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EX-31.2 - EX-31.2 - MSC INDUSTRIAL DIRECT CO INCmsm-20170603xex31_2.htm
EX-31.1 - EX-31.1 - MSC INDUSTRIAL DIRECT CO INCmsm-20170603xex31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549









FORM 10-Q













 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 3, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934







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
(State or Other Jurisdiction of
Incorporation or Organization)

11-3289165
(I.R.S. Employer Identification No.)



 

75 Maxess Road, Melville, New York
(Address of principal executive offices)

11747
(Zip Code)



(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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



 

 

 

Large accelerated

filer 

Accelerated

filer 

Non‑accelerated filer 
(Do not check if a smaller

reporting company)

Smaller reporting

company 

Emerging growth

company 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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, 2017, 45,102,339 shares of Class A common stock and 11,850,636 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 September 3, 2016. 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:

·

general economic conditions in the markets in which the Company operates;

·

worldwide economic, social, political and regulatory conditions, including conditions that may result from legislative, regulatory and policy changes;

·

changing customer and product mixes;

·

competition, including the adoption by competitors of aggressive pricing strategies and sales methods;

·

industry consolidation and other changes in the industrial distribution sector;

·

volatility in commodity and energy prices;

·

the outcome of 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 and the risks of business disruptions arising from changes to our information systems and disruptions due to catastrophic events, power outages, natural disasters, computer system or network failures, computer viruses, physical or electronic break-ins and cyberattacks;  

·

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;

·

risks associated with the integration of acquired businesses; and

·

financial restrictions on outstanding borrowings.





2


 

 













MSC INDUSTRIAL DIRECT CO., INC.

INDEX



 

 



 

Page

PART I.  FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 



Condensed Consolidated Balance Sheets as of June 3, 2017 and September 3, 2016



Condensed Consolidated Statements of Income for the Thirteen and Thirty-Nine Weeks Ended June 3, 2017 and May 28, 2016



Condensed Consolidated Statements of Comprehensive Income for the Thirteen and Thirty-Nine Weeks Ended June 3, 2017 and May 28, 2016



Condensed Consolidated Statement of Shareholders’ Equity for the Thirty-Nine Weeks Ended June 3, 2017



Condensed Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended June 3, 2017 and May 28, 2016



Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24 

Item 4.

Controls and Procedures

24 

PART II.  OTHER INFORMATION

 

Item 1.

Legal Proceedings

24 

Item 1A.

Risk Factors

25 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25 

Item 3.

Defaults Upon Senior Securities

25 

Item 4.

Mine Safety Disclosures

25 

Item 5.

Other Information

25 

Item 6.

Exhibits

26 

SIGNATURES

27 





3


 

 

PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)







 

 

 

 

 



 

 

 

 

 



June 3,

 

September 3,



2017

 

2016



(Unaudited)

 

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

$

27,578 

 

$

52,890 

Accounts receivable, net of allowance for doubtful accounts of $12,829 and $12,353, respectively

 

436,729 

 

 

392,463 

Inventories

 

466,478 

 

 

444,221 

Prepaid expenses and other current assets

 

49,692 

 

 

45,290 

Deferred income taxes

 

 —

 

 

46,627 

Total current assets

 

980,477 

 

 

981,491 

Property, plant and equipment, net

 

317,297 

 

 

320,544 

Goodwill

 

623,061 

 

 

624,081 

Identifiable intangibles, net

 

99,005 

 

 

105,307 

Other assets

 

31,203 

 

 

33,528 

Total assets

$

2,051,043 

 

$

2,064,951 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Short-term debt

$

314,171 

 

$

267,050 

Accounts payable

 

112,160 

 

 

110,601 

Accrued liabilities

 

99,173 

 

 

100,951 

Total current liabilities

 

525,504 

 

 

478,602 

Long-term debt

 

200,976 

 

 

339,772 

Deferred income taxes and tax uncertainties

 

101,574 

 

 

148,201 

Total liabilities

 

828,054 

 

 

966,575 

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; 53,449,872 and 52,992,682 shares issued, respectively

 

53 

 

 

53 

Class B common stock (ten votes per share); $0.001 par value; 50,000,000 shares authorized; 11,850,636 and 11,933,233 shares issued and outstanding, respectively

 

12 

 

 

12 

Additional paid-in capital

 

618,718 

 

 

584,017 

Retained earnings

 

