MSC INDUSTRIAL DIRECT CO., INC. The following is intended to update the information contained inMSC 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 endedSeptember 3, 2022 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 2.3
million active, saleable SKUs through our catalogs; our brochures; our eCommerce
channels, including our website, www.mscdirect.com (the "MSC website"); our
inventory management solutions; and our customer care centers, customer
fulfillment centers, regional inventory centers and warehouses. We service our
customers from six customer fulfillment centers, 11 regional inventory centers,
39 warehouses, and four manufacturing locations, including two locations
acquired in the acquisition of Buckeye Industrial Supply Co. ("Buckeye") and
Tru-Edge Grinding, Inc. ("Tru-Edge"). 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 2,574 at
March 4, 2023 , compared to 2,448 at February 26, 2022 .
Highlights
Highlights during the twenty-six weeks ended
•We generated$416.4 million of cash from operations, compared to$57.4 million for the same period in the prior fiscal year, primarily from the$300.0 million Receivables Purchase Agreement (the "RPA"). •We had net payments of$245.0 million on our credit facilities, private placement debt and shelf facility agreements compared to net borrowings of$49.5 million for the same period in the prior fiscal year. •We entered into the RPA with an initial aggregate amount of$300.0 million . Proceeds from the RPA were primarily utilized to pay down existing debt on our credit facilities. •We paid out an aggregate$88.3 million in regular cash dividends, compared to an aggregate$83.6 million in regular cash dividends for the same period in the prior fiscal year. •We repurchased and immediately retired$31.0 million of MSC's Class A Common Stock, par value$0.001 per share ("Class A Common Stock"), compared to$4.8 million for the same period in the prior fiscal year. •InJanuary 2023 , we acquired Buckeye and Tru-Edge for aggregate consideration of$22.7 million , which includes cash paid of$20.5 million , the fair value of contingent consideration to be paid out of$2.3 million and a post-closing working capital adjustment in the amount of$0.1 million received from the sellers that is subject to finalization. •We incurred$3.9 million in restructuring and other costs, compared to$8.4 million for the same period in the prior fiscal year. Restructuring and other costs primarily consist of consulting-related costs associated with the optimization of the Company's operations and associate severance and separation costs. Restructuring and other costs for the same period in the prior fiscal year also include equity award acceleration costs associated with severance and other exit-related costs. 20 --------------------------------------------------------------------------------
Recent Developments
Progress on Mission Critical
As previously disclosed, we initiated a company-wide project in fiscal year 2020, which we refer to as "Mission Critical," to accelerate market share capture and improve profitability over the period through fiscal year 2023. Among the Mission Critical initiatives to realize growth, we began and expect to continue investing in our market-leading metalworking business by adding to our metalworking specialist team, introducing value-added services to our customers, expanding our vending, VMI and in-plant solutions programs, building out our sales force, and diversifying our customers and end-markets. We also are focusing on improving profitability through the implementation of various pricing strategies and critical structural cost reductions in order to improve return on invested capital. Cost reductions will be comprised of savings in the areas of sales and service, supply chain and general and administrative expenses, and will include initiatives to optimize our distribution center network and real estate footprint, renegotiate supplier contracts, and redesign our talent acquisition and retention approach.
Impact of Economic Trends
The United States economy has experienced and continues to experience disruptions in the supply of certain products and services and tight conditions in the labor market. These disruptions and conditions have contributed to an inflationary environment which, while falling, remains elevated and has affected the price and, at times, the availability of certain products and services necessary for the Company's operations, including fuel, labor and certain products the Company sells or the inputs for such products. Such disruptions and conditions have impacted, and may continue to impact in the future, the Company's business, financial condition and results of operations. As a result of recent high inflation and elevated freight, labor and fuel costs, as well as periodic supply chain disruptions, the Company has implemented price realization strategies in response to increased costs the Company faces and has invested in improved warehouse automation to mitigate the effects of labor inflation. The Company has also placed a larger emphasis on category management and has implemented a category line review process intended to reduce costs and streamline operational efficiencies in the supply chain. This includes a renewed focus on improved product assortment, supplier portfolio, and overall cost position. Furthermore, in light of disruptions to availability and increased or uncertain shipping times, the Company is maintaining higher purchasing levels than it did prior to its fiscal year 2020 in order to ensure sufficient inventory supply to meet customer demand.
