SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 31, 2014 |
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OR |
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For transition period from to
Commission File No.: 1-14130
MSC INDUSTRIAL DIRECT CO., INC.
(Exact name of registrant as specified in its charter)
New York |
11-3289165 |
|
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75 Maxess Road, Melville, New York |
11747 |
(516) 812-2000
(Registrant’s telephone number, including area code)
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a “smaller reporting company.” See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☒ |
Accelerated filer ☐ |
Non‑accelerated filer ☐ |
Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2014, 48,994,620 shares of Class A common stock and 13,420,747 shares of Class B common stock of the registrant were outstanding.
SAFE HARBOR STATEMENT
This Quarterly Report on Form 10-Q (the “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 Items 2 and 3 of Part I and Item 1 of Part II of this Report, as well as within this Report generally. The words “believes,” “anticipates,” “thinks,” “expects,” “estimates,” “plans,” “intends,” and similar expressions are intended to identify forward‑looking statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward‑looking statements. We undertake no obligation to publicly disclose any revisions to these forward‑looking statements to reflect events or circumstances occurring subsequent to filing this Report with the Securities and Exchange Commission (the “SEC”). These forward‑looking statements are subject to risks and uncertainties, including, without limitation, those discussed in this section and Items 2 and 3 of Part I, as well as in Part II, Item 1A, “Risk Factors” of this Report, and in Part I, Item 1A, “Risk Factors” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2013. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. 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 Company’s ability to timely and efficiently integrate the business of its Class C Solutions Group (“CCSG”) (formerly Barnes Distribution North America) and realize the anticipated synergies from the transaction; |
· |
risk of delays in opening or expanding our customer fulfillment centers; |
· |
current economic, political, and social conditions; |
· |
general economic conditions in the markets in which the Company operates; |
· |
changing customer and product mixes; |
· |
competition; |
· |
industry consolidation and other changes in the industrial distribution sector; |
· |
volatility in commodity and energy prices; |
· |
the outcome of potential government or regulatory proceedings or future litigation; |
· |
credit risk of our customers; |
· |
risk of cancellation or rescheduling of customer orders; |
· |
work stoppages or other business interruptions (including those due to extreme weather conditions) at transportation centers or shipping ports; |
· |
risk of loss of key suppliers, key brands or supply chain disruptions; |
· |
dependence on our information systems; |
· |
retention of key personnel; |
· |
failure to comply with applicable environmental, health and safety laws and regulations; |
· |
goodwill and intangible assets recorded as a result of our acquisitions could be impaired; |
· |
disclosing our use of “conflict minerals” in certain of the products we distribute could raise reputational and other risks; and |
· |
the Company’s ability to enhance its information technology systems without disruption to our business operations. |
2
MSC INDUSTRIAL DIRECT CO., INC.
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Page |
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Item 1. |
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Condensed Consolidated Balance Sheets as of May 31, 2014 and August 31, 2013 |
4 | |
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5 | |
|
6 | |
|
7 | |
|
8 | |
9 | ||
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
Item 3. |
24 | |
Item 4. |
24 | |
Item 1. |
25 | |
Item 1A. |
25 | |
Item 2. |
25 | |
Item 3. |
25 | |
Item 4. |
25 | |
Item 5. |
26 | |
Item 6. |
26 | |
27 |
3
Item 1. Condensed Consolidated Financial Statements
MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
May 31, |
August 31, |
||||
2014 |
2013 |
||||
(Unaudited) |
|||||
ASSETS |
|||||
Current Assets: |
|||||
Cash and cash equivalents |
$ |
45,358 |
$ |
55,876 | |
Accounts receivable, net of allowance for doubtful accounts of $8,996 and $7,523, respectively |
369,542 | 345,366 | |||
Inventories |
429,431 | 419,012 | |||
Prepaid expenses and other current assets |
38,976 | 35,464 | |||
Deferred income taxes |
37,771 | 37,771 | |||
Total current assets |
921,078 | 893,489 | |||
Property, plant and equipment, net |
291,097 | 251,536 | |||
Goodwill |
629,387 | 630,318 | |||
Identifiable intangibles, net |
142,522 | 155,324 | |||
Other assets |
34,343 | 12,336 | |||
Total assets |
$ |
2,018,427 |
$ |
1,943,003 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|||||
Current Liabilities: |
|||||
Revolving credit note |
$ |
5,000 |
$ |
— |
|
Current maturities of long-term debt |
23,539 | 14,184 | |||
Accounts payable |
112,919 | 113,636 | |||
Accrued liabilities |
109,475 | 85,759 | |||
Total current liabilities |
250,933 | 213,579 | |||
Long-term debt, net of current maturities |
246,070 | 241,566 | |||
Deferred income taxes and tax uncertainties |
97,475 | 97,475 | |||
Total liabilities |
594,478 | 552,620 | |||
Commitments and Contingencies |
|||||
Shareholders’ Equity: |
|||||
Preferred stock; $0.001 par value; 5,000,000 shares authorized; none issued and outstanding |
— |
— |
|||
