debt and shelf facility agreements, compared to net payments of $15.0 million for the same period in the prior fiscal year.
•We paid out an aggregate $47.2 million in regular cash dividends, compared to an aggregate $44.2 million in regular cash dividends for the same period in the prior fiscal year.
•We repurchased $132.0 million of MSC’s Class A Common Stock, par value $0.001 per share (“Class A Common Stock”), compared to $18.5 million for the same period in the prior fiscal year. The higher repurchase volume was primarily to offset the share dilution resulting from the Reclassification (as defined below).
•We incurred $0.9 million in restructuring and other costs, compared to $2.1 million for the same period in the prior fiscal year. Restructuring and other costs primarily consist of consulting-related costs and associate severance and separation costs associated with the optimization of the Company’s operations and profitability improvement.
•We completed our previously announced reclassification (the “Reclassification”) of our common stock to eliminate our Class B Common Stock, par value $0.001 per share (“Class B Common Stock”). Pursuant to the Reclassification, each issued and outstanding share of Class B Common Stock was reclassified, exchanged and converted into 1.225 shares of Class A Common Stock. See Note 8, “Shareholders’ Equity” in the Notes to Condensed Consolidated Financial Statements for additional information.
18
Recent Developments
Moving Beyond Mission Critical
Our Company-wide initiative, referred to as “Mission Critical,” which focused on market share capture and improved profitability came to a close at the end of fiscal year 2023. We successfully executed on our Mission Critical initiatives, which included solidifying our market-leading metalworking business, with an emphasis on selling our product portfolio, expanding our solutions, improving our digital and E-commerce capabilities and diversifying our customers and end markets. The next phase of our mission critical journey is anchored in three pillars: maintaining the momentum of the first phase of the Mission Critical program and our existing growth drivers, increasing our focus on both core customers and OEM fasteners, and driving productivity improvements and reducing operating expenses as a percentage of sales. To accomplish the next phase of our mission critical journey, we will leverage investments in advanced analytics to improve supply chain performance, maintain momentum from our category line reviews and upgrade our digital core to unlock productivity within our order-to-cash and procure-to-pay processes.
Impact of Economic Trends
The United States economy has experienced various macroeconomic pressures including an elevated inflationary environment, sustained high interest rates and general economic and political uncertainty. Such pressures have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations. During the first quarter, the Company experienced softening demand for the products and services it offers as evidenced by the decrease in the average IP Index (as defined below) during the quarter. High finished goods inventories from the auto industry disruption in conjunction with a year-end holiday pause further softened customer demand. This, in combination with lingering uncertainty as a result of the UAW strike (as defined below), led many of our customers to reduce inventory rather than purchase new products.
On September, 15, 2023, the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) engaged in a strike against major automakers and automotive part suppliers, which was resolved on October 30, 2023. The Company has some direct exposure to the automotive end market and is also indirectly impacted by customers who service the automotive industry. The company continues to broaden and diversify its customer base, however the impact of the UAW strike on automotive and related end markets was a headwind to overall net sales of the Company during the first quarter of fiscal year 2024.
Our Strategy
Our primary objective is to grow sales profitably while offering our customers highly technical and high-touch solutions to solve their most complex challenges on the plant floor. We have experienced success to date as measured by the growth rates of our high-touch programs, such as vending and in-plant programs, and the rate of new customer implementations. Our strategy is to complete the transition from being a spot-buy supplier to a mission-critical partner to our customers. We will selectively pursue strategic acquisitions that expand or complement our business in new and existing markets or further enhance the value and offerings we provide.
Business Environment
We utilize various indices when evaluating the level of our business activity, including the Industrial Production (“IP”) Index. Approximately 68% of our revenues came from sales in the manufacturing sector during the thirteen-week period ended December 2, 2023. Through statistical analysis, we have found that trends in our customers’ activity have correlated to changes in the IP Index. 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. The IP index over the
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three months ended November 2023 and the average for the three- and 12-month periods ended November 2023 were as follows:
| Period | IP Index | |||||||
| September | 103.3 | |||||||
| October | 102.4 | |||||||
| November | 102.7 | |||||||
| Fiscal Year 2024 Q1 Average | 102.8 | |||||||
| 12-Month Average | 102.7 | |||||||
The average IP Index for the three months ended November 2023 of 102.8 decreased from the adjusted average from the prior fiscal year quarter of 103.3, which indicates a decline in manufacturing output during the period. General economic uncertainty remains driven by an elevated inflationary environment, sustained high interest rates and political uncertainty. As we see the IP Index continue to fluctuate, we will monitor the current economic conditions for the impact on our customers and markets and assess both risks and opportunities that may affect our business and operations. See “Impact of Economic Trends” above.
Thirteen-Week Period Ended December 2, 2023 Compared to the Thirteen-Week Period Ended December 3, 2022
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 | |||||||||||||||||||||||||||||||||||
| December 2, 2023 | December 3, 2022 | Change | |||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | ||||||||||||||||||||||||||||||
| Net sales | $ | 953,969 | 100.0 | % | $ | 957,745 | 100.0 | % | $ | (3,776) | (0.4) | % | |||||||||||||||||||||||
| Cost of goods sold | 560,852 | 58.8 | % | 559,946 | 58.5 | % | 906 | 0.2 | % | ||||||||||||||||||||||||||
| Gross profit | 393,117 | 41.2 | % | 397,799 | 41.5 | % | (4,682) | (1.2) | % | ||||||||||||||||||||||||||
| Operating expenses | 290,633 | 30.5 | % | 279,695 | 29.2 | % | 10,938 | 3.9 | % | ||||||||||||||||||||||||||
| Restructuring and other costs | 916 | 0.1 | % | 2,094 | 0.2 | % | (1,178) | (56.3) | % | ||||||||||||||||||||||||||
| Income from operations | 101,568 | 10.6 | % | 116,010 | 12.1 | % | (14,442) | (12.4) | % | ||||||||||||||||||||||||||
| Total other expense | (10,250) | (1.1) | % | (8,159) | (0.9) | % | (2,091) | 25.6 | % | ||||||||||||||||||||||||||
| Income before provision for income taxes | 91,318 | 9.6 | % | 107,851 | 11.3 | % | (16,533) | (15.3) | % | ||||||||||||||||||||||||||
| Provision for income taxes | 22,190 | 2.3 | % | 26,639 | 2.8 | % | (4,449) | (16.7) | % | ||||||||||||||||||||||||||
| Net income | 69,128 | 7.2 | % | 81,212 | 8.5 | % | (12,084) | (14.9) | % | ||||||||||||||||||||||||||
| Less: Net loss attributable to noncontrolling interest | (222) | 0.0 | % | (102) | 0.0 | % | (120) | 117.6 | % | ||||||||||||||||||||||||||
| Net income attributable to MSC Industrial | $ | 69,350 | 7.3 | % | $ | 81,314 | 8.5 | % | $ | (11,964) | (14.7) | % | |||||||||||||||||||||||
Net Sales
Net sales decreased 0.4%, or $3.8 million, to $954.0 million for the thirteen-week period ended December 2, 2023, as compared to $957.7 million for the same period in the prior fiscal year. The $3.8 million decrease in net sales was comprised of $29.7 million of lower sales volume, partially offset by $15.5 million from improved pricing, inclusive of changes in customer and product mix, discounting and other items, $7.8 million of net sales from fiscal year 2023 acquisitions and $2.6 million of favorable foreign exchange impact. Of the $3.8 million decrease in net sales during the thirteen-week period ended December 2, 2023, sales to our core and other customers decreased by $30.3 million, partially offset by an increase in sales to our national account customers of $17.9 million and an increase in sales to our public sector customers of $8.6 million.
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The table below shows, among other things, the change in our average daily sales (“ADS”) by total Company and by customer end-market for the thirteen-week periods ended December 2, 2023 and December 3, 2022, each as compared to the same period in the prior fiscal year:
ADS Percentage Change
(Unaudited)
| Thirteen Weeks Ended | |||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||
| Net Sales (in thousands) | $ | 953,969 | $ | 957,745 | |||||||
| Sales Days | 62 | 62 | |||||||||
ADS (1) (in millions) | $ | 15.4 | $ | 15.4 | |||||||
Total Company ADS Percent Change (2) | (0.4) | % | 12.9 | % | |||||||
Manufacturing Customers ADS Percent Change (2) | (3.7) | % | 11.1 | % | |||||||
| Manufacturing Customers Percent of Total Net Sales | 68 | % | 69 | % | |||||||
Non-Manufacturing Customers ADS Percent Change (2) | 7.0 | % | 17.2 | % | |||||||
| Non-Manufacturing Customers Percent of Total Net Sales | 32 | % | 31 | % | |||||||
(1)ADS is calculated using the number of business days in the United States for the periods indicated. The Company believes ADS is a key performance indicator because it shows the effectiveness of the Company’s selling performance on a consistent basis between periods.
(2)Percent reflects the change from the 2023 fiscal period to the 2024 fiscal period and the change from the 2022 fiscal period to the 2023 fiscal period, respectively.
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 E-commerce platforms, including sales made through EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 63.3% of consolidated net sales for the thirteen-week period ended December 2, 2023, as compared to 61.9% of consolidated net sales for the same period in the prior fiscal year.
Gross Profit
Gross profit of $393.1 million for the thirteen-week period ended December 2, 2023 decreased $4.7 million, or 1.2%, compared to the same period in the prior fiscal year. Gross profit margin was 41.2% for the thirteen-week period ended December 2, 2023, as compared to 41.5% for the same period in the prior fiscal year. The decrease in gross profit and gross profit margin was primarily a result of lower sales volume as described above and a headwinds between sales price and cost of goods sold.
Operating Expenses
Operating expenses increased 3.9%, or $10.9 million, to $290.6 million for the thirteen-week period ended December 2, 2023, as compared to $279.7 million for the same period in the prior fiscal year. Operating expenses were 30.5% of net sales for the thirteen-week period ended December 2, 2023, as compared to 29.2% for the same period in the prior fiscal year. These increases were primarily attributable to higher payroll and payroll-related costs and professional fees associated with the Reclassification, partially offset by a decrease in freight expense.
Payroll and payroll-related costs for the thirteen-week period ended December 2, 2023 were 56.8% of total operating expenses, as compared to 56.2% 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 $7.8 million for the thirteen-week period ended December 2, 2023. The majority of this increase compared to the same period in the prior fiscal year was due to increased salary expense, primarily attributable to higher associate headcount to support our strategic growth investments and annual merit increases. Fringe benefit costs also increased, resulting from higher insurance-related
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healthcare reserves due to recent higher healthcare claims. These increases were partially offset by a lower incentive compensation accrual.
Freight expense was $37.4 million for the thirteen-week period ended December 2, 2023, as compared to $40.5 million for the same period in the prior fiscal year. The primary drivers of the decrease in freight expense were decreased sales volume and dissipating fuel-related charges.
Restructuring and Other Costs
We incurred $0.9 million in restructuring and other costs for the thirteen-week period ended December 2, 2023, as compared to $2.1 million for the same period in the prior fiscal year. Restructuring and other costs primarily consist of consulting-related costs, associate severance and separation costs and equity award acceleration costs associated with severance related with the optimization of the Company’s operations and profitability improvement. See Note 9, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from Operations
Income from operations decreased 12.4%, or $14.4 million, to $101.6 million for the thirteen-week period ended December 2, 2023, as compared to $116.0 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales decreased to 10.6% for the thirteen-week period ended December 2, 2023, as compared to 12.1% for the same period in the prior fiscal year. The decrease in income from operations as a percentage of net sales was primarily attributable to, as described above, a lower gross profit margin and an increase in operating expenses as a percentage of net sales during the thirteen-week period ended December 2, 2023.
Total Other Expense
Total other expense increased 25.6%, or $2.1 million, to $10.3 million for the thirteen-week period ended December 2, 2023, as compared to $8.2 million for the same period in the prior fiscal year. The increase was primarily due to higher interest rates on our credit facilities and fees incurred associated with the Receivables Purchase Agreement (the “RPA”) entered into during fiscal year 2023.
Provision for Income Taxes
The Company’s effective tax rate for the thirteen-week period ended December 2, 2023 was 24.3%, as compared to 24.7% for the same period in the prior fiscal year. The decrease in the effective tax rate was primarily due to a higher tax benefit from stock-based compensation.
Net Income
The factors which affected net income for the thirteen-week period ended December 2, 2023, as compared to the same period in the prior fiscal year, have been discussed above.
Liquidity and Capital Resources
| December 2, 2023 | September 2, 2023 | $ Change | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Total debt | $ | 538,478 | $ | 454,326 | $ | 84,152 | |||||||||||
| Less: Cash and cash equivalents | 25,805 | 50,052 | (24,247) | ||||||||||||||
| Net debt | $ | 512,673 | $ | 404,274 | $ | 108,399 | |||||||||||
| Total shareholders’ equity | $ | 1,398,225 | $ | 1,492,582 | $ | (94,357) | |||||||||||
As of December 2, 2023, we had $25.8 million in cash and cash equivalents, substantially all with well-known financial institutions. Historically, our primary 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 net proceeds from the private placement notes, have been used to fund these needs, to repurchase shares of Class A Common Stock from time to time, and to pay dividends to our shareholders.
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As of December 2, 2023, total borrowings outstanding, representing amounts due under our credit facilities and notes, as well as all finance leases and financing arrangements, were $538.5 million, net of unamortized debt issuance costs of $0.9 million, as compared to total borrowings outstanding of $454.3 million, net of unamortized debt issuance costs of $1.0 million, as of the end of fiscal year 2023. The increase in total borrowings outstanding was driven by higher net borrowings under our credit facilities. See Note 7, “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, financial resources and cash flow from operations will be sufficient to fund anticipated capital expenditures and operating cash requirements for at least the next 12 months. We will continue to evaluate our financial position in light of future developments and to take appropriate action as it is warranted.
The table below summarizes certain information regarding the Company’s cash flows for the periods indicated:
| Thirteen Weeks Ended | |||||||||||
| December 2, 2023 | December 3, 2022 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities | $ | 81,168 | $ | 76,024 | |||||||
| Net cash used in investing activities | (18,433) | (25,591) | |||||||||
| Net cash used in financing activities | (87,191) | (67,950) | |||||||||
| Effect of foreign exchange rate changes on cash and cash equivalents | 209 | 311 | |||||||||
| Net decrease in cash and cash equivalents | $ | (24,247) | $ | (17,206) | |||||||
Cash Flows from Operating Activities
Net cash provided by operating activities was $81.2 million for the thirteen weeks ended December 2, 2023 compared to $76.0 million for the thirteen weeks ended December 3, 2022. The increase was primarily due to the following:
•a decrease in the change in accounts receivable and inventories primarily attributable to lower sales and purchase volume; partially offset by
•a decrease in the change in accounts payable and accrued purchases as compared to the prior year period and a decrease in net income as described above.
The table below summarizes certain information regarding the Company’s operations as of the periods indicated:
| December 2, 2023 | September 2, 2023 | December 3, 2022 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
Working Capital (1) | $ | 643,108 | $ | 668,077 | $ | 831,812 | |||||||||||
Current Ratio (2) | 2.0 | 2.0 | 2.1 | ||||||||||||||
Days’ Sales Outstanding (3) | 40.8 | 36.5 | 64.9 | ||||||||||||||
Inventory Turnover (4) | 3.2 | 3.2 | 3.2 | ||||||||||||||
(1)Working Capital is calculated as current assets less current liabilities.
(2)Current Ratio is calculated as total current assets divided by total current liabilities.
(3)Days’ Sales Outstanding is calculated as accounts receivable divided by net sales, using trailing two months sales data.
(4)Inventory Turnover is calculated as total cost of goods sold divided by inventory, using a 13-month trailing average inventory.