Reclassification Proposal
OnJanuary 31, 2023 , the Board of Directors of the Company (the "Board") received a proposal (the "Proposal") from the Company's controlling shareholders, the Jacobson/Gershwind family, to exchange each of their shares of Class B Common Stock, par value$0.001 per share (the "Class B Common Stock") for 1.35 shares of Class A Common Stock, reclassify the Class B Common Stock and the Class A Common Stock into a single class of common stock and eliminate the current dual-class share structure. The Board has formed a Special Committee composed entirely of independent directors to evaluate the Proposal, which will be advised by independent financial and legal advisors. Under the terms of the Proposal, any definitive agreement would first require approval by the Special Committee and the Board, as well as the holders of a majority of the shares of Class A Common Stock that do not also hold shares of Class B Common Stock. At present there is no guarantee that a definitive agreement between the Company and the Jacobson/Gershwind family will be reached or what the terms of any such definitive agreement would be. In addition, even if an agreement is approved by the Special Committee and the Board, a transaction still may not be completed if such transaction is not approved by the holders of a majority of the shares of Class A Common Stock that do not also hold shares of Class B Common Stock. If an agreement is reached, and ultimately approved by the Special Committee and the Board, as well as the holders of a majority of the shares of Class A Common Stock that do not also hold shares of Class B Common Stock, it could have a material effect on our business, financial condition and results of operation as well as the governance of the Company.
Our Strategy
Our primary objective is to grow sales profitably while offering our customers
highly technical and high-touch solutions to solve their most complex challenges
on the plant floor. 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.
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--------------------------------------------------------------------------------Business Environment
We utilize various indices when evaluating the level of our business activity,
including the Industrial Production ("IP") index. Approximately 69% of our
revenues came from sales in the manufacturing sector during the thirteen- and
twenty-six-week periods ended March 4, 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 three
months ended February 2023 and the average for the three- and 12-month periods
ended February 2023 were as follows:
Period IP Index
December 102.4
January 102.6
February 102.6
Fiscal Year 2023 Q2 Average 102.6
12-Month Average 103.8
The average IP index for the three months ended March 4, 2023 of 102.6 declined
from the adjusted average from the prior quarter of 104.3, driven by economic
uncertainty arising from higher interest rates and continued elevated levels of
inflation. Recently, the United States economy has experienced supply chain
disruptions and significant levels of inflation, which have included higher
prices for labor, freight, fuel and the products that the Company sells. The
Company has implemented price realization strategies in response to increased
costs the Company faces. As we see the IP index continue to moderate, 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.
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Thirteen-Week Period Ended
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
March 4, 2023 February 26, 2022 Change
$ % $ % $ %
Net sales $ 961,632 100.0 % $ 862,522 100.0 % $ 99,110 11.5 %
Cost of goods sold 564,937 58.7 % 496,247 57.5 % 68,690 13.8 %
Gross profit 396,695 41.3 % 366,275 42.5 % 30,420 8.3 %
Operating expenses 280,630 29.2 % 265,973 30.8 % 14,657 5.5 %
Restructuring and other costs 1,783 0.2 % 3,134 0.4 % (1,351) (43.1) %
Income from operations 114,282 11.9 % 97,168 11.3 % 17,114 17.6 %
Total other expense (8,104) (0.8) % (3,505) (0.4) % (4,599) 131.2 %
Income before provision for
income taxes 106,178 11.0 % 93,663 10.9 % 12,515 13.4 %
Provision for income taxes 26,863 2.8 % 23,509 2.7 % 3,354 14.3 %
Net income 79,315 8.2 % 70,154 8.1 % 9,161 13.1 %
Less: Net income attributable
to noncontrolling interest 175 0.0 % 223 - % (48) (21.5) %
Net income attributable to MSC
Industrial $ 79,140 8.2 % $ 69,931 8.1 % $ 9,209 13.2 %
Net Sales
Net sales increased 11.5%, or $99.1 million , to $961.6 million for the
thirteen-week period ended March 4, 2023 , as compared to $862.5 million for the
same period in the prior fiscal year. The $99.1 million increase in net sales
was comprised of $41.9 million from improved pricing, inclusive of changes in
customer and product mix, discounting and other items, $32.8 million of net
sales from fiscal year 2022 and 2023 acquisitions and $25.2 million of higher
sales volume, partially offset by $0.8 million of unfavorable foreign exchange
impact. Of the $99.1 million increase in net sales during the thirteen-week
period ended March 4, 2023 , national account customer sales increased by
$49.4 million , sales to our core and other customers increased by $37.9 million
and sales to our public sector customers increased by $11.8 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 type for the thirteen-week period ended
March 4, 2023 , as compared to the same period in the prior fiscal year:
ADS Percentage Change
(Unaudited)
Thirteen Weeks Ended
March 4, 2023 February 26, 2022
Net Sales (in thousands) $ 961,632 $ 862,522
Sales Days 63 63
ADS (1) (in millions) $ 15.3 $ 13.7
Total Company ADS Percent Change 11.5 % 7.9 %
Manufacturing Customers ADS Percent Change (2) 10.0 % 8.7 %
Manufacturing Customers Percent of Total Net Sales (2) 69 % 70 %
Non-Manufacturing Customers ADS Percent Change (2) 15.1 % 6.0 %
Non-Manufacturing Customers Percent of Total Net Sales (2) 31 % 30 %
(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)Includes the effect of a reclassification of end-markets which occurred
during the fourth quarter of fiscal year 2022.