Class A common stock (one vote per share); $0.001 par value; 100,000,000 shares authorized; 55,801,922 and 54,634,259 shares issued, respectively |
56 | 55 | |||
Class B common stock (ten votes per share); $0.001 par value; 50,000,000 shares authorized; 13,420,747 and 14,140,747 shares issued and outstanding, respectively |
13 | 14 | |||
Additional paid-in capital |
565,739 | 528,770 | |||
Retained earnings |
1,243,917 | 1,132,868 | |||
Accumulated other comprehensive loss |
(4,746) | (4,427) | |||
Class A treasury stock, at cost, 6,806,933 and 5,340,587 shares, respectively |
(381,030) | (266,897) | |||
Total shareholders’ equity |
1,423,949 | 1,390,383 | |||
Total liabilities and shareholders’ equity |
$ |
2,018,427 |
$ |
1,943,003 | |
See accompanying notes to condensed consolidated financial statements. |
|||||
4
MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||
May 31, |
June 1, |
May 31, |
June 1, |
|||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
Net sales |
$ |
720,476 |
$ |
636,923 |
$ |
2,060,499 |
$ |
1,783,876 | ||||
Cost of goods sold |
387,082 | 347,410 | 1,105,429 | 972,905 | ||||||||
Gross profit |
333,394 | 289,513 | 955,070 | 810,971 | ||||||||
Operating expenses |
228,508 | 189,267 | 671,712 | 517,797 | ||||||||
Income from operations |
104,886 | 100,246 | 283,358 | 293,174 | ||||||||
Other (expense) income: |
||||||||||||
Interest expense |
(827) | (1,141) | (2,641) | (1,266) | ||||||||
Interest income |
5 | 31 | 14 | 113 | ||||||||
Other (expense) income, net |
101 | (5) | (377) | 66 | ||||||||
Total other expense |
(721) | (1,115) | (3,004) | (1,087) | ||||||||
Income before provision for income taxes |
104,165 | 99,131 | 280,354 | 292,087 | ||||||||
Provision for income taxes |
39,469 | 36,777 | 107,100 | 110,467 | ||||||||
Net income |
$ |
64,696 |
$ |
62,354 |
$ |
173,254 |
$ |
181,620 | ||||
Per share information: |
||||||||||||
Net income per common share: |
||||||||||||
Basic |
$ |
1.04 |
$ |
0.99 |
$ |
2.77 |
$ |
2.88 | ||||
Diluted |
$ |
1.03 |
$ |
0.98 |
$ |
2.76 |
$ |
2.86 | ||||
Weighted average shares used in computing net income per common share: |
||||||||||||
Basic |
61,896 | 62,808 | 62,137 | 62,628 | ||||||||
Diluted |
62,212 | 63,134 | 62,447 | 62,947 | ||||||||
Cash dividend declared per common share |
$ |
0.33 |
$ |
0.30 |
$ |
0.99 |
$ |
0.90 | ||||
See accompanying notes to condensed consolidated financial statements. |
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5
MSC INDUSTRIAL DIRECT CO., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||
May 31, |
June 1, |
May 31, |
June 1, |
|||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
Net income, as reported |
$ |
64,696 |
$ |
62,354 |
$ |
173,254 |
$ |
181,620 | ||||
Foreign currency translation adjustments |
1,515 | (388) | (319) | (1,165) | ||||||||
Comprehensive income |
$ |
66,211 |
$ |
61,966 |
$ |
172,935 |
$ |
180,455 | ||||
See accompanying notes to condensed consolidated financial statements. |
||||||||||||
6
MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Statement of Shareholders’ Equity
Thirty-Nine Weeks Ended May 31, 2014
(In thousands)
(Unaudited)
Class A Common Stock |
Class B Common Stock |
Additional |
Accumulated Other |
Class A Treasury Stock |
|||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Paid-In Capital |
Retained Earnings |
Comprehensive Loss |
Shares |
Amount at Cost |
Total |
||||||||||||||||||
Balance at August 31, 2013 |
54,634 |
$ |
55 | 14,141 |
$ |
14 |
$ |
528,770 |
$ |
1,132,868 |
$ |
(4,427) | 5,341 |
$ |
(266,897) |
$ |
1,390,383 | ||||||||||
Exchange of Class B common stock for Class A common stock |
720 | 1 | (720) | (1) |
— |
— |
— |
— |
— |
— |
|||||||||||||||||
Exercise of common stock options, including income tax benefits of $4,740 |
343 |
— |
— |
— |
22,305 |
— |
— |
— |
— |
22,305 | |||||||||||||||||
Common stock issued under associate stock purchase plan |
— |
— |
— |
— |
1,449 |
— |
— |
(39) | 1,473 | 2,922 | |||||||||||||||||
Issuance of restricted common stock, net of cancellations |
105 |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||
Stock-based compensation |
— |
— |
— |
— |
13,020 |
— |
— |
— |
— |
13,020 | |||||||||||||||||
Purchase of treasury stock |
— |
— |
— |
— |
— |
— |
— |
1,505 | (115,606) | (115,606) | |||||||||||||||||
Cash dividends paid on Class A common stock |
— |
— |
— |
— |
— |
(48,225) |
— |
— |
— |
(48,225) | |||||||||||||||||
Cash dividends paid on Class B common stock |
— |
— |
— |
— |
— |
(13,785) |
— |
— |
— |
(13,785) | |||||||||||||||||
Issuance of dividend equivalent units |
— |
— |
— |
— |
195 | (195) |
— |
— |
— |
— |
|||||||||||||||||
Foreign currency translation adjustment |
— |
— |
— |
— |
— |
— |
(319) |
— |
— |
(319) | |||||||||||||||||
Net income |
— |
— |
— |
— |
— |
173,254 |
— |
— |
— |
173,254 | |||||||||||||||||
Balance at May 31, 2014 |
55,802 |
$ |
56 | 13,421 |
$ |
13 |
$ |
565,739 |
$ |
1,243,917 |
$ |
(4,746) | 6,807 |
$ |
(381,030) |
$ |
1,423,949 | ||||||||||
See accompanying notes to condensed consolidated financial statements. |
|||||||||||||||||||||||||||
7
MSC INDUSTRIAL DIRECT CO., INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Thirty-Nine Weeks Ended |
||||||
May 31, |
June 1, |
|||||
2014 |
2013 |
|||||
Cash Flows from Operating Activities: |
||||||
Net income |
$ |
173,254 |
$ |
181,620 | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||
Depreciation and amortization |
48,354 | 33,994 | ||||
Stock-based compensation |
13,020 | 11,989 | ||||
Loss on disposal of property, plant, and equipment |
1,250 | 791 | ||||
Provision for doubtful accounts |
3,163 | 2,111 | ||||
Excess tax benefits from stock-based compensation |
(4,741) | (5,563) | ||||
Write-off of deferred financing costs on previous credit facility |
— |
594 | ||||