1,133,785 

 

 

1,040,148 

Accumulated other comprehensive loss 

 

(21,259)

 

 

(19,098)

Class A treasury stock, at cost, 8,347,384 and 8,344,514 shares, respectively

 

(508,320)

 

 

(506,756)

Total shareholders’ equity

 

1,222,989 

 

 

1,098,376 

Total liabilities and shareholders’ equity

$

2,051,043 

 

$

2,064,951 



 

 

 

 

 

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



 

June 3,

 

May 28,

 

June 3,

 

May 28,



 

2017

 

2016

 

2017

 

2016

Net sales

 

$

743,923 

 

$

727,495 

 

$

2,133,974 

 

$

2,118,431 

Cost of goods sold

 

 

414,423 

 

 

400,467 

 

 

1,181,177 

 

 

1,163,640 

Gross profit

 

 

329,500 

 

 

327,028 

 

 

952,797 

 

 

954,791 

Operating expenses

 

 

227,724 

 

 

221,244 

 

 

673,776 

 

 

678,077 

Income from operations

 

 

101,776 

 

 

105,784 

 

 

279,021 

 

 

276,714 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(3,361)

 

 

(1,204)

 

 

(9,245)

 

 

(4,055)

Interest income

 

 

169 

 

 

164 

 

 

496 

 

 

491 

Other (expense) income, net

 

 

(2)

 

 

110 

 

 

(340)

 

 

912 

Total other expense

 

 

(3,194)

 

 

(930)

 

 

(9,089)

 

 

(2,652)

Income before provision for income taxes

 

 

98,582 

 

 

104,854 

 

 

269,932 

 

 

274,062 

Provision for income taxes

 

 

35,746 

 

 

40,038 

 

 

99,249 

 

 

104,692 

Net income

 

$

62,836 

 

$

64,816 

 

$

170,683 

 

$

169,370 

Per share information:

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.10 

 

$

1.06 

 

$

3.01 

 

$

2.76 

Diluted

 

$

1.09 

 

$

1.05 

 

$

2.98 

 

$

2.75 

Weighted average shares used in computing net income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

56,779 

 

 

61,133 

 

 

56,593 

 

 

61,206 

Diluted

 

 

57,264 

 

 

61,369 

 

 

57,028 

 

 

61,364 

Cash dividends declared per common share

 

$

0.45 

 

$

0.43 

 

$

1.35 

 

$

1.29 



 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



































5


 

 

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Comprehensive Income

 (In thousands)

(Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 



 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended



 

June 3,

 

May 28,

 

June 3,

 

May 28,



 

2017

 

2016

 

2017

 

2016

Net income, as reported

 

$

62,836 

 

$

64,816 

 

$

170,683 

 

$

169,370 

Foreign currency translation adjustments

 

 

87 

 

 

2,556 

 

 

(2,161)

 

 

(838)

Comprehensive income

 

$

62,923 

 

$

67,372 

 

$

168,522 

 

$

168,532 



 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.





























 

6


 

 

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statement of Shareholders’ Equity

Thirty-Nine Weeks Ended June 3, 2017

(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 September 3, 2016

 

52,993 

 

$

53 

 

11,933 

 

$

12 

 

$

584,017 

 

$

1,040,148 

 

$

(19,098)

 

8,345 

 

$

(506,756)

 

$

1,098,376 

Exchange of Class B common stock for Class A common stock

 

82 

 

 

 —

 

(82)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Exercise of common stock options

 

335 

 

 

 —

 

 —

 

 

 —

 

 

22,600 

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

22,600 

Common stock issued under associate stock purchase plan

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,649 

 

 

 —

 

 

 —

 

(40)

 

 

1,516 

 

 

3,165 

Issuance of restricted common stock, net of cancellations

 

(7)

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Shares issued from restricted stock units, including dividend equivalent units

 

47 

 

 

 —

 

 —

 

 

 —

 

 

77 

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

77 

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

10,375 

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

10,375 

Repurchases of common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

42 

 

 

(3,080)

 

 

(3,080)

Cash dividends on Class A common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(60,597)

 

 

 —

 

 —

 

 

 —

 

 

(60,597)

Cash dividends on Class B common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(16,035)

 

 

 —

 

 —

 

 

 —

 

 

(16,035)

Dividend equivalent units declared, net of cancellations

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(414)

 

 

 —

 

