MSC Industrial Direct Co., Inc. Reports First Quarter Fiscal Year 2008 Results

MSC INDUSTRIAL DIRECT CO., INC. (NYSE: MSM), "MSC” or the "Company,” one of the premier distributors of MRO supplies to industrial customers throughout the United States, today reported financial results for its first quarter of fiscal 2008 ended December 1, 2007. Net sales for the first quarter of fiscal 2008 were $437.6 million, an increase of 8.8% compared with net sales of $402.0 million in the first quarter of fiscal 2007. Net income for the first quarter of fiscal 2008 increased 16.3% to $46.9 million, versus $40.3 million in the first quarter of the prior year. Diluted earnings per share increased 16.7% to $0.70, based on 66.7 million shares outstanding in the first quarter of fiscal 2008, versus diluted earnings per share of $0.60, based on 67.7 million shares outstanding in the first quarter of fiscal 2007. "Financial results for the first quarter were solid and in line with our expectations,” said David Sandler, President and Chief Executive Officer. "We continued to make progress executing our overall growth strategy. The integration of J&L has been successful, and we have made good progress on our plan to sell MSC products to our J&L customer base. In addition, our West Coast initiative is making solid progress. Our new sales offices in Seattle, Portland, and Salt Lake City are now open and this initiative continues to meet our goals. We also remained very focused on managing our overall expense levels during the quarter, and as a result achieved strong operating margin performance.” "Our overall financial performance for the first quarter was strong,” said Chuck Boehlke, Executive Vice President and Chief Financial Officer. "We executed on our plans, hitting our financial targets for the period. Our tight control of operating expenses resulted in improved operating margins even as we continued to incrementally invest in our future at historically high levels. Free cash flow (see Note 1) was $29.4 million for the quarter, and reflects steps we’ve taken to build inventory, primarily to ensure the best possible service experience for our customer base. We utilized some of this free cash flow to repurchase an additional $24.4 million of our shares. Going forward, we will remain focused on tight operating cost controls and on reducing inventory levels to more normalized levels by the end of the fiscal year.” Mr. Sandler concluded, "As we move into the second quarter, our customers have told us that market conditions are mixed. While there continue to be many pockets of strength, there is less optimism among our customer base in general and more concern over cost inflation, especially in raw materials and energy costs. At the same time, the macroeconomic indicators we follow are also signaling the possibility of a slowing market. In such an environment, customers are even more focused on controlling their costs and minimizing their MRO inventory levels, and MSC is in an excellent position to support them in these efforts based on our high service level model. As a result, we believe we can continue to take market share and grow earnings while also prudently investing in our future to ensure that we are best positioned to take advantage of improvements in the marketplace as they occur.” Based on current market factors, the Company expects net sales for the second quarter of fiscal 2008 to be between $430 million and $436 million, which reflects growth over year ago levels despite the negative sales impact of the timing of the Christmas and New Year’s holidays, which MSC believes reduced sales by approximately $4 million to $5 million in the period. The Company expects diluted earnings per share for the fiscal 2008 second quarter to be between $0.68 and $0.70. The management of MSC will host a conference call today at 11:00 a.m. Eastern Time to review the Company’s results for the first quarter of fiscal 2008, and to comment on current operations. The call may be accessed via the Internet at: http://www.mscdirect.com. Note 1 – Free cash flow is defined as net cash provided by operating activities less expenditures for property, plant and equipment. Net cash flow provided by operating activities during the first quarter of fiscal 2008 was $32.0 million. Expenditures for property, plant and equipment in fiscal 2008 were $2.6 million. Management considers free cash flow to be an important indicator of the Company’s financial strength and the ability to generate liquidity because it reflects cash generated from operations that can be used for strategic initiatives, dividends, debt repayment and repurchases of the Company’s stock. About MSC Industrial Direct MSC Industrial Direct is one of the premier distributors of Metalworking and Maintenance, Repair and Operation (MRO) supplies to industrial customers throughout the United States. MSC distributes in excess of 550,000 industrial products from approximately 3,000 suppliers to approximately 390,000 customers. In-stock availability is approximately 99%, with next day, standard ground delivery to the majority of the industrial United States. MSC reaches its customers through a combination of over 30 million direct-mail catalogs and CD-ROMs, 98 branch sales offices, 854 sales people, the Internet and associations with some of the world's most prominent B2B e-commerce portals. For more information, visit the Company's Web site at http://www.mscdirect.com. CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Statements in this Press Release may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained herein which are not statements of historical facts and that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future