Changes in operating assets and liabilities, net of amounts associated with business acquired: |
||||||
Accounts receivable |
(26,628) | (6,791) | ||||
Inventories |
(9,826) | 28,084 | ||||
Prepaid expenses and other current assets |
(4,878) | (11,136) | ||||
Other assets |
1,884 | 2,162 | ||||
Accounts payable and accrued liabilities |
31,776 | 7,574 | ||||
Total adjustments |
53,374 | 63,809 | ||||
Net cash provided by operating activities |
226,628 | 245,429 | ||||
Cash Flows from Investing Activities: |
||||||
Expenditures for property, plant and equipment |
(55,882) | (62,305) | ||||
Investment in available for sale securities |
(25,011) |
— |
||||
Cash used in business acquisitions, net of cash received |
1,434 | (548,769) | ||||
Net cash used in investing activities |
(79,459) | (611,074) | ||||
Cash Flows from Financing Activities: |
||||||
Purchases of treasury stock |
(115,606) | (3,656) | ||||
Payments of cash dividends |
(62,010) | (56,843) | ||||
Payments on capital lease and financing obligations |
(1,545) | (981) | ||||
Excess tax benefits from stock-based compensation |
4,741 | 5,563 | ||||
Proceeds from sale of Class A common stock in connection with associate stock purchase plan |
2,922 | 2,891 | ||||
Proceeds from exercise of Class A common stock options |
17,565 | 19,986 | ||||
Borrowings under financing obligations |
480 | 257 | ||||
Borrowings under Credit Facility |
50,000 | 370,000 | ||||
Credit facility financing costs |
— |
(1,904) | ||||
Payment of notes payable and revolving credit note under the Credit Facility |
(54,375) | (80,000) | ||||
Net cash (used in) provided by financing activities |
(157,828) | 255,313 | ||||
Effect of foreign exchange rate changes on cash and cash equivalents |
141 | (104) | ||||
Net decrease in cash and cash equivalents |
(10,518) | (110,436) | ||||
Cash and cash equivalents—beginning of period |
55,876 | 168,453 | ||||
Cash and cash equivalents—end of period |
$ |
45,358 |
$ |
58,017 | ||
Supplemental Disclosure of Cash Flow Information: |
||||||
Cash paid for income taxes |
$ |
91,446 |
$ |
102,107 | ||
Cash paid for interest |
$ |
2,369 |
$ |
367 | ||
See accompanying notes to condensed consolidated financial statements. |
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8
MSC INDUSTRIAL DIRECT CO., INC.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts and shares in thousands, except per share data)
(Unaudited)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements include MSC Industrial Direct Co., Inc. (“MSC”) and all of its subsidiaries (hereinafter referred to collectively as the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
The Company acquired substantially all of the assets and assumed certain liabilities of the North American distribution business (the “Class C Solutions Group” or “CCSG”) of Barnes Group Inc. (“Barnes Group”) on April 22, 2013. The results of the Class C Solutions Group are included since the date of acquisition.
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring adjustments) have been included. Operating results for the thirteen week and thirty-nine week periods ended May 31, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending August 30, 2014. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2013.
The Company’s fiscal year ends on the Saturday closest to August 31 of each year. Unless the context requires otherwise, references to years contained herein pertain to the Company’s fiscal year. The Company’s 2014 fiscal year will be a 52-week accounting period that will end on August 30, 2014 and its 2013 fiscal year was a 52-week accounting period that ended on August 31, 2013.
Note 2. Net Income per Share
The following table sets forth the computation of basic and diluted net income per common share under the two-class method in accordance with Accounting Standards Codification™ ("ASC") Topic 260, “Earnings Per Share”:
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||
May 31, |
June 1, |
May 31, |
June 1, |
|||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||
Net income as reported |
$ |
64,696 |
$ |
62,354 |
$ |
173,254 |
$ |
181,620 | ||||
Less: Distributed net income available to participating securities |
(120) | (125) | (368) | (365) | ||||||||
Less: Undistributed net income available to participating securities |
(327) | (347) | (841) | (991) | ||||||||
Numerator for basic net income per share: |
||||||||||||
Undistributed and distributed net income available to common shareholders |
$ |
64,249 |
$ |
61,882 |
$ |
172,045 |
$ |
180,264 | ||||
Add: Undistributed net income allocated to participating securities |
327 | 347 | 841 | 991 | ||||||||
Less: Undistributed net income reallocated to participating securities |
(325) | (345) | (837) | (986) | ||||||||
Numerator for diluted net income per share: |
||||||||||||
Undistributed and distributed net income available to common shareholders |
$ |
64,251 |
$ |
61,884 |
$ |
172,049 |
$ |
180,269 | ||||
Denominator: |
||||||||||||
Weighted average shares outstanding for basic net income per share |
61,896 | 62,808 | 62,137 | 62,628 | ||||||||
Effect of dilutive securities |
316 | 326 | 310 | 319 | ||||||||
Weighted average shares outstanding for diluted net income per share |
62,212 | 63,134 | 62,447 | 62,947 |
9
Net income per share Two-class method: |
||||||||||||
Basic |
$ |
1.04 |
$ |
0.99 |
$ |
2.77 |
$ |
2.88 | ||||
Diluted |
$ |
1.03 |
$ |
0.98 |
$ |
2.76 |
$ |
2.86 | ||||
There were no antidilutive stock options included in the computation of diluted earnings per share for the thirteen and thirty-nine week periods ended May 31, 2014. There were no antidilutive stock options included in the computation of diluted earnings per share for the thirteen and thirty-nine week periods ended June 1, 2013.