 —

 

 

 —

 

 

(414)

Foreign currency translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,161)

 

 —

 

 

 —

 

 

(2,161)

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

170,683 

 

 

 —

 

 —

 

 

 —

 

 

170,683 

Balance at June 3, 2017

 

53,450 

 

$

53 

 

11,851 

 

$

12 

 

$

618,718 

 

$

1,133,785 

 

$

(21,259)

 

8,347 

 

$

(508,320)

 

$

1,222,989 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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



 

June 3,

 

May 28,



 

2017

 

2016

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

170,683 

 

$

169,370 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

46,737 

 

 

53,343 

Stock-based compensation

 

 

10,375 

 

 

10,302 

Loss on disposal of property, plant, and equipment

 

 

317 

 

 

539 

Provision for doubtful accounts

 

 

4,713 

 

 

5,496 

Deferred income taxes and tax uncertainties

 

 

 —

 

 

(78)

Excess tax benefits from stock-based compensation

 

 

 —

 

 

(630)

Write-off of deferred financing costs on previous credit facility

 

 

94 

 

 

 —

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(50,730)

 

 

1,990 

Inventories

 

 

(22,834)

 

 

44,032 

Prepaid expenses and other current assets

 

 

(4,547)

 

 

(348)

Other assets

 

 

2,259 

 

 

2,892 

Accounts payable and accrued liabilities

 

 

2,064 

 

 

(1,086)

Total adjustments

 

 

(11,552)

 

 

116,452 

Net cash provided by operating activities

 

 

159,131 

 

 

285,822 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Expenditures for property, plant and equipment

 

 

(37,923)

 

 

(34,714)

Net cash used in investing activities

 

 

(37,923)

 

 

(34,714)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Repurchases of common stock

 

 

(3,392)

 

 

(19,372)

Payments of cash dividends

 

 

(76,632)

 

 

(79,351)

Payments on capital lease and financing obligations

 

 

(904)

 

 

(600)

Excess tax benefits from stock-based compensation

 

 

 —

 

 

630 

Proceeds from sale of Class A common stock in connection with associate stock purchase plan

 

 

3,165 

 

 

2,896 

Proceeds from exercise of Class A common stock options

 

 

22,600 

 

 

5,081 

Borrowings under financing obligations

 

 

739 

 

 

453 

Borrowings under Credit Facility

 

 

439,000 

 

 

88,000 

Credit Facility financing costs

 

 

(1,542)

 

 

 —

Payments of notes payable and revolving credit note under the Credit Facility

 

 

(529,500)

 

 

(254,750)

Net cash used in financing activities

 

 

(146,466)

 

 

(257,013)

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

(54)

 

 

(34)

Net decrease in cash and cash equivalents

 

 

(25,312)

 

 

(5,939)

Cash and cash equivalents—beginning of period

 

 

52,890 

 

 

38,267 

Cash and cash equivalents—end of period

 

$

27,578 

 

$

32,328 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash paid for income taxes

 

$

91,711 

 

$

101,178 

Cash paid for interest

 

$

7,350 

 

$

3,878 



 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

 

 

 

 

 





















 

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 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 and thirty-nine week periods ended June 3, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending September 2, 2017. 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 September 3, 2016.





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 2017 fiscal year will be a 52-week accounting period that will end on September 2, 2017 and its 2016 fiscal year was a 53-week accounting period that ended on September 3, 2016.



There have been no changes to significant accounting policies since September 3, 2016, except for the adoption of Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting, and ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which resulted in changes to the condensed consolidated financial statements, including adjustments recorded as of the beginning of fiscal 2017, as described below in “Recently Adopted Accounting Pronouncements”.



The Company combined the revolving credit note and current maturities of long-term debt into short-term debt for the prior year in the Condensed Consolidated Balance Sheets in order to conform to the current period’s presentation.



Recently Adopted Accounting Pronouncements



Share-based Payments



In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements.  The Company early adopted ASU 2016-09 in the second quarter of fiscal 2017, which required us to reflect any adjustments as of September 4, 2016, the beginning of the annual period that includes the interim period of adoption.    Prior fiscal year periods were not retrospectively adjusted.