Working capital and the current ratio both remained consistent to September 2, 2023. The slight decrease in working capital was primarily due to lower accounts receivable, inventory and cash balances, partially offset by a lower accounts payable balance. The decline in accounts payable was a result of recent lower purchase volume. Working capital and the current ratio both declined compared to December 3, 2022, primarily due to a decrease in accounts receivable
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resulting from the RPA entered into during fiscal year 2023. The RPA reduced the accounts receivable balance by $300.0 million.
The increase in days’ sales outstanding as of December 2, 2023 as compared to September 2, 2023 was primarily due to the receivables portfolio consisting of a greater percentage of our national account program sales, which typically have longer payment terms. The decrease in days’ sales outstanding as of December 2, 2023 as compared to December 3, 2022 was primarily due to the RPA entered into during fiscal year 2023.
Inventory turnover as of December 2, 2023 remained consistent with both September 2, 2023 and December 3, 2022.
Cash Flows from Investing Activities
Net cash used in investing activities for the thirteen weeks ended December 2, 2023 and December 3, 2022 was $18.4 million and $25.6 million, respectively. The use of cash for both periods was primarily due to expenditures for property, plant and equipment mainly related to vending programs and other infrastructure and technology investments.
Cash Flows from Financing Activities
Net cash used in financing activities was $87.2 million for the thirteen weeks ended December 2, 2023 compared to $68.0 million for the thirteen weeks ended December 3, 2022, primarily due to the following:
•$132.0 million in aggregate repurchases of Class A Common Stock during the thirteen weeks ended December 2, 2023, compared to $18.5 million in aggregate repurchases of Class A Common Stock during the thirteen weeks ended December 3, 2022;
•$47.2 million of regular cash dividends paid during the thirteen weeks ended December 2, 2023, compared to $44.2 million of regular cash dividends paid during the thirteen weeks ended December 3, 2022; and
•net borrowings under our credit facilities, private placement debt and shelf facility agreements of $83.0 million during the thirteen weeks ended December 2, 2023, compared to net payments of $15.0 million during the thirteen weeks ended December 3, 2022.
Capital Expenditures
We continue to invest in E-commerce and vending platforms, customer fulfillment centers and distribution network, and other infrastructure and technology.
Long-Term Debt
Credit Facilities
In April 2017, the Company entered into a $600.0 million revolving credit facility, which was subsequently amended and extended in August 2021. As of December 2, 2023, the Company also had three uncommitted credit facilities, totaling $203.0 million of aggregate maximum uncommitted availability. As of December 2, 2023, we were in compliance with the operating and financial covenants of our credit facilities. The current unused balance of $474.7 million from the revolving credit facility, which is reduced by outstanding letters of credit, is available for working capital purposes if necessary. See Note 7, “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, 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 7, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these transactions.
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Leases and Financing Arrangements
As of December 2, 2023, certain of our operations were conducted on leased premises. These leases are for varying periods, the longest extending to fiscal year 2031. In addition, we are obligated under certain equipment and automobile operating and finance leases, which expire on varying dates through fiscal year 2029.
From time to time, we enter into financing arrangements with vendors to purchase certain information technology equipment or software.
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 credit losses, warranty reserves, contingencies and litigation, income taxes, and accounting for goodwill and long-lived assets. We make estimates, judgments and assumptions in determining the amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying 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, as disclosed in its Annual Report on Form 10-K for the fiscal year ended September 2, 2023.
Recently Adopted Accounting Standards
See Note 1, “Basis of Presentation” in the Notes to Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For information regarding our exposure to certain market risks, 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 2, 2023. Except as described in Item 2, “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 financial instrument portfolio or interest rate risk since our September 2, 2023 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 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 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. 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, 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.
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Changes in Internal Control Over Financial Reporting
There were no changes in our internal 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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.
Item 1A. Risk Factors.
In addition to the other information set forth in this Report, you should carefully consider the risks and the uncertainties discussed in Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K for the fiscal year ended September 2, 2023, which could materially affect our business, financial condition and/or operating results. There have been no material changes in the Company’s risk factors from those disclosed in our Annual Report on Form 10-K. The risks described in our Annual Report on Form 10-K are not the only risks facing 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, which are listed on the New York Stock Exchange, during the thirteen-week period ended December 2, 2023:
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 | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(3) | ||||||||||||||||||||||
| 9/3/23-10/3/23 | 205,239 | $ | 96.80 | 204,744 | 3,519,279 | |||||||||||||||||||||
| 10/4/23-11/2/23 | 448,734 | $ | 94.48 | 441,174 | 3,078,105 | |||||||||||||||||||||
| 11/3/23-12/2/23 | 713,415 | $ | 97.78 | 634,705 | 2,443,400 | |||||||||||||||||||||
| Total | 1,367,388 | 1,280,623 | ||||||||||||||||||||||||
(1)During the thirteen weeks ended December 2, 2023, 86,765 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)In June 2021, the Board of Directors terminated the existing share repurchase plan and authorized a new share repurchase plan (the “Share Repurchase Plan”) to purchase up to 5,000,000 shares of Class A Common Stock. There is no expiration date for the Share Repurchase Plan. As of December 2, 2023, the maximum number of shares of Class A Common Stock that may yet be repurchased under the Share Repurchase Plan was 2,443,400 shares.
Item 5. Other Information.
Insider Trading Arrangements
During the quarter ended December 2, 2023, none of our directors or officers (as defined in Rule 16a1(f) under the Exchange Act) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”
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Item 6. Exhibits
EXHIBIT INDEX
| Exhibit No. | Description | |||||||
| 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. | |||||||
| † | Indicates a management contract or compensatory plan or arrangement. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MSC INDUSTRIAL DIRECT CO., INC. (Registrant) | ||||||||
Dated: January 9, 2024 | By: | /s/ ERIK GERSHWIND | ||||||
Erik Gershwind President and Chief Executive Officer (Principal Executive Officer) | ||||||||
Dated: January 9, 2024 | By: | /s/ KRISTEN ACTIS-GRANDE | ||||||
Kristen Actis-Grande Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer ) | ||||||||
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EXHIBIT 10.2
MSC INDUSTRIAL DIRECT CO., INC.
2023 OMNIBUS INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
Participant: %%FIRST_NAME_MIDDLE_NAME_LAST_NAME%-%
RSUs Granted: %%TOTAL_SHARES_GRANTED,'999,999,999'%-%
Grant Date: %%OPTION_DATE,'Month DD, YYYY'%-%
This RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) is entered into on the date set forth on the signature page hereto, by and between MSC Industrial Direct Co., Inc. (the “Company”) and the above-named participant (the “Participant”). The Company and the Participant may hereinafter each be referred to as a “Party” and collectively as the “Parties.”
WHEREAS, the Parties desire to enter into this Agreement for the purpose of establishing the terms and conditions of RSUs (as defined below) that have been granted to the Participant.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1.Definitions. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Company’s 2023 Omnibus Incentive Plan (the “Plan”).
2.Grant of Award. The Participant is hereby granted an Award (the “Award”) of restricted stock units (“RSUs”) issued under the Plan, evidencing the grant thereof by the Compensation Committee (the “Committee”) of the Board of Directors of the Company on the grant date (the “Grant Date”), and the Participant hereby accepts the Award, in each case, on the terms and subject to the conditions set forth in this Agreement.
3.Vesting Dates. Subject to Sections 7, 8, 9, 11 and 13 below, the applicable percentage of the RSUs shall vest on each “Vesting Date” in accordance with the following schedule, provided that the Participant remains an associate of, or in the service of, the Company (or a Subsidiary) during the entire period commencing on the Grant Date and ending on the applicable Vesting Date:
| Vesting Date | Percentage of RSUs Vested | ||||
| %%VEST_DATE_PERIOD1,'Month DD, YYYY'%-% | 25% | ||||
| %%VEST_DATE_PERIOD2,'Month DD, YYYY'%-% | 50% | ||||
| %%VEST_DATE_PERIOD3,'Month DD, YYYY'%-% | 75% | ||||
| %%VEST_DATE_PERIOD4,'Month DD, YYYY'%-% | 100% | ||||
4.Settlement; Rights as a Shareholder. Upon vesting, each RSU shall be converted into the right to receive one (1) share of the Company’s Class A Common Stock, par value $0.001 per share (a “Share”), upon settlement. Settlement of vested RSUs shall be made promptly following the date such RSUs shall have vested and in any case within sixty (60) days following the date of vesting, provided that the Participant shall not be permitted, directly or indirectly, to designate the year of settlement. Any fractional share upon vesting shall be used to satisfy the Company’s withholding obligation.
Unless and until such time as Shares are issued in settlement of vested RSUs, the Participant shall have no ownership of the Shares allocated to the RSUs and, subject to the provisions of Section 5, shall have no rights as a shareholder with respect to such Shares. Upon settlement, the Company shall cause the Company’s transfer agent to issue a certificate or certificates for the Shares in the name of the Participant, or to make a book entry record of such issuance, and the Participant shall thereupon have all rights as a shareholder with respect to such Shares, including the right to vote such Shares and to receive all dividends and other distributions paid with respect to such Shares. The Company may place on the certificates representing the Shares such legend or legends as the Company may deem appropriate and the Company may place a stop transfer order with respect to such Shares with the transfer agent(s) for the Shares.
5.Dividend Equivalents. Any dividends paid in cash on Shares prior to vesting of the RSUs shall be credited to the Participant as additional RSUs, as if the RSUs then held by the Participant had been converted to Shares. The amount of such credit, which may be in whole and/or fractional RSUs (carried to three decimals), shall be determined based on the Fair Market Value of Shares on the date of payment of such dividend. All such additional RSUs credited to the Participant shall be subject to the same vesting requirements applicable to the RSUs underlying the Award and shall be settled in accordance with, and at the time of, settlement of vested RSUs pursuant to this Agreement.
6.No Transfer. This Award and the RSUs are non-transferable and may not be assigned, pledged or hypothecated and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award shall immediately become null and void and the RSUs shall be forfeited.
7.Termination of Employment or Provision of Services by Reason of Death, Disability or Retirement. If the Participant’s employment with or provision of services for the Company and its Subsidiaries terminates by reason of death, Disability or Retirement (each, as defined below), the RSUs shall fully vest and any forfeiture restrictions on this Award shall lapse on the date of such death, Disability or termination of employment by reason of Retirement. For purposes of this Agreement, “Disability” shall mean (as determined by the Committee in its sole
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discretion) any mental or physical illness that would qualify the Participant for a disability under any long-term disability plan maintained by the Company or any Subsidiary that is applicable to such Participant, provided that if necessary for the Award to satisfy Section 409A of the Code, a “Disability” must also be a disability within the meaning of Section 409A; and “Retirement” shall mean termination of employment or provision of services without Cause (as defined below), death or Disability on or after age sixty-five (65) with five (5) years of service.
8.Other Termination of Employment or Provision of Services. If the Participant’s employment or provision of services (including as a Non-Executive Director) is terminated for any reason other than death, Disability or Retirement, this Award and the RSUs represented by this Award that have not yet vested as of such date shall be forfeited to the Company forthwith and all rights of the Participant under this Award and such unvested RSUs represented by this Award shall immediately terminate. For purposes of this Award, the termination date shall be the last day of employment or provision of services and shall not be extended by any actual or deemed period of notice of termination, whether under statute, common law, contract or otherwise. For purposes of this Award, the Participant’s employment or provision of services shall be deemed to have terminated if the entity for which the Participant is employed or providing services ceases to be a Subsidiary. In addition, the Participant’s employment or service will be deemed to have terminated for Cause, if after the Participant’s employment or service has terminated, facts and circumstances are discovered that would have justified a termination for Cause (and any Shares that may have been issued upon settlement of vested RSUs after the occurrence of the conduct that would have justified a termination for Cause shall be subject to recoupment by the Company, and if such Shares are no longer held by the Participant, then the Participant shall pay to the Company a sum equal to the Fair Market Value of the Shares at the time such Shares were issued). Any determination of Cause shall be made by the Committee, in its sole discretion. For purposes of this Agreement (other than for purposes of determinations made under Article 11 of the Plan), “Cause” shall mean (i) the willful and continued failure by the Participant to substantially perform his or her duties with the Company and its Subsidiaries (other than any such failure resulting from his or her incapacity due to physical or mental illness), (ii) the engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries, monetarily or otherwise, (iii) the engaging by the Participant in fraud, breach of fiduciary duty, dishonesty, misappropriation or other actions that cause damage to the property or business of the Company or its Subsidiaries, or (iv) the Participant’s conviction of, or entering a plea of nolo contendere to, a felony.
9.Withholding Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Participant for income tax purposes with respect to the Award granted hereunder, the Participant shall make arrangements satisfactory to the Company regarding the payment of any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount and by acceptance of this Award, the Participant has agreed to and hereby does, instruct the Company to satisfy the Company’s minimum statutory withholding obligations with Shares that are to be delivered upon settlement of the RSUs. Notwithstanding any provision herein to the contrary, in the event an Award becomes subject to FICA taxes at a time when the Award would not otherwise vest pursuant to Section 3, the Company shall (and without providing the Participant with an election) settle a sufficient number of RSUs determined based on the Fair Market Value on the date of settlement that does not exceed the applicable minimum statutory withholding tax obligation with respect to such FICA taxes and any federal, state or local income taxes that may apply as a result of such accelerated settlement of RSUs and the Company shall withhold such amounts to satisfy such FICA and any related income tax liability; provided, however, that any such accelerated settlement of RSUs shall be made only to the extent permitted under Treasury Regulations section 1.409A-3(j)(4)(vi).
The obligations of the Company under the Plan shall be conditional on such payment arrangements, and the Company and its Subsidiaries shall, to the extent permitted by law, have the
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right to deduct any such taxes from any payment otherwise due to the Participant. The Committee may establish such procedures as it deems appropriate for the settlement of withholding obligations with Shares. The Participant should consult his or her own tax advisor for more information concerning the tax consequences of the grant and settlement of RSUs under this Agreement.
10.Death of Participant. If any of the RSUs shall vest upon the death of the Participant, any Shares to be delivered upon settlement shall be registered in the name of the estate of the Participant unless the Company shall have theretofore received in writing a beneficiary designation, in which event they shall be registered in the name of the designated beneficiary.
11.Special Forfeiture and Repayment Provisions.
(a)If the Participant, while providing services to the Company or any Subsidiary, or after cessation of such service, violates a confidentiality, non-competition or non-solicitation covenant or agreement, as determined by the Committee in its sole discretion, then (i) this Award and the RSUs represented by this Award that have not yet vested as of such date shall be forfeited to the Company forthwith and all rights of the Participant under this Award and such unvested RSUs represented by this Award shall immediately terminate, and (ii) if any RSUs have vested within the twelve (12)-month period immediately preceding the date of the earliest violation by the Participant (or following the date of the earliest violation), then, upon the Company’s demand, the Participant shall immediately deliver to the Company certificate(s) for the number of Shares delivered upon settlement of such RSUs or, if any shares have been sold, the Participant shall immediately remit to the Company, in cash, the proceeds of any such sale(s). Notwithstanding the foregoing, in the event of a Change in Control, the Company’s right to cancel the Award or to require forfeiture or repayment, as provided above, shall terminate without prejudice to any rights that the Company otherwise may have under applicable law.
(b)The Participant hereby acknowledges and agrees that the restrictions contained in this Section 11 are being made for the benefit of the Company in consideration of the Participant’s receipt of the Award. The Participant further acknowledges and agrees that the receipt of the Award is a voluntary action on the part of the Participant and that the Company is unwilling to provide the Award to the Participant without including the restrictions contained herein.
(c)The Participant hereby consents to a deduction from, and set-off against, any amounts owed to the Participant by the Company or its Subsidiaries from time to time to the extent of any amounts owed to the Company by the Participant hereunder.