Note 3. Stock-Based Compensation
The Company accounts for all share-based payments in accordance with ASC Topic 718, "Compensation—Stock Compensation" ("ASC 718"). The stock‑based compensation expense related to the stock option plans and the Associate Stock Purchase Plan included in operating expenses was $1,230 and $1,329 for the thirteen week periods ended May 31, 2014 and June 1, 2013, respectively, and $4,426 and $4,097 for the thirty-nine week periods ended May 31, 2014 and June 1, 2013, respectively. Tax benefits related to these expenses for the thirteen week periods ended May 31, 2014 and June 1, 2013 were $440 and $483, respectively, and for the thirty-nine week periods ended May 31, 2014 and June 1, 2013 were $1,603 and $1,487, respectively.
The fair value of each option grant is estimated on the date of grant using the Black‑Scholes option pricing model with the following assumptions:
Thirty-Nine Weeks Ended |
||||||
May 31, |
June 1, |
|||||
2014 |
2013 |
|||||
Expected life (in years) |
3.9 | 3.8 | ||||
Risk-free interest rate |
0.93 |
% |
0.55 |
% |
||
Expected volatility |
26.59 |
% |
32.86 |
% |
||
Expected dividend yield |
1.70 |
% |
1.70 |
% |
||
A summary of the Company’s stock option activity for the thirty-nine weeks ended May 31, 2014 is as follows:
Options |
Weighted-Average Exercise Price per Share |
Weighted-Average Remaining Contractual Term (in years) |
Aggregate Intrinsic Value |
||||||
Outstanding on August 31, 2013 |
1,224 |
$ |
58.30 | ||||||
Granted |
399 | 81.76 | |||||||
Exercised |
(343) | 51.25 | |||||||
Canceled |
(23) | 73.13 | |||||||
Outstanding on May 31, 2014 |
1,257 |
$ |
67.40 | 4.83 |
$ |
30,894 | |||
Exercisable on May 31, 2014 |
436 |
$ |
56.18 | 3.53 |
$ |
15,620 | |||
The weighted‑average grant-date fair values of the stock options granted for the thirty-nine week periods ended May 31, 2014 and June 1, 2013 were $14.98 and $15.33, respectively. The unrecognized share‑based compensation cost related to stock option expense at May 31, 2014 was $9,347 and will be recognized over a weighted average period of 1.7 years. The total intrinsic value of options exercised, which represents the difference between the exercise price and market value of common stock measured at each individual exercise date, during the thirty-nine week periods ended May 31, 2014 and June 1, 2013 were $11,623 and $15,140, respectively.
A summary of the non‑vested restricted share award activity under the Company’s 2005 Omnibus Incentive Plan (the “Plan”) for the thirty-nine weeks ended May 31, 2014 is as follows:
10
Shares |
Weighted-Average Grant-Date Fair Value |
|||
Non-vested restricted share awards at August 31, 2013 |
505 |
$ |
59.47 | |
Granted |
121 | 82.20 | ||
Vested |
(152) | 50.22 | ||
Canceled/Forfeited |
(16) | 68.84 | ||
Non-vested restricted share awards at May 31, 2014 |
458 |
$ |
68.27 | |
Stock‑based compensation expense recognized for the restricted share awards was $1,979 and $2,024 for the thirteen week periods ended May 31, 2014 and June 1, 2013, respectively, and $6,969 and $6,301 for the thirty-nine week periods ended May 31, 2014 and June 1, 2013, respectively. The unrecognized compensation cost related to restricted share awards granted under the Plan at May 31, 2014 was $17,943 and will be recognized over a weighted average period of 2.2 years.
A summary of the Company’s non-vested restricted stock unit award activity including dividend equivalent units for the thirty-nine weeks ended May 31, 2014 is as follows:
|
Shares |
|
|
Weighted- Average Grant- Date Fair Value |
Non-vested restricted stock unit awards at August 31, 2013 |
196 |
$ |
55.32 | |
Granted |
3 | 83.03 | ||
Vested |
(1) | 88.12 | ||
Canceled/Forfeited |
— |
— |
||
Non-vested restricted stock unit awards at May 31, 2014 |
198 |
$ |
55.68 | |
Stock‑based compensation expense recognized for the restricted stock units was $544 and $532 for the thirteen week periods ended May 31, 2014 and June 1, 2013, respectively, and $1,625 and $1,591 for the thirty-nine week periods ended May 31, 2014 and June 1, 2013, respectively. The unrecognized compensation cost related to the restricted stock units at May 31, 2014 was $2,376 and is expected to be recognized over a period of 1.8 years.
Note 4. Fair Value
Fair value accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following 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.
As of May 31, 2014 and August 31, 2013, the Company measured cash equivalents consisting of money market funds at fair value on a recurring basis for which market prices are readily available (Level 1) and that invest primarily in United States government and government agency securities and municipal bond securities, which aggregated $6,438 and $2,529, respectively.