Adoption of the new standard affected our previously reported fiscal first quarter of 2017 net income per share as follows:





 

 

 

 

 

 



 

Thirteen Weeks Ended



 

December 3, 2016



 

As Reported

 

As Adjusted

Condensed Consolidated Statements of Income:

 

(in thousands, except per share data)

Provision for income taxes

 

$

33,442 

 

$

33,257 

Net income

 

$

54,103 

 

$

54,288 

Per share information:

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 Basic

 

$

0.96 

 

$

0.96 

 Diluted

 

$

0.95 

 

$

0.96 

Weighted average shares used in computing net income per common share:

 

 

 

 

 

 

 Basic

 

 

56,381 

 

 

56,381 

 Diluted

 

 

56,572 

 

 

56,608 



9


 

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

Deferred Taxes



In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This update requires an entity to classify deferred tax liabilities and assets as non-current within a classified balance sheet. ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. This update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The FASB allowed early adoption of this standard and, therefore, the Company prospectively adopted ASU 2015-17 during its first quarter of fiscal 2017. As a result of adopting this standard, $46,627 of deferred income taxes that were previously presented as a current asset are now included within long-term liabilities, as the Company was in a net deferred tax liability position in its first quarter of fiscal 2017 which was the time of adoption.  Prior periods were not retrospectively adjusted.



Accounting Pronouncements Not Yet Adopted



Goodwill Impairment



In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 in the goodwill impairment test that required an entity to calculate the implied fair value of goodwill.  An entity will now apply a one-step quantitative test and record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 will be applied prospectively and is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019.  The new standard is effective for the Company for its fiscal 2021 fourth quarter goodwill impairment test.  Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.  The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements. 



Business Combinations



In January 2017, the FASB issued ASU No. 2017-01, Business Combinations – Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business to assist entities with evaluating when a set of transferred assets and activities is considered a business. The amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The new standard is effective for the Company for its fiscal 2019 first quarter, with early adoption permitted.  The amendments are to be applied prospectively to business combinations that occur after the effective date.



Leases



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s leasing activities. ASU 2016-02 requires reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. ASU 2016-02 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2018.  The new standard is effective for the Company for its fiscal 2020 first quarter. The guidance will be applied on a modified retrospective basis beginning with the earliest period presented. The Company is currently evaluating this standard to determine the impact of adoption on its consolidated financial statements.



Simplifying the Measurement of Inventory



In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330), which requires an entity to measure inventory at the lower of cost or net realizable value, which consists of the estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation. For public entities, the updated guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The guidance is to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The new standard is effective for the Company for its fiscal 2018 first quarter. The Company does not expect adoption of ASU 2015-11 to have a material impact on its consolidated financial statements.



10


 

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

Revenue from Contracts with Customers



In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective for the Company for its fiscal 2019 first quarter. Early application is permitted. The standard permits the use of either the retrospective or cumulative effect transition method. To date, the Company has performed a preliminary detailed review of key contracts and compared historical accounting policies and practices to the new standard. While the Company is still evaluating this standard, it is not expected that this standard will have a material impact on the Company’s consolidated financial statements. The Company will continue to evaluate ASU 2014-09 and other amendments and related interpretive guidance through the date of adoption. The Company expects to adopt ASU 2014-09 under the modified retrospective approach in the first quarter of fiscal 2019.



Note 2. Net Income per Share



The Company’s non-vested restricted stock awards contain non-forfeitable rights to dividends and meet the criteria of a participating security as defined by Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share”. Under the two-class method, net income per share is computed by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, net income is allocated to both common shares and participating securities based on their respective weighted average shares outstanding for the period. 



The following table sets forth the computation of basic and diluted net income per common share under the two-class method for the thirteen and thirty-nine weeks ended June 3, 2017 and May 28, 2016, respectively:







 

 

 

 

 

 

 

 

 

 

 

 



 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended



 

June 3,

 

May 28,

 

June 3,

 

May 28,



 

2017

 

2016

 

2017

 

2016

Net income as reported

 

$

62,836 

 

$

64,816 

 

$

170,683 

 

$

169,370 

Less: Distributed net income available to participating securities

 

 

(39)

 

 

(81)

 

 

(151)

 

 

(251)

Less: Undistributed net income available to participating securities

 

 

(107)

 

 

(170)

 

 

(309)

 

 

(442)

Numerator for basic net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Undistributed and distributed net income available to common shareholders         

 

$

62,690 

 

$

64,565 

 

$

170,223 

 

$

168,677 

  Add: Undistributed net income allocated to participating securities

 