(d)The forfeiture and repayment provisions of this Award are in addition to, and not in lieu of, any other remedies that the Company may have in the event of a violation by the Participant of any confidentiality, non-competition or non-solicitation covenant in any agreement between the Participant and the Company or any of its Subsidiaries.
12.Incentive Compensation Recoupment Policy. The Participant hereby further agrees that the Participant shall be subject to any clawback, recoupment or other similar policy that the Company adopts, including the Company’s Executive Incentive Compensation Recoupment Policy, and acknowledges and agrees that the Award, the Shares issued and/or amounts paid or to be paid hereunder and/or amounts received with respect to any sale of such Shares, shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of such policy. The Participant agrees and consents to the Company’s application, implementation and enforcement of (i) any such policy established by the Company that may apply to the Participant and (ii) any provision of applicable law relating to cancellation, recoupment, rescission or payback of compensation, and expressly agrees that the Company may take such actions as are necessary to effectuate such policy or applicable law without further
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consent or action being required by the Participant. To the extent that the terms of this Agreement and such policy conflict, then the terms of such policy shall prevail.
13.Change in Control. The provisions of the Plan applicable to a Change in Control shall apply to this Award, and the Committee may take such actions as it deems appropriate pursuant to the Plan.
14.Nature of Grant. In accepting this Award, the Participant acknowledges and agrees that:
(a)the Plan is established voluntarily by the Company, is discretionary in nature and may be amended, suspended or terminated by the Company at any time;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future grants of Awards, or benefits in lieu of Awards, even if Awards have been granted repeatedly in the past;
(c)all decisions with respect to future grants of Awards, if any, will be at the sole discretion of the Company;
(d)the Participant’s participation in the Plan is voluntary;
(e)the Participant’s participation in the Plan shall not create a right to further employment with the Company or any Subsidiary and shall not interfere with the ability of the Company or any Subsidiary to terminate the Participant’s employment relationship at any time;
(f)this Award is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any Subsidiary and is outside the scope of the Participant’s employment or service contract, if any;
(g)the future value of the Shares underlying this Award is unknown and cannot be predicted with certainty;
(h)no claim or entitlement to compensation or damages shall arise from the forfeiture of unvested RSUs under the Award resulting from the Participant’s termination of service (for any reason whatsoever and whether or not in breach of local labor laws), and in consideration of this Award to which the Participant is otherwise not entitled, the Participant irrevocably agrees never to institute any claim against the Company and/or any Subsidiary, waives the Participant’s ability, if any, to bring any such claim, and releases the Company and/or any Subsidiary from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claims; and
(i)for a Participant residing outside of the United States:
(A)this Award and any Shares acquired under the Plan are not intended to replace any pension rights or compensation;
(B)this Award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, dismissal, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to past services for the Company or any Subsidiary; and
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(C)in the event of the Participant’s termination of service (whether or not in breach of local labor laws), the Participant’s right to vest under the Plan, if any, will terminate effective as of the date of termination of service; and the Committee shall have the exclusive discretion to determine when the Participant is no longer actively providing service for purposes of this Award.
15.Effect of Amendment of Plan; Amendment of Agreement. No discontinuation, modification or amendment of the Plan may, without the express written consent of the Participant, adversely affect the rights of the Participant under this Award, except as expressly provided under the Plan.
This Agreement may be amended as provided under the Plan, but except as provided thereunder any such amendment shall not adversely affect Participant’s rights hereunder without Participant’s consent.
16.No Limitation on Rights of the Company; Adjustment of Award. The grant of this Award shall not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of its business or assets. The number and kind of shares subject to this Award and other related terms shall be adjusted by the Committee in accordance with Section 12.2 of the Plan.
17.Compliance with Applicable Law. Notwithstanding anything herein to the contrary, the Company shall not be obligated to issue or deliver or cause to be issued or delivered any certificates for Shares, unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority, and the requirements of any exchange upon which Shares are traded. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement. The Company may require, as a condition of the issuance and delivery of such certificates and in order to ensure compliance with such laws, regulations, and requirements, that the Participant makes such covenants, agreements, and representations as the Company, in its sole discretion, considers necessary or desirable.
18.Agreement Not a Contract of Employment or Other Relationship. This Agreement is not a contract of employment, and the terms of employment of the Participant or other relationship of the Participant with the Company or any of its Subsidiaries shall not be affected in any way by this Agreement except as specifically provided herein. The execution of this Agreement shall not be construed as conferring any legal rights upon the Participant for a continuation of an employment or other relationship with the Company or any of its Subsidiaries, nor shall it interfere with the right of the Company or any of its Subsidiaries to discharge the Participant and to treat him or her without regard to the effect which such treatment might have upon him or her as a Participant.
19.Data Privacy. As a condition of acceptance of this Award, the Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section 19 by and among, as applicable, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that the Company and its Subsidiaries hold certain personal information about the Participant, including the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company or any Subsidiary, and details of all Awards or any other entitlement to Shares awarded,
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canceled, exercised, vested, unvested or outstanding in the Participant’s favor (the “Data”), for the purpose of implementing, managing and administering the Plan. The Participant further understands that the Company and its Subsidiaries may transfer the Data amongst themselves as necessary for the purpose of implementation, management and administration of the Participant’s participation in the Plan, and that the Company and its Subsidiaries may each further transfer the Data to any third parties assisting the Company in the implementation, management and administration of the Plan. The Participant understands that these recipients may be located in the Participant’s country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Participant, through participation in the Plan and acceptance of an Award under the Plan, authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, managing and administering the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares. The Participant understands that the Data will be held only as long as is necessary to implement, manage and administer the Participant’s participation in the Plan. The Participant understands that if he or she resides outside of the United States, he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Participant understands that he or she is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke his or her consent, the Participant’s employment status and position with the Company or its Subsidiary will not be affected; the only adverse consequence of refusing or withdrawing the Participant’s consent is that the Company would not be able to grant the Participant Awards or administer or maintain such Awards. Therefore, the Participant understands that refusing or withdrawing the Participant’s consent may affect his or her ability to participate in the Plan. For more information on the consequences of refusal to consent or withdrawal of consent, the Participant understands that he or she may contact his or her local human resources representative.
20.Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally or sent by certified, registered or express mail, postage prepaid, return receipt requested, or by a reputable overnight delivery service. Any such notice shall be deemed given when received by the intended recipient.
21.Governing Law. Except to the extent preempted by Federal law, this Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New York without regard to any principles thereof relating to the conflicts of laws that would result in the application of the laws of any other jurisdiction. The Parties agree that the state and federal courts located in the State of New York, County of Suffolk, shall have exclusive jurisdiction in any action, suit or proceeding based on or arising out of this Agreement and the Parties hereby: (a) submit to the personal jurisdiction of such courts; (b) consent to service of process in connection with any action, suit or proceeding; (c) agree that venue is proper and convenient in such forum; (d) waive any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, subject matter jurisdiction, venue or service of process; and (e) waive the right, if any, to a jury trial.
22.Acknowledgment; Interpretation of Agreement and Plan. The Participant acknowledges receipt of a copy of the Plan, and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Award subject to all the terms and provisions of this Agreement and of the Plan. The Participant hereby agrees to accept as binding, conclusive
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and final all decisions or interpretations of the Committee with respect to any questions arising under this Agreement or the Plan.
23.Entire Agreement. The Plan and this Agreement constitute the entire agreement and understanding of the Parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between the Parties hereto with respect to the specific subject matter hereof. To the extent any provisions of the Agreement are inconsistent or in conflict with any terms or provisions of the Plan, the Plan shall govern.
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I have read, understand and agree to abide by the terms of this Agreement, the Plan and the most recently executed Associate Confidentiality, Non-Solicitation and Non-Competition Agreement that I entered into with the Company (the “Associate Agreement”). By checking the box labeled “I Agree,” or by otherwise electronically indicating my acceptance of this Agreement, I hereby acknowledge that the grant of the RSUs pursuant to this Agreement is consideration for my entering into and complying with the Associate Agreement. I understand this Agreement, the Plan and the Associate Agreement in all respects and the terms and conditions of the RSUs granted to me.
FOR MSC INDUSTRIAL DIRECT CO., INC. USE ONLY
ACCEPTED BY MSC INDUSTRIAL DIRECT CO., INC.
By: Neal Dongre, Vice President, General Counsel & Corporate Secretary
/s/ Neal Dongre
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EXHIBIT 10.3
MSC INDUSTRIAL DIRECT CO., INC.
2023 OMNIBUS INCENTIVE PLAN
PERFORMANCE SHARE UNIT AWARD AGREEMENT
Participant: %%FIRST_NAME_MIDDLE_NAME_LAST_NAME%-%
Target Shares: %%TOTAL_SHARES_GRANTED,'999,999,999'%-%
Grant Date: November 3, 2023
Performance Period: Fiscal Year 2024 – Fiscal Year 2026
This PERFORMANCE SHARE UNIT AWARD AGREEMENT (this “Award Agreement”) is entered into by and between MSC Industrial Direct Co., Inc. (the “Company”) and the above-named participant (the “Participant”). The Company and the Participant may hereinafter each be referred to as a “Party” and collectively as the “Parties.”
WHEREAS, the Company has agreed to grant to the Participant an Award of Performance Share Units (each, as defined below), subject to the terms and conditions set forth in this Award Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements set forth in this Award Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1.Definitions. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Company’s 2023 Omnibus Incentive Plan (the “Plan”). As used herein:
(a)“Average Adjusted Invested Capital” means a thirteen (13)-month average of the sum of (i) the Company’s generally accepted accounting principles (GAAP) shareholders’ equity and (ii) the total interest-bearing debt less cash and cash equivalents, subject to adjustments as provided in Section 5.
(b) “Adjusted Net Operating Profit After Taxes” for a fiscal year shall mean the Company’s income from operations less provision for income taxes associated with its operating profit as determined under generally accepted accounting principles, subject to adjustments as provided in Section 5.
(c)“Adjusted Return on Invested Capital (ROIC)” for a fiscal year shall mean the Company’s Adjusted Net Operating Profit After Taxes divided by Average Adjusted Invested Capital.
(d)“Average Adjusted ROIC” shall mean the sum of the Adjusted Return on Invested Capital (ROIC) for each of the three (3) fiscal years in the Performance Period divided by three (3).
(e) “Award” means the Performance Share Unit Award hereby granted.
(f)“Grant Date” shall mean November 3, 2023, the date on which the Company granted the Award to the Participant pursuant to the Plan.
(g)“Performance Criteria” means the performance criteria established by the Committee (as defined below) and as set forth in Section 4.
(h)“Performance Period” shall mean the Company’s three (3) consecutive fiscal years commencing with the fiscal year beginning September 3, 2023.
(i)“Performance Share Unit” shall mean a bookkeeping entry that records the equivalent of one (1) share of the Company’s Class A Common Stock, par value $0.001 per share.
(j)“Performance Share Unit Target” means the target number of Performance Share Units that may be earned by the Participant pursuant to this Award Agreement set forth earlier in this Award Agreement.
(k)“Qualifying Termination” means a Qualifying Termination as defined in the Company’s Executive Severance Plan.
(l)“Retirement” shall mean any voluntary termination by the Participant as an associate of the Company (or any Subsidiary) after reaching age fifty-five (55), where the Participant’s age plus years of continuous employment with the Company or its Subsidiaries equals at least sixty-five (65).
(m)“Vesting Date” shall mean the date on the third anniversary of the Grant Date.
2.Grant of Award. The Participant is hereby granted an Award of Performance Share Units under the Plan, evidencing the grant thereof by the Compensation Committee (the “Committee”) of the Board of Directors of the Company on the Grant Date, and the Participant hereby accepts the Award, in each case, on the terms and subject to the conditions set forth in this Award Agreement. The target number of Shares subject to this Award is the Performance Share Unit Target.
3.Vesting. Subject to Sections 9, 10, 11, 13, 14 and 15 below, provided that the Participant remains an associate of, or in the service of, the Company (or a Subsidiary) during the entire period commencing on the Grant Date and ending on the Vesting Date, the Participant shall be eligible to earn the applicable percentage of the Performance Share Unit Target based upon the achievement of the Performance Criteria as set forth in Section 4.
4.Performance Criteria. Performance Share Units may be earned upon achievement of the Average Adjusted ROIC for the Performance Period, in accordance with the following schedule. The Committee will certify Average Adjusted ROIC and determine the level of any earned Performance Share Units as soon as administratively practical after the Performance Period, but not later than the ninetieth (90th) day following the end of the Performance Period.
Average Adjusted ROIC | Percentage of Performance Share Target Earned | |||||||
| Below Threshold: | Less than 17.6% | 0% | ||||||
| Threshold: | 17.6% | 50% | ||||||
| Target: | 19.7% | 100% | ||||||
| Maximum: | 23.9% or above | 200% | ||||||
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The percentage of the Performance Share Target earned for results between performance levels shall be determined by straight line interpolation with the number of Performance Share Units earned rounded down to the nearest whole number. Any Performance Share Units that are not earned in accordance with this Section 4 shall be forfeited.
5.Adjustments. The Committee shall have discretion to make such adjustments to the computation of Average Adjusted Invested Capital and Adjusted Net Operating Profit After Taxes as it deems appropriate to reflect the impact of items that are not indicative of ongoing operating results, including changes in accounting principles, litigation (recoveries and charges), restructurings and severance, regulatory changes, natural disasters, acquisitions or dispositions, other exceptional items not reflective of operational performance (operating performance includes both income and expense related items that are directly correlated with the operating profit of the underlying business operations), and appropriate adjustments for fifty-three (53)-week fiscal years.
6.Settlement; Rights as a Shareholder. Upon vesting as provided in Section 3 and subject to achievement of the Performance Criteria as provided in Section 4 or as otherwise provided in this Award Agreement, each Performance Share Unit shall be converted into the right to receive one Share upon settlement. Settlement of vested Performance Share Units shall be made promptly following the date such Performance Share Units are earned and in any case within sixty (60) days following the date of certification by the Committee as provided in Section 4, provided that the Participant shall not be permitted, directly or indirectly, to designate the year of settlement. Any fractional share upon vesting shall be used to satisfy the Company’s withholding obligation.
Unless and until such time as Shares are issued in settlement of vested Performance Share Units, the Participant shall have no ownership of the Shares allocated to the Performance Share Units and, subject to the provisions of Section 7, shall have no rights as a shareholder with respect to such Shares. Upon settlement, the Company shall cause the Company’s transfer agent to issue a certificate or certificates for the Shares in the name of the Participant, or to make a book entry record of such issuance, and the Participant shall thereupon have all rights as a shareholder with respect to such Shares, including the right to vote such Shares and to receive all dividends and other distributions paid with respect to such Shares. The Company may place on the certificates representing the Shares such legend or legends as the Company may deem appropriate and the Company may place a stop transfer order with respect to such Shares with the transfer agent(s) for the Shares.
7.Dividend Equivalents. Any dividends paid in cash on Shares prior to vesting of the Performance Share Units shall be credited to the Participant as additional Performance Share Units, as if the Performance Share Units then held by the Participant had been converted to Shares. The amount of such credit, which may be in whole and/or fractional Performance Share Units (carried to three decimals), shall be determined based on the Fair Market Value of Shares on the date of payment of such dividend. All such additional Performance Share Units credited to the Participant shall be subject to the same vesting and performance requirements applicable to the Performance Share Units underlying the Award as set forth in Sections 3 and 4, and shall be settled in accordance with, and at the time of, settlement of vested Performance Share Units pursuant to this Award Agreement.
8.No Transfer. This Award and the Performance Share Units are non-transferable and may not be assigned, pledged or hypothecated and shall not be subject to execution, attachment or similar process. Upon any attempt to effect any such disposition, or upon the levy of any such process, the Award shall immediately become null and void and the Performance Share Units shall be forfeited.