In connection with the construction of the Company’s new customer fulfillment center in Columbus, Ohio, the Company entered into an arrangement with the Columbus-Franklin County Finance Authority (“Finance Authority”) which provides savings on state and local sales taxes imposed on construction materials to entities that finance the transactions through them. This arrangement consists of the Finance Authority issuing taxable bonds to finance the structure and site
11
improvements of the Company’s customer fulfillment center. The taxable bonds were approximately $27,011 and $2,000 at May 31, 2014 and August 31, 2013, respectively. The taxable bonds are classified as available for sale securities in accordance with ASC Topic 320. The securities are recorded at fair value in the Consolidated Balance Sheet. The fair values of these securities are based on observable inputs in non-active markets, which are therefore classified as Level 2 in the hierarchy. The Company did not record any significant gains or losses on these securities during the thirty-nine week period ended May 31, 2014. The outstanding principal amount of each bond bears interest at the rate of 2.4% per year. Interest is payable on a semiannual basis in arrears on each interest payment date.
In addition, based on borrowing rates currently available to the Company for borrowings with similar terms, the carrying values of the Company’s capital lease obligations also approximate fair value. The fair value of the Company’s long-term debt, including current maturities, is estimated based on quoted market prices for the same or similar issues or on current rates offered to the Company for debt of the same remaining maturities. The carrying amount of the Company’s debt at May 31, 2014, approximates its fair value.
The Company’s financial instruments, other than those presented in the disclosure above, include cash, receivables, accounts payable, and accrued liabilities. Management believes the carrying amount of the aforementioned financial instruments is a reasonable estimate of fair value as of May 31, 2014 and August 31, 2013 due to the short-term maturity of these items.
During the thirty-nine weeks ended May 31, 2014 and June 1, 2013, the Company had no measurements of non-financial assets or liabilities at fair value on a non-recurring basis subsequent to their initial recognition.
Note 5. Restructuring and Other Charges
As a result of the Class C Solutions Group acquisition, the Company has and will incur restructuring charges associated with associate severance costs, stay bonuses, and the impairment of long-lived assets due to the closure of facilities. The aggregate liabilities included in “Accrued liabilities” in the consolidated balance sheet relating to the restructuring activities as of May 31, 2014 and activity for the thirty-nine week period ended May 31, 2014 consists of the following:
Workforce Reductions |
Facility Closings |
Total |
|||||||
Accrued restructuring balance, August 31, 2013 |
$ |
2,460 |
$ |
— |
$ |
2,460 | |||
Charged to operating expenses |
4,216 | 2,030 | 6,246 | ||||||
Cash payments |
(4,662) | (1,341) | (6,003) | ||||||
Accrued restructuring balance, May 31, 2014 |
$ |
2,014 |
$ |
689 |
$ |
2,703 | |||
In addition to the amounts to be charged against the previously established reserves, non-recurring integration costs and restructuring charges associated with the Class C Solutions Group acquisition are estimated to be between approximately $2,000 and $3,000 throughout the remainder of fiscal year 2014. In addition, the Company expects to incur non-recurring integration costs and restructuring charges associated with the acquisition through fiscal 2015.
Note 6. Debt and Capital Lease Obligations
Credit Facility
On April 22, 2013, in connection with the acquisition of the Class C Solutions Group, the Company entered into a new $650,000 credit facility (the “Credit Facility”). The Credit Facility, which matures on April 22, 2018, provides for a five-year unsecured revolving loan facility in the aggregate amount of $400,000 and a five-year unsecured term loan facility in the aggregate amount of $250,000. The Credit Facility replaced the Company’s previous $200,000 Credit Agreement, dated June 8, 2011.
The Credit Facility also permits the Company, at its request, and upon the satisfaction of certain conditions, to add one or more incremental term loan facilities and/or increase the revolving loan commitments in an aggregate amount not to exceed $200,000. Subject to certain limitations, each such incremental term loan facility or revolving commitment increase will be on terms as agreed to by the Company, the Administrative Agent and the lenders providing such financing.
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Borrowings under the Credit Facility bear interest, at the Company’s option, either at (i) the LIBOR (London Interbank Offered Rate) rate plus the applicable margin for LIBOR loans ranging from 1.00% to 1.375%, based on the Company’s consolidated leverage ratio; or (ii) the greatest of (a) the Administrative Agent’s prime rate in effect on such day, (b) the federal funds effective rate in effect on such day, plus 0.50% and (c) the LIBOR rate that would be calculated as of such day in respect of a proposed LIBOR loan with a one-month interest period, plus 1.00%, plus, in the case of each of clauses (a) through (c), an applicable margin ranging from 0.00% to 0.375%, based on the Company’s consolidated leverage ratio. The Company is required to pay a quarterly undrawn fee ranging from 0.10% to 0.20% per annum on the unutilized portion of the Credit Facility based on the Company’s consolidated leverage ratio. The Company is also required to pay quarterly letter of credit usage fees ranging between 1.00% to 1.375% (based on the Company’s consolidated leverage ratio) on the amount of the daily average outstanding letters of credit, and a quarterly fronting fee of 0.125% per annum on the undrawn and unexpired amount of each letter of credit. The applicable borrowing rate for the Company for any borrowings outstanding under the Credit Facility at May 31, 2014 was 1.15%, which represents LIBOR plus 1.0%. Based on the interest period the Company selects, interest may be payable every one, two, three or six months. Interest is reset at the end of each interest period. The Company currently elects to have loans under the Credit Facility bear interest based on LIBOR with one-month interest periods.