 

107 

 

 

170 

 

 

309 

 

 

442 

Less: Undistributed net income reallocated to participating securities

 

 

(106)

 

 

(170)

 

 

(307)

 

 

(441)



 

 

 

 

 

 

 

 

 

 

 

 

Numerator for diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Undistributed and distributed net income available to common shareholders

 

$

62,691 

 

$

64,565 

 

$

170,225 

 

$

168,678 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for basic net income per share

 

 

56,779 

 

 

61,133 

 

 

56,593 

 

 

61,206 

Effect of dilutive securities

 

 

485 

 

 

236 

 

 

435 

 

 

158 

Weighted average shares outstanding for diluted net income per share

 

 

57,264 

 

 

61,369 

 

 

57,028 

 

 

61,364 

Net income per share Two-class method:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.10 

 

$

1.06 

 

$

3.01 

 

$

2.76 

Diluted

 

$

1.09 

 

$

1.05 

 

$

2.98 

 

$

2.75 



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 3, 2017. Antidilutive stock options of 639 and 1,009 were not included in the computation of diluted earnings per share for the thirteen and thirty-nine week periods ended May 28, 2016, respectively. 

11


 

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)



Note 3. Stock-Based Compensation



The Company accounts for all share-based payments in accordance with ASC Topic 718, "Compensation—Stock Compensation" ("ASC 718"). Stock‑based compensation expense included in operating expenses for the thirteen and thirty-nine week periods ended June 3, 2017 and May 28, 2016 was as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended



 

June 3,

 

May 28,

 

June 3,

 

May 28,



 

2017

 

2016

 

2017

 

2016

Stock options

 

$

1,088 

 

$

1,044 

 

$

3,275 

 

$

3,296 

Restricted share awards

 

 

998 

 

 

1,420 

 

 

3,332 

 

 

4,619 

Restricted stock units

 

 

1,286 

 

 

785 

 

 

3,561 

 

 

2,197 

Associate Stock Purchase Plan

 

 

78 

 

 

54 

 

 

207 

 

 

190 

Total 

 

 

3,450 

 

 

3,303 

 

 

10,375 

 

 

10,302 

Deferred income tax benefit

 

 

(1,311)

 

 

(1,255)

 

 

(3,943)

 

 

(3,915)

Stock-based compensation expense, net

 

$

2,139 

 

$

2,048 

 

$

6,432 

 

$

6,387 



Stock options



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



 

June 3,

 

May 28,



 

2017

 

2016

Expected life (in years)

 

4.1 

 

 

3.9 

 

Risk-free interest rate

 

1.16 

%

 

1.09 

%

Expected volatility

 

20.50 

%

 

21.82 

%

Expected dividend yield

 

2.40 

%

 

2.40 

%

Weighted-average grant-date fair value

 

$9.29 

 

 

$8.03 

 



A summary of the Company’s stock option activity for the thirty-nine week period ended June 3, 2017 is as follows:







 

 

 

 

 

 

 

 

 



Options

 

Weighted-Average Exercise Price per Share

 

Weighted-Average Remaining Contractual Term (in years)

 

Aggregate Intrinsic Value

Outstanding on September 3, 2016

1,645 

 

$

69.86 

 

 

 

 

 

Granted

537 

 

 

71.33 

 

 

 

 

 

Exercised

(335)

 

 

67.44 

 

 

 

 

 

Canceled/Forfeited

(36)

 

 

70.73 

 

 

 

 

 

Outstanding on June 3, 2017

1,811 

 

$

70.73 

 

4.8 

 

$

28,033 

Exercisable on June 3, 2017

649 

 

$

73.51 

 

3.4 

 

$

8,238 



The unrecognized share‑based compensation cost related to stock option expense at June 3, 2017 was $8,385 and will be recognized over a weighted average period of 2.6 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 June 3, 2017 and May 28, 2016 was $9,232 and $2,164, respectively.



Restricted share awards



A summary of the non‑vested restricted share award (“RSA”) activity under the Company’s 2005 Omnibus Incentive Plan and 2015 Omnibus Incentive Plan for the thirty-nine week period ended June 3, 2017 is as follows:







 

 

 

 

12


 

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)



Shares

 

Weighted-Average  Grant-Date Fair Value

Non-vested restricted share awards at September 3, 2016

265 

 

$

78.58 

Granted

 —

 

 

 —

Vested

(96)

 

 

75.30 

Canceled/Forfeited

(7)

 

 

81.06 

Non-vested restricted share awards at June 3, 2017

162 

 

$

80.40 



The fair value of each RSA is the closing stock price on the New York Stock Exchange of the Company’s Class A common stock on the date of grant. Upon vesting, a portion of the RSA award may be withheld to satisfy the statutory income tax withholding obligation. The remaining RSAs will be settled in shares of the Company’s Class A common stock when vested. The unrecognized compensation cost related to RSAs at June 3, 2017 was $5,870 and will be recognized over a weighted average period of 1.9 years.    



Restricted stock units



A summary of the Company’s non-vested Restricted Stock Unit (“RSU”) award activity for the thirty-nine week period ended June 3, 2017 is as follows:





 

 

 

 



Shares

 

Weighted-Average  Grant-Date Fair Value

Non-vested restricted stock unit awards at September 3, 2016

198 

 

$

58.98 

Granted

174 

 

 

73.33 

Vested

(45)

 

 

59.12 

Canceled/Forfeited

(12)

 

 

65.10 

Non-vested restricted stock unit awards at June 3, 2017

315 

 

$

66.66 



The fair value of each RSU is the closing stock price on the New York Stock Exchange of the Company’s Class A common stock on the date of grant. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding obligation. The remaining RSUs will be settled in shares of the Company’s Class A common stock when vested. These awards accrue dividend equivalents on outstanding units (in the form of additional stock units) based on dividends declared on the Company’s Class A common stock and these dividend equivalents convert to unrestricted common stock on the vesting dates of the underlying RSUs. The dividend equivalents are not included in the RSU table above. The unrecognized compensation cost related to the RSUs at June 3, 2017 was $16,143 and is expected to be recognized over a weighted average period of 3.8 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.



In connection with the construction of the Company’s customer fulfillment center in Columbus, Ohio, the Company entered into an arrangement during fiscal 2013 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. Under this arrangement, the Finance Authority issued taxable bonds to finance the structure and site improvements of the Company’s customer fulfillment center. The bonds ($27,025 outstanding at both June 3, 2017 and September 3, 2016)  are classified as available for sale securities in accordance with ASC Topic 320. The securities are recorded at fair value in Other Assets in the Condensed Consolidated Balance Sheet. The fair values of these securities are

13


 

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

based on observable inputs in non-active markets, which are therefore classified as Level 2 in the hierarchy. The Company did not record any gains or losses on these securities during the thirteen and thirty-nine week periods ended June 3, 2017. 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 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 June 3, 2017 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 June 3, 2017 and September 3, 2016 due to the short-term maturity of these items.



During the thirty-nine weeks ended June 3, 2017 and May 28, 2016, 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. Debt and Capital Lease Obligations



Debt at June 3, 2017 and September 3, 2016 consisted of the following:





 

 

 

 

 

 



 

June 3,

 

September 3,



 

2017

 

2016



 

(Dollars in thousands)

Credit Facility:

 

 

 

 

 

 

   Revolver

 

$

314,000 

 

$

217,000 

   Term loan

 

 

 -

 

 

187,500 

Private Placement Debt:

 

 

 

 

 

 

   Senior notes, series A

 

 

75,000 

 

 

75,000 

   Senior notes, series B

 

 

100,000 

 

 

100,000 

Capital lease and financing obligations

 

 

28,100 

 

 

28,268 

   Less: unamortized debt issuance costs

 

 

(1,953)

 

 

(946)

Total debt

 

$

515,147 

 

$

606,822 

   Less: short-term debt(1)

 

 

(314,171)

 

 

(267,050)

Long-term debt

 

$

200,976 

 

$

339,772 

____________________

(1)

Net of unamortized debt issuance costs expected to be amortized in the next twelve months.



Credit Facility



In April 2017, the Company entered into a new $600 million credit facility (the “New Credit Facility”). The New Credit Facility, which matures on April 14, 2022, provides for a five-year unsecured revolving loan facility in the aggregate amount of $600 million. The New Credit Facility replaced the Company’s previous $650 million credit facility (the “Previous Credit Facility”), dated April 22, 2013. 



The New Credit Facility permits up to $50 million to be used to fund letters of credit.  The New Credit Facility also permits the Company to request one or more incremental term loan facilities and/or increase the revolving loan commitments in an aggregate amount not to exceed $300 million.  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.