We believe that our ability to transact business with our customers directly
through the MSC website as well as through various other electronic portals
gives us a competitive advantage over smaller suppliers. Sales made through our
eCommerce platforms, including sales made through EDI systems, VMI systems,
Extensible Markup Language ordering-based systems, vending, hosted systems and
other electronic portals, represented 62.0% of consolidated net sales for the
thirteen-week period ended March 4, 2023 , as compared to 60.7% of consolidated
net sales for the same period in the prior fiscal year.
Gross Profit
Gross profit of$396.7 million for the thirteen-week period endedMarch 4, 2023 increased$30.4 million , or 8.3%, compared to the same period in the prior fiscal year. Gross profit margin was 41.3% for the thirteen-week period endedMarch 4, 2023 , as compared to 42.5% for the same period in the prior fiscal year. The increase in gross profit was primarily a result of a higher sales level as described above. The decline in gross profit margin was primarily attributable to the lower gross margins from our recent acquisitions, as well as unfavorable customer mix as our national account and public sector customers are growing at higher rates and are typically at lower gross margins than the business as a whole. In addition, we are continuing to experience higher product and freight costs, adversely impacting our gross profit margins.
Operating Expenses
Operating expenses increased 5.5%, or$14.7 million , to$280.6 million for the thirteen-week period endedMarch 4, 2023 , as compared to$266.0 million for the same period in the prior fiscal year. Operating expenses were 29.2% of net sales for the thirteen-week period endedMarch 4, 2023 , as compared to 30.8% for the same period in the prior fiscal year. The increase in operating expenses was primarily attributable to higher payroll and payroll-related costs, as well as higher freight expense. The decline in operating expenses as a percentage of net sales was related to our cost savings programs and productivity improvements resulting from our Mission Critical initiatives. Payroll and payroll-related costs for the thirteen-week period endedMarch 4, 2023 were 56.8% of total operating expenses, as compared to 57.8% 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$5.8 million for the thirteen-week period endedMarch 4, 2023 . The majority of this increase compared to the same period in the prior fiscal year was due to increased salary expenses. 24 -------------------------------------------------------------------------------- Freight expense was$39.5 million for the thirteen-week period endedMarch 4, 2023 , as compared to$36.6 million for the same period in the prior fiscal year. The primary drivers of the increase in freight expense were increased sales volume and higher fuel-related charges.
Restructuring and Other Costs
We incurred$1.8 million in restructuring and other costs for the thirteen-week period endedMarch 4, 2023 , as compared to$3.1 million for the same period in the prior fiscal year. These charges primarily include consulting-related costs associated with the optimization of the Company's operations and associate severance and separation costs. Restructuring and other costs for the same period in the prior fiscal year also include other exit-related costs. See Note 10, "Restructuring and Other Costs" in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from Operations
Income from operations increased 17.6%, or$17.1 million , to$114.3 million for the thirteen-week period endedMarch 4, 2023 , as compared to$97.2 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales increased to 11.9% for the thirteen-week period endedMarch 4, 2023 , as compared to 11.3% for the same period in the prior fiscal year. The increase was primarily attributable to an overall increase in net sales, a reduction in restructuring and other costs and an improvement in operating expenses as a percentage of net sales during the thirteen-week period endedMarch 4, 2023 .
Total Other Expense
Total other expense increased 131.2%, or$4.6 million , to$8.1 million for the thirteen-week period endedMarch 4, 2023 , as compared to$3.5 million for the same period in the prior fiscal year. The increase was primarily due to higher interest rates on our credit facilities.