The Credit Facility contains several restrictive covenants including the requirement that the Company maintain a maximum consolidated leverage ratio of total indebtedness to EBITDA (earnings before interest expense, taxes, depreciation and amortization) of no more than 3.00 to 1.00, and a minimum consolidated interest coverage ratio of EBITDA to total interest expense of at least 3.00 to 1.00, during the term of the Credit Facility. Borrowings under the Credit Facility are guaranteed by certain of the Company’s subsidiaries.
The Company financed $370,000 of the Class C Solutions Group purchase price with the proceeds of the unsecured term loan facility and a portion of the unsecured revolving loan facility. The Company repaid $120,000 of the revolving loan facility during fiscal 2013. During the thirty-nine week period ended May 31, 2014, the Company borrowed $50,000 under the revolving loan facility and repaid $45,000 of the revolving loan facility.
As of May 31, 2014, there were $240,625 and $5,000 of borrowings outstanding under the term loan facility and the revolving credit facility, respectively, of the Credit Facility, of which $26,875 represents current maturities. As of August 31, 2013, there were $250,000 of borrowings outstanding under the term loan facility of the Credit Facility, of which $12,500 represents current maturities, and no borrowings outstanding under the revolving credit facility. At May 31, 2014 and August 31, 2013, the Company was in compliance with the operating and financial covenants of the Credit Facility.
Capital Lease and Financing Obligations
In connection with the construction of the Company’s new customer fulfillment center in Columbus, Ohio, the Company entered into an arrangement with the Finance Authority which provides savings on state and local sales taxes imposed on construction materials to entities that finance the transactions through them. This arrangement consists of the Finance Authority issuing taxable bonds to finance the structure and site improvements of the Company’s customer fulfillment center. The Finance Authority holds the title to the building and entered into a long-term lease with the Company. The lease has a 20-year term with a prepayment option without penalty between 7 and 20 years. At the end of the lease term, the building’s title is transferred to the Company for a nominal amount when the principal of and interest on the bonds have been fully paid. The lease has been classified as a capital lease in accordance with ASC Topic 840. At May 31, 2014 and August 31, 2013, the capital lease obligation was approximately $27,011 and $2,000, respectively.
From time to time, the Company enters into capital leases and financing arrangements to purchase certain equipment. The equipment acquired from these vendors is paid over a specified period of time based on the terms agreed upon. During the thirty-nine week period ended May 31, 2014, the Company entered into a financing obligation for certain information technology equipment totaling $480. During the fiscal year ended August 31, 2013, the Company entered into various capital leases and financing obligations for certain information technology equipment totaling $1,854.
The amount due under all capital leases and financing arrangements at May 31, 2014 was approximately $28,984, of which $1,664 represents current maturities and at August 31, 2013 was approximately $5,750, of which $1,684 represents current maturities. The net book value of the property and equipment acquired under these capital leases and financing agreements at May 31, 2014 and August 31, 2013 was approximately $29,790 and $6,734, respectively. The non-cash
13
financing activity related to capital leases for the thirty-nine week period ended May 31, 2014 was $25,011. The non-cash financing activity related to capital leases for fiscal 2013 was $2,437.
Note 7. Shareholders’ Equity
The Company paid cash dividends of $62,010 for the thirty-nine weeks ended May 31, 2014. For the thirty-nine weeks ended June 1, 2013, the Company paid cash dividends of $56,843. On June 19, 2014, the Board of Directors declared a quarterly cash dividend of $0.33 per share payable on July 22, 2014 to shareholders of record at the close of business on July 8, 2014. The dividend will result in a payout of approximately $20,597, based on the number of shares outstanding at June 30, 2014.
The Board of Directors established the MSC Stock Repurchase Plan (the “Repurchase Plan”) which allows the Company to repurchase shares at any time and in any increments it deems appropriate in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. During the thirty-nine week period ended May 31, 2014, the Company repurchased 1,505 shares of its Class A common stock for $115,606, which is reflected at cost as treasury stock in the accompanying condensed consolidated financial statements. Approximately 52 of these shares were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its share-based compensation program. As of May 31, 2014, the maximum number of shares that may yet be repurchased under the Repurchase Plan was 2,931 shares.
Note 8. Product Warranties
The Company generally offers a maximum one-year warranty, including parts and labor, for some of its machinery products. The specific terms and conditions of those warranties vary depending upon the product sold. The Company may be able to recoup some of these costs through product warranties it holds with its original equipment manufacturers, which typically range from thirty to ninety days. In general, many of the Company’s general merchandise products are covered by third party original equipment manufacturers’ warranties. The Company’s warranty expense for the thirty-nine week periods ended May 31, 2014 and June 1, 2013 was minimal.
Note 9. Income Taxes
During the thirteen and thirty-nine week periods ended May 31, 2014, there were no material changes in unrecognized tax benefits.
Note 10. Legal Proceedings
There are various claims, lawsuits, and pending actions against the Company incidental to the operation of its business. Although the outcome of these matters 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.
Note 11. Recently Issued Accounting Standards
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. The guidance is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The Company will evaluate the effects, if any, adoption of this guidance will have on the Company’s consolidated financial statements.
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The guidance is effective for annual and interim periods beginning after December 15, 2014, with early adoption permitted. The Company will evaluate the effects, if any, adoption of this guidance will have on the Company’s consolidated financial statements.
