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MarketScreener Homepage  >  Equities  >  Nyse  >  MSC Industrial Direct Co., Inc.    MSM

MSC INDUSTRIAL DIRECT CO., INC.

(MSM)
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MSC INDUSTRIAL DIRECT : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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07/08/2020 | 02:11pm EDT

The following is intended to update the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2019 and presumes that readers have access to, and will have read, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in such Annual Report on Form 10-K.

Overview


MSC Industrial Direct Co., Inc. (together with its subsidiaries, "MSC," the
"Company," "we," "our," or "us") is a leading North American distributor of a
broad range of MRO products and services. We help our customers drive greater
productivity, profitability and growth with more than 1.8 million products,
inventory management and other supply chain solutions, and deep expertise from
more than 75 years of working with customers across industries. We continue to
implement our strategies to gain market share, generate new customers, increase
sales to existing customers, and diversify our customer base.

We offer approximately 1,845,000 active, saleable stock-keeping units through
our catalogs; brochures; eCommerce channels, including our website,
mscdirect.com ("MSC website"); our inventory management solutions; and
call-centers and branches. We service our customers from 12 customer fulfillment
centers (eight are located within the United States which includes five primary
customer fulfillment centers, one is located in the United Kingdom, and three
are in Canada) and 99 branch offices. Many of our products are carried in stock,
and orders for these in-stock products are typically fulfilled the day on which
the order is received.

Our business model focuses on providing overall procurement cost reduction and
just-in-time delivery to meet our customers' needs. We focus on offering
inventory, process and procurement solutions that reduce MRO supply chain costs
and improve plant floor productivity for our customers. We will seek to continue
to achieve cost reduction throughout our business through cost-saving strategies
and increased leverage from our existing infrastructure. Furthermore, we will
continue to provide additional procurement cost-saving solutions to our
customers through technology such as our Customer Managed Inventory, Vendor
Managed Inventory ("VMI"), and vending programs.

Our field sales and service associate headcount was 2,341 at May 30, 2020,
compared to 2,411 at June 1, 2019. Recently, we have migrated our sales force
from one designed to sell a spot buy value proposition to one prepared to
deliver upon the new, more complex and high-touch role to drive value for our
customers.

Recent Developments and Highlights

Highlights during the three fiscal quarters ended May 30, 2020 include the following:

?We generated $214.9 million of cash from operations, compared to $187.2 million for the same period in the prior fiscal year.


?We paid out $402.5 million in cash dividends, comprised of special and regular
cash dividends of approximately $277.6 million and $124.9 million, respectively,
compared to regular cash dividends of $104.3 million in the same period in the
prior fiscal year.

?We incurred $5.9 million in restructuring and other related costs, comprised of
$3.5 million in consulting costs related to the optimization of the Company's
operations and $2.4 million in severance and separation benefits charges and
other related costs associated primarily with sales workforce realignment.

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Impact of COVID-19 on Our Business


The COVID-19 pandemic has resulted and will continue to result in significant
economic disruption and has and will adversely affect our business. The
following events related to the COVID-19 pandemic have resulted and will result
in lost or delayed revenue to our company: limitations on the ability of
manufacturers to manufacture the products we sell; limitations on the ability of
our suppliers to obtain the products we sell or to meet delivery requirements
and commitments; limitations on the ability of our associates to perform their
work due to illness caused by the pandemic or local, state or federal orders
requiring associates to remain at home; limitations on the ability of UPS, LTL
carriers and other carriers to deliver our packages to customers; limitations on
the ability of our customers to conduct their business and purchase our products
and services; disruptions to our customers' supply chains or purchasing
patterns; and limitations on the ability of our customers to pay us on a timely
basis. The extent to which the COVID-19 pandemic will continue to impact our
business and financial results going forward will be dependent on future
developments such as the length and severity of the crisis, the potential
resurgence of COVID-19 in the future, future government actions in response to
the crisis and the overall impact of the COVID-19 pandemic on the global economy
and capital markets, among many other factors, all of which remain highly
uncertain and unpredictable.

We continue to experience disruptions in our business as we have implemented
modifications to associate travel and associate work locations and cancelled
events, among other modifications. We believe that, based on the various
standards published to date, the work our associates perform is critical,
essential and life-sustaining. We have reduced spending more broadly across the
company, only proceeding with operating and capital spending that is critical.
We have ceased all hiring and reduced discretionary expenses. Looking ahead, we
have developed contingency plans to reduce costs further if the situation
deteriorates. We will continue to actively monitor the situation and may take
further actions that alter our business operations as may be required by
federal, state or local authorities or that we determine are in the best
interests of our associates, customers, suppliers and shareholders.

Our Strategy


Our objective is to continue 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 continue to 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. Approximately 59% of our revenues came from sales in the manufacturing
sector during the third quarter of our fiscal year 2020. Through statistical
analysis, we have found that trends in our customers' activity have correlated
to changes in the Metalworking Business Index ("MBI"). The MBI is a sentiment
index developed from a monthly survey of the U.S. metalworking industry,
focusing on durable goods manufacturing. For the MBI, a value below 50.0
generally indicates contraction and a value above 50.0 generally indicates
expansion. The MBI index over the last three months and for the past
twelve-month period ending May 30, 2020 were as follows:

Period                  MBI
March                   41.0
April                   34.4
May                     40.8

Fiscal 2020 Q3 average  38.7
12-month average        46.4


The MBI fiscal 2020 third quarter average trended below 50.0. The recent
volatility stems from the economic disruptions of the COVID-19 pandemic. See
"Impact of COVID-19 on Our Business" above. The most recent June MBI reading of
42.9 is indicative of contraction. We will continue to monitor economic
conditions for their impact on our customers and markets and continue to assess
business risks and opportunities.



                                       23

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Thirteen-Week Period Ended May 30, 2020 Compared to the Thirteen-Week Period Ended June 1, 2019

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

                                           Thirteen Weeks Ended
                                    May 30, 2020           June 1, 2019               Change

                                     $          %           $          %           $            %
Net sales                       $ 834,972     100.0%   $ 866,546     100.0%   $ (31,574)       (3.6)%
Cost of goods sold                481,010      57.6%     497,891      57.5%     (16,881)       (3.4)%
Gross profit                      353,962      42.4%     368,655      42.5%     (14,693)       (4.0)%
Operating expenses                244,110      29.2%     258,154      29.8%     (14,044)       (5.4)%
Income from operations            109,852      13.2%     110,501      12.8%        (649)       (0.6)%
Total other expense               (5,838)     (0.7)%     (4,482)     (0.5)%      (1,356)        30.3%
Income before provision for
income taxes                      104,014      12.5%     106,019      12.2%      (2,005)       (1.9)%
Provision for income taxes         25,900       3.1%      26,505       3.1%        (605)       (2.3)%
Net income                         78,114       9.4%      79,514       9.2%      (1,400)       (1.8)%
Less: Net income attributable
to noncontrolling interest            411       0.0%        (87)       0.0%          498     (572.4)%
Net income attributable to      $
MSC Industrial                     77,703       9.3%   $  79,601       9.2%   $  (1,898)       (2.4)%


Net Sales

Net sales decreased 3.6% or $31.6 million for the thirteen-week period ended May
30, 2020, as compared to the thirteen-week period ended June 1, 2019. We
estimate that this $31.6 million decrease in net sales is comprised of (i)
approximately $38.7 million of lower sales volume; and (ii) $1.0 million of
unfavorable foreign exchange impact; partially offset by (iii) approximately
$8.1 million from improved pricing, inclusive of changes in customer and product
mix, discounting and other items. Of the above $31.6 million decrease in net
sales, sales to our government and national account programs ("Large Account
Customers") increased by $39.3 million and sales other than to our Large Account
Customers decreased by $70.9 million.

Our government net sales increased to 15% from 7% as a percentage of total net
sales for the thirteen-week period ended May 30, 2020, as compared to the
thirteen-week period ended June 1, 2019. This increase is related to the recent
high demand for safety and janitorial products from government customers.

The table below shows the change in our average daily sales by total company and
by customer type for the thirteen- week period ended May 30, 2020 compared to
the same period in the prior fiscal year:

                             Average Daily Sales Percentage Change
                                          (unaudited)
                                                                     Thirteen Weeks Ended
                                                                 May 30, 2020      June 1, 2019
Net Sales                                                    $    834,972$      866,546
Sales Days                                                             64                   64
Average Daily Sales (ADS)(1)                                 $     13,046$       13,540
Total Company ADS Percent Change                                    -3.6%

Manufacturing Customers ADS Percent Change                         -17.0%
Manufacturing Customers Percent of Total Net Sales                    59%

Non-Manufacturing Customers ADS Percent Change                      26.2%
Non-Manufacturing Customers Percent of Total Net Sales                41%

(1) ADS is calculated using number of business days in the US

We believe that our ability to transact business with our customers through various electronic portals and directly through the MSC website gives us a competitive advantage over smaller suppliers. Sales made through our eCommerce

                                       24

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platforms, including sales made through Electronic Data Interchange ("EDI")
systems, VMI systems, Extensible Markup Language ordering-based systems,
vending, hosted systems and other electronic portals, represented 55.3% of
consolidated net sales for the thirteen-week period ended May 30, 2020, compared
to 60.1% of consolidated net sales for the same period in the prior fiscal year.
This percentage decline is primarily related to the higher volume of safety and
janitorial product sales in the current fiscal quarter not transacting through
our eCommerce platforms. These percentages of consolidated net sales do not
include eCommerce sales from the acquisition of AIS and from MSC Mexico
operations.

Gross Profit


Gross profit margin was 42.4% for the thirteen-week period ended May 30, 2020 as
compared to 42.5% for the same period in the prior fiscal year. The decline was
primarily the result of increased product costs, largely offset by changes in
our customer and product mix.

Operating Expenses

Operating expenses decreased 5.4% to $244.1 million for the thirteen-week period
ended May 30, 2020, as compared to $258.2 million for the same period in the
prior fiscal year. Operating expenses were 29.2% of net sales for the
thirteen-week period ended May 30, 2020, as compared to 29.8% for the
thirteen-week period ended June 1, 2019. The decrease in operating expense
dollars was primarily attributable to lower costs associated with payroll and
payroll related, freight, and travel and entertainment, partially offset by
higher operating expenses for MSC Mexico and the consulting costs discussed
below.

Freight expense was $31.4 million for the thirteen-week period ended May 30,
2020, as compared to $35.1 million for the same period in the prior fiscal year.
The primary driver of this decrease was lower sales and improved pricing on
freight related charges.

Travel and entertainment expense decreased by $2.8 million for the thirteen-week
period ended May 30, 2020, as compared to the same period in the prior fiscal
year due to the Company's travel restrictions in place resulting from the
COVID-19 pandemic.

Payroll and payroll-related costs for the thirteen-week period ended May 30,
2020 were 56.4% of total operating expenses as compared to 56.3% for the same
period in the prior fiscal year. Payroll and payroll-related costs decreased by
$7.4 million for the thirteen-week period ended May 30, 2020, as compared to the
same period in the prior fiscal year due to the recent workforce realignment
strategy implemented towards the end of fiscal 2019, cost containment measures
put in place related to COVID-19, and lower sales volume. Included in payroll
and payroll-related costs are salary, incentive compensation, sales commission,
and fringe benefit costs. All of these costs, with the exception of the
incentive accrual, decreased for the thirteen-week period ended May 30, 2020, as
compared to the same period in the prior fiscal year.

For the thirteen-week period ended May 30, 2020, we incurred approximately $1.3
million in consulting costs related to the optimization of the Company's
operations. Following the uncertainty created by the COVID-19 pandemic, the
optimization plan was largely put on hold during the third quarter of fiscal
2020, except for a few select projects. In addition, the operations of MSC
Mexico accounted for $1.4 million in incremental costs for the thirteen-week
period ended May 30, 2020, as compared to the same period in the prior fiscal
year resulting from its higher sales volume.

Income from Operations


Income from operations decreased 0.6% to $109.9 million for the thirteen-week
period ended May 30, 2020, as compared to $110.5 million for the same period in
the prior fiscal year. This was primarily attributable to a decrease in net
sales and gross profit, partially offset by a decrease in operating expenses as
described above. Income from operations as a percentage of net sales increased
to 13.2% for the thirteen-week period ended May 30, 2020, from 12.8% for the
same period in the prior fiscal year, primarily as the result of the decrease in
operating expenses as a percentage of net sales, mentioned above.

Provision for Income Taxes

The effective tax rate for the thirteen-week period ended May 30, 2020 was 24.9%, as compared to 25.0% for the same period in the prior fiscal year.

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Net Income

The factors which affected net income for the thirteen-week period ended May 30, 2020, as compared to the same period in the previous fiscal year, have been discussed above.

Thirty-Nine Week Period Ended May 30, 2020 Compared to the Thirty-Nine Week

                           Period Ended June 1, 2019

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

                                            Thirty-Nine Weeks Ended
                                     May 30, 2020             June 1, 2019                Change

                                      $           %            $           %           $            %
Net sales                       $ 2,444,667     100.0%   $ 2,521,147     100.0%   $ (76,480)       (3.0)%
Cost of goods sold                1,412,457      57.8%     1,442,693      57.2%     (30,236)       (2.1)%
Gross profit                      1,032,210      42.2%     1,078,454      42.8%     (46,244)       (4.3)%
Operating expenses                  754,390      30.9%       768,972      30.5%     (14,582)       (1.9)%
Income from operations              277,820      11.4%       309,482      12.3%     (31,662)      (10.2)%
Total other expense                (12,375)     (0.5)%      (12,986)     (0.5)%          611       (4.7)%
Income before provision for
income taxes                        265,445      10.9%       296,496      11.8%     (31,051)      (10.5)%
Provision for income taxes           66,323       2.7%        74,320       2.9%      (7,997)      (10.8)%
Net income                          199,122       8.1%       222,176       8.8%     (23,054)      (10.4)%
Less: Net income attributable
to noncontrolling interest              501       0.0%          (81)       0.0%          582     (718.5)%
Net income attributable to      $
MSC Industrial                      198,621       8.1%   $   222,257       8.8%   $ (23,636)      (10.6)%


Net Sales

Net sales decreased 3.0% or $76.5 million for the thirty-nine week period ended
May 30, 2020, as compared to the thirty-nine week period ended June 1, 2019. We
estimate that this $76.5 million decrease in net sales is comprised of (i)
approximately $112.0 million of lower sales volume, excluding MSC Mexico
operations; and (ii) $1.2 million of unfavorable foreign exchange impact;
partially offset by (iii) $17.5 million of net sales from MSC Mexico, which
commenced operations in February 2019; and (iv) approximately $19.2 million from
improved pricing, inclusive of changes in customer and product mix, discounting
and other items. Of the above $76.5 million decrease in net sales, sales to our
Large Account Customers increased by approximately $19.3 million and sales other
than to our Large Account Customers decreased by approximately $95.8 million,
which includes $17.5 million of net sales from MSC Mexico partially offsetting
the decrease.

The table below shows the change in our average daily sales by total company and
by customer type for the thirty-nine week period ended May 30, 2020 compared to
the same period in the prior fiscal year:

                             Average Daily Sales Percentage Change
                                          (unaudited)

                                                                    Thirty-Nine Weeks Ended
                                                                 May 30, 2020      June 1, 2019
Net Sales                                                    $   2,444,667$    2,521,147
Sales Days                                                             187                 188
Average Daily Sales (ADS)(1)                                 $      13,073$       13,410
Total Company ADS Percent Change                                     -2.5%

Manufacturing Customers ADS Percent Change                           -7.6%
Manufacturing Customers Percent of Total Net Sales                     67%

Non-Manufacturing Customers ADS Percent Change                        9.3%
Non-Manufacturing Customers Percent of Total Net Sales                 33%

(1) ADS is calculated using number of business days in the US

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We believe that our ability to transact business with our customers through
various electronic portals and directly through the MSC website gives us a
competitive advantage over smaller suppliers. Sales made through our eCommerce
platforms, including sales made through EDI systems, VMI systems, Extensible
Markup Language ordering-based systems, vending, hosted systems and other
electronic portals, represented 58.9% of consolidated net sales for the
thirty-nine-week period ended May 30, 2020, compared to 60.1% of consolidated
net sales for the same period in the prior fiscal year. These percentages of
consolidated net sales do not include eCommerce sales from the acquisitions of
AIS and from MSC Mexico operations.

Gross Profit


Gross profit margin was 42.2% for the thirty-nine-week period ended May 30,
2020, as compared to 42.8% for the same period in the prior fiscal year. The
decline was primarily the result of increased product costs, partially offset by
changes in our customer and product mix. In addition, 30 basis points of the
decline resulted from MSC Mexico operations, which commenced in the fiscal
second quarter of 2019.

Operating Expenses


Operating expenses decreased 1.9% to $754.4 million for the thirty-nine-week
period ended May 30, 2020, as compared to $769.0 million for the same period in
the prior fiscal year. Operating expenses were 30.9% of net sales for the
thirty-nine-week period ended May 30, 2020, as compared to 30.5% for the
thirty-nine-week period ended June 1, 2019. The decrease in operating expense
dollars was comprised primarily of lower freight and other volume related costs,
partially offset by an increase in depreciation and amortization and by the
severance and separation costs and consulting costs discussed below and higher
operating expenses for MSC Mexico.

Freight expense was approximately $96.7 million for the thirty-nine-week period
ended May 30, 2020, as compared to $103.5 million for the same period in the
prior fiscal year. The primary drivers of this decrease were lower sales and
improved pricing on freight related charges.

Travel and entertainment expense decreased by $3.6 million for the thirty-nine-week period ended May 30, 2020, as compared to the same period in the prior fiscal year due to the Company's travel restrictions in place resulting from the COVID-19 pandemic.


Depreciation and amortization increased by $2.8 million for the thirty-nine-week
period ended May 30, 2020, as compared to the same period in the prior fiscal
year. The primary driver of this increase was greater investment in capital
projects related to information technology, which generally have shorter useful
lives.

Payroll and payroll-related costs for the thirty-nine-week period ended May 30,
2020 were 56.3% of total operating expenses as compared to 56.2% for the same
period in the prior fiscal year. Payroll and payroll-related costs decreased by
$7.9 million for the thirty-nine-week period ended May 30, 2020, as compared to
the same period in the prior fiscal year. Included in payroll and
payroll-related costs are salary, incentive compensation, sales commission, and
fringe benefit costs. All of these costs, with the exception of the incentive
accrual, decreased for the thirty-nine-week period ended May 30, 2020, as
compared to the same period in the prior fiscal year.

For the thirty-nine-week period ended May 30, 2020, we incurred approximately
$3.5 million in consulting costs related to the optimization of the Company's
operations and approximately $2.4 million in severance and separation related
costs, which contributed to the increase in operating expenses as a percentage
of net sales as compared to the same period in the prior fiscal year. In
addition, the operations of MSC Mexico, which commenced in our second quarter of
fiscal 2019, accounted for $4.8 million in incremental costs for the
thirty-nine-week period ended May 30, 2020, as compared to the same period in
the prior fiscal year.

Income from Operations

Income from operations decreased 10.2% to $277.8 million for the
thirty-nine-week period ended May 30, 2020, as compared to $309.5 million for
the same period in the prior fiscal year. This was primarily attributable to the
decrease in net sales and gross profit. Income from operations as a percentage
of net sales decreased to 11.4% for the thirty-nine-week period ended May 30,
2020, from 12.3% for the same period in the prior fiscal year, primarily as the
result of the decrease in the gross profit margin and an increase in operating
expenses as a percentage of net sales as mentioned above.

                                       27

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Provision for Income Taxes

The effective tax rate for the thirty-nine-week period ended May 30, 2020 was 25.0% as compared to 25.1% for the same period in the prior fiscal year. We expect our full-year tax rate for fiscal 2020 to be in the 24.5% to 25.0% range.

Net Income


The factors which affected net income for the thirty-nine-week period ended May
30, 2020, as compared to the same period in the previous fiscal year, have been
discussed above.

Liquidity and Capital Resources

                                      May 30,          August 31,
                                        2020              2019             $ Change
                                                 (Dollars in thousands)
Total debt, including              $      977,716$        441,884$      535,832
obligations under finance leases
Less: Cash and cash equivalents         (353,393)            (32,286)       

(321,107)

Net debt, including obligations $ 624,323$ 409,598 $

   214,725
under finance leases
Equity                             $    1,300,292$      1,483,879$    (183,587)

As of May 30, 2020, we held $353.4 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, Private Placement Debt, and Shelf Facility Agreements, has been used to fund these needs, to repurchase shares of our Class A common stock, and to pay dividends.


As of May 30, 2020, total borrowings outstanding, representing amounts due under
our credit facilities, Private Placement Debt, and Shelf Facility Agreements, as
well as all finance leases and financing arrangements, were $977.7 million, net
of unamortized debt issuance costs of $1.0 million. As of August 31, 2019, total
borrowings outstanding, representing amounts due under our credit facilities,
Private Placement Debt, and Shelf Facility Agreements, as well as all capital
leases and financing arrangements, were $441.9 million, net of unamortized debt
issuance costs of $1.2 million. In March 2020, the Company borrowed an
additional $300.0 million under its Committed Facility. The Company elected to
draw down on the Committed Facility to increase its cash position as a
precautionary measure and to preserve financial flexibility in consideration of
the disruption and uncertainty surrounding the ongoing COVID-19 pandemic. See
Note 6 "Debt" and Note 7 "Leases" in the Notes to the unaudited Condensed
Consolidated Financial Statements for more information about these balances.

We believe, based on our current business plan, that our existing cash, and cash
flow from operations, will be sufficient to fund necessary capital expenditures
and operating cash requirements for at least the next twelve months. The Company
further believes that its financial resources, along with managing discretionary
expenses, will allow it to manage the anticipated impact of COVID-19 on the
Company's business operations for the foreseeable future, which will
include reduced sales and net income levels for the Company. We have reduced
spending more broadly across the Company, only proceeding with operating and
capital spending that is critical. We have ceased all hiring and reduced
discretionary expenses. Looking ahead, we have developed contingency plans to
reduce costs further if the situation deteriorates. The challenges posed by
COVID-19 on the Company's business are evolving rapidly. Consequently, the
Company will continue to evaluate its financial position in light of future
developments, particularly those relating to COVID-19.

                                       28

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The table below summarizes information regarding the Company's liquidity and
capital resources:

                                                          Thirty-Nine Weeks Ended
                                                        May 30,             June 1,
                                                          2020               2019

                                                          (Dollars in thousands)
Net cash provided by operating activities            $      214,941      $  

187,200

Net cash used in investing activities                      (38,206)         

(20,556)

Net cash provided by (used in) financing                    144,829         

(173,959)

activities

Effect of foreign exchange rate changes on cash               (457)         

(131)

and cash equivalents
Net increase (decrease) in cash and cash             $      321,107$     (7,446)
equivalents


Operating Activities

Net cash provided by operating activities for the thirty-nine-week periods ended
May 30, 2020 and June 1, 2019 was $214.9 million and $187.2 million,
respectively. There are various increases and decreases contributing to this
change. A smaller decrease in the change in accounts payable and accrued
liabilities due to an increase in income taxes payable from an expected tax
payment during the thirteen-week period ended May 30, 2020 being deferred as
part of the CARES Act, a smaller increase in the change in inventories and in
accounts receivable resulting from lower sales volumes, partially offset by a
decrease in net income contributed to most of the increase in net cash provided
by operating activities.

                         May 30,    August 31,    June 1,
                           2020        2019         2019
                              (Dollars in thousands)
Working Capital         $ 963,943$  752,696$ 729,704
Current Ratio                 2.6          2.7         2.5
Days Sales Outstanding       60.7         56.8        59.2
Inventory Turnover            3.4          3.5         3.5


The increase in working capital as of May 30, 2020 compared to June 1, 2019 is
primarily due to an increase in cash from the $300.0 million draw down on the
Committed Facility in March 2020, and the $300.0 million borrowing being
classified as long-term debt. See Note 6 "Debt" in the Notes to the unaudited
Condensed Consolidated Financial Statements for more information about the
$300.0 million draw down on the Committed Facility in March 2020.

The increase in days sales outstanding as compared to the same period in the
prior year is primarily due to a receivables portfolio consisting of a greater
percentage of our national account program sales, which are typically at longer
terms. Inventory turnover (calculated using a thirteen-point average inventory
balance) remained relatively consistent with the prior year periods displayed.

Investing Activities


Net cash used in investing activities for the thirty-nine-week periods ended May
30, 2020 and June 1, 2019 was $38.2 million and $20.6 million, respectively. The
use of cash for both periods included expenditures for property, plant, and
equipment and the acquisition of certain assets of TAC Insumos Industriales, S.
de R.L. de C.V. and certain of its affiliates (together, "TAC"). The
thirty-nine-week period ended June 1, 2019 included a source of cash associated
with proceeds from the sale of Columbus-Franklin County Finance Authority bonds,
partially offsetting the uses of cash mentioned above by $27.0 million.

Financing Activities


Net cash provided by financing activities for the thirty-nine-week period ended
May 30, 2020 was $144.8 million as compared to the net cash used in financing
activities of $174.0 million for the thirty-nine-week period ended June 1, 2019.
The major components contributing to the source of cash for the thirty-nine-week
period ended May 30, 2020 were net borrowings on the credit facilities, private
placement, and shelf facility debt of $534.2 million, partially offset by
dividends paid of $402.5 million. The major components contributing to the use
of cash for the thirty-nine-week period ended June 1, 2019 were the repurchase
of our common stock of $84.5 million, dividends paid of $104.3 million, and
payments on capital lease and financing obligations of $28.0 million primarily
related to the lease with the Columbus-Franklin County Finance

                                       29

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Authority upon the settlement of the bonds. This was partially offset by net
borrowings on all the credit facilities of $22.0 million and proceeds from the
exercise of common stock options of $15.5 million.

Contractual Obligations


Information regarding our long-term debt payments, operating lease payments,
financing lease payments and other commitments is provided in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of our Annual Report on our Form 10-K for the fiscal year ended
August 31, 2019. As of May 30, 2020, there have been no material changes outside
the ordinary course of business in our contractual obligations and commitments
since August 31, 2019. See Note 13, "Subsequent Events" in the Notes to the
unaudited Condensed Consolidated Financial Statements for information about
subsequent transactions.

Long-term Debt

Credit Facilities

In April 2017, the Company entered into a $600.0 million Committed Facility. As
of May 30, 2020, the Company also had six uncommitted facilities, totaling
$413.8 million of maximum uncommitted availability. See Note 6 "Debt" in the
Notes to the unaudited Condensed Consolidated Financial Statements for more
information about the credit facilities. As of May 30, 2020, we were in
compliance with the operating and financial covenants of the credit facilities.
The current unused balance of $7.8 million from the Committed Facility, which is
reduced by outstanding letters of credit, is available for working capital
purposes if necessary. See Note 6 "Debt" in the Notes to the unaudited 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 Agreements. In
June 2018 and March 2020, we entered into additional Note Purchase Agreements.
See Note 6 "Debt" and Note 13, "Subsequent Events" in the Notes to the unaudited
Condensed Consolidated Financial Statements for more information about these and
subsequent transactions.

Financing Arrangements

From time to time, we enter into financing arrangements. See Note 6 "Debt" in
the Notes to the unaudited Condensed Consolidated Financial Statements for more
information about our financing arrangements.

Leases


As of May 30, 2020, certain of our operations are conducted on leased premises.
These leases are for varying periods, the longest extending to fiscal 2031. In
addition, we are obligated under certain equipment and automobile operating
leases, which expire on varying dates through fiscal 2025. See Note 7 "Leases"
in the Notes to the unaudited Condensed Consolidated Financial Statements for
more information about our finance and operating leases.

Off-Balance Sheet Arrangements

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

Critical Accounting Estimates


On an ongoing basis, we evaluate our critical accounting policies and estimates,
including those related to revenue recognition, inventory valuation, allowance
for doubtful accounts, warranty reserves, contingencies and litigation, income
taxes, accounting for goodwill and long-lived assets, stock-based compensation,
and business combinations. We make estimates, judgments and assumptions in
determining the amounts reported in the 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.

                                       30

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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 August 31, 2019.

Recently Issued Accounting Standards

See Note 1 "Basis of Presentation" in the Notes to the unaudited Condensed Consolidated Financial Statements.

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