Provision for Income Taxes
The Company's effective tax rate for the thirteen-week period endedMarch 4, 2023 was 25.3%, as compared to 25.1% for the same period in the prior fiscal year. The increase in the effective tax rate was primarily due to a lower tax benefit from stock-based compensation.
Net Income
The factors which affected net income for the thirteen-week period ended
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Twenty-Six-Week Period Ended
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:
Twenty-Six Weeks Ended
March 4, 2023 February 26, 2022 Change
$ % $ % $ %
Net sales $ 1,919,377 100.0 % $ 1,711,069 100.0 % $ 208,308 12.2 %
Cost of goods sold 1,124,883 58.6 % 992,198 58.0 % 132,685 13.4 %
Gross profit 794,494 41.4 % 718,871 42.0 % 75,623 10.5 %
Operating expenses 560,325 29.2 % 522,554 30.5 % 37,771 7.2 %
Restructuring and other costs 3,877 0.2 % 8,417 0.5 % (4,540) (53.9) %
Income from operations 230,292 12.0 % 187,900 11.0 % 42,392 22.6 %
Total other expense (16,263) (0.8) % (7,627) (0.4) % (8,636) 113.2 %
Income before provision for
income taxes 214,029 11.2 % 180,273 10.5 % 33,756 18.7 %
Provision for income taxes 53,502 2.8 % 43,862 2.6 % 9,640 22.0 %
Net income 160,527 8.4 % 136,411 8.0 % 24,116 17.7 %
Less: Net income attributable
to noncontrolling interest 73 0.0 % 413 0.0 % (340) (82.3) %
Net income attributable to MSC
Industrial $ 160,454 8.4 % $ 135,998 7.9 % $ 24,456 18.0 %
Net Sales
Net sales increased 12.2%, or $208.3 million , to $1,919.4 million for the
twenty-six-week period ended March 4, 2023 , as compared to $1,711.1 million for
the same period in the prior fiscal year. The $208.3 million increase in net
sales was comprised of $98.0 million from improved pricing, inclusive of changes
in customer and product mix, discounting and other items, $61.9 million of net
sales from fiscal year 2022 and 2023 acquisitions and $52.0 million of higher
sales volume, partially offset by $3.6 million of unfavorable foreign exchange
impact. Of the $208.3 million increase in net sales during the twenty-six-week
period ended March 4, 2023 , national account customer sales increased by
$102.2 million , sales to our core and other customers increased by $80.9 million
and sales to our public sector customers increased by $25.2 million .
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The table below shows, among other things, the change in our ADS by total
Company and by customer type for the twenty-six-week period ended
ADS Percentage Change
(Unaudited)
Twenty-Six Weeks Ended
March 4, 2023 February 26, 2022
Net Sales (in thousands) $ 1,919,377 $ 1,711,069
Sales Days 125 125
ADS (1) (in millions) $ 15.4 $ 13.7
Total Company ADS Percent Change 12.2 % 8.9 %
Manufacturing Customers ADS Percent Change (2) 10.5 % 11.5 %
Manufacturing Customers Percent of Total Net Sales (2) 69 % 70 %
Non-Manufacturing Customers ADS Percent Change (2) 16.1 % 3.2 %
Non-Manufacturing Customers Percent of Total Net Sales (2) 31 % 30 %
(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)Includes the effect of a reclassification of end-markets which occurred
during the fourth quarter of fiscal year 2022.
We believe that our ability to transact business with our customers directly
through the MSC website as well as through various other electronic portals
gives us a competitive advantage over smaller suppliers. Sales made through our
eCommerce platforms, including sales made through EDI systems, VMI systems,
Extensible Markup Language ordering-based systems, vending, hosted systems and
other electronic portals, represented 61.9% of consolidated net sales for the
twenty-six-week period ended March 4, 2023 , as compared to 60.6% of consolidated
net sales for the same period in the prior fiscal year.
Gross Profit
Gross profit of$794.5 million for the twenty-six-week period endedMarch 4, 2023 increased$75.6 million , or 10.5%, compared to the same period in the prior fiscal year. Gross profit margin was 41.4% for the twenty-six-week period endedMarch 4, 2023 , as compared to 42.0% for the same period in the prior fiscal year. The increase in gross profit was primarily a result of a higher sales level as described above. The decline in gross profit margin was primarily attributable to the lower gross margins from our recent acquisitions, as well as unfavorable customer mix as our national account and public sector customers are growing at higher rates and are typically at lower gross margins than the business as a whole. In addition, we are continuing to experience higher product and freight costs, adversely impacting our gross profit margins.
Operating Expenses
Operating expenses increased 7.2%, or$37.8 million , to$560.3 million for the twenty-six-week period endedMarch 4, 2023 , as compared to$522.6 million for the same period in the prior fiscal year. Operating expenses were 29.2% of net sales for the twenty-six-week period endedMarch 4, 2023 , as compared to 30.5% for the same period in the prior fiscal year. The increase in operating expenses was primarily attributable to higher payroll and payroll-related costs, as well as higher freight expense. The decline in operating expenses as a percentage of net sales was related to our cost savings programs and productivity improvements resulting from our Mission Critical initiatives. Payroll and payroll-related costs for the twenty-six-week period endedMarch 4, 2023 were 56.5% of total operating expenses, as compared to 57.4% 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$16.8 million for the twenty-six-week period endedMarch 4, 2023 . The majority of this increase compared to the same period in the prior fiscal year was due to increased salary expenses. 27 -------------------------------------------------------------------------------- Freight expense was$80.0 million for the twenty-six-week period endedMarch 4, 2023 , as compared to$72.8 million for the same period in the prior fiscal year. The primary drivers of the increase in freight expense were increased sales volume and higher fuel-related charges.
Restructuring and Other Costs
We incurred$3.9 million in restructuring and other costs for the twenty-six-week period endedMarch 4, 2023 , as compared to$8.4 million for the same period in the prior fiscal year. These charges primarily include consulting-related costs associated with the optimization of the Company's operations and associate severance and separation costs. Restructuring and other costs for the same period in the prior fiscal year also include equity award acceleration costs associated with severance and other exit-related costs. See Note 10, "Restructuring and Other Costs" in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from Operations
Income from operations increased 22.6%, or$42.4 million , to$230.3 million for the twenty-six-week period endedMarch 4, 2023 , as compared to$187.9 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales increased to 12.0% for the twenty-six-week period endedMarch 4, 2023 , as compared to 11.0% for the same period in the prior fiscal year. The increase was primarily attributable to an overall increases in net sales, a reduction in restructuring costs and an improvement in operating expenses as a percentage of net sales during the twenty-six-week period endedMarch 4, 2023 . Total Other Expense Total other expense increased 113.2%, or$8.6 million , to$16.3 million for the twenty-six-week period endedMarch 4, 2023 , as compared to$7.6 million for the same period in the prior fiscal year. The increase was primarily due to higher interest rates on our credit facilities.
Provision for Income Taxes
The Company's effective tax rate for the twenty-six-week period endedMarch 4, 2023 was 25.0% , as compared to 24.3% for the same period in the prior fiscal year. The increase in the effective tax rate was primarily due to an increase in unfavorable permanent tax items as well as a lower tax benefit from stock-based compensation. Net Income
The factors which affected net income for the twenty-six-week period ended
Liquidity and Capital Resources
March 4, September 3,
2023 2022 $ Change
(In thousands)
Total debt $ 549,699 $ 794,592 $ (244,893)
Less: Cash and cash equivalents 49,615 43,537 6,078
Net debt $ 500,084 $ 751,055 $ (250,971)
Total shareholders' equity $ 1,433,991 $ 1,362,283 $ 71,708
As of March 4, 2023 , we had $49.6 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 March 4, 2023 , total borrowings outstanding, representing amounts due
under our credit facilities and notes, as well as all finance leases and
financing arrangements, were $549.7 million , net of unamortized debt issuance
costs of $1.2 million , as compared to total borrowings of $794.6 million , net of
unamortized debt issuance costs of $1.4 million , as of the end of fiscal year
2022. The decrease in total borrowings outstanding was driven by higher net
payments under our committed credit facility, private placement debt and shelf
facility agreements. Debt payments were primarily funded through the Receivables
Purchase Agreement entered into during the second quarter of fiscal year 2023.
See Note 8, "Debt" in the Notes to Condensed Consolidated Financial Statements
for more information about these balances.
We recently conducted a comprehensive review of our six primary banks, including
those participating in the Amended Revolving Credit Facility and in our recent
acquisitions. Three banks are designated as systemically important financial
institutions, which are subject to heavier regulatory scrutiny and standards
than regional banks. All six banks have strong common equity and liquidity
ratios. We will continue to monitor our banks closely.
We believe, based on our current business plan, that our existing cash,
financial resources and cash flow from operations will be sufficient to fund
necessary 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:
Twenty-Six Weeks Ended
March 4, February 26,
2023 2022
(In thousands)
Net cash provided by operating activities $ 416,440 $ 57,421
Net cash used in investing activities (61,104) (31,179)
Net cash used in financing activities (349,323) (24,916)
Effect of foreign exchange rate changes on cash and cash equivalents
65 (108)
Net increase in cash and cash equivalents $ 6,078 $ 1,218 Cash Flows from Operating Activities
Net cash provided by operating activities was$416.4 million for the twenty-six weeks endedMarch 4, 2023 compared to$57.4 million for the twenty-six weeks endedFebruary 26, 2022 . The increase was primarily due to the following: •an increase in the change in accounts receivable primarily attributable to the RPA entered into during the second quarter of fiscal year 2023, which resulted in a decline in accounts receivable of$300.0 million ; and •an increase in net income as described above.
The table below summarizes certain information regarding the Company's operations as of the periods indicated:
March 4, September 3, February 26,
2023 2022 2022
(Dollars in thousands)
Working Capital (1) $ 669,487 $ 817,679 $ 819,641
Current Ratio (2) 2.0 2.1 2.4
Days' Sales Outstanding (3) 35.8 65.3 60.9
Inventory Turnover (4) 3.1 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.
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Working capital and the current ratio both decreased relative to both
September 3, 2022 and February 26, 2022 . The decreases from both periods were
primarily due to a decrease in accounts receivable resulting from the RPA
entered into during the second quarter of fiscal year 2023. The RPA reduced the
accounts receivable balances by $300.0 million .
The decrease in days' sales outstanding as of
Inventory turnover as ofMarch 4, 2023 declined relative to bothSeptember 3, 2022 andFebruary 26, 2022 due to increasing inventory levels as a result of ongoing challenges in the supply chain and to meet customer demand.
Cash Flows from Investing Activities
Net cash used in investing activities for the twenty-six weeks endedMarch 4, 2023 andFebruary 26, 2022 was$61.1 million and$31.2 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 Mission Critical projects. The use of cash for the twenty-six weeks endedMarch 4, 2023 also included the acquisition of Buckeye and Tru-Edge. See Note 7, "Business Combinations" in the Notes to Condensed Consolidated Financial Statements for more information about this acquisition.
Cash Flows from Financing Activities
Net cash used in financing activities was
•$88.3 million of regular cash dividends paid during the twenty-six weeks endedMarch 4, 2023 , compared to$83.6 million of regular cash dividends paid during the twenty-six weeks endedFebruary 26, 2022 ; •net payments under our credit facilities, private placement debt and shelf facility agreements of$245.0 million during the twenty-six weeks endedMarch 4, 2023 , compared to net borrowings of$49.5 million during the twenty-six weeks endedFebruary 26, 2022 ; and •$31.0 million in aggregate repurchases of Class A Common Stock during the twenty-six weeks endedMarch 4, 2023 , compared to$4.8 million in aggregate repurchases of Class A Common Stock during the twenty-six weeks endedFebruary 26, 2022 .
Capital Expenditures
We continue to invest in sales productivity initiatives, eCommerce and vending platforms, customer fulfillment centers and distribution network, and other infrastructure and technology.
Long-Term Debt
Credit Facilities
InApril 2017 , the Company entered into a$600.0 million revolving credit facility, which was subsequently amended and extended inAugust 2021 . As ofMarch 4, 2023 , the Company also had three uncommitted credit facilities, totaling$203.0 million of aggregate maximum uncommitted availability. See Note 8, "Debt" in the Notes to Condensed Consolidated Financial Statements for more information about our credit facilities. As ofMarch 4, 2023 , we were in compliance with the operating and financial covenants of our credit facilities. The current unused balance of$574.7 million from the revolving credit facility, which is reduced by outstanding letters of credit, is available for working capital purposes if necessary. See Note 8, "Debt" in the Notes to Condensed Consolidated Financial Statements for more information about these balances.
Private Placement Debt and Shelf Facility Agreements
InJuly 2016 , we completed the issuance and sale of unsecured senior notes. InJanuary 2018 , we entered into two note purchase and private shelf agreements (together, the "Shelf Facility Agreements"). InJune 2018 andMarch 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 afterJanuary 12, 2021 . See Note 8, "Debt" in the Notes to Condensed Consolidated Financial Statements for more information about these transactions. 30 --------------------------------------------------------------------------------
Leases and Financing Arrangements
As ofMarch 4, 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 2026.
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 endedSeptember 3, 2022 .
Recently Adopted Accounting Standards
See Note 1, "Basis of Presentation" in the Notes to Condensed Consolidated Financial Statements.
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