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9.Termination of Employment or Provision of Services by Reason of Death, Disability, Retirement or a Qualifying Termination. If the Participant’s employment with or provision of services for the Company and its Subsidiaries terminates by reason of death or Disability (as defined below), this Award shall fully vest, any forfeiture restrictions on this Award shall lapse on the date of such death or Disability, the Participant (or the Participant’s estate) shall be entitled to receive the full number of Performance Share Units that otherwise would have been earned by the Participant if the Participant’s employment or provision of services had not terminated prior to the Vesting Date determined in accordance with Section 4, and settlement shall be made as provided in Section 6. For purposes of this Award Agreement, “Disability” shall mean (as determined by the Committee in its sole discretion) any mental or physical illness that would qualify the Participant for a disability under any long-term disability plan maintained by the Company or any Subsidiary that is applicable to such Participant, provided that if necessary for the Award to satisfy Section 409A of the Code, a “Disability” must also be a disability within the meaning of Section 409A. If the Participant’s employment with or provision of services for the Company and its Subsidiaries terminates by reason of Retirement, this Award shall partially vest, any forfeiture restrictions on such partially vested Award shall lapse on the date of such Retirement, the Participant shall be entitled to receive a number of Performance Share Units equal to the product of (a) and (b), where (a) is equal to a fraction, the numerator of which is the number of full years (i.e., 365-day periods) of employment from the Date of Grant until the date of Retirement, and the denominator of which is three (3), and (b) is the number of Performance Share Units that otherwise would have been earned by the Participant if the Participant’s employment or provision of services had not terminated prior to the Vesting Date determined in accordance with Section 4, and settlement shall be made as provided in Section 6. If the Participant’s employment with or provision of services for the Company and its Subsidiaries terminates by reason of a Qualifying Termination, this Award shall partially vest, any forfeiture restrictions on such partially vested Award shall lapse on the date of such Qualifying Termination, the Participant shall be entitled to receive a number of Performance Share Units equal to the product of (a) and (b), where (a) is equal to 33-1/3%, and (b) is the number of Performance Share Units that otherwise would have been earned by the Participant if the Participant’s employment or provision of services had not terminated prior to the Vesting Date determined in accordance with Section 4, and settlement shall be made as provided in Section 6; provided that if at the time of the Qualifying Termination the Participant is eligible for Retirement, the Participant shall be entitled to receive a number of Performance Share Units equal to the product of (a) and (b), where (a) is equal to a fraction, the numerator of which is the number of full years of employment (rounded up to the next highest whole integer) from the Date of Grant until the date of the Qualifying Termination, and the denominator of which is three (3), and (b) is the number of Performance Share Units that otherwise would have been earned by the Participant if the Participant’s employment or provision of services had not terminated prior to the Vesting Date determined in accordance with Section 4, and settlement shall be made as provided in Section 6. Notwithstanding the foregoing, if the Participant’s employment with or provision of services for the Company and its Subsidiaries terminates by reason of Retirement or a Qualifying Termination after the Participant has reached age sixty-five (65) with five (5) years of service, this Award shall fully vest, any forfeiture restrictions on this Award shall lapse on the date of such Retirement or Qualifying Termination, the Participant shall be entitled to receive the full number of Performance Share Units that otherwise would have been earned by the Participant if the Participant’s employment or provision of services had not terminated prior to the Vesting Date determined in accordance with Section 4, and settlement shall be made as provided in Section 6.
10.Other Termination of Employment or Provision of Services. Except as provided below, if the Participant’s employment or provision of services (including as a Non-Executive Director) is terminated for any reason other than death, Disability, Retirement or a Qualifying Termination, this Award and the Performance Share Units represented by this Award that have not yet vested as of such date shall be forfeited to the Company forthwith and all rights of the
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Participant under this Award and such unvested Performance Share Units represented by this Award shall immediately terminate. For purposes of this Award, the termination date shall be the last day of employment or provision of services and shall not be extended by any actual or deemed period of notice of termination, whether under statute, common law, contract or otherwise. For purposes of this Award, the Participant’s employment or provision of services shall be deemed to have terminated if the entity for which the Participant is employed or providing services ceases to be a Subsidiary. In addition, the Participant’s employment or service will be deemed to have terminated for Cause, if after the Participant’s employment or service has terminated, facts and circumstances are discovered that would have justified a termination for Cause (and any Shares that may have been issued upon settlement of vested Performance Share Units after the occurrence of the conduct that would have justified a termination for Cause shall be subject to recoupment by the Company, and if such Shares are no longer held by the Participant, then the Participant shall pay to the Company a sum equal to the Fair Market Value of the Shares at the time such Shares were issued). Any determination of Cause shall be made by the Committee, in its sole discretion. For purposes of this Award Agreement (other than for purposes of determinations made under Article 11 of the Plan), “Cause” shall mean (i) the willful and continued failure by the Participant to substantially perform his or her duties with the Company and its Subsidiaries (other than any such failure resulting from his or her incapacity due to physical or mental illness), (ii) the engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries, monetarily or otherwise, (iii) the engaging by the Participant in fraud, breach of fiduciary duty, dishonesty, misappropriation or other actions that cause damage to the property or business of the Company or its Subsidiaries, or (iv) the Participant’s conviction of, or entering a plea of nolo contendere to, a felony. Notwithstanding the foregoing, if the Participant’s employment is terminated by the Company without Cause or the Participant voluntarily terminates his or her employment, (i) if the Participant is eligible for Retirement at the time of such termination, this Award shall partially vest, any forfeiture restrictions on such partially vested Award shall lapse on the date of such termination, the Participant shall be entitled to receive a number of Performance Share Units equal to the product of (a) and (b), where (a) is equal to a fraction, the numerator of which is the number of full years (i.e., 365-day periods) of employment from the Date of Grant until the date of such termination, and the denominator of which is three (3), and (b) is the number of Performance Share Units that otherwise would have been earned by the Participant if the Participant’s employment had not terminated prior to the Vesting Date determined in accordance with Section 4, and settlement shall be made as provided in Section 6 or (ii) if the Participant has reached age sixty-five (65) with five (5) years of service at the time of such termination, this Award shall fully vest, any forfeiture restrictions on this Award shall lapse on the date of such termination, the Participant shall be entitled to receive the full number of Performance Share Units that otherwise would have been earned by the Participant if the Participant’s employment or provision of services had not terminated prior to the Vesting Date determined in accordance with Section 4, and settlement shall be made as provided in Section 6.
11.Withholding Taxes. No later than the date as of which an amount first becomes includible in the gross income of the Participant for income tax purposes with respect to the Award granted hereunder, the Participant shall make arrangements satisfactory to the Company regarding the payment of any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless the Participant elects, with respect to each particular vesting event, to satisfy his or her withholding obligation with a cash payment in accordance with rules established by the Committee, the Participant shall be deemed to have, and by his or her signature hereto hereby does, instruct the Company to satisfy the Company’s minimum statutory withholding obligations with Shares that are to be delivered in connection with the vesting and issuance of Shares under the Award. Changes to this instruction to pay withholding obligations in Shares (i.e., to make arrangements to pay withholding obligations in cash) can only be made during the “trading window” prior to the vesting event under the
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Company’s Insider Trading Policy. Notwithstanding any provision herein to the contrary, in the event an Award becomes subject to FICA taxes at a time when the Award would not otherwise vest pursuant to Section 3, the Company shall (and without providing the Participant with an election) settle a sufficient number of Performance Share Units determined based on the Fair Market Value on the date of settlement that does not exceed the applicable minimum statutory withholding tax obligation with respect to such FICA taxes and any federal, state or local income taxes that may apply as a result of such accelerated settlement of Performance Share Units and the Company shall withhold such amounts to satisfy such FICA and any related income tax liability; provided, however, that any such accelerated settlement of Performance Share Units shall be made only to the extent permitted under Treasury Regulations section 1.409A-3(j)(4)(vi).
The obligations of the Company under the Plan shall be conditional on such payment arrangements, and the Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participant. The Committee may establish such procedures as it deems appropriate for the settlement of withholding obligations with Shares. The Participant should consult his or her own tax advisor for more information concerning the tax consequences of the grant and settlement of Performance Share Units under this Award Agreement.
12.Death of Participant. If any of the Performance Share Units shall vest upon the death of the Participant, any Shares to be delivered upon settlement shall be registered in the name of the estate of the Participant unless the Company shall have theretofore received in writing a beneficiary designation, in which event they shall be registered in the name of the designated beneficiary.
13.Special Forfeiture and Repayment Provisions.
(a)If the Participant, while providing services to the Company or any Subsidiary, or after cessation of such service, violates a confidentiality, non-competition or non-solicitation covenant or agreement, as determined by the Committee in its sole discretion, then (i) this Award and the Performance Share Units represented by this Award that have not yet vested as of such date shall be forfeited to the Company forthwith and all rights of the Participant under this Award and such unvested Performance Share Units represented by this Award shall immediately terminate, and (ii) if any Performance Share Units have vested within the twelve (12)-month period immediately preceding the date of the earliest violation by the Participant (or following the date of the earliest violation), then, upon the Company’s demand, the Participant shall immediately deliver to the Company certificate(s) for the number of Shares delivered upon settlement of such Performance Share Units or, if any shares have been sold, the Participant shall immediately remit to the Company, in cash, the proceeds of any such sale(s). Notwithstanding the foregoing, in the event of a Change in Control, the Company’s right to cancel the Award or to require forfeiture or repayment, as provided above, shall terminate without prejudice to any rights that the Company otherwise may have under applicable law.
(b)The Participant hereby acknowledges and agrees that the restrictions contained in this Section 13 are being made for the benefit of the Company in consideration of the Participant’s receipt of the Award. The Participant further acknowledges and agrees that the receipt of the Award is a voluntary action on the part of the Participant and that the Company is unwilling to provide the Award to the Participant without including the restrictions contained herein.
(c)The Participant hereby consents to a deduction from, and set-off against, any amounts owed to the Participant by the Company or its Subsidiaries from time to time to the extent of any amounts owed to the Company by the Participant hereunder.
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(d)The forfeiture and repayment provisions of this Award are in addition to, and not in lieu of, any other remedies that the Company may have in the event of a violation by the Participant of any confidentiality, non-competition or non-solicitation covenant in any agreement between the Participant and the Company or any of its Subsidiaries.
14.Incentive Compensation Recoupment Policy. The Participant hereby further agrees that the Participant shall be subject to any clawback, recoupment or other similar policy that the Company adopts, including the Company’s Executive Incentive Compensation Recoupment Policy, and acknowledges and agrees that the Award, the Shares issued and/or amounts paid or to be paid hereunder and/or amounts received with respect to any sale of such Shares, shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of such policy. The Participant agrees and consents to the Company’s application, implementation and enforcement of (i) any such policy established by the Company that may apply to the Participant and (ii) any provision of applicable law relating to cancellation, recoupment, rescission or payback of compensation, and expressly agrees that the Company may take such actions as are necessary to effectuate such policy or applicable law without further consent or action being required by the Participant. To the extent that the terms of this Award Agreement and such policy conflict, then the terms of such policy shall prevail.
15.Change in Control. The provisions of Article 11 of the Plan applicable to a Change in Control shall apply to this Award, and the Committee may take such actions as it deems appropriate pursuant to the Plan; provided, however, that for all purposes of Article 11 of the Plan and the Company’s Executive Change in Control Severance Plan, the Performance Criteria shall be deemed to have been achieved at the target level provided in Section 4, except that if the Change in Control occurs after the first fiscal year of the Performance Period and the actual level of achievement (based on one, two or three full fiscal years) is higher than the target level, then the actual level of achievement shall be used to determine the level of achievement of the Performance Criteria, or in the case of the assumption or substitution of this Award, the number of shares of restricted stock or restricted stock units of the assumed or substituted award (any such restricted stock or restricted stock units to have a vesting date that corresponds to the third anniversary of the Grant Date). Settlement shall be made as provided in Section 6.
16.Nature of Grant. In accepting this Award, the Participant acknowledges and agrees that:
(a)the Plan is established voluntarily by the Company, is discretionary in nature and may be amended, suspended or terminated by the Company at any time;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future grants of Awards, or benefits in lieu of Awards, even if Awards have been granted repeatedly in the past;
(c)all decisions with respect to future grants of Awards, if any, will be at the sole discretion of the Company;
(d)the Participant’s participation in the Plan is voluntary;
(e)the Participant’s participation in the Plan shall not create a right to further employment with the Company or any Subsidiary and shall not interfere with the ability of the Company or any Subsidiary to terminate the Participant’s employment relationship at any time;
(f)this Award is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or any Subsidiary and is outside the scope of the Participant’s employment or service contract, if any;
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(g)the future value of the Shares underlying this Award is unknown and cannot be predicted with certainty;
(h)no claim or entitlement to compensation or damages shall arise from the forfeiture of unvested Performance Share Units under the Award resulting from the Participant’s termination of service (for any reason whatsoever and whether or not in breach of local labor laws), and in consideration of this Award to which the Participant is otherwise not entitled, the Participant irrevocably agrees never to institute any claim against the Company and/or any Subsidiary, waives the Participant’s ability, if any, to bring any such claim, and releases the Company and/or any Subsidiary from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claims; and
(i)for a Participant residing outside of the United States:
(A)this Award and any Shares acquired under the Plan are not intended to replace any pension rights or compensation;
(B)this Award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, end of service payments, dismissal, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to past services for the Company or any Subsidiary; and
(C)in the event of the Participant’s termination of service (whether or not in breach of local labor laws), the Participant’s right to vest under the Plan, if any, will terminate effective as of the date of termination of service; and the Committee shall have the exclusive discretion to determine when the Participant is no longer actively providing service for purposes of this Award.
17.Effect of Amendment of Plan; Amendment of Award Agreement. No discontinuation, modification or amendment of the Plan may, without the express written consent of the Participant, adversely affect the rights of the Participant under this Award, except as expressly provided under the Plan.
This Award Agreement may be amended as provided under the Plan, but except as provided thereunder any such amendment shall not adversely affect Participant’s rights hereunder without Participant’s consent.
18.No Limitation on Rights of the Company; Adjustment of Award. The grant of this Award shall not in any way affect the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its business or assets. The number and kind of shares subject to this Award and other related terms shall be adjusted by the Committee in accordance with Section 12.2 of the Plan.
19.Compliance with Applicable Law. Notwithstanding anything herein to the contrary, the Company shall not be obligated to issue or deliver or cause to be issued or delivered any certificates for Shares, unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority, and the requirements of any exchange upon which Shares are traded. The Company shall in no event be obligated to register any securities pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended) or to take any other action in order to
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cause the issuance and delivery of such certificates to comply with any such law, regulation or requirement. The Company may require, as a condition of the issuance and delivery of such certificates and in order to ensure compliance with such laws, regulations and requirements, that the Participant makes such covenants, agreements and representations as the Company, in its sole discretion, considers necessary or desirable.
20.Agreement Not a Contract of Employment or Other Relationship. This Award Agreement is not a contract of employment, and the terms of employment of the Participant or other relationship of the Participant with the Company or any of its Subsidiaries shall not be affected in any way by this Award Agreement except as specifically provided herein. The execution of this Award Agreement shall not be construed as conferring any legal rights upon the Participant for a continuation of an employment or other relationship with the Company or any of its Subsidiaries, nor shall it interfere with the right of the Company or any of its Subsidiaries to discharge the Participant and to treat him or her without regard to the effect which such treatment might have upon him or her as a Participant.