shall be deemed to be forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events, actual results and performance, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of any statement in this release does not constitute an admission by MSC or any other person that the events or circumstances described in such statement are material. Factors that could cause actual results to differ materially from those in forward-looking statements include, without limitation, changing customer and product mixes, changing market conditions, industry consolidations, competition, general economic conditions in the markets in which the Company operates, rising commodity and energy prices, risk of cancellation or rescheduling of orders, work stoppages or other business interruptions (including those due to extreme weather conditions) at transportation centers or shipping ports, the risk of war, terrorism and similar hostilities, dependence on the Company’s information systems and on key personnel, the outcome of potential government or regulatory proceedings or future litigation relating to pending or future claims, inquiries or audits, and various other risk factors listed from time to time in the Company's SEC reports. (Tables Follow) MSC INDUSTRIAL DIRECT CO., INC. Condensed Consolidated Balance Sheets (In thousands)   December 1, 2007   September 1, 2007 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 5,093 $ 7,797 Accounts receivable, net of allowance for doubtful accounts 210,796 204,186 Inventories 357,940 338,366 Prepaid expenses and other current assets 22,216 20,748 Deferred income taxes   20,276     18,705   Total current assets   616,321     589,802     Property, plant and equipment, net 125,407 127,608 Goodwill 272,806 272,806 Identifiable intangibles, net 68,910 70,832 Other assets   12,499     14,279   Total Assets $ 1,095,943   $ 1,075,327     LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Revolving credit notes $ 10,000 $ -- Current maturities of long-term notes payable 36,035 33,471 Accounts payable 71,363 69,579 Accrued liabilities   71,668     70,237   Total current liabilities 189,066 173,287 Long-term notes payable 131,910 142,200 Deferred income tax liabilities   31,713     31,963   Total liabilities   352,689     347,450   Shareholders’ Equity: Preferred Stock -- -- Class A common stock 59 59 Class B common stock 18 18 Additional paid-in capital 413,360 408,996 Retained earnings 644,665 609,713 Accumulated other comprehensive income 921 694 Class A treasury stock, at cost   (315,769 )   (291,603 ) Total shareholders’ equity   743,254     727,877   Total Liabilities and Shareholders’ Equity $ 1,095,943   $ 1,075,327   MSC INDUSTRIAL DIRECT CO., INC. Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited)   Thirteen Weeks Ended December 1,     November 25,   2007 2006   Net sales $ 437,554 $ 402,012 Cost of goods sold   234,984     216,321   Gross profit 202,570 185,691 Operating expenses   124,600     116,485   Income from operations   77,970     69,206   Other Income (Expense) : Interest expense (2,464 ) (3,206 ) Interest income 239 276 Other income (expense), net   41     (21 ) Total other income (expense)   (2,184 )   (2,951 ) Income before provision for income taxes 75,786 66,255 Provision for income taxes   28,920     25,959   Net income $ 46,866   $ 40,296   Per Share Information: Net income per common share: Basic $ 0.71   $ 0.61   Diluted $ 0.70   $ 0.60   Weighted average shares used in computing net income per common share: Basic   65,617     66,480   Diluted   66,704     67,712   Cash dividends declared per common share $ 0.18   $ 0.14   MSC INDUSTRIAL DIRECT CO., INC. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)   Thirteen Weeks Ended December 1,     November 25, 2007 2006 Cash Flows from Operating Activities: Net income $ 46,866   $ 40,296   Adjustments to reconcile net income to net cash provided by operating activities:     Depreciation and amortization 6,731 6,237 Stock-based compensation 2,669 2,250 Provision for doubtful accounts 839 793 Deferred income taxes (1,821 ) (707 ) Reclassification of excess tax benefits from stock-based compensation (410 ) (440 )   Changes in operating assets and liabilities: Accounts receivable (7,293 ) 186 Inventories (19,390 ) (8,134 ) Prepaid expenses and other current assets (1,452 ) 2,844 Other assets 1,749 2,833 Accounts payable and accrued liabilities   3,484     10,597     Total adjustments   (14,894 )   16,459     Net cash provided by operating activities   31,972     56,755     Cash Flows from Investing Activities: Business acquisition -- (8,976 ) Expenditures for property, plant and equipment   (2,552 )   (6,349 )   Net cash used in investing activities   (2,552 )   (15,325 )   Cash Flows from Financing Activities: Purchase of treasury stock (24,430 ) (31,264 ) Payment of cash dividends (11,914 ) (9,377 ) Reclassification of excess tax benefits from stock-based compensation 410 440 Proceeds from sale of Class A common stock in connection with associate stock purchase plan   534 569 Proceeds from exercise of Class A common stock options 977 864 Net proceeds under revolving loans from credit facility 10,000 -- Repayments of notes payable under the credit facility and other notes   (7,726 )   (39 ) Net cash used in financing activities   (32,149 )   (38,807 )   Effect of exchange rate changes on cash and cash equivalents   25     --   Net (decrease) increase in cash and cash equivalents (2,704 ) 2,623 Cash and cash equivalents – beginning of period   7,797     7,718   Cash and cash equivalents – end of period $ 5,093   $ 10,341   Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ 2,918   $ 4,642   Cash paid for interest $ 2,746   $ 2,021