Borrowings under the New 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,

14


 

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

(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 New 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 weighted average applicable borrowing rate for the Company for any borrowings outstanding under the New Credit Facility at June 3, 2017 was 2.12% which represents LIBOR plus 1.125%. 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 New Credit Facility bear interest based on LIBOR with one-month interest periods. Borrowings under the New Credit Facility are guaranteed by certain of the Company’s subsidiaries.



During the thirty-nine week period ended June 3, 2017, the Company borrowed $109,000 under the revolving loan facility and repaid $147,000 and $37,500 of the revolving loan facility and the term loan facility, respectively. In addition, as a result of entering into the New Credit Facility, the Company borrowed $330,000 under the New Credit Facility and used an additional $16,706 in cash on hand to pay down and close the $345,000 outstanding balance under the Previous Credit Facility plus the applicable interest and fees.



Private Placement Debt



In July 2016, in connection with the Company’s “modified Dutch auction” tender offer, the Company completed the issuance and sale of the following unsecured senior notes (collectively “Private Placement Debt”):



·

$75,000 aggregate principal amount of 2.65% Senior Notes, Series A, due July 28, 2023 (“Senior notes, series A”); and

·

$100,000 aggregate principal amount of 2.90% Senior Notes, Series B, due July 28, 2026 (“Senior notes, series B”).



The Private Placement Debt is due, in full, on the stated maturity dates.  Interest is payable semiannually at the fixed stated interest rates.



The New Credit Facility and Private Placement Debt contain 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, amortization and stock-based compensation) of no more than 3.00 to 1.00 (or, at the election of the Company after it consummates a material acquisition, a four-quarter temporary increase to 3.50 to1.00), and a minimum consolidated interest coverage ratio of EBITDA to total interest expense of at least 3.00 to 1.00, during the terms of the New Credit Facility and Private Placement Debt.



At June 3, 2017, the Company was in compliance with the operating and financial covenants of the New Credit Facility and Private Placement Debt.



Capital Lease and Financing Obligations



In connection with the construction of the Company’s customer fulfillment center in Columbus, Ohio, 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 June 3, 2017 and September 3, 2016, the capital lease obligation was approximately $27,025. 



Note 6. Shareholders’ Equity



The Company paid cash dividends of  $1.35 per common share totaling $76,632 for the thirty-nine weeks ended June 3, 2017. For the thirty-nine weeks ended May 28, 2016, the Company paid cash dividends of $1.29 per common share

15


 

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

(Dollar amounts and shares in thousands, except per share data)

(Unaudited)

totaling $79,351. On July 7, 2017, the Board of Directors declared a quarterly cash dividend of $0.45 per share payable on August 1, 2017  to shareholders of record at the close of business on July 18, 2017. The dividend will result in a payout of approximately $25,629, based on the number of shares outstanding at June 30, 2017.



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 such amounts as 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 June 3, 2017, the Company repurchased 42 shares of its Class A common stock for $3,080, which is reflected at cost as treasury stock in the accompanying condensed consolidated financial statements. All of these shares were repurchased by the Company to satisfy the Company’s associates’ tax withholding liability associated with its share-based compensation program.



Note 7. 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 thirteen and thirty-nine week periods ended June 3, 2017 and May 28, 2016 was minimal.



Note 8. Income Taxes

 

During the thirty-nine week period ended June 3, 2017, there were no material changes in unrecognized tax benefits. 



Note 9. 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.

16


 

 





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 September 3, 2016 and presumes that readers have access to, and will have read, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in such Annual Report on Form 10-K.



Overview



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



Our experienced team of over 6,000 associates works with our customers to help drive results for their businesses, from keeping operations running efficiently today to continuously rethinking, retooling, and optimizing for a more productive tomorrow. We offer approximately 1,545,000 active, saleable stock-keeping units (“SKUs”) through our catalogs; brochures; eCommerce channels, including our website, mscdirect.com (“MSC website”); our inventory management solutions; and call-centers and branches. We service our customers from 12 customer fulfillment centers (eight customer fulfillment centers are located within the United States which includes five primary customer fulfillment centers, one is located in the United Kingdom (the “U.K.”), and three are located in Canada) and 84 branch offices. Many of our products are carried in stock, and orders for these in-stock products are typically fulfilled the day on which the order is received.