14
Recognizing Assets and Liabilities Arising from Lease Contracts on the Balance Sheet
In May 2013, the FASB reissued an exposure draft on lease accounting that would require entities to recognize assets and liabilities arising from lease contracts on the balance sheet. The proposed exposure draft states that lessees and lessors should apply a “right-of-use model” in accounting for all leases. Under the proposed model, lessees would recognize an asset for the right to use the leased asset, and a liability for the obligation to make rental payments over the lease term. When measuring the asset and liability, variable lease payments are excluded whereas renewal options that provide a significant economic incentive upon renewal would be included. The lease expense from real estate based leases would continue to be recorded under a straight line approach, but other leases not related to real estate would be expensed using an effective interest method that would accelerate lease expense. Comments were due by September 13, 2013. A final standard is currently expected to be issued in 2014 and would be effective no earlier than annual reporting periods beginning on January 1, 2017 (fiscal year 2018 for the Company). The Company is currently assessing the impact that the adoption of the guidance will have on its consolidated financial statements. As of May 31, 2014, the Company leases all of its branch offices and certain of its customer fulfillment centers and office space.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2013 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 one of the largest direct marketers and distributors of a broad range of metalworking and maintenance, repair, and operations (“MRO”) products to customers throughout North America. Our goal is to become the preferred supplier of MRO supplies for businesses throughout North America. We continue to implement our strategies to gain market share against other suppliers and generate new customers, increase sales to existing customers and diversify our customer base.
We offer approximately 795,000 stock-keeping units (“SKUs”), excluding our Class C Solutions Group (“CCSG”) (formerly Barnes Distribution North America), through our master catalogs; weekly, monthly and quarterly specialty and promotional catalogs; newspapers; brochures; and the Internet, including our websites, MSCDirect.com, MSCMetalworking.com and Use-Enco.com (the “MSC Websites”). We service our customers from 11 customer fulfillment centers and 103 branch offices. We employ one of the industry’s largest sales forces. Most 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. Excluding CCSG, we offer a nationwide cutoff time of 8:00 PM Eastern Time on qualifying orders for customers in the contiguous United States, which will be delivered to customers the next day at no additional cost over standard MSC ground delivery charges.
Net sales increased by 13.1% and 15.5% for the thirteen and thirty-nine week periods ended May 31, 2014, as compared to the same periods in the prior fiscal year. As discussed below, during the fiscal third quarter of 2013, we acquired substantially all of the assets and assumed certain liabilities of CCSG. CCSG contributed $75.4 million and $217.5 million of net sales for the thirteen and thirty-nine week periods ended May 31, 2014. Our financial results for the thirteen and thirty-nine week periods ended May 31, 2014 and June 1, 2013 reflect execution of our growth strategies, including acquisitions, to increase revenues. We have also invested in our business by increasing our sales force, increasing our investment in vending solutions, making technology investments to improve our electronic procurement tools, and making productivity and infrastructure investments. We believe these investments, combined with our strong balance sheet, extensive product assortment, high in-stock levels, same day shipping, and high levels of execution, have increased our competitive advantage over smaller distributors.
Key manufacturing measurements, such as the Institute for Supply Management (“ISM”) index, evidenced an expanding manufacturing sector environment throughout most of fiscal year 2013 and this trend has continued through the first nine months of our fiscal year 2014, with the most recent ISM index in June 2014 of 55.3%. From early fiscal year 2013 until the second quarter of fiscal 2014, we experienced a divergence between the ISM index and the core metalworking manufacturing sector that is more reflective of our business environment. Metalworking related indices contracted during fiscal year 2013. This rate of contraction slowed during our fourth quarter of fiscal 2013 and these indices have begun to
15
experience moderate growth through our third quarter of fiscal 2014. We will continue to monitor the current economic conditions for its impact on our customers and markets and continue to assess both risks and opportunities that may affect our business. See the discussion below describing recent fluctuations in economic indicators and the possible impact on our future sales and margins.
Our gross profit margin was 46.3% and 46.4% for the thirteen and thirty-nine week periods ended May 31, 2014, respectively, as compared to 45.5% for the same periods in the prior fiscal year. The increase in gross profit margin was primarily driven by higher gross margins from CCSG, partially offset by increases in product costs, changes in customer and product mix and an increased percentage of sales from our vending programs.
Operating expenses increased 20.7% and 29.7% for the thirteen and thirty-nine week periods ended May 31, 2014 as compared to the same periods in the prior fiscal year, as a result of the acquired CCSG operations. CCSG’s operating expenses accounted for approximately $36.7 million and $107.8 million of total operating expenses for the thirteen and thirty-nine week periods ended May 31, 2014. We incurred operating expenses of approximately $2.3 million and $10.7 million for the thirteen and thirty-nine week periods ended May 31, 2014, respectively, related to non-recurring integration costs and restructuring charges. Excluding CCSG, operating expenses increased as a result of increased payroll and payroll related costs, increased freight costs, increased depreciation and amortization related to our infrastructure and other investment programs, costs associated with our investment programs and costs related to the establishment of our new co-located headquarters in Davidson, North Carolina. For the thirteen and thirty-nine week periods ended May 31, 2014, our operating margin was 14.6% and 13.8%, respectively, as compared to 15.7% and 16.4% for the same periods in the prior fiscal year.
We expect operating costs to continue to increase throughout the remainder of fiscal year 2014 as compared to fiscal year 2013 due to increased expenses related to inclusion of a full year of CCSG operations, non-recurring integration costs and restructuring charges, increased compensation expenses and fringe benefits costs, and increased costs associated with executing on our vending and other investment programs. In addition, we expect increased costs associated with our co-located headquarters in Davidson, North Carolina and we also expect to incur operating costs associated with the establishment of our new customer fulfillment center in Columbus, Ohio. We will continue to opportunistically seek additional growth opportunities that will help position us for future expansion. We believe that cash flows from operations, available cash and funds available under our revolving credit facility will be adequate to support our operations and growth plans for the next twelve months.