21.Data Privacy. As a condition of acceptance of this Award, the Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section 21 by and among, as applicable, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that the Company and its Subsidiaries hold certain personal information about the Participant, including the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company or any Subsidiary, and details of all Awards or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor (the “Data”), for the purpose of implementing, managing and administering the Plan. The Participant further understands that the Company and its Subsidiaries may transfer the Data amongst themselves as necessary for the purpose of implementation, management and administration of the Participant’s participation in the Plan, and that the Company and its Subsidiaries may each further transfer the Data to any third parties assisting the Company in the implementation, management and administration of the Plan. The Participant understands that these recipients may be located in the Participant’s country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Participant’s country. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Participant, through participation in the Plan and acceptance of an Award under the Plan, authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, managing and administering the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares. The Participant understands that the Data will be held only as long as is necessary to implement, manage and administer the Participant’s participation in the Plan. The Participant understands that if he or she resides outside of the United States, he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Participant understands that he or she is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke his or her consent, the Participant’s employment status and position with the Company or its Subsidiary will not be affected; the only adverse consequence of refusing or withdrawing the Participant’s consent is that the Company would not be able to grant the Participant Awards or administer or maintain such Awards. Therefore, the Participant understands that refusing or withdrawing the Participant’s consent may affect his or her ability to participate in the Plan. For
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more information on the consequences of refusal to consent or withdrawal of consent, the Participant understands that he or she may contact his or her local human resources representative.
22.Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally or sent by certified, registered or express mail, postage prepaid, return receipt requested, or by a reputable overnight delivery service. Any such notice shall be deemed given when received by the intended recipient.
23.Governing Law. Except to the extent preempted by Federal law, this Award Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New York without regard to any principles thereof relating to the conflicts of laws that would result in the application of the laws of any other jurisdiction. The Parties agree that the state and federal courts located in the State of New York, County of Suffolk, shall have exclusive jurisdiction in any action, suit or proceeding based on or arising out of this Award Agreement and the Parties hereby: (a) submit to the personal jurisdiction of such courts; (b) consent to service of process in connection with any action, suit or proceeding; (c) agree that venue is proper and convenient in such forum; (d) waive any other requirement (whether imposed by statute, rule of court or otherwise) with respect to personal jurisdiction, subject matter jurisdiction, venue or service of process; and (e) waive the right, if any, to a jury trial.
24.Acknowledgment; Interpretation of Award Agreement and Plan. The Participant acknowledges receipt of a copy of the Plan, and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Award subject to all the terms and provisions of this Award Agreement and of the Plan. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee with respect to any questions arising under this Award Agreement or the Plan.
25.Entire Agreement. The Plan and this Award Agreement constitute the entire agreement and understanding of the Parties with respect to the subject matter of this Award Agreement, and supersede all prior understandings and agreements, whether oral or written, between the Parties hereto with respect to the specific subject matter hereof. To the extent any provisions of the Award Agreement are inconsistent or in conflict with any terms or provisions of the Plan, the Plan shall govern.
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I have read, understand and agree to abide by the terms of this Award Agreement, the Plan and the most recently executed Associate Confidentiality, Non-Solicitation and Non-Competition Agreement that I entered into with the Company (the “Associate Agreement”). By checking the box labeled “I Agree,” or by otherwise electronically indicating my acceptance of this Award Agreement, I hereby acknowledge that the grant of the Performance Share Units pursuant to this Award Agreement is consideration for my entering into and complying with the Associate Agreement. I understand this Award Agreement, the Plan and the Associate Agreement in all respects and the terms and conditions of the Performance Share Units granted to me.
FOR MSC INDUSTRIAL DIRECT CO., INC. USE ONLY
ACCEPTED BY MSC INDUSTRIAL DIRECT CO., INC.
By: Neal Dongre, Vice President, General Counsel & Corporate Secretary
/s/ Neal Dongre
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EXHIBIT 10.4
MSC EXECUTIVE SEVERANCE PLAN
Amended and Restated Effective (March 21, 2023)
MSC EXECUTIVE SEVERANCE PLAN
This document sets forth the terms and conditions of the MSC Executive Severance Plan (the “Plan”), which is hereby adopted by MSC Industrial Direct Co., Inc. (“MSC”) for the benefit of the eligible employees of MSC and its subsidiaries to this document. MSC and all such designated subsidiaries hereinafter are referred to, individually and collectively, as the “Company.” This document sets forth the terms of the Plan and is applicable to such eligible employees of the Company who participate in the Plan in accordance with Sections 2 and 3 below.
Section 1. Effective Date and Plan Year. The “Effective Date” of the Plan shall be October 27, 2016. The “Plan Year” shall be the 12-consecutive month period beginning on January 1 and ending on December 31; provided, however, that, the first Plan Year shall be a short Plan Year beginning on the Effective Date and ending on December 31, 2016. This amendment and restatement of the Plan shall be effective March 21, 2023.
Section 2. Eligibility for Participation. Each person who is customarily employed by the Company as a Vice President, Senior Vice President or Executive Vice President (an “Eligible Associate”) who experiences a “Qualifying Termination” (as defined below) shall be a participant in the Plan, other than any person who is covered by an employment, severance or similar agreement with the Company that provides for payment of severance pay under specified circumstances; provided, however, that for purposes of this Section 2, any agreement, plan or award or similar instrument providing for benefits upon a change in control of the Company shall not be deemed to be such an agreement; provided, further, that there shall be no duplication of comparable benefits under the Plan and any such agreement, plan or award or similar instrument. Notwithstanding the foregoing, any person classified by the Company as an independent consultant, contractor, or temporary worker to the Company will not be eligible for this severance program, even if it is later determined by a court or governmental agency that such person was or is an employee of the Company.
Section 3. Participation. Each Eligible Associate shall become a participant (a “Participant”) in the Plan on the later of the Effective Date, or the date on which he or she has a Qualifying Termination. A Participant’s participation in the Plan shall cease as of the date the Participant is no longer an Eligible Associate and is not entitled to any benefit provided under this Plan.
Section 4. Entitlement to a Severance Benefit.
(a)Subject to the provisions of this Section 4, each Participant who incurs a Qualifying Termination (as hereinafter defined) shall be eligible to receive a “Severance Benefit” under the Plan that is determined in accordance with Section 5 below. For purposes of the Plan, a “Qualifying Termination” means the occurrence of one of the following:
(i)The involuntary termination of the Participant’s employment by the Company as a result of the elimination of such Participants’ job or position with the Company because of reorganization, job elimination, or site closure;
(ii)The termination of the Participant’s employment with the Company upon the Participant’s failure to accept a material change in the geographic location where such Participant is required to primarily perform his or her services for the Company, such that the distance between the previous geographic location and the new geographic location exceeds 50 miles (one way); provided however that the Company must notify the Participant of
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this termination of employment within 90 days of the Participant’s refusal to accept this change in geographic location; or
(iii)The termination of the Participant’s employment with the Company upon the Participant’s failure to accept a reduction in such Participant’s base salary of 20 percent or more; provided however that the Company must notify the Participant of this termination of employment within 90 days of the Participant’s refusal to accept this reduction in base salary.
(b)As a condition of receiving any Severance Benefit under the Plan, each Participant shall be required to execute a separation agreement and general release (the “Agreement”) in favor of the Company in such form and of such content as the Plan Administrator, in its sole discretion, may require and such Participant does not revoke the Agreement, to the extent the Agreement permits revocation. The Agreement shall not be executed prior to the date of the Participant’s Qualifying Termination (the “Termination Date”). Notwithstanding any provision in the Plan to the contrary, if such required Agreement is not so executed by the terminated Participant or revoked, the Participant shall not be entitled to any payments or benefits under the Plan.
(c)Participants who are notified of their Qualifying Termination during what the Plan Administrator determines is a Company-approved leave of absence of less than six months will be eligible for a Severance Benefit under the Plan. In the event that such Company-approved leave (i) is for six months or longer or, (ii) as of the Termination Date, more than six months has elapsed since the beginning of such Company-approved leave and the Participant did not resume continuous active employment with the Company prior to the end of such six-month period, no Severance Benefit shall be payable to such Participant.
(d)In the event that a Participant dies after receipt of notification of a Qualifying Termination but prior to the Termination Date or prior to the full payment of any Severance Benefit to which the Participant is entitled, (i) any Severance Allowance that would have been paid to such Participant under the Plan shall be paid to his or her Beneficiary or estate, (ii) any Benefits Credit payment due under Section 6 below shall be made on behalf of the Participant’s qualified beneficiaries (within the meaning of COBRA), and (iii) any Outplacement Services that are unused as of the date of a Participant’s death shall be immediately forfeited. For purposes of this Plan, “Beneficiary” shall be the same beneficiary as the Participant has elected on the Company’s life insurance plan or, if no such beneficiary is elected on the life insurance plan, the beneficiary election in place for the Company’s defined contribution plan.
(e)Notwithstanding anything in the Plan to the contrary, no Eligible Associate or Participant shall be entitled to receive a Severance Benefit in the event that the Plan Administrator determines, in its sole discretion, that (i) at the time of the Participant’s Qualifying Termination, the Company had cause to terminate the Participant’s employment for failure to meet Company-established performance criteria, the Participant’s misconduct, or the Participant’s violation of any applicable Company policy; (ii) the Participant resigned from employment with the Company prior to the date the Participant’s employment is scheduled to terminate, or (iii) prior to the Termination Date, the Participant received an offer of employment from the Company or any affiliate thereof on terms that are comparable in the aggregate to those of the position held by the Participant with the Company prior to the Termination Date. Notwithstanding anything in the Plan to the contrary, payment and provision of any Severance Benefit shall cease and be forfeited, to the extent not previously paid or provided, immediately upon the Participant’s acceptance of any offer of employment with the Company or any of its affiliates.
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(f)In addition, if a Participant incurs a Qualifying Termination, and the Plan Administrator determines, in its sole discretion, that thereafter (i) the Participant breached any provision(s) of the Agreement described in Section 4(b) above, or (ii) the Participant breached any provision(s) of any confidentiality, non-compete, non-solicitation, non-disparagement or other restrictive covenant or similar agreement with the Company, any unpaid or unused Severance Benefit shall be immediately forfeited (including, without limitation, any Benefits Subsidy payment and any outplacement services) and the Participant shall immediately repay to the Company any amount(s) of Severance Allowance previously paid to such Participant on account of such Qualifying Termination.
Section 5. Determination of Severance Benefit. Subject to the provisions of Section 4 above and this Section 5, if a Participant incurs a Qualifying Termination, the Participant shall be entitled to a “Severance Benefit.” A “Severance Benefit” shall consist of a “Severance Allowance” determined in accordance with this Section 5, subject to the Participant’s eligibility (and eligibility of members of the Participant’s family), a Benefits Credit payment, determined in accordance with Section 6 below, the Vesting Acceleration Benefit described in Section 7 below and, at the discretion of the Plan Administrator, “Outplacement Services” described in Section 8 below.
(a)The amount of a Participant’s Severance Allowance shall be determined as of the Termination Date and shall equal the amount determined in accordance with Section 5(a), plus the amount determined in accordance with Section 5(b). The amount determined in accordance with this Section 5(a) shall be based on the Participant’s level of employment with the Company at the time of the Qualifying Termination, and shall be determined in accordance with the following chart:
Participant’s Level of Employment With the Company | Aggregate Amount of Severance Allowance Under Section 5(a) | ||||
| Executive Vice President | 18 months of Base Pay | ||||
| Senior Vice President | 15 months of Base Pay | ||||
| Vice President | 12 months of Base Pay | ||||
Notwithstanding the foregoing or anything in the Plan to the contrary, the amount of any Severance Allowance payable to any Participant under the Plan shall be reduced, dollar-for-dollar, but not below $0.00, by the amount of any payments made by the Company or any affiliates thereof, to such Participant under the Worker Adjustment and Retraining Notification Act, as amended (the “WARN Act”) or any similar state law. For purposes hereof:
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(i)“Base Pay” means such Participant’s monthly base rate of salary on the Termination Date, prorated to the extent necessary to take into account any reduced schedule of employment, but excluding all other forms of compensation such as bonuses.
(ii)A Participant’s level of employment with the Company shall be determined by the Plan Administrator, in its sole discretion.
(iii) The portion of the Severance Allowance determined in accordance with this Section 5(a) shall be paid in equal pro rata installments, in accordance with the normal payroll practices of the Company in effect on the date of the Qualifying Termination, over the number of months listed in the chart above under the column for the “aggregate amount of severance allowance” (i.e., 18, 15 or 12 months) applicable to the Participant’s position, commencing on the Company payroll payday specified in the Participant’s Agreement, provided that MSC previously received from such Participant a fully executed Agreement and any revocation period applicable to the Agreement expired without revocation by the Participant.
(b) In addition to the Severance Allowance as calculated above there will be an additional payment amount (the “Bonus Allowance”) for associates who are in roles that are bonus eligible. The amount to be paid shall be calculated at 100% of the individual’s bonus target prorated for the current fiscal year based on the date of the Qualifying Termination so long as the Qualifying Termination date is on or after the first day of MSC’s third fiscal quarter. Any Qualifying Termination that occurs before the first day of MSC’s third fiscal quarter shall not receive a bonus payment. This additional payment (if any) is payable in a lump sum on the Company payroll payday specified in the Participant’s Agreement, provided that MSC previously received from such Participant a fully executed Agreement and any revocation period applicable to the Agreement expired without revocation by the Participant. The Bonus Allowance and the Severance Allowance are collectively the “Severance Payment.”
(c)All payments of any Severance Benefit shall be net of any required withholding, any employment taxes and other required taxes and deductions with respect to the Severance Benefit.
Section 6. Benefits Subsidy Payment. In the event a Participant who is covered under the Company’s current Healthcare Plans incurs a Qualifying Termination, and such Participant is eligible to continue health plan coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for periods after the date coverage would otherwise terminate on account of such Qualifying Termination, the Company shall pay to the Participant an amount equal to the credit provided by the Company toward the cost of the Participant’s healthcare coverage (determined based on the Participant’s salary band, plan election and coverage tier immediately prior to the Qualifying Termination and including any Wellness credit to which the Participant was entitled immediately prior to the Qualifying Termination) for the period determined in accordance with the following chart (the “Benefits Subsidy”):
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Participant’s Level of Employment With the Company | Aggregate Amount of Company Benefits Subsidy | ||||
| Executive Vice President | 18 months of Benefits Subsidy | ||||
| Senior Vice President | 15 months of Benefits Subsidy | ||||
| Vice President | 12 months of Benefits Subsidy | ||||
The Benefits Subsidy will be paid to the Participant in one-lump sum payment on the Company payday specified in the Participant’s Agreement, provided that MSC had previously received from such Participant a fully executed Agreement and any revocation period applicable to the Agreement expired without revocation by the Participant.
Section 7. Vesting Acceleration Benefit. In the event a Participant incurs a Qualifying Termination, subject to the provisions of Section 4 above, as of the Termination Date, any unvested Awards under the MSC Industrial Direct, Co. Inc. 2005 Omnibus Incentive Plan or the MSC Industrial Direct, Co. Inc. 2015 Omnibus Incentive Plan (collectively, the “Omnibus Plans”) held by a Participant on the Termination Date shall be deemed to be vested as follows:
(a)For any unvested Options or Stock Appreciation Rights (including any assumed or substituted options or stock appreciation rights) held by the Participant that have an exercise price that is no greater than the Fair Market Value of a Share of the underlying MSC stock on the Termination Date, each such Award will become vested and exercisable with respect to the number of Options or Stock Appreciation Rights that would have vested on the next scheduled vesting date for such Award in accordance with terms of the applicable Award Agreement and Omnibus Plan.
(b)For Restricted Stock Awards, Restricted Stock Unit Awards, Performance Share Awards and other share-based Awards (including assumed or substituted restricted stock, restricted stock units, performance shares and other share-based awards) held by the Participant, any restrictions applicable to each such Award will lapse with respect to the number of Shares that would have vested on the next scheduled vesting date for such Award and any performance conditions imposed with respect to such Shares shall be deemed to be achieved at target performance levels or as otherwise provided in the applicable Award Agreement.
For purposes of this Section 7, capitalized terms not otherwise defined in the Plan shall have the meanings prescribed under the applicable Omnibus Plan. Except as provided in this Section 7, the terms of the Omnibus Plans and the applicable Award Agreements will continue to apply.
Section 8. Outplacement Services. The Plan Administrator may determine, in its sole discretion, to provide outplacement services as part of any Severance Benefit of any Participant (“Outplacement Services”). Any such outplacement services shall be of such nature and such
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duration as the Plan Administrator shall determine, in its discretion, and shall be described in the applicable Participant’s Agreement. A Participant must commence usage of any Outplacement Services provided in a Severance Benefit no later than ninety (90) days after the Participant’s Termination Date. Outplacement Services not commenced by the end of such ninety (90)-day period shall be immediately forfeited.
Section 9. Administration. The Severance Committee of MSC, shall be the plan administrator (the “Plan Administrator”). The Plan Administrator shall be responsible for the overall operation and administration of the Plan. The Plan Administrator may appoint or employ such persons as it, he or she may deem necessary to render advice with respect to any responsibility of the Company or the Plan Administrator under the Plan. The Plan Administrator shall have the exclusive discretionary power and authority to interpret the terms of the Plan and to decide all questions concerning the operation and administration of the Plan including, without limitation, the eligibility of any person to participate in the Plan, the determination whether a Qualifying Termination under the Plan has occurred, the right to and amount of any benefit payable under the Plan to any individual and the date on which any individual ceases to be a Plan Participant. The Plan Administrator’s decisions hereunder shall be final and binding on all Participants and all other persons interested or claiming any interest under the Plan. The Plan Administrator may allocate to any one or more of the Company’s associates any responsibility it may have under the Plan and may designate any other person or persons to carry out any of its responsibilities under the Plan; provided, however, that the Plan Administrator shall not allocate or designate any responsibility with respect to a Participant who is an “officer” of the Company, within the meaning of Section 16(a)(1) of the Securities Exchange Act of 1934 (“Section 16”), who is subject to the filing requirements of Section 16.
Section 10. Funding. The Plan, as a “severance pay arrangement” within the meaning of Section 3(2)(B)(i) of ERISA, is intended to be, and shall be administered and maintained as, an unfunded welfare benefit plan within the meaning of Section 3(1) of ERISA. This Plan is a “top hat” plan that is available to a select group of management. The Plan shall not be funded through a trust, an insurance contract or otherwise, and all benefit payments under the Plan shall be made from the general assets of the Company. Accordingly, a Participant shall not have any claim against specific assets of Company, and shall be only a general creditor, with respect to any rights the Participant may have under the Plan. All expenses and costs in connection with the operation of the Plan shall be borne by Company.
Section 11. Amendment and Termination. The Plan may be amended or terminated, in whole or in part, at any time by the Plan Administrator, subject to approval, as appropriate, by the Company’s Board of Directors. Except as provided below, any such Plan amendment or termination may apply to all, or any designated class or classes of employees (including, without limitation, former employees). Except as provided below, upon termination of the Plan, the Company shall have no further obligations or liabilities hereunder, and all Plan benefits and all Company and Plan Administrator obligations under the Plan shall cease. Notwithstanding the above, except with a Participant’s consent, no such amendment or termination shall impair the rights of a Participant with respect to benefits payable hereunder if such Participant ceased to be an Eligible Associate and became entitled to payment of a Severance Benefit under Sections 4, 5, 6, 7 and 8 hereof prior to the date such amendment or termination was adopted.
Section 12. No Employment Contract. This Plan is not a contract of employment, and the terms of employment of an associate with the Company shall not be affected in any way by this Plan except as specifically provided herein. The adoption of this Plan shall not be construed as conferring any legal rights upon any employee for the continuation of an employment
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relationship with the Company, nor shall it interfere with the right of the Company to discharge the associate.
Section 13. Miscellaneous.
(a) The payment of a severance pay allowance under the Plan shall not be taken into account for any purpose under any other plan or policy of the Company, except as otherwise specifically provided in the Plan or in such other plan or policy.
(b)No benefit payable under this Plan may be assigned, transferred, pledged as a security for indebtedness or otherwise encumbered, or subjected to any legal process for the payment of any claim against a Participant and any attempt to cause the same to be so subjected shall be null and void and without effect.
(c)Whenever appropriate in the Plan, words used in the singular may be read in the plural; words used in the plural may be read in the singular; and words importing the masculine gender shall be deemed equally to refer to the feminine or be neutral. Any reference to a Section shall refer to a Section of this Plan, unless otherwise indicated.
(d)The headings of Sections are included solely for convenience of reference, and if there is any conflict between such headings and the text of the Plan, the text shall control.
(e)In the event that the terms of the Plan conflict with the terms of any summary or other description of the Plan, the terms of the Plan shall govern.
(f)This Plan shall be construed in accordance with the Employee Retirement Income Security Act of 1974, as amended, (“ERISA”), and except to the extent preempted by federal law, the Plan shall be construed, administered and enforced in accordance with the laws of the State of New York, without giving effect to the principles thereof relating to the conflict of laws.
Section 14. Successors. The Plan shall bind any successor to all or substantially all of the Company’s assets in the same manner and to the same extent that the Company would be obligated under the Plan if no succession had taken place.
Section 15. Nonalienation of Benefits. Except as otherwise specifically provided herein, neither the rights nor any amounts payable under the Plan shall not be subject to any manner of anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kind, either voluntary or involuntary, including any liability which is for alimony of other payments for the support of a spouse or former spouse, or for any other relative of a Participant, prior to actually being received by the person entitled to payment under the terms of the Plan. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, garnish, execute, levy upon or otherwise dispose of any right to amounts payable hereunder, shall be null and void.
Section 16. Facility of Payment. If a Participant is incompetent, the Company may (i) require the appointment of a conservator or guardian, (ii) distribute amounts to his or her spouse, with respect to a Participant who is married, or to such other relative of an unmarried Participant for the benefit of such Participant, or (iii) distribute such amounts directly to or for the benefit of such Participant; provided however, in all cases, that a conservator, guardian, or other person charged with his or her care has not been appointed. Alternatively, the Company may distribute such amounts to an escrow account established by the Company in its sole and absolute discretion until the proper payee is determined.
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Section 17. Overpayment. If, due to mistake or any other reason, a person receives Severance Benefits under the Plan in excess of what the Plan provides, that person shall repay the overpayment to the Company in a lump sum within 30 days of the Company providing notice to such person of the amount of overpayment. If such person fails to so repay the overpayment, then without limiting any other remedies available to the Company, the Company may deduct the amount of the overpayment from any other amounts which become payable to that person under the Plan or otherwise.
Section 18. Claims Procedures. In the event that any person (a “Claimant”) makes a claim for benefits under the Plan (a “Claim”), such Claim shall be made by the Claimant’s filing a notice thereof with the Plan Administrator within ninety (90) days after such Claimant first has knowledge of such Claim. Each Claimant who has submitted a Claim to the Plan Administrator shall be afforded a reasonable opportunity to state such Claimant’s position and to present evidence and other material relevant to the Claim to the Plan Administrator for its consideration in rendering its decision with respect thereto. The Plan Administrator shall render its decision in writing within sixty (60) days after the Claim is referred to it, and a copy of such written decision shall be furnished to the Claimant. Each Claimant whose Claim has been denied by the Plan Administrator shall be provided written notice thereof, which notice shall set forth the following (in a manner calculated to be understood by such Claimant):
1. the specific reason(s) for the denial;
2. specific reference to pertinent provision(s) of the Plan upon which such denial is based;
3. a description of any additional material or information necessary for the Claimant to perfect such Claim and an explanation of why such material or information is necessary; and
4. an explanation of the procedure hereunder for review of such Claim.
Each such Claimant shall be afforded a reasonable opportunity for a full and fair review of the decision of the Plan Administrator denying the Claim. Such review shall be by the Plan Administrator. Such appeal shall be made within ninety (90) days after the Claimant received the written decision of the Plan Administrator and shall be made by the written request of the Claimant or such Claimant’s duly authorized representative to the Plan Administrator. In the event of appeal, the Claimant or such Claimant’s duly authorized representative may review pertinent documents and submit issues and comments in writing to the Plan Administrator. The Plan Administrator may approve, disapprove or modify the decision of the Plan Administrator, in whole or in part, or may take such other action with respect to such appeal as it deems appropriate. The decision of the Plan Administrator with respect to such appeal shall be made promptly, and in no event later than sixty (60) days after receipt of such appeal, unless special circumstances require an extension of such time within which to render such decision, in which event such decision shall be rendered as soon as possible and in no event later than one hundred twenty (120) days following receipt of such appeal. The decision of the Plan Administrator shall be in writing and in a manner calculated to be understood by the Claimant and shall include specific reasons for such decision and set forth specific references to the pertinent provisions of the Plan upon which such decision is based. The Claimant shall be furnished a copy of the written decision of the Plan Administrator. Such decision shall be final and conclusive upon all persons interested therein, except to the extent otherwise provided by applicable law. Not in limitation of the foregoing, the Plan Administrator shall have the discretion to decide any factual or interpretative issues in its determination of Claims, and the Plan Administrator’s exercise of
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such discretion shall be conclusive and binding as long as it is not arbitrary or capricious. The Company shall be the agent for service of legal process upon this Plan, and its address for such purpose shall be the address of its principal place of business in Melville, New York.
Section 19. Code Section 409A. Notwithstanding anything in the Plan to the contrary, if any amount or benefit that the Company determines would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code would otherwise be payable or distributable under this Plan by reason of a Participant’s termination of employment, then to the extent necessary to comply with Code Section 409A:
(a)if the payment or distribution is payable in a lump sum to a “specified employee” (within the meaning of Section 409A of the Code), the Participant’s right to receive payment or distribution of such non-exempt deferred compensation will be delayed until the earlier of the Participant’s death or the seventh month following the Participant’s Termination Date; and
(b)if the payment or distribution is payable over time to a “specified employee” (within the meaning of Section 409A of the Code), the amount of such non-exempt deferred compensation that would otherwise be payable during the six (6) month period immediately following the Participant’s Termination Date will be accumulated and the Participant’s right to receive payment or distribution of such accumulated amount will be delayed until the earlier of the Participant’s death or the seventh month following the Participant’s Termination Date and paid on the earlier of such dates, without interest, and the normal payment or distribution schedule for any remaining payments or distributions will commence.
If an amount to be paid under this Plan is payable in two or more installments, each installment shall be treated as a separate payment for purposes of Section 409A. To the extent any expense reimbursement or in-kind benefit to which a Participant is or may be entitled to receive under the Plan constitutes non-exempt “deferred compensation” for purposes of Section 409A of the Code, then (i) such reimbursement shall be paid to the Participant as soon as administratively practicable after the Participant submits a valid claim for reimbursement, but in no event later than the last day of the Participant’s taxable year following the taxable year in which the expense was incurred, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any taxable year of the Participant shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year of the Participant, and (iii) the Participant’s right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Plan providing for the payment of any amounts or benefits subject to Code Section 409A upon or following a termination of employment unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Plan, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” Nothing in this Plan shall operate or be construed to cause the Plan to fail to comply with the requirements of Code Section 409A and, to the extent applicable, it is intended that the Plan comply with the provisions of Code Section 409A and shall be administered in a manner consistent with that intent. Any provision of this Plan that would cause the Plan or any payment made hereunder to fail to satisfy Code Section 409A shall have no force and effect until amended by the Company to comply with Code Section 409A (which amendment may be retroactive to the extent permitted by Code Section 409A) and may be made by the Company without the consent of any Participant.
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EXHIBIT A
DESIGNATED SUBSIDIARIES
Sid Tool Co., Inc. DBA MSC Industrial Supply
EXHIBIT 10.5
MSC INDUSTRIAL DIRECT CO., INC. DEFERRED COMPENSATION PLAN FOR
NON-EXECUTIVE DIRECTORS AND CONSULTANTS
Preamble
The MSC Industrial Direct Co., Inc. Deferred Compensation Plan for Non-Executive Directors and Consultants (the “Plan”) is adopted effective as of November 1, 2023 by MSC Industrial Direct Co., Inc. (“the Company”). The Company intends that the Plan shall at all times be administered and interpreted in such a manner as to constitute an unfunded plan maintained primarily for the benefit of non-executive members of the Company’s Board of Directors and to fulfill the applicable requirements of Section 409A.
ARTICLE 1 DEFINITIONS
1.1.Defined Terms. Certain words and phrases are defined when first used in later paragraphs of this Plan. In addition, the following words and phrases when used herein, unless the context clearly requires otherwise, shall have the following respective meanings:
“Account” means, with respect to any Participant, a bookkeeping entry used as a measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan and subject to such limits, rules and procedures as the Committee from time to time may adopt under this Plan. The Committee and the Record Keeper may establish and use sub-accounts and other record keeping entries with respect to any Participant’s Account, including without limitation any Deferral Account applicable to such Participant.
“Account Balance” means, with respect to any Participant at any particular time, the sum at such time of such Participant’s Deferral Account balances. The Account Balance shall be a bookkeeping entry only and shall be utilized solely as a measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.
“Affiliate” means a corporation, partnership, limited liability company or other entity that is required to be considered, together with the Company, as a single employer under §414(b) of the Code (employees of a controlled group of Companies) or §414(c) of the Code (employees of partnerships or limited liability companies under common control). For purposes of determining a controlled group of Companies under §414(b) of the Code, the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in §1563(a)(1), (2), and (3) of the Code. For purposes of determining trades or businesses that are under common control for purposes of §414(c) of the Code, “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in Treasury Regulation §1.414(c)-2. An entity shall not be considered an “Affiliate” for any period of time prior to satisfying the controlled group or common control tests described above.
“Beneficiary” means one or more persons, trusts, estates, or other entities, designated in accordance with Article 8 that are entitled to receive benefits under this Plan upon the death of a Participant.
“Beneficiary Designation Form” means the form established from time to time by the Committee that a Participant completes, signs and returns to the Company to designate one or more Beneficiaries. Beneficiary Designation Forms may be completed and/or signed using such online systems and other electronic means as the Committee or Record Keeper from time to time may designate for such purpose.“Board of Directors” shall mean the Board of Directors of the Company.
“Calendar Year” means the annual period measured from January 1 to December 31. “Code” means the Internal Revenue Code of 1986, as the same may be amended from time
to time.
“Committee” means the Compensation Committee of the Board of Directors. “Company” means MSC Industrial Direct Co., Inc.
“Deferral Account” means an Account consisting of the sum of (i) all of a Participant’s deferrals of Director Fees, Stock Unit Deferrals, plus Notional Investment Adjustments in value credited or debited thereon in accordance with Article 4, less (iii) all distributions from such account.
“Deferral Election Form” means notice filed by a Participant with the Record Keeper specifying the amount of the Participant’s Pay Type(s) to be deferred, and the time and form of distribution payments. Deferral Election Forms may be completed and/or signed using such online systems and other electronic means as the Committee or Record Keeper from time to time may designate for such purpose.
“Director Fees” means any all cash fees payable to a Non-Executive Director for service on the Board of Directors or on a committee of the Board of Directors, including without limitation any meeting fees or excess meeting fees.
“Dividend Equivalent” shall have the meaning set forth in the Equity Plan. “Effective Date” means November 1, 2023.
“Eligible Consultant” means any consultant or advisor who is eligible to participate in the Equity Plan and who is selected to participate herein in accordance with the provisions of Article 2.
“Equity Plan” means MSC Industrial Direct Co., Inc. 2023 Omnibus Incentive Plan, as amended and in effect from time to time.
“Hardship Distribution” means any distribution or waiver of deferral granted by the Committee pursuant to Article 7.
“Non-Executive Director” means any non-executive director serving on the Board of Directors.
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“Notional Investment” means any security, fund, account, sub-account, index, formula or other instrument, asset, measure or method from time to time designated by the Committee as a means to calculate the amount of any Notional Investment Adjustment, if determined to be offered by the Committee. Notional Investment shall mean Shares with respect to deferred RSUs, any Dividend Equivalents attributable to any RSU deferrals, and Stock Unit Deferrals.
“Notional Investment Adjustment” means earnings, gains, losses and any other adjustments made with respect to any amounts deferred, which adjustments are made based on the performance of a Notional Investment pursuant to Article 4.
“Participant” means any Non-Executive Director and any Eligible Consultant (i) who elects to participate in the Plan, (ii) who signs the required Deferral Election Forms, , (iii) whose signed Deferral Election Forms are accepted by the Committee, and (iv) who commences participation in the Plan. A spouse or former spouse (or Beneficiary) of a Participant shall not be treated as a Participant in the Plan, even if he or she has an interest in the Participant’s benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce.
“Permissible Change Election” means an election to change the time or form of payment of any benefit under the Plan that:
(a)does not take effect until at least 12 months after the date on which such election to delay or change is made;
(b)is made at least 12 months prior to the date previously scheduled for the payment affected thereby;
(c)postpones the payment affected thereby for a period of not less than 5 years from the date when such payment otherwise would have been made; provided, however, that this restriction shall not apply in the case of a payment on account of a death or an Unforeseeable Emergency; and
(d)does not accelerate the scheduled time for payment of any distribution, except as permitted under Section 409A Requirements.
For purposes of the foregoing, unless otherwise required under applicable Section 409A Requirements, any distribution that a Participant elects to receive in a series of installments shall be treated as being a single payment on the date of the first installment of such series.
“Plan” means this MSC Industrial Direct Co., Inc. Deferred Compensation Plan for Non- Executive Directors and Consultants as amended and in effect from time to time.
“Plan Year” means each Calendar Year beginning with the calendar year which first follows the Effective Date.
“Record Keeper” means the party designated as the Record Keeper, as such designation may be amended from time to time in the discretion of the Committee. In the absence of any such
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designation, or should the Record Keeper be unable or unwilling to serve, the Company shall perform the duties of the Record Keeper under this Plan.
“RSU” means an award of restricted stock units granted to a Non-Executive Director or Eligible Consultant pursuant to Article 7 of the Equity Plan.
“Section 409A” means Section 409A of the Code, as the same may be amended from time to time, and any successor statute thereto. References to Section 409A or any requirement under Section 409A, as the same may be interpreted, construed or applied to this Plan at any particular time, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published guidance, regulations, notices, rulings and similar announcements issued by the Internal Revenue Service or by the Secretary of the Treasury under or interpreting Section 409A, decisions by any court of competent jurisdiction involving a Participant or a Beneficiary and any closing agreement made under §7121 of the Code that is approved by the Internal Revenue Service and involves a Participant, all as determined by the Committee in good faith, which determination may (but shall not be required to) be made in reliance on the advice of such tax counsel or other tax professional(s) with whom the Committee from time to time may elect to consult with respect to any such matter.
“Section 409A Discretionary Payment Period” means with respect to any designated payment date, the period during which payments will be treated as having been made upon such designated payment date under Treasury Regulation §1.409A-3(d), providing for payments to be treated as timely if made no earlier than thirty (30) days prior to such designated payment date and no later than the end of the Calendar Year in which such designated payment date occurs, or if later, by the 15th day of the third calendar month following such designated payment date.
“Section 409A Requirement” means any requirement under Section 409A, the failure of which would result in the imposition or accrual of interest or additional taxes under Section 409A on or with respect to any income intended to be deferred under the Plan.
“Shares” shall have the meaning set forth in the Equity Plan.
“Stock Unit Deferrals” means (i) RSU deferrals and (ii) any Dividend Equivalents attributable to any RSU deferrals.
“Termination” or “Separation from Service” shall be interpreted consistently with all Section 409A Requirements according to the following specifications:
(a)Non-Executive Director. A Non-Executive Director is considered to have a Termination or Separation from Service when the Non-Executive Director ceases to be a member of the Board of Directors by reason other than death and ceases to perform any services.
(b)Eligible Consultant. An Eligible Consultant is considered to have a Termination or Separation from Service upon the cessation of the contract (or in the case of more than one contract, all contracts) under which services are performed to the Company or an Affiliate, provided that such cessation constitutes a good-faith and complete termination of the contractual relationship.
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“Unforeseeable Emergency” means, with respect to any particular Participant, (i) a severe financial hardship of such Participant resulting from an illness or accident suffered by such Participant, by such Participant’s spouse or by a dependent (within the meaning of §152 of the Code without regard to §152(b)(1), (b)(2) and (d)(1)(B) of the Code) of such Participant; (ii) a Participant’s loss of property due to casualty; or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. It is the Company’s responsibility to determine whether there is an Unforeseeable Emergency in accordance with Section 409A with respect to any Participant and to advise the Record Keeper accordingly.
* * * * * *
It is intended that the Plan shall conform with all applicable Section 409A Requirements. Accordingly, in interpreting, construing or applying any of the foregoing definitions or any of the terms, conditions or provisions of the Plan, the same shall be construed in such manner as shall meet and comply with Section 409A Requirements then applicable thereto, and in the event of any inconsistency with any Section 409A Requirements, the same shall be reformed so as to meet such Section 409A Requirements to the fullest extent then permitted without penalty (and without imposition or accrual of interest or additional taxes) under Section 409A.
ARTICLE 2 ELIGIBILITY AND PARTICIPATION
2.1.Selection. Participation in the Plan shall be limited to Non-Executive Directors and Eligible Consultants, as determined by the Committee in its sole discretion. Any action so taken with respect to any particular Participant or group of Participants shall not imply a right on the part of any other Participant or group of Participants to enroll for or receive additional benefits or amounts of benefits. The Committee may terminate the right of any existing Participant to file additional Deferral Election Forms under this Plan, and shall terminate any such right for a Participant who ceases to meet any of the requirements applicable to participation in this Plan.
2.2.Enrollment. As a condition to participate, each Non-Executive Director and Eligible Consultant shall complete, execute and return to the Record Keeper the required Deferral Election Forms within thirty (30) days after he or she is selected to participate in the Plan. The Committee may establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary, convenient or appropriate to carry out any of the purposes or intent of the Plan or to better assure the Plan’s compliance with Section 409A Requirements. Non- Executive Directors and Eligible Consultants also shall submit to the Record Keeper a Beneficiary Designation Form, but receipt of the Beneficiary Designation Form within thirty (30) days of eligibility shall not be a condition to enrollment in this Plan.
2.3.Eligibility. Each Non-Executive Director or Eligible Consultant shall commence participation in the Plan as soon as practicable following the completion of the applicable enrollment period, or as of the following Plan Year, as determined by the Committee and as stated in the applicable Deferral Election Form, assuming all enrollment requirements have been completed, including timely submission of all required enrollment documents to the Record Keeper. If any Non-Executive Director or Eligible Consultant fails to meet all such requirements
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within the period required in accordance with Section 2.2, that Non-Executive Director or Eligible Consultant shall not be eligible to participate in the Plan until the first day of the Plan Year following the delivery to and acceptance by the Committee (or its designee) of the required documents.
ARTICLE 3 CONTRIBUTIONS AND CREDITS
3.1.Deferral Amount. For each Plan Year, a Participant may elect to defer amounts of Director Fees and RSUs using a Deferral Election Form. Any deferral election shall be subject to such limits, rules and procedures from time to time established by the Committee prior to the applicable Plan Year and as provided in the Election Form.
3.2.Election to Defer.
3.2.1.Deferred Amounts. A Deferral Election Form shall apply to any Director Fees that are paid or RSUs granted to a Participant for any period of service that commences following the Calendar Year in which such Deferral Election Form is filed. Notwithstanding previous sentence, a Participant who first becomes eligible to participate in the Plan and who files a Deferral Election Form during the first thirty (30) days of such eligibility may be permitted to have that Deferral Election Form apply in the then-current Calendar Year, at the sole discretion of the Committee, and in such case, the initial deferral shall apply only to (i) any Director Fees that are paid to such Participant for any period of service that commences after the date that such Deferral Election Form is filed or (ii) any RSU that vests more than twelve months from the date that such Deferral Election Form is filed.
3.2.2.Subsequent Plan Years. For each succeeding Plan Year, an irrevocable deferral election shall be made by completing a new Deferral Election Form for that Plan Year, and such other elections as the Committee deems necessary or desirable under the Plan, which elections shall be made by timely filing with the Committee or its designee, in accordance with its and the Committee’s rules and procedures, before the end of the Plan Year preceding the Plan Year for which the election is made, unless the Committee determines to allow Deferral Election Forms to remain effective for future years and such form is not revised or revoked in a timely manner by the applicable Participant.
3.2.3.Changes. Deferral Election Forms filed prior to their applicable filing deadline hereunder may be changed, until such filing deadline occurs, by filing an updated or amended Deferral Election Form in accordance with the foregoing requirements.
3.3.RSU Deferrals. On the date that a RSU and Dividend Equivalent award subject to a deferral election hereunder vests in accordance with the terms and conditions of the Equity Plan, a number of notional Shares equal to the number of Shares that would otherwise have been issuable in settlement of such RSU and Dividend Equivalent award shall be credited to a Participant’s Deferral Account and shall become Stock Unit Deferrals. RSUs and Dividend Equivalent awards subject to a deferral election hereunder shall be subject to the same terms and conditions regarding
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vesting and forfeiture to which the Participant would be subject to under the Equity Plan had the Participant not elected to defer receipt of such RSUs and Dividend Equivalents.
ARTICLE 4 ALLOCATION OF FUNDS
4.1.Credit/Debiting of Account Balances. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant’s Account in accordance with this Article 4.
4.2.Notional Investment Calculations. The Committee shall designate in its sole discretion one or more Notional Investments to be used to calculate Notional Investment Adjustments to be credited or debited to Participants’ Accounts, as if each Participant were making an actual investment in Notional Investments with his or her Account Balance. The Committee may also determine not to offer any such Notional Investment options, and this may also change each Plan Year. The Committee is under no obligation to offer any or any particular Notional Investments. If offered, Notional Investments shall be used to calculate bookkeeping entries in each Participant’s respective Account, and shall be utilized solely as a means to calculate and adjust Account Balances pursuant to this Plan. The Committee from time to time may delete, modify, substitute or otherwise change any Notional Investment under the Plan for any reason with respect to any future Account Balance calculations, and the Committee may impose such limits, rules and procedures governing the frequency, timing, methods and other matters pertaining to the calculation of Notional Investment Adjustments, and the use, effectiveness and application thereof, as the Committee from time to time may deem to be necessary, convenient or appropriate for purposes of administering the Plan.
4.3.Election of Notional Investment. If the Committee shall approve more than one Notional Investment to be used with respect to any Plan Year, then each Participant may elect one or more Notional Investment(s) to be used to calculate the Notional Investment Adjustments to be credited or debited, as the case may be, to his or her Account under this Article 4. Each Participant shall specify the portions of his or her Account to be allocated to one or more Notional Investments, if any, as if the Participant was making an actual investment in that Notional Investment with that portion of his or her Account Balance. The Committee may impose such limits, rules and procedures governing the frequency of permitted changes, timing of effectiveness, minimum and maximum amounts (if any) and other matters pertaining to Notional Investments, and the use, effectiveness and application thereof, as the Committee from time to time may deem to be necessary, convenient or appropriate for purposes of administering the Plan, including the designation of a default option in the event a Participant fails to make a valid election.
4.4.Credit or Debiting Method. The Participant’s Account will be credited or debited, as the case may be, with the increase or decrease in the performance of each Notional Investment selected by the Participant, if any, as though the portion of the Participant’s Account Balance was actually invested in the Notional Investments selected by the Participant, in the percentages (if more than one Notional Investment is available under this Plan) then applicable to each portion of the Participant’s Account. The value of each Notional Investment shall be calculated under the Plan as of the close of business on the business day when the published or calculated value of such
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Notional Investment becomes effective generally, but not more frequently than once per business day. The Committee from time to time may specify such times, frequencies, methods, rules and procedures for calculating the value of any particular Notional Investment (for example, specifying that interest on money market funds shall be calculated and credited on a monthly basis).
4.5.No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, each Notional Investment is to be used for measurement purposes only. A Participant’s election of any Notional Investment(s), the allocation of any portion of his or her Account thereto and the use of any Notional Investment(s) to calculate any Notional Investment Adjustment in value to be credited or debited to his or her Account shall not be considered or construed in any manner as an actual investment of his or her Account in any such Notional Investment. In the event that the Company, in its own discretion, decides to invest funds in any or all of the Notional Investments, no Participant shall have any rights or interests in or to any such investment. Without limiting the foregoing, a Participant’s Account Balance shall at all times be a bookkeeping entry only, and shall not represent any actual investment made on his or her behalf by the Company. The Participant shall at all times remain an unsecured creditor of the Company.
4.6.RSUs, Dividend Equivalents, and Notional Shares. All Stock Unit Deferrals shall be notionally invested in Shares from the vesting date applicable to the deferred RSUs and Dividend Equivalents, until such time as the deferred RSUs and Dividend Equivalents under the Participant’s Deferral Account are distributed to the Participant. Notional Shares credited to a Participant’s Deferral Account shall be subject to adjustment in the same manner and under the same circumstances as would apply to outstanding RSUs or Shares under the Equity Plan.
ARTICLE 5 VESTING
5.1. Vesting of Benefits. The Participant’s Account Balance attributable to his or her Deferral Accounts, and Notional Investment Adjustments thereto, will always be one hundred percent (100%) vested.
ARTICLE 6 DISTRIBUTION OF BENEFITS
6.1.Death Benefit.
6.1.1.Pre-Commencement Death Benefit. If a Participant dies prior to the commencement of his or her Separation from Service payment then the Company shall pay the Participant’s vested Account Balance as a death benefit to such Participant’s Beneficiary in a single cash lump sum upon death.
6.1.2.Post Commencement Death Benefit. If a Participant dies after the commencement of his or her Separation from Service payment, the Company shall pay the Participant’s vested Account Balance as a death benefit to such Participant’s Beneficiary in a single cash lump sum upon death.
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6.2.Separation from Service/Termination Benefit. In the event of a Participant’s Termination or Separation from Service, either voluntarily or involuntarily, the Company shall pay the Participant’s vested Account Balance to the Participant consistent with the Participant’s Deferral Election Form(s). The Deferral Election Form shall permit payment in the form of cash (or, in the case of Stock Unit Deferrals and any adjustments thereto, Shares) as either (i) a single lump sum following Termination or Separation from Service or (ii) if determined in the sole discretion of the Committee and provided on a Deferral Election Form, a series of equal annual installments for a period of no more than five (5) years following Termination or Separation from Service, or such other period of time as may be offered by the Committee and set forth on the Deferral Election Form. In the absence of a Participant’s express election as to the time and form of payment, payment shall be made in the form of cash (or, in the case of Stock Unit Deferrals and any adjustments thereto, Shares) as a single lump sum following Termination or Separation from Service.
6.3.Payments. A Participant’s vested Account Balance shall be distributed in one or more annual installments as set forth in the Participant’s Deferral Election Form. The amount shall be calculated by taking the amount of the Participant’s vested Account Balance divided by the total number of installments (in the case of a lump sum distribution, divided by one). This amount is to be valued as of the end of the day (the “Valuation Date”) that is the date of the event giving rise to the distribution or such other date as reasonably determined by the Committee. Payments shall be made as soon as practicable, but, in any event, within sixty (60) days after the Valuation Date (extended, in the case of death, by such reasonable period of time as the Committee may require to confirm the existence of such death within the Section 409A Discretionary Payment Period). If there shall be more than one installment to be paid, then each subsequent installment shall be calculated on the anniversary of the Valuation Date, by taking the Participant’s Account Balance as of the close of business on such anniversary, and dividing such amount by the number of installments then remaining, with payment to be made as soon as practical, but in any event within sixty (60) days of said anniversary. The final installment payment shall be equal to the remaining Account Balance of the Participant. In no event shall the amount of any lump sum or installment payment to a Participant exceed the remaining vested Account Balance of such Participant. For purposes of the foregoing, unless otherwise required under applicable Section 409A Requirements, any distribution that a Participant elects to receive in a series of installments shall be treated as being a single payment on the date of the first installment of such series.
6.4.No Acceleration; Changes; Certain Delays. The time or schedule for payment of any distribution under the Plan may not be accelerated, except as set forth in this Plan and as permitted under applicable Section 409A Requirements. No election may be made to change the time or form of payment of any distribution under this Plan, or any installment thereof, except for a Permissible Change Election. Despite the foregoing, to the extent consistent with applicable Section 409A Requirements, the Committee may elect to delay payment of any benefit hereunder if such benefit would violate securities laws, or if there is a bona fide payment dispute (but only if the applicable Participant or Beneficiary is diligently attempting to collect the applicable benefit and does not control the Company or the Committee, or control the Company’s or the Committee’s decisions with respect thereto); and to the extent permitted under Section 409A Requirements, the time or schedule of payment of a benefit hereunder may be accelerated:
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(a)to the extent that such benefit (or this Plan as it pertains thereto in the case of any particular Participant) fails to meet Section 409A Requirements, but only in an amount equal to the amount required to be included in income as a result of the failure to comply with Section 409A Requirements;
(b)for payment to an individual other than a Participant, to the extent necessary to fulfill a domestic relations order as provided in Section 11.6; or
(c)as more particularly provided in Section 6.10, Article 7 or Section 11.8.
6.5.No Duplication of Benefits. This Plan is intended to provide benefits based on a Participant’s Account Balance, subject to the terms and conditions hereof. Nothing in this Plan shall be construed to express or imply the right of any Participant to receive, or to have his or her Beneficiary(ies) receive, benefits in amounts exceeding in the aggregate his or her vested Account Balance.
6.6.Date of Payment. The timing of payment hereunder shall in all events comply with all Code Section 409A Requirements. All designated payment events shall be interpreted so as to be limited to permissible payment events under Code Section 409A. Any discretion exercised by the Committee with respect to the timing of payments hereunder shall come within the Section 409A Discretionary Payment Period.
6.7.Tax Withholding and Reporting. The Company shall have the right to deduct any required withholding taxes from any payment made under this Plan.
ARTICLE 7 UNFORESEEABLE EMERGENCIES
7.1.Application for Hardship Distribution or Deferral Election Termination. In the event that any Participant incurs an Unforeseeable Emergency, if consistent with applicable Section 409A Requirements, such Participant may apply to the Committee for a Hardship Distribution in the form of (i) cancellation of existing deferral elections for amounts not yet earned by such Participant, and (ii) to the extent cancellation of all such elections is insufficient to satisfy the needs resulting from such Unforeseeable Emergency, an accelerated payment (“Hardship Distribution”) of some or all of such Participant’s vested Account Balance. The Committee shall consider the circumstances of each such case, and the best interests of the Participant and his or her family, and shall have the right, in its sole discretion, to allow such application, in full or in part, or to refuse to make a Hardship Distribution. In the event that any Participant receives a distribution from this Plan due to an unforeseeable emergency or a hardship pursuant to Treasury Regulation §1.401(k)-1(d)(3) (or successor regulation thereto, to the extent recognized for these purposes under Section 409A Requirements), such Participant’s existing deferral elections for amounts not yet earned by such Participant shall be cancelled for the remainder of the Plan Year.
7.2.Amount of Distribution. In no event shall the amount of any Hardship Distribution payment exceed the lesser of: (a) the Participant’s vested Account Balance, or (b) the amount determined by the Committee to be necessary to alleviate the hardship, including any taxes payable by the Participant as a result of receiving such Hardship Distribution, and which is not reasonably available from other resources of the Participant, including reimbursement or compensation from
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insurance or otherwise, by liquidation of the Participant’s assets (unless liquidation of such assets would cause severe financial hardship) or by cessation of deferrals under this Plan or other nonqualified plans in which such Participant participates, all in a manner consistent with any applicable Section 409A Requirements.
7.3.Rules Adopted by Committee. The Committee shall have the authority to adopt additional rules and procedures relating to Hardship Distributions. The request to take a Hardship Distribution shall be made by filing a form provided by and filed with the Committee and shall be accompanied by appropriate documentation evidencing the existence and extent of the hardship consistent with Section 409A Requirements.
ARTICLE 8 BENEFICIARY DESIGNATION
8.1.Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefit under this Plan after the Participant’s death. The Beneficiary designated under this Plan may be the same as or different from the beneficiary designation under any other plan of the Company in which the Participant participates.
8.2.Beneficiary Designation; Change; Spousal Consent. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form and returning it to the Record Keeper. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, then to the extent required by applicable law, a spousal consent, in the form designated by the Committee, must be signed by that Participant’s spouse and returned to the Record Keeper. The Committee and the Record Keeper shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death.
8.3.Acknowledgement. No designation or change in designation of a Beneficiary shall be effective until received and accepted by the Committee.
8.4.No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the Participant’s estate.
8.5.Doubt as to Beneficiary. If the Record Keeper has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Company to withhold such payments until this matter is resolved to the Committee’s satisfaction.
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8.6.Discharge of Obligation. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge the Company and the Committee from all further obligations under the Plan with respect to the Participant.
ARTICLE 9
MANAGEMENT AND ADMINISTRATION OF THIS PLAN
9.1.The Committee.
9.1.1.The Committee shall be responsible for the management, operation and administration of the Plan, and for processing claims under Article 10. The Committee shall administer the Plan in accordance with its terms and shall have the discretion, power and authority to determine all questions arising in connection with the administration, interpretation and application of the Plan. Any such determination shall be conclusive and binding upon all persons. The Committee shall have all powers necessary or appropriate to accomplish its duties under the Plan. The Committee from time to time may employ others to render advice with regard to its responsibilities under this Plan and to perform services under this Plan, including the services contemplated to be performed by the Record Keeper. The Committee may also allocate its responsibilities to others and may exercise any other powers necessary for the discharge of its duties.
9.1.2.No member of the Committee will have any right to vote or decide upon any matter relating solely to such member under the Plan or to vote in any case in which such member’s individual right to claim any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act and a majority of the remaining members cannot agree, the Company’s Board of Directors will appoint a temporary substitute member to exercise all the powers of the disqualified member concerning the matter in which such member is disqualified.
9.2.Information from Company. The Company and each Affiliate shall supply full and timely information to the Committee and the Record Keeper on all matters as may be required properly to administer the Plan. The Committee and the Record Keeper may rely upon the correctness of all such information as is so supplied and shall have no duty or responsibility to verify such information. The Committee and the Record Keeper shall also be entitled to rely conclusively upon all tables, valuations, certifications, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by or on behalf of the Company or the Committee with respect to the Plan.
9.3.Indemnification. The Company, to the fullest extent permitted by applicable law, shall indemnify and hold harmless the members of the Committee, the Record Keeper and their respective employees, officers, directors, partners, agents, affiliates and representatives, from and against any and all claims, losses, liabilities, costs, damages and expenses (including without limitation reasonable attorneys’ fees) arising from any action or failure to act with respect to this Plan on account of such party’s services hereunder, except in the case of gross negligence or willful misconduct.
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9.4.Section 409A Compliance. The Company intends that this Plan will be established, construed, administered and applied in compliance with all Section 409A Requirements, but in light of uncertainty with respect to such requirements and limits, the Company reserves the right to unilaterally interpret or amend the Plan and/or any Deferral Election Form without the consent of the Participants and to take any actions that may be appropriate to comply with the Section 409A Requirements.
ARTICLE 10 CLAIMS PROCEDURES
10.1. Claims Procedure. Any person making a claim for benefits under the Plan must submit the claim in writing to the Committee or its designee. If the Committee or its designee denies the claim in whole or in part, it will issue to the claimant a written notice explaining the reasons for the denial (with specific reference to the Plan provisions on which the denial is based) and identifying any additional information or documentation that might enable the claimant to perfect the claim. The claimant may, within sixty (60) days of receiving a written notice of denial, submit a written request for reconsideration to the Committee or its designee, together with a written explanation of the basis for the request. The Committee or its designee will consider any such request and will provide the claimant with a written decision, which will include a written explanation of the reasons for the decision (with reference to the specific Plan provisions on which the decision is based). All interpretations, determinations, and decisions of the Committee with respect to any claim will be final and conclusive in the absence of clear and convincing evidence that the interpretation, determination, or decision was made arbitrarily or capriciously.
ARTICLE 11 MISCELLANEOUS
11.1.Rabbi Trust. The Company is responsible for the payment of amounts owing to Participants and Beneficiaries under the Plan. At the Company’s sole discretion, the Company may establish a grantor trust under Subpart E of Subchapter J, Chapter 1 of the Code for the purpose of holding any assets intended to fund the payment of any benefits under this Plan. The Company shall have no obligation to make any contributions or deposits into such trust and all assets of such trust shall remain subject to the claims of the Company’s creditors generally in the event of any insolvency or bankruptcy of the Company. To the extent any benefits provided under the Plan are paid from a grantor trust, the Company will have no further obligation to pay Plan benefits. Any Plan benefits not paid from the grantor trust will remain the Company’s obligation.
11.2.No Right to Company Assets Unsecured Claim. Payments to any Participant or Beneficiary hereunder shall be made from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Company. No person shall have any interest in any such asset by virtue of any provision of this Plan. The Company’s obligation hereunder shall be an unfunded and unsecured promise to pay money in the future. To the extent that any person acquires a right to receive payments from the Company under the provisions hereof, such right shall be no greater than the right of any unsecured general creditor of the Company; no such person shall have or acquire any legal or equitable right, interest or claim in or to any property or assets of the Company.
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In the event that, in its discretion, the Company purchases an insurance policy or policies insuring the life of a Participant or any other property, to allow the Company to recover or meet the cost of providing benefits, in whole or in part, hereunder, no Participant or Beneficiary shall have any rights whatsoever therein or in the proceeds therefrom. The Company shall be the sole owner and beneficiary of any such insurance policy or property and shall possess and may exercise all incidents of ownership therein.
11.3.Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
11.4.Furnishing Information. Each Participant and his or her Beneficiary(ies) shall cooperate with the Committee and the Record Keeper by furnishing any and all information requested by the Committee or the Record Keeper and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary.
11.5.No Contract. Nothing contained herein shall be construed to be a service contract for any term of years, nor as conferring upon any Participant the right to continue to be engaged by the Company or any Affiliate in his or her present capacity or in any capacity. It is expressly understood that this Plan relates to the payment of deferred compensation for each Participant’s services, and is not intended to be a contract.
11.6.Benefits Not Transferable. No Participant or Beneficiary under this Plan shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber any part or all of the amounts payable hereunder. No such amounts shall be subject to seizure by any creditor of any such Participant or Beneficiary, by a proceeding at law or in equity, nor shall such amounts be transferable by operation of law in the event of bankruptcy, insolvency or death of the Participant or Beneficiary. Any such attempted assignment shall be void.
The interest in the benefits hereunder of a spouse of a Participant who predeceases the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse’s will, nor shall such interest pass under the laws of intestate succession.
Notwithstanding the foregoing, to the extent necessary to comply with the terms of a “domestic relations order” (as defined in §414(p)(1)(B) of the Code) the Committee may cause all or a portion of a Participant’s Account Balance to be segregated into a sub-Account for the benefit of the Participant’s spouse, child or other dependent identified in such order as the alternative payee and give such alternative payee (or their legal representative if such alternative payee is incompetent or a minor), as applicable (i) the same Notional Investment alternatives as are available to the Participant under the Plan with respect to such sub-Account until distributed, and
(ii) the same distribution form and timing options as are available to the Participant under the Plan or an immediate lump sum payment, all as directed by the domestic relations order and subject to compliance with Code Section 409A Requirements.
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11.7.Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant’s employer and its successors and assigns and the Participant and the Participant’s designated Beneficiaries.
11.8.Amendment and Termination. To the extent consistent with Section 409A Requirements, this Plan may be amended or terminated by the Company at any time, without notice to or consent of any person, pursuant to resolutions adopted by the Company. Any such amendment or termination shall take effect as of the date specified therein and, to the extent permitted by law and Section 409A Requirements, may have retroactive effect. However, no such amendment or termination shall reduce the vested balance then credited to the Participant’s Account Balance under Article 4.
11.9.The Company reserves the right to terminate its participation in this Plan. Except as otherwise provided below, the termination of the Plan shall not affect the distribution provisions in effect for the Accounts maintained under the Plan, and all amounts deferred prior to the date of any such Plan termination shall continue to become due and payable in accordance with the distribution provisions in effect immediately prior to such Plan termination. Payment of the Account Balances may be accelerated upon Plan termination and liquidation of the Plan only in compliance with all Section 409A Requirements as then in effect. Notice. Either the Committee or the Record Keeper may specify that any election, form, designation, agreement or communication by a Participant under the Plan shall be made or submitted online at a site on the World Wide Web designated for such purpose, or by other reasonable electronic means. Subject to the foregoing, any notice, consent or demand required or permitted to be given under the provisions of this Plan shall be in writing, and shall be signed by the party giving or making the same. If such notice, consent or demand is mailed, it shall be sent by United States certified mail, postage prepaid, addressed, if to the Company or the Committee, to the Company at 515 Broadhollow Road, Suite 100 Melville, NY 11747, and if to the Record Keeper, to the Record Keeper at the address provided by the Committee, and if to any Participant, to such Participant’s address most recently submitted by him or her to the Record Keeper (and in the absence of such submission, as most recently appearing on the records of the Company). The date of such mailing shall be deemed the date of notice, consent or demand. Any person may change the address to which notice is to be sent by giving notice of the change of address in the manner aforesaid.
11.10.Facility of Payment. If a distribution is to be made to a minor, or to a person who is otherwise incompetent, then the Committee may, in its discretion, make such distribution (i) to the legal guardian, or if none, to a parent of a minor payee with whom the payee maintains his or her residence, or (ii) to the conservator or committee or, if none, to the person having custody of an incompetent payee. Any such distribution shall fully discharge the Committee, the Record Keeper, the Company and the Plan from further liability on account thereof.
11.11.Governing Law. The Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of New York, without reference to principles of conflict of laws, and construed accordingly.
Signature Pages Follows
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IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officers on this 7th day of November, 2023.
MSC INDUSTRIAL DIRECT CO., INC.By:
Name: Neal Dongre
Title: Vice President, General Counsel & Corporate Secretary
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EXHIBIT 31.1
CERTIFICATION
I, Erik Gershwind, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: January 9, 2024
/s/ ERIK GERSHWIND | |||||
Erik Gershwind | |||||
President and Chief Executive Officer (Principal Executive Officer) | |||||
EXHIBIT 31.2
CERTIFICATION
I, Kristen Actis-Grande, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: January 9, 2024
| /s/ KRISTEN ACTIS-GRANDE | |||||
Kristen Actis-Grande | |||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES‑OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc. (the “Company”) for the fiscal quarter ended December 2, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Erik Gershwind, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 9, 2024
| By: | /s/ ERIK GERSHWIND | |||||||
| Name: | Erik Gershwind President and Chief Executive Officer (Principal Executive Officer) | |||||||
A signed original of this written statement required by Section 906 has been provided to MSC Industrial Direct Co., Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES‑OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc. (the “Company”) for the fiscal quarter ended December 2, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kristen Actis-Grande, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 9, 2024
| By: | /s/ KRISTEN ACTIS-GRANDE | |||||||
| Name: | Kristen Actis-Grande Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||||||
A signed original of this written statement required by Section 906 has been provided to MSC Industrial Direct Co., Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.