The ISM index, which measures the economic activity of the U.S. manufacturing sector, is important to our planning because it historically has been an indicator of our manufacturing customers’ activity. A substantial portion of our revenues came from sales in the manufacturing sector during the first three quarters of fiscal 2014, including certain national account customers. An ISM index reading below 50.0% generally indicates that the manufacturing sector is expected to contract. Conversely, an ISM index reading above 50.0% generally indicates that the manufacturing sector is expected to expand. The ISM index was 55.3% for the month of June 2014 and averaged 55.1% for the past twelve months. Details released with the most recent index indicate that economic activity in the manufacturing sector related to new orders, production, inventories and employment are growing, while supplier deliveries have slowed from the previous month. Although the most recent measurement trend indicates that the manufacturing sector is expanding, there remains uncertainty relating to the current economic environment. Continued concerns relating to macroeconomic factors may continue to influence our customers to be more cautious in their purchases of MSC’s products. Sales to our government accounts represented approximately 8% of our total sales during the thirty-nine week periods ended May 31, 2014 and June 1, 2013.
We are continuing to take advantage of our strong balance sheet, which enables us to maintain or extend credit to our credit worthy customers and maintain optimal inventory and service levels to meet customer demands during these challenging economic conditions, while many of our smaller competitors in our fragmented industry continue to have difficulties in offering competitive service levels. We also believe that customers will continue to seek cost reductions and shorter cycle times from their suppliers. Our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our customers’ needs. We focus on offering inventory, process and procurement solutions that reduce MRO supply chain costs and improve plant floor productivity for our customers. We will seek to continue to drive cost reduction throughout our business through cost saving strategies and increased leverage from our existing infrastructure, and continue to provide additional procurement cost savings solutions to our customers through technology such as our CMI, VMI, and vending programs.
On April 22, 2013, we acquired substantially all of the assets and assumed certain liabilities of CCSG, pursuant to the terms of the Asset Purchase Agreement, dated February 22, 2013, between us and Barnes Group Inc. (“Barnes Group”).
16
In connection with the acquisition, the total cash consideration we paid to Barnes Group was $547.3 million which is net of a post-closing working capital adjustment in the amount of $1.4 million that we received in September 2013. The acquisition was funded in part with borrowings under our new unsecured Credit Facility, which was closed simultaneously with the acquisition, and the remainder was funded from available cash reserves. CCSG is a leading distributor of fasteners and other high margin, low cost consumables with a broad distribution footprint throughout the U.S. and Canada. CCSG has a strong presence with customers across manufacturing, government, transportation and natural resources end-markets. CCSG specializes in lowering the total cost of their customers’ inventory management through storeroom organization and vendor managed inventory (or VMI). With this acquisition, we add a highly complementary provider of fasteners and other high margin consumable products and services (often referred to as “Class C” items) with an experienced field sales force and VMI solution. With the integration of the two businesses, we have the opportunity to bring our MRO offering to CCSG’s customers, and CCSG’s Class C offering and VMI system to our customers. Since the acquisition date, we have incurred non-recurring transaction and integration costs and restructuring charges associated with associate severance costs, stay bonuses and the impairment of long-lived assets due to the closure of facilities relating to the acquisition. Integration costs and restructuring charges are estimated to be between approximately $2.0 million and $3.0 million throughout the remainder of fiscal year 2014. In addition, the Company expects to incur non-recurring integration costs and restructuring charges associated with the acquisition through fiscal 2015.
Results of Operations
Net Sales
Thirteen Weeks Ended |
Thirty-Nine Weeks Ended |
|||||||||||||||
May 31, |
June 1, |
Percentage |
May 31, |
June 1, |
Percentage |
|||||||||||
2014 |
2013 |
Change |
2014 |
2013 |
Change |
|||||||||||
(Dollars in thousands) |
||||||||||||||||
Net Sales |
$ |
720,476 |
$ |
636,923 | 13.1% |
$ |
2,060,499 |
$ |
1,783,876 | 15.5% | ||||||
Net sales increased 13.1%, or approximately $83.6 million, for the thirteen week period ended May 31, 2014, as compared to the same period in the prior fiscal year. We estimate that this $83.6 million increase in net sales is comprised of: (i) approximately $40.6 million of incremental net sales from CCSG operations, reflecting a full quarter of CCSG net sales for the quarter ended May 31, 2014, as compared to CCSG net sales for only a portion of the quarter ended June 1, 2013; (ii) approximately $36.1 million of higher sales volume; and (iii) approximately $6.9 million from improved pricing, which is partially offset by changes in customer and product mix, discounting and other items. Of the above $83.6 million increase in net sales, our government and national account programs (“Large Account Customer”) increased by approximately $25.9 million and there was an increase in our remaining business of approximately $57.7 million.
Net sales increased 15.5%, or approximately $276.6 million, for the thirty-nine week period ended May 31, 2014, as compared to the same period in the prior fiscal year. We estimate that this $276.6 million increase in net sales is comprised of: (i) approximately $182.8 million of incremental net sales from CCSG operations, reflecting a full thirty-nine weeks of CCSG net sales for the thirty-nine week period ended May 31, 2014, as compared to CCSG net sales for only a portion of the thirty-nine week period ended June 1, 2013; (ii) approximately $81.2 million of higher sales volume; and (iii) approximately $12.6 million from improved pricing, which is partially offset by changes in customer and product mix, discounting and other items. Of the above $276.6 million increase in net sales, our Large Account Customer programs increased by approximately $52.9 million and there was an increase in our remaining business of approximately $223.7 million.
The table below shows the pattern to the change in our fiscal quarterly average daily sales from the same period in the prior fiscal year: