MSC INDUSTRIAL DIRECT CO INC (Form: 10-Q, Received: 01/08/2015 14:25:15)

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 November 29, 2014
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, 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 ☐ (Do not check if a smaller reporting company)	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 January 2 , 201 5 , 48,576,499 shares of Class A common stock and 13,295,747 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 3 0 , 201 4 . 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:

risks associated with the integration of acquired businesses;

risk of delays in 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 and the risk s 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 electronics break-ins and cyber-attacks ;

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; and

disclosing our use of “conflict minerals” in certain of the products we distribute could raise r eputational and other risks.

MSC INDUSTRIAL DIRECT CO., INC.

INDEX


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of November 29, 2014 and August 3 0 , 201 4	4
	Condensed Consolidated Statements of Income for the Thirteen Weeks Ended November 29, 2014 and November 30, 2013	5
	Condensed Consolidated Statements of Comprehensive Income for the Thirteen Weeks Ended November 29, 2014 and November 30, 2013	6
	Condensed Consolidated Statement of Shareholders’ Equity for the T hirteen Weeks Ended November 29 , 2014	7
	Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks Ended November 29, 2014 and November 30, 2013	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	24
Item 6.	Exhibits	24
SIGNATURES		25

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Balance Sheets

(In thousands, except share data)



	November 29,		August 30,
	2014		2014
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	46,704	$	47,154
Accounts receivable, net of allowance for doubtful accounts of $8,998 and $9,310 , respectively		391,432		382,784
Inventories		493,658		449,814
Prepaid expenses and other current assets		45,163		40,410
Deferred income taxes		41,253		41,253
Total current assets		1,018,210		961,415
Property, plant and equipment, net		293,232		294,348
Goodwill		627,869		629,335
Identifiable intangibles, net		133,578		138,314
Other assets		35,351		37,335
Total assets	$	2,108,240	$	2,060,747
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Revolving credit note	$	235,000	$	70,000
Current maturities of long-term debt		26,812		26,829
Accounts payable		130,558		116,283
Accrued liabilities		116,936		96,052
Total current liabilities		509,306		309,164
Long-term debt, net of current maturities		233,765		240,235
Deferred income taxes and tax uncertainties		112,785		112,785
Total liabilities		855,856		662,184
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; 56,193,479 and 55,980,199 shares issued, respectively		56		56
Class B common stock (ten votes per share); $0.001 par value; 50,000,000 shares authorized; 13,295,747 and 13,295,747 shares issued and outstanding , respectively		13		13
Additional paid-in capital		587,985		573,730
Retained earnings		1,132,681		1,286,068
Accumulated other comprehensive loss		(9,002)		(5,054)
Class A treasury stock, at cost, 7,688,453 and 7,657,386 shares, respectively		(459,349)		(456,250)
Total shareholders’ equity		1,252,384		1,398,563
Total liabilities and shareholders’ equity	$	2,108,240	$	2,060,747

See accompanying notes to condensed consolidated financial statements.

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

( Unaudited)



	Thirteen Weeks Ended
	November 29,		November 30,
	2014		2013
Net sales	$	731,091	$	678,510
Cost of goods sold		400,942		363,655
Gross profit		330,149		314,855
Operating expenses		236,178		218,105
Income from operations		93,971		96,750
Other (expense) income:
Interest expense		(944)		(847)
Interest income		5		5
Other income (expense), net		177		(212)
Total other expense		(762)		(1,054)
Income before provision for income taxes		93,209		95,696
Provision for income taxes		35,792		36,650
Net income	$	57,417	$	59,046
Per share information:
Net income per common share:
Basic	$	0.92	$	0.93
Diluted	$	0.91	$	0.93
Weighted average shares used in computing net income per common share:
Basic		61,246		62,773
Diluted		61,542		63,078
Cash dividend declared per common share	$	3.40	$	0.33

See accompanying notes to condensed consolidated financial statements.

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statement s of Comprehensive Income

(In thousands)

( Unaudited)



	Thirteen Weeks Ended
	November 29,		November 30,
	2014		2013
Net income, as reported	$	57,417	$	59,046
Foreign currency translation adjustments		(3,948)		623
Comprehensive income	$	53,469	$	59,669

See accompanying notes to condensed consolidated financial statements.

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statement of Shareholders’ Equity

Thirteen Weeks Ended November 29, 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 30, 2014	55,980	$	56	13,296	$	13	$	573,730	$	1,286,068	$	(5,054)	7,657	$	(456,250)	$	1,398,563
Exercise of common stock options, including income tax benefits of $1,704	100		—	—		—		8,085		—		—	—		—		8,085
Common stock issued under associate stock purchase plan	—		—	—		—		451		—		—	(13)		491		942
Issuance of restricted common stock, net of cancellations	113		—	—		—		—		—		—	—		—		—
Stock-based compensation	—		—	—		—		5,039		—		—	—		—		5,039
Purchase of treasury stock	—		—	—		—		—		—		—	44		(3,590)		(3,590)
Cash dividends paid on Class A common stock	—		—	—		—		—		(164,918)		—	—		—		(164,918)
Cash dividends paid on Class B common stock	—		—	—		—		—		(45,206)		—	—		—		(45,206)
Issuance of dividend equivalent units	—		—	—		—		680		(680)		—	—		—		—
Foreign currency translation adjustment	—		—	—		—		—		—		(3,948)	—		—		(3,948)
Net income	—		—	—		—		—		57,417		—	—		—		57,417
Balance at November 29, 2014	56,193	$	56	13,296	$	13	$	587,985	$	1,132,681	$	(9,002)	7,688	$	(459,349)	$	1,252,384

See accompanying notes to condensed consolidated financial statements.

MSC INDUSTRIAL DIRECT CO., INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



	Thirteen Weeks Ended
	November 29,		November 30,
	2014		2013
Cash Flows from Operating Activities:
Net income	$	57,417	$	59,046
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		17,012		16,061
Stock-based compensation		5,039		4,232
Loss on disposal of property, plant, and equipment		230		65
Provision for doubtful accounts		480		1,118
Excess tax benefits from stock-based compensation		(1,791)		(4,012)
Changes in operating assets and liabilities, net of amounts associated with business acquired:
Accounts receivable		(10,137)		(3,831)
Inventories		(44,790)		3,185
Prepaid expenses and other current assets		(4,797)		3,195
Other assets		72		(285)
Accounts payable and accrued liabilities		39,017		25,606
Total adjustments		335		45,334
Net cash provided by operating activities		57,752		104,380
Cash Flows from Investing Activities:
Expenditures for property, plant and equipment		(13,358)		(12,506)
Investment in available for sale securities		—		(20,366)
Cash used in business acquisitions, net of cash received		—		1,434
Net cash used in investing activities		(13,358)		(31,438)
Cash Flows from Financing Activities:
Purchases of treasury stock		(3,590)		(114,996)
Payments of regular cash dividends		(24,563)		(20,915)
Payment of special cash dividend		(184,218)		—
Payments on capital lease and financing obligations		(767)		(321)
Excess tax benefits from stock-based compensation		1,791		4,012
Proceeds from sale of Class A common stock in connection with associate stock purchase plan		942		813
Proceeds from exercise of Class A common stock options		6,381		4,058
Borrowings under financing obligations		530		—
Borrowings under Credit Facility		235,000		50,000
Payment of notes payable and revolving credit note under the Credit Facility		(76,250)		(3,125)
Net cash used in financing activities		(44,744)		(80,474)
Effect of foreign exchange rate changes on cash and cash equivalents		(100)		86
Net decrease in cash and cash equivalents		(450)		(7,446)
Cash and cash equivalents—beginning of period		47,154		55,876
Cash and cash equivalents—end of period	$	46,704	$	48,430
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes	$	5,523	$	3,999
Cash paid for interest	$	837	$	751

See accompanying notes to condensed consolidated financial statements.

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 week period ended November 29 , 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending August 29 , 201 5 . 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 3 0 , 201 4 .

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 201 5 fiscal year will be a 5 2 -week accounting period that will end on August 29 , 201 5 and its 201 4 fiscal year was a 5 2 -week accounting period that ended on August 3 0, 2014 .

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.



	Thirteen Weeks Ended
	November 29,		November 30,
	2014		2013

Net income as reported	$	57,417	$	59,046
Less: Distributed net income available to participating securities		(1,238)		(132)
Less: Undistributed net income available to participating securities		—		(293)
Numerator for basic net income per share:
Undistributed and distributed net income available to common shareholders	$	56,179	$	58,621
Add: Undistributed net income allocated to participating securities		—		293
Less: Undistributed net income reallocated to participating securities		—		(292)

Numerator for diluted net income per share:
Undistributed and distributed net income available to common shareholders	$	56,179	$	58,622

Denominator:
Weighted average shares outstanding for basic net income per share		61,246		62,773
Effect of dilutive securities		296		305
Weighted average shares outstanding for diluted net income per share		61,542		63,078

Net income per share Two-class method:
Basic	$	0.92	$	0.93
Diluted	$	0.91	$	0.93

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

There were no a ntidilutive stock options included in the computation of diluted earnings per share for the thirteen week period ended November 29, 2014. Antidilutive stock options of 399 were not included in the computation of diluted earnings per share for the thirteen week period ended November 30, 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, 732 and $1, 455 for the thirteen week periods ended November 29, 2014 and November 30, 2013 , respectively. Tax benefits related to these expenses for the thirteen week periods ended November 29, 2014 and November 30, 2013 were $ 627 and $ 526 , 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:



		Thirteen Weeks Ended
		November 29,			November 30,
		2014			2013
Expected life (in years)		3.9			3.9
Risk-free interest rate		1.09	%		0.93	%
Expected volatility		24.49	%		26.59	%
Expected dividend yield		1.70	%		1.70	%
Weighted-average grant-date fair value	$	14.06		$	14.98

A summary of the Company’s stock option activity for the t hirteen week period ended November 29 , 2014 is as follows:



	Options	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on August 30, 2014	1,186	$	68.24
Granted	421		83.02
Exercised	(100)		63.76
Canceled/Forfeited	—		—
Outstanding on November 29, 2014	1,507	$	72.67	5.16	$	11,258
Exercisable on November 29, 2014	619	$	63.11	3.86	$	9,423

The unrecognized share ‑based compensation cost related to stock option expense at November 29, 2014 was $ 11,925 and will be recognized over a weighted average period of 2.0 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 thirteen week periods ended November 29, 2014 and November 30, 2013 were $ 1,980 and $ 2,378 , respectively.

A summary of the non ‑vested restricted share award activity under the Company’s 2005 Omnibus Incentive Plan (the “Plan”) for the thirteen weeks ended November 29 , 2014 is as follows:

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 August 30, 2014	428	$	68.67
Granted	115		83.02
Vested	(117)		58.30
Canceled/Forfeited	(2)		76.28
Non-vested restricted share awards at November 29, 2014	424	$	75.50

Stock ‑based compensation expense recognized for the restricted share awards was $ 2,767 and $ 2,238 for the thirteen week periods ended November 29, 2014 and November 30, 2013 , respectively . The unrecognized compensation cost related to restricted share awards granted under the Plan at November 29, 2014 was $ 21,674 and will be recognized over a weighted average period of 2. 6 years.

A summary of the Company’s non-vested restricted stock unit award activity including dividend equivalent units for the thirteen weeks ended November 29, 2014 is as follows:



	Shares		Weighted- Average Grant- Date Fair Value
Non-vested restricted stock unit awards at August 30, 2014	199	$	55.80
Granted	10		78.72
Vested	—		—
Canceled/Forfeited	—		—
Non-vested restricted stock unit awards at November 29, 2014	209	$	56.85

Stock ‑based compensation expense recognized for the restricted stock units was $ 54 0 and $5 3 9 for the thirteen week periods ended November 29, 2014 and November 30, 2013 , respectively . The unrecognized compensation cost related to the restricted stock units at November 29, 2014 was $ 1,354 and is expected to be recognized over a period of 2.0 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 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 improvements of the Company’s customer fulfillment center. The taxable bonds were approximately $27,023 at November 29, 2014 and August 30, 2014, 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

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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 thirteen week period ended November 29, 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 November 29, 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 November 29, 2014 and August 30, 2014 due to the short-term maturity of these items.

During the thirteen weeks ended November 29, 2014 and November 30 , 201 3 , 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

Credit Facility

On April 22, 2013, in connection with the acquisition of the Class C Solutions Group, the Company entered into a $650,000 credit f acility (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 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.

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 November 29 , 2014 was 1.16 % , 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, amortization and stock based compensation ) of no more than 3.00 to 1.00, and a minimum consolidated interest coverage

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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.

During the thirteen week period ended November 29 , 2014, the Company borrowed $235 ,000 under the revolving loan facility and repaid $70 ,000 and $6,250 of the revolving loan facility and the term loan facility , respectively .

As of November 29 , 2014, there were $ 231,250 and $ 235 ,000 of borrowings outstanding under the term loan facility and the revolving credit facility, respectively, of the Credit Facility, of which $ 260,000 represents current maturities. As of August 30, 2014, there were $237,500 and $70,000 of borrowings outstanding under the term loan facility and the revolving credit facility, respectively, of the Credit Facility, of which $95,000 represents current maturities. At November 29, 2014 and August 3 0 , 201 4 , 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 November 29, 2014 and August 30, 2014 , the capital lease obligation was approximately $ 27,023 .

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 thirteen week period ended November 29 , 2014, the Company entered into a financing obligation for certain information technology equipment totaling $ 530 . During the fiscal year ended August 3 0 , 201 4 , the Company entered into various financing obligations for certain information technology equipment totaling $ 1,353 .

The amount due under all capital leases and financing arrangements at November 29, 2014 was approximately $ 2 9,327 , of which $ 1, 812 represents current maturities and at August 30, 2014 was approximately $ 29,564 , of which $ 1,829 represents current maturities. The gross amount of property and equipment acquired under these capital leases and financing agreements at November 29, 2014 and Augus t 30 , 2014 was approximately $34,035 and $33,505 respectively. Related accu mul ated amortization totaled $4,067 and $3,339 as of November 29, 2014 and August 30, 2014, respectively.

Note 6 . Shareholders’ Equity

The Company paid cash dividends of $ 208,781 for the thirteen weeks ended November 29 , 2014 which consisted of a special and regular cash dividend of approximately $184,218 and $24,563 , respectively . In addition, the Company recorded a dividend payable of $1,343 for dividends declared and not yet paid as of November 29, 2014. For the thirteen weeks ended November 30 , 2013, the Company paid cash dividends of $20,915 . On December 17 , 2014 , the Board of Directors declared a quarterly cash dividend of $0. 40 per share payable on January 27 , 201 5 to shareholders of record at the close of business on January 13 , 201 5 . The dividend will result in a payout of approximately $ 24,749 , based on the number of shares outstanding at January 2 , 201 5 .

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 thirteen week period ended November 29 , 2014, the Company repurchased 44 shares of its Class A common stock for $81.73 , which is reflected at cost as treasury stock in the accompanying condensed consolidated financial statements. 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 November 29 , 2014, the maximum number of shares that may yet be repurchased under the Repurchase Plan was 2,075 shares.

MSC INDUSTRIAL DIRECT CO., INC.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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 week period s ended November 29 , 2014 and November 30 , 2013 was minimal.

Note 8 . Income Taxes

During the thirteen week period ended November 29 , 2014 , 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.

Note 1 0 . 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. This guidance permits the use of one of two retrospective transition methods. The Company has neither selected a transition method, nor determined the impact that the adoption of the pronouncement may have on its consolidated financial statements .

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 Company has not yet determined the impact the adoption of this proposed standard, as currently drafted, will have on its consolidated financial statements. As of November 29, 2014, the Company leases all of its branch offices and certain of its customer fulfillment centers and office space.

Uncertainties about an Entity’s Ability to Continue as a Going Concern

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This guidance is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU No. 2014-15 provides guidance to an organization's management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in footnote disclosures. This guidance is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter, with early application permitted. The Company does not anticipate that the adoption of the guidance will have any impact on its financial position, results of operations or cash flows.

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 3 0 , 201 4 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.

General

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 , generate new customers, increase sales to existing customers , and diversify our customer base.

We offer approximately 880,000 stock-keeping units (“SKUs”) through our master catalogs; weekly, monthly and quarterly specialty and promotional catalogs; brochures; and the Internet, including our websites, mscdirect.com, and use-enco.com (the “MSC Websites”). We service our customers from 12 customer fulfillment centers and 102 branch offices. We employ one of the industry’s largest sales forces. Many of our products are carried in stock, and orders for these in-stock products are typically fulfilled the day on which the order is received. We offer a nationwide cutoff time of 8:00 P.M., Eastern Time on qualifying orders (excluding our CCSG business) 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.

Overview

Net sales increased by 7.7% (7.8% on an average daily sales basis) for the thirteen week period ended November 29 , 2014, as compared to the same period in the prior fi scal year . We have invested in our business by increasing our sales force and making various productivity and infrastructure investments. Additionally, by increasing our investment s in vending solutions and electronic procurement tools , we have strengthened our strategic position with our customers. 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.

We also continue to focus on expanding our Large Account Customer business, which consists of our national account customers and government accounts, and continue to be an important component of our overall customer mix, revenue base, and planned business expansion. Servicing our Large Account Customer business is more complex as we look to provide customer specific solutions as our Larger Account Customers continue to focus on ways to drive costs out of their businesses. By expanding this business, which involves customers with multiple locations and high volume MRO needs, we have diversified our customer base beyond small and mid- sized customers. Sales to our government accou nts represented approximately 9 % of our total sales during the thirteen week period ended November 29, 2014 compared to 8% for the thirteen week period ended November 30, 2013. In addition, we plan to increase the number of sales associates in existing markets and new markets. However, we will manage the timing of sales force increases based on the economic conditions at the time.

The Institute for Supply Management (“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. In addition to this key manufacturing metric , we also utilize metalworking related indices. A substantial portion of our revenues came from sales in the manufacturing sector during the first quarter of fiscal 2015, 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 evidenced an expanding manufacturing sector environment throughout most of our fiscal year 2014 and this trend has continued into fiscal year 2015. The ISM index was 55.5% for the month of December 2014 and averaged 55.8% 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, and employment are growing, while inventories are contracting and supplier deliveries have slowed from the previous month. The p rices i nd ex also declined, continuing its trend of lower raw material prices in December. 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.

Our gross profit margin was 45.2% for the thirteen week period ended November 29, 2014, as compared to 46.4% for the same period in the prior fiscal year. The decrease was primarily a result of increases in product costs, changes in customer and product mix and lower gross margins from our vending programs.

Operating expenses increased 8.3% or $18.1 million for the thirteen week period ended November 29, 2014, as compared to the same period in the prior fiscal year . The increase is primarily the result of increased payroll costs, increased freight costs and increased advertising costs to support our increased revenues. In addition, executive separation costs are included in the thirteen week period ended November 29, 2014 . This increase was partially offset by decreases in non-recurring integration costs and restructuring charges associated with the CCSG acquisition , decreases in relocation expenses associated with the establishment of our co-located headquarters in Davidson, North Carolina and by a decrease in incentive compensation accruals.

We expect operating costs to continue to increase throug hout the remainder of fiscal year 201 5 as compared to fiscal year 201 4 due to increased operating costs associated with the establishment of our new customer fulfillment center in Columbus, Ohio , increased compensation expenses and fringe benefits costs, and increased costs associated with executing on our vending and other investment programs. 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.

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.

Results of Operations

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




	Thirteen Weeks Ended
	November 29, 2014			November 30, 2013			Change

		$	%		$	%		$	%
Net sales	$	731,091	100.0%	$	678,510	100.0%	$	52,581	7.7%
Cost of goods sold		400,942	54.8%		363,655	53.6%		37,287	10.3%
Gross profit		330,149	45.2%		314,855	46.4%		15,294	4.9%
Operating expenses		236,178	32.3%		218,105	32.1%		18,073	8.3%
Income from operations		93,971	12.9%		96,750	14.3%		(2,779)	(2.9)%
Total other expense		(762)	(0.1)%		(1,054)	(0.2)%		292	(27.7)%
Income before provision for income taxes		93,209	12.7%		95,696	14.1%		(2,487)	(2.6)%
Provision for income taxes		35,792	4.9%		36,650	5.4%		(858)	(2.3)%
Net income	$	57,417	7.9%	$	59,046	8.7%	$	(1,629)	(2.8)%

Net Sales

Net sales increased 7.7% (7.8% on an average daily sales basis), or approximately $52.6 million, for the thirteen week period ended November 29, 2014. We estimate that this $52.6 million increase in net sales is comprised of approximately $58.7 million of higher sales volume, reduced by approximately $6. 1 million from net pricing decreases ,

which includes changes in customer and product mix, discounting and other items . Of the above $52.6 million increase in net sales, our Large Account Customers increased by approximately $37.2 million and there was an increase in our remaining business of approximately $15.4 million.

The table below shows the change in our fiscal quarterly average daily sales by total company and by customer type from the same period in the prior fiscal year:



Average Daily Sales Percentage Change
(unaudited)

2015 vs. 2014 Fiscal Period	Thirteen Week Period Ended Fiscal Q1

Total Company	7.8	%
Manufacturing Customers	4.8	%
Non-Manufacturing Customers	15.6	%

Excluding U.K. operations, our manufacturing customers currently represent approximately 70% of our business and our non-manufacturing customers currently represent approximately 30% of our business.

Exclusive of customers in the U.K., average order size increased to approximately $415 for the first quarter of fiscal 2015 as compared to $40 6 in the first quarter of fiscal 201 4 .

We believe that our ability to transact business with our customers through various electronic portals and directly through the MSC Websites gives us a competitive advantage over smaller suppliers. Sales made through our eCommerce platforms, include sales made through Electronic Data Interchange systems, VMI systems, Extensible Markup Language ordering based systems, vending machine systems, hosted systems and other electronic portals, were $398. 7 million for the thirteen week period ended November 29, 2014, representing 54. 5 % of consolidated net sales, compared to $345.4 million for the same period in the prior fiscal year, representing 50.9% of consolidated net sales.

We grew our field sales associate headcount to 1,951 at November 29, 2014, an increase of approximately 7.3% from field sales associates of 1,818 at November 30, 2013. We plan to continue to increase our field sales associate headcount through fiscal 2015. We will continue to manage the timing of our sales force expansion based on economic conditions and our selected mix of growth investments.

Customers continue to drive more of their fulfillment needs electronically. To support this trend, we believe that increasing the breadth and depth of our online product offering and removing non-value-added SKUs is critical to our continued success. In addition, we are focused on providing our customers with new product alternatives that will help them achieve their cost savings objectives while meeting their demands for higher quality products. In the first quarter of fiscal 2015, we added approximately 30,000 SKUs to our searchable database on www.mscdirect.com , bringing the total to 880,000. This increase in SKUs translated to our full ordering database, bringing MSC’s total, active, saleable SKU count to approximately 1,230,000. We expect this SKU expansion plan driven by our eCommerce strategy to continue throughout fiscal 2015.

The most recent MSC catalog issued in September 2014 merchandises approximately 505,000 core metalworking and MRO products, which are included in the SKU totals above. Approximately 16% of these SKUs are MSC exclusive brands. We have also begun to leverage the depth and breadth of MSC’s product portfolio within our CCSG sales channel and have extended full access of MSC catalog SKUs to the CCSG sales team.

Gross Profit

Gross profit margin was 45.2% for the thirteen week period ended November 29, 2014 as compared to 46.4% for the comparable period in the prior fiscal year . The decline in gross profit margin was primarily a result of changes in customer and product mix, lower gross margins from our vending programs and increases in product costs, partially offset by price increases which continue to be constrained as a result of low commodity inflation.

Operating Expenses

Operating expenses increased 8.3% to $236.2 million for the thirteen week period ended November 29 , 2014, as compared to $218.1 million for the same period in the prior fiscal year . The increase is primarily the result of increased payroll costs, increased freight costs, and increased advertising costs related to higher sales volume . In addition, approximately $2.7 million of executive separation cost s is included in operating expenses for the thirteen week period ended November 29, 2014. This increase was partially offset by decreases in non-recurring integration costs and restructuring charges associated with the CCSG acquisition , decreases in relocation expenses associated with the establishment of our co-located headquarters in Davidson, North Carolina and a decrease in incentive compensation accruals.

Operating expenses represented approximately 32.3% of net sales for the thirteen week period ended November 29 , 2014, a s compared to approximately 32.1% for the thirteen week period ended November 30 , 2013, respectively. This increase is primarily the result of the major changes in operating expenses described above.

Payroll and payroll related cost s represented approximately 51.9% of total operating expenses for the thirteen week period ended November 29 , 2014, a s compared to approximately 54.1% for the thirteen week period ended November 30 , 2013, respectively. Included in these costs are salary, incentive compensation, and sales commission. These costs increased for the thirteen week period ended November 29 , 2014, as compared to the same period in the prior fiscal year, primarily due to an increase in salaries as a result of an increase in our staffing levels primarily related to sales associates, other program development and volume related positions to support our growth initiatives as well as significant investments in vending progra ms. This increase was partially offset by a decrease in incentive compensation accruals. Payroll and payroll related costs decreased as a percentage of operating expenses for the thirteen week period ended November 29 , 2014 as compared to the same period in the prior fiscal year as a result of increased other operating expenses due to the factors discussed above.

Freight expense was approximately $32.6 million for the thirteen week period ended November 29, 2014, as compared to approximately $28.5 million for the thirteen week period ended November 30, 2013, respectively. The primary driver of this increase was increased sales.

Income from Operations

I ncome from operations decreased 2.9% to $94.0 million for the thirteen week period ended November 29 , 2014, as compared to $96.8 million for the sam e period in the prior fiscal year. This decrease was primarily attributable to the increase in operating expenses described above, offset in part by an increase in gross profit described above. Income from operations as a percentage of net sales also decreased to 12.9% for the thirteen week period ended November 29, 2014 , as compared to 14.3% for the sam e period in the prior fiscal year due to decreases in gross profit margin as discussed above .

Provision for Income Taxes

The effective tax rate for the thirteen week period ended November 29 , 2014 was 38.40%, as compared to 38.30% for the sam e period in the prior fiscal year .

Net Income

The factors which affected net income for the thirteen week period ended November 29 , 2014, as compared to the same period in the previous fiscal year, have been discussed above.

Liquidity and Capital Resources

As of November 29, 2014, we held $46.7 million in cash and cash equivalent funds. We maintain a substantial portion of our cash, and invest our cash equivalents, with well-known financial institutions. Historically, our primary capital needs have been to fund our working capital requirements necessitated by our sales growth, the costs of acquisitions, adding new products, new facilities, facilities expansions, investments in vending solutions, technology investments, and

productivity investments. Cash generated from operations, together with borrowings under credit facilities, have been used to fund these needs, to repurchase shares of our Class A common stock, and to pay dividends. At November 29, 2014 , total borrowings outstanding, representing amounts due under the Credit Facility (discussed below) and all capital leases and financing arrange ments, were approximately $495.6 million. At August 3 0 , 201 4 , total borrowings outstanding, representing amounts due under the Credit Facility and all capital leases and financing arrangements, were approximately $ 337.1 million.

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


	Thirteen Weeks Ended
	November 29,		November 30,
	2014		2013

	(Amounts in thousands)
Net cash provided by operating activities	$	57,752	$	104,380
Net cash used in investing activities	$	(13,358)	$	(31,438)
Net cash used in financing activities	$	(44,744)	$	(80,474)
Effect of foreign exchange rate changes on cash and cash equivalents	$	(100)	$	86
Net decrease in cash and cash equivalents	$	(450)	$	(7,446)

The major component contributing to the source of cash for the thirteen week period ended November 29, 2014 was borrowings of $235.0 million under the revolving loan facility, partially offset by repayments on the Credit Facility of $76.3 million related to both the revolving credit note and term loan. The major component of the use of cash for the thirteen week period ended November 29, 2014 was cash dividends paid of $208.8 million to shareholders of record, which consisted of the regular quarterly cash dividend of $0.40 per share and a special cash dividend of $3.00 per share approved by our Board of Directors on October 27, 2014 . On December 17 , 2014 , the Board of Directors declared a quarterly cash dividend of $0. 40 per share payable on January 27 , 201 5 to shareholders of record at the close of business on January 13 , 201 5. The dividend will result in a payout of approximately $ 24.7 million, based on the number of shares outstanding at January 2, 2015.

As a distributor, our use of capital is largely for working capital to support our revenue base. Capital commitments for property, plant and equipment generally are limited to information technology assets, warehouse equipment, office furniture and fixtures, building and leasehold improvements, construction and expansion, and vending machines. Therefore, the amount of cash consumed or generated by operations other than from net earnings will primarily be due to changes in working capital as a result of the rate of increases or decreases in sales. In periods when sales are increasing, as in our first quarter of fiscal 201 5 , the expanded working capital needs are funded primarily by cash from operations. In addition to our working capital needs, for the first three months in fiscal 201 5 , we paid $208.8 million to shareholders in the form of cash dividends.

Operating Activities

Net cash provided by operating activities for the thirteen week periods ended November 29, 2014 and November 30, 2013 was $57.8 million and $104.4 million, respectively. There are various increases and decreases contributing to this change. An increase in inventories related to increased sales contributed to the majority of the decrease in net cash provided by operating activities. This change was offset in part by increases in the change in accounts payable and accrued liabilities.


	November 29,		August 30,		November 30,
	2014		2014		2013

	(Dollars in thousands)
Working Capital	$	508,904	$	652,251	$	591,725
Current Ratio		2.0		3.1		3.0

Working capital was $508.9 million , $652.3 million , and $591.7 million , at November 29, 2014, August 30, 2014 and November 30, 2013, respectively . At these dates, the ratio of current asset s to current liabilities was 2.0, 3.1 , and 3.0, respectively . The decrease in working capital and the current ratio at November 29, 2014 compared to August 30, 2014 and

November 30, 2013, is primarily related to the additional borrowings under the revolving loan facility in fiscal 2015, partially offset by an increase in inventories.

Investing Activities

Net cash used in investing activities for the thirteen week periods ended November 29, 2014 and November 30, 2013 was $13.4 million and $31.4 million, respectively. The decrease in net cash used in investing activities resulted primarily from cash used of approximately $20.4 million for investment in available for sale securities during the thirteen week period ended November 30, 2013, relating to the Columbus-Franklin County Finance Authority arrangement.

Financing Activities

Net cash used in financing activities for the thirteen week periods ended November 29, 2014 and November 30, 2013 was $44.7 million and $80.5 million, respectively. The major components contributing to the use of cash for the thirteen week period ended November 29, 2014 were cash dividends paid of $208.8 million, and repayments on the Credit Facility of $76.3 million related to both the revolving credit note and term loan. This was partially offset by borrowings under the revolving loan facility in the amount of $235.0 million. The major components contributing to the use of cash for the thirteen week period ended November 30, 2013 were the repurchase of shares of Class A common stock of $115.0 million and cash dividends paid of $20.9 million, partially offset by borrowings under the Credit Facility in the amount of $50.0 million.

Long-term Debt and Credit Facilities

On April 22, 2013, in connection with the acquisition of CCSG , we ent ered into a $650.0 million credit f acility (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 $400.0 million and a five-year unsecured term loan facility in the aggregate amount of $250.0 million.

The Credit Facility also permits us, at our 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 $200.0 million. Subject to certain limitations, each such incremental term loan facility or revolving commitment increase will be on terms as agreed to by us, the Administrative Agent and the lenders providing such financing.

Borrowings under the Credit Facility bear interest, at our 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 our 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 our consolidated leverage ratio. Based on the interest period we select, interest may be payable every one, two, three or six months. Interest is reset at the end of each interest period. We currently elect to have loans under the Credit Facility bear interest based on LIBOR with one-month interest periods.

We are 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 our consolidated leverage ratio. We are also required to pay quarterly letter of credit usage fees ranging between 1.00% to 1.375% (based on our 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.

During the thirteen week period ended November 29, 2014 , we borrowed $235 .0 million under the revo lving loan facility and repaid $70.0 million of the revolving loan balance . As of November 29, 2014, there were $231.3 million and $235.0 million of borrowings outstanding under the term loan facility and the revolving credit facili ty, respectively, of which $260.0 million represents current maturities. As of August 3 0 , 201 4 , there were $237.5 million and $70.0 million of

borrowings outstanding under the term loan facility and the revolving credit facility, respectively, of which $95.0 million represents current maturities.

At November 29, 2014 , we were in compliance with the operating and financial covenants of the Credit Facili ty. The current balance of $165.0 million of the revolving loan facility is available for working capital purposes, if necessary.

Infrastructure Investments

In connection with our new customer fulfillment center in Columbus, Ohio, we spent approximately $ 1.5 million in fiscal 2015 and $49.9 million in fiscal 2014 for the purchase of the land and costs to construct and outfit the facility. We have completed construction and began operations on September 30, 2014.

We believe, based on our current business plan, that our existing cash, cash equivalents, funds available under our revolving credit facility, and cash flow from operations will be sufficient to fund our planned capital expenditures and operating cash requirements fo r at least the next 12 months.

Related Party Transactions

We are affiliated with one real estate entity (the “Affiliate”), which leased property to us as of November 29, 2014 . The Affiliate is owned by our principal shareholders (Mitchell Jacobson, our Chairman, and his sister, Marjorie Gershwind Fiverson, and by their family related trusts). We paid rent under an operating lease to the Affiliate for the thirteen weeks ended November 29, 2014 of approximately $0.6 million, in connection with our occupancy of our Atlanta Customer Fulfillment Center. In the opinion of our management, based on its market research, the lease with the Affiliate is on terms which approximated fair market value when the lease and its amendments were executed.

Contractual Obligations

Capital Lease and Financing Arrangements

In connection with the construction of the Company’s new customer fulfillment center in Columbus, Ohio, the Company entered into a long-term lease with the Columbus-Franklin County Finance Authority. The lease has been classified as a capital lease in accordance with ASC Topic 840. At November 29, 2014 , the capital lease obl igation was approximately $27.0 million.

From time to time, we enter into capital leases and financing arrangements to purchase certain equipment. Excluding the Columbus facility capital lease discussed above, we currently have various capital leases and financing obligations for certain information technology equipment in the amount of $7.0 million, of which $2.3 million remains outstanding at November 29, 2014. Refer to Note 5 to our condensed consolidated financial statements.

Operating Leases

As of November 29, 2014 , certain of our operations are conducted on leased premises, of which one location is leased from an Affiliate, as noted above. The lease (which requires us to provide for the payment of real estate taxes and other operating costs) is through 2030. In addition, we are obligated under certain equipment and automobile operating leases, which expire on varying dates through 201 9 .

Off-Balance Sheet Arrangements

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

Critical Accounting Estimates

On an ongoing basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition, inventory valuation, allowance for doubtful accounts, warranty and self-insured group health plan reserves, contingencies and litigation, income taxes, accounting for goodwill and long-lived assets, stock-based compensation, and business combinations. We make estimates, judgments and assumptions in determining the amounts reported in the condensed consolidated financial statements and accompanying notes. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The estimates are used to form the

basis for making judgments about the carrying values of assets and liabilities and the amount of revenues and expenses reported that are not readily apparent from other sources. Actual results may differ from these estimates.

There have been no material changes in the Company’s Critical Accounting Policies, as disclosed in its Annual Report on Form 10-K for the fiscal year ended August 30, 2014 .

Recently Issued Accounting Standards

See Note 10 to the accompanying financial statements.

Item 3 . Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our exposures to market risks since August 30, 2014 . Please refer to the Annual Report on Form 10-K for the fiscal year ended August 30, 2014 for a complete discussion of our exposures to market risks.

Item 4 . Controls and Procedures

Our senior management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act) designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, as well as other key members of our management, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act) durin g the fiscal quarter ended November 29, 2014 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II . OTHER INFORMATION

Item 1 . Legal Proceedings

Item 1A . Risk Factors

In addition to the other information set forth in this Report, consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 3 0 , 201 4 , which could materially affect our business, financial condition or future results. The risks described in the aforementioned report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be not material also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth repurchases by the Company of its outstanding shares of Class A common stock during the thirteen week period ended November 29, 2014 :



Period	Total Number of Shares Purchased(1)	Average Price Paid Per Share(2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
8/31/14-10/1/14	169	$	90.88	—	2,074,643
10/2/14-11/1/14	43,753		81.69	—	2,074,643
11/2/14-11/29/14	—		—	—	2,074,643
Total	43,922	$	81.73	—

(1)

During the thirteen weeks ended November 29, 2014 , 43,922 shares of our common stock were withheld by the Company as payment to satisfy our associates’ tax withholding liability associated with our share-based compensation program and are included in the total number of shares purchased.

(2)

Activity is reported on a trade date basis.

(3)

During fiscal year 1999, the Board of Directors established the MSC Stock Repurchase Plan, which we refer to as the “Repurchase Plan.” The total number of shares of our Class A common stock initially authorized for future repurchase was set at 5,000,000 shares. On January 8, 2008, the Board of Directors reaffirmed and replenished the Repurchase Plan and set the total number of shares of Class A common stock authorized for future repurchase at 7,000,000 shares. On October 21, 2011, the Board of Directors reaffirmed and replenished the Repurchase Plan and set the total number of shares of Class A common stock authorized for future repurchase at 5,000,000 shares. As of November 29 , 2014 , the maximum number of shares that may yet be repurchased under the Repurchase Plan was 2,074,643 shares. There is no expiration date for this program.

Item 3 . Defaults Upon Senior Securities

None.

Item 4 . Mine Safety Disclosures

Not Applicable.

Item 5 . Other Information

None.

Item 6 . Exhibits

Exhibits:


10.1			Summary of Non-Executive Directors’ Compensation*
10.2			MSC Industrial Direct Co., Inc. 2005 Omnibus Incentive Plan, as amended through November 13, 2014.*
10.3			Separation Agreement, dated October 30, 2014 between MSC Industrial Direct Co., Inc. and Thomas Cox (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 31, 2014).
31.1		Chief Executive Officer’s Certificate, pursuant to Section 302 of the Sarbanes ‑Oxley Act of 2002.*
31.2		Chief Financial Officer’s Certificate, pursuant to Section 302 of the Sarbanes ‑Oxley Act of 2002.*
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes ‑Oxley Act of 2002.**
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes ‑Oxley Act of 2002.**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document*
*	Filed herewith.
**	Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MSC Industrial Direct Co., Inc. (Registrant)
Dated: January 8, 2015	By:	/s/ ERIK GERSHWIND President and Chief Executive Officer (Principal Executive Officer)
Dated: January 8, 2015	By:	/s/ JEFFREY KACZKA Executive Vice President and Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX


Exhibit No.	Exhibit
10.1	Summary of Non-Executive Directors’ Compensation.*
10.2	MSC Industrial Direct Co., Inc. 2005 Omnibus Incentive Plan, as amended through November 13, 2014.*
10.3	Separation Agreement, dated October 30, 2014 between MSC Industrial Direct Co., Inc. and Thomas Cox (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 31, 2014).
31.1	Chief Executive Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Chief Financial Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed herewith.

** Furnished herewith.

E XHIBIT 10.1

Summary of Non-Executive Directors’ Compensation

Our non- executiv e directors are entitled to receive the following compensation, with changes effective immediately following the company’s 201 5 annual meeting of shareholders:

an annual retainer of $ 50 ,000 per director for service on our Board;

a fee for attendance at Board meetings of $2,000 per meeting;

a fee for attendance at Board Committee meetings of $1,700 per meeting;

an annual retainer of $ 20 ,000 for the Chairman of the Audit Committee, an annual retainer of $ 10,000 for the Chairman of the Compensation Committee and an annual retainer of $7,500 for the Chairman of the Nominating and Corporate Governance Committee; and

upon each director's (other than Mr. Mitchell Jacobson) election or re-election to our Board at the annual shareholders meeting, a restricted stock award per director consisting of such number of shares having an aggregate fair market value of $115,000 on the date of grant; 50% of these shares vest on the first anniversary of the date of grant and 50% vest on the second anniversary of the date of grant. In lieu of the restricted stock award, Mr. Jacobson receives an annual cash payment of $115,000, paid quarterly in arrears.

Directors’ cash compensation is paid quarterly in arrears. The cash compensation of directors who serve less than a full quarter is pro-rated for the number of days actually served. Directors who are appointed between annual shareholders meetings receive a pro-rated equity award upon appointment to our Board. In addition, we reimburse our non- executiv e directors for reasonable out-of-pocket expenses incurred in connection with attending in-person board or committee meetings and for fees incurred in attending continuing education courses for directors that are approved in advance by the company.

The standing committees of the Board of Directors currently are the Audit, Compensation, and Nominating and Corporate Governance Committees.

E XHIBIT 10.2

MSC INDUSTRIAL DIRECT CO., INC.

2005 OMNIBUS INCENTIVE PLAN

As adopted January 3, 2006 and amended through November 13 , 201 4

1. ESTABLISHMENT AND PURPOSE.

The MSC Industrial Direct Co., Inc. 2005 Omnibus Incentive Plan (the “ Plan ” ) is established by MSC Industrial Direct Co., Inc., a New York corporation (the “ Company “ ), to attract and retain persons eligible to participate in the Plan; motivate Participants to achieve short and long-term Company goals; and further align Participants ’ interests with those of the Company ’ s other stockholders. The Plan is adopted as of November 23, 2005, subject to approval by the Company ’ s stockholders within 12 months after such adoption date. No Awards that are settled in Stock shall be granted hereunder prior to the approval of the Plan by the Company ’ s stockholders. Unless the Plan is discontinued earlier by the Board as provided herein, no Award shall be granted hereunder on or after the date 10 years after the Effective Date. The Plan shall terminate on January 3, 2016 or such earlier time as the Board may determine.

Certain terms used herein are defined as set forth in Section 10.

2. ADMINISTRATION; ELIGIBILITY.

The Plan shall be administered by the Compensation Committee, or such other Committee, appointed by the Board consisting of three (3) or more members of the Board all of whom are intended to be “ non-employee directors ” within the meaning of Section 16 of the Securities Exchange Act of 1934 and the regulations promulgated thereunder and “ outside directors ” within the contemplation of Section 162(m) of the Code; provided, however , that, if at any time no Compensation Committee or other Committee has been appointed or is eligible to act in the circumstances, the Plan shall be administered by the Board. The Plan may be administered by different Committees with respect to different groups of Eligible Individuals. As used herein, the term “ Administrator ” means the Board, the Compensation Committee or any of the Board ’ s other Committees as shall be administering the Plan. A majority of the members of the Compensation Committee, such other Committee or the Board, as applicable, shall constitute a quorum, and all determinations shall be made by a majority of the members thereof.

The Administrator shall have plenary authority to grant Awards pursuant to the terms of the Plan to Eligible Individuals. Participation shall be limited to such persons as are selected by the Administrator. Subject to Section 9(a) of the Plan and Section 409A of the Code , including the rulings, notices and other guidance issued by the Internal Revenue Service interpreting the same (collectively, “Section 409A”) , awards may be granted as alternatives to, in exchange or substitution for, or replacement of, awards outstanding under the Plan or any other plan or arrangement of the Company or a Subsidiary (including a plan or arrangement of a business or entity, all or a portion of which is acquired by the Company or a Subsidiary). The provisions of Awards need not be the same with respect to each Participant.

Among other things, the Administrator shall have the authority, subject to the terms of the Plan:

(a) to select the Eligible Individuals to whom Awards may from time to time be granted;

(b) to determine whether and to what extent Stock Options, Stock Appreciation Rights, Stock Awards , Cash Awards or any combination thereof are to be granted hereunder;

(d) to approve forms of agreement for use under the Plan;

(e) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Award granted hereunder (including, but not limited to, the option price, any vesting restriction or limitation, any performance condition, any vesting acceleration or waiver of forfeiture, and any right of repurchase, right of first refusal or other transfer restriction regarding any Award and the shares of Stock relating thereto, based on such factors or criteria as the Administrator shall determine);

(f) subject to Section 9(a), to modify, amend or adjust the terms and conditions of any Award, at any time or from time to time, including, but not limited to, with respect to (i) performance goals and targets applicable to performance based Awards pursuant to the terms of the Plan and (ii) extension of the post-termination exercisability period of Stock Options;

(g) to determine to what extent and under what circumstances Stock and other amounts payable with respect to an Award shall be deferred;

(h) to determine the Fair Market Value; and

(i) to determine the type and amount of consideration to be received by the Company for any Stock Award issued under Section 6.

The Administrator shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto) and to otherwise supervise the administration of the Plan.

Except to the extent prohibited by applicable law, the Administrator may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to any other person or persons selected by it. Any such allocation or delegation may be revoked by the Administrator at any time. The Administrator may authorize any one or more of their members or any officer of the Company to execute and deliver documents on behalf of the Administrator.

Any determination made by the Administrator or pursuant to delegated authority pursuant to the provisions of the Plan with respect to any Award shall be made in the sole discretion of the Administrator or such delegate at the time of the grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Administrator or any appropriately delegated officer pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Participants.

No member of the Administrator, and no officer of the Company, shall be liable for any action taken or omitted to be taken by such individual or by any other member of the Administrator or officer of the Company in connection with the performance of duties under this Plan, except for such individual ’ s own willful misconduct or as expressly provided by law.

3. STOCK SUBJECT TO PLAN.

Subject to adjustment as provided in this Section 3, the aggregate number of shares of Stock which may be delivered under the Plan shall not exceed 6,200,000 shares.

To the extent any shares of Stock covered by an Award are not delivered to a Participant or beneficiary thereof because the Award expires, is forfeited, lapses without exercise, is canceled or otherwise terminated (including as a result of shares not being earned) , or the shares of Stock are not delivered because the Award is settled in cash or , in the cases of Stock Awards, are used to satisfy the applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan with respect to, and shall be available for, future grants of Awards. Notwithstanding anything to the contrary contained herein, the following shares shall not be added to the shares of Stock authorized for grant under this Section 3 and will not be available for future grants of Awards: (i) shares tendered by a Participant or withheld b y the Company in payment of the exercise price of a Stock Option; (ii) shares tendered by a Participant or withheld by the Company to satisfy any tax withholding obligation with respect to a Stock Option; (iii) shares subject to a Stock Appreciation Right that are not issued

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in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (iv) shares purchase d on the open market with the cash proceeds from the exercise of Stock Options.

Subject to adjustment as provided in this Section 3, the maximum number of shares that may be covered by Stock Options, Stock Appreciation Rights and Stock Awards, in the aggregate, granted to any one Participant during any calendar year shall be 400,000 shares.

In the event of any Company stock dividend, stock split, combination or exchange of shares, recapitalization or other change in the capital structure of the Company, corporate separation or division of the Company (including, but not limited to, a split-up, spin-off, split-off or other distribution to Company stockholders, other than a normal or special cash dividend), sale by the Company of all or a substantial portion of its assets (measured on either a stand-alone or consolidated basis), reorganization, rights offering, partial or complete liquidation, merger or consolidation in which the Company is the surviving corporation, or any other corporate transaction or other event involving the Company and having an effect similar to any of the foregoing, the Administrator shall make such substitution or adjustments in the (a) number and kind of shares that may be delivered under the Plan, (b) additional maximums imposed in the immediately preceding paragraph, (c) number and kind of shares or other property, including cash, subject to outstanding Awards, (d) exercise price of outstanding Stock Options and Stock Appreciation Rights and (e) other characteristics or terms of the Awards , as necessary or appropriate to equitably reflect such corporate transaction or other event and to prevent dilution or enlargement of Participants’ rights under the Plan ; provided, however , that the number of shares subject to any Award shall always be a whole number ; and provided, further, that , with respect to Incentive Stock Options, such adjustment shall be made in accordance with Section 424 of the Code .

In the event of the dissolution or liquidation of the Company, or a merger, reorganization or consolidation in which the Company is not the surviving corporation, then, except as otherwise provided herein and/or in the discretion of the Administrator, each Stock Option, to the extent not theretofore exercised, shall terminate forthwith.

Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3 to the extent that such adjustment would violate Section 409A.

4. STOCK OPTIONS.

Stock Options may be granted alone or in addition to other Awards granted under the Plan and may be of two types: Incentive Stock Options and Non-Qualified Stock Options. Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.

The Administrator shall have the authority to grant any Eligible Individual Incentive Stock Options, Non-Qualified Stock Options or both types of Stock Options. Incentive Stock Options may be granted only to employees of the Company and its subsidiaries (within the meaning of Section 424(f) of the Code). To the extent that any Stock Option is not designated as an Incentive Stock Option or, even if so designated, does not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock Option. Incentive Stock Options may be granted only within 10 years from the date the Plan is adopted, or the date the Plan is approved by the Company ’ s stockholders, whichever is earlier.

Stock Options shall be evidenced by option agreements, each in a form approved by the Administrator. An option agreement shall indicate on its face whether it is intended to be an agreement for an Incentive Stock Option or a Non-Qualified Stock Option. The grant of a Stock Option shall occur as of the date the Administrator determines, subject to FASB Statement 123(R) (now codified as FASB Accounting Standards Codification (ASC) Topic 718 – Stock Compensation ) and guidance thereunder.

Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify the Plan under Section 422 of the Code or, without the consent of the Optionee affected, to disqualify any Incentive Stock Option under Section 422 of the Code.

To the extent that the aggregate Fair Market Value of Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year (under all plans of the Company and its subsidiaries

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within the meaning of Section 424(f) of the Code) exceeds $100,000, such Stock Options shall be treated as Non-Qualified Stock Options.

Stock Options granted under this Section 4 shall be subject to the following terms and conditions and shall contain such additional terms and conditions as the Administrator shall deem desirable:

(a) Exercise Price . The exercise price per share of Stock purchasable under a Stock Option shall be determined by the Administrator at the time of grant; provided, however , that the exercise price per share shall be not less than the Fair Market Value per share on the date the Stock Option is granted, or in the case of an Incentive Stock Option granted to an individual who is a Ten Percent Holder, not less than 110% of such Fair Market Value per share on the date the Stock Option is granted.

(b) Option Term . The term of each Stock Option shall be fixed by the Administrator at the time of grant, but no Incentive Stock Option shall be exercisable more than 10 years (or five years in the case of an individual who is a Ten Percent Holder) after the date the Incentive Stock Option is granted.

(c) Vesting. Except as otherwise provided in the applicable option agreement, an Optionee may not exercise a Stock Option during the period commencing on the date of the grant of such Stock Option to him or her and ending on the day immediately preceding the first anniversary of such date. Except as otherwise provided in the applicable option agreement, an Optionee may (i) during the period commencing on the first anniversary of the date of the grant of a Stock Option to him or her and ending on the day immediately preceding the second anniversary of such date, exercise such Stock Option with respect to one-fourth of the shares granted thereby; (ii) during the period commencing on the second anniversary of the date of such grant and ending on the day immediately preceding the third anniversary of the date of such grant, exercise such Stock Option with respect to one-half of the shares granted thereby; (iii) during the period commencing on the third anniversary of the date of such grant and ending on the day immediately preceding the fourth anniversary of such date, exercise such Stock Option with respect to three-fourths of the shares granted thereby and (iv) during the period commencing on the fourth anniversary of the date of such grant and ending at the time the Stock Option expires pursuant to the terms of the Plan, exercise such Stock Option with respect to all of the shares granted thereby. Notwithstanding the foregoing, except as otherwise determined by the Administrator in connection with the termination of employment of an Optionee, no Stock Option shall be fully vested prior to the third anniversary of the date of grant of such Stock Option, provided that Stock Options granted to non-employee directors of the Company may be fully vested by the second anniversary of the date of grant of such Stock Option.

(d) Exercisability . Except as otherwise provided herein, Stock Options shall be subject to such terms and conditions, performance requirements, restrictions, forfeiture provisions, contingencies and limitations, if any, as shall be determined by the Administrator. If any Stock Option is exercisable only in installments, the Administrator may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Administrator may determine. In addition, the Administrator may at any time, in whole or in part, accelerate the exercisability of any Stock Option. Notwithstanding the foregoing, except as otherwise determined by the Administrator in connection with the termination of employment of an Optionee, no Stock Option shall be fully exercisable prior to the third anniversary of the date of grant of such Stock Option, provided that Stock Options granted to non-employee Directors of the Company may be fully exercisable by the second anniversary of the date of grant of such Stock Option.

(e) Method of Exercise . Stock Options may be exercised, in whole or in part, by giving written notice of exercise to the Company specifying the number of shares of Stock subject to the Stock Option to be purchased.

The option price of any Stock Option shall be paid in full in cash (by certified or bank check or such other instrument as the Company may accept) or, unless otherwise provided in the applicable option agreement, by one or more of the following: (i) in the form of mature shares of unrestricted Stock already owned by the Optionee, based on the Fair Market Value of the Stock on the date the Stock Option is exercised; (ii) by certifying ownership of shares of mature Stock owned by the Optionee to the satisfaction of the Administrator for later delivery to the Company as specified by the Company; (iii) unless otherwise prohibited by law for either the Company or the Optionee, by irrevocably authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Stock Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire exercise price and any tax withholding resulting from such exercise; or (iv) by any combination of cash and/or any one or more of the methods specified in clauses (i), (ii) and

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(iii). Notwithstanding the foregoing, a form of payment shall not be permitted to the extent it would cause the Company to recognize a compensation expense (or additional compensation expense) with respect to the Stock Option for financial reporting purposes.

If payment of the option exercise price of a Non-Qualified Stock Option is made in whole or in part in the form of Restricted Stock, the number of shares of Stock to be received upon such exercise equal to the number of shares of Restricted Stock used for payment of the option exercise price shall be subject to the same forfeiture restrictions to which such Restricted Stock was subject, unless otherwise determined by the Administrator.

No shares of Stock shall be issued upon exercise of a Stock Option until full payment therefor has been made. Upon exercise of a Stock Option (or a portion thereof), the Company shall have a reasonable time to issue the Stock for which the Stock Option has been exercised, and the Optionee shall not be treated as a stockholder for any purposes whatsoever prior to such issuance. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such Stock is recorded as issued and transferred in the Company ’ s official stockholder records, except as otherwise provided herein or in the applicable option agreement.

(f) Transferability of Stock Options . Except as otherwise provided in the applicable option agreement, a Non-Qualified Stock Option (i) shall be transferable by the Optionee to a Family Member of the Optionee, provided that (A) any such transfer shall be by gift with no consideration and (B) no subsequent transfer of such Stock Option shall be permitted other than by will or the laws of descent and distribution, and (ii) shall not otherwise be transferable except by will or the laws of descent and distribution. An Incentive Stock Option shall not be transferable except by will or the laws of descent and distribution. A Stock Option shall be exercisable, during the Optionee ’ s lifetime, only by the Optionee or by the guardian or legal representative of the Optionee, it being understood that the terms “ holder ” and “ Optionee “ include the guardian and legal representative of the Optionee named in the applicable option agreement and any person to whom the Stock Option is transferred (X) pursuant to the first sentence of this Section 4(f) or pursuant to the applicable option agreement or (Y) by will or the laws of descent and distribution. Notwithstanding the foregoing, references herein to the termination of an Optionee ’ s employment or provision of services shall mean the termination of employment or provision of services of the person to whom the Stock Option was originally granted.

(g) Termination by Death . If an Optionee ’ s employment or provision of services terminates by reason of death, any Stock Option held by such Optionee may thereafter be exercised for a period of one year from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is shorter.

(h) Termination by Reason of Disability . If an Optionee ’ s employment or provision of services terminates by reason of Disability, any Stock Option held by such Optionee may thereafter be exercised by the Optionee for a period of one year from the date of such termination of employment or provision of services or until the expiration of the stated term of such Stock Option, whichever period is shorter.

(i) Termination by Reason of Retirement . If an Optionee ’ s employment or provision of services terminates by reason of Retirement, any Stock Option held by such Optionee may thereafter be exercised by the Optionee for a period of one year from the date of such termination of employment or provision of services or until the expiration of the stated term of such Stock Option, whichever period is shorter.

(j) Involuntary Termination Without Cause . I f an Optionee ’ s employment or provision of services terminates involuntarily without Cause, and for reasons other than death, Disability or Retirement, any Stock Option held by such Optionee may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of 30 days from the date of such termination of employment or provision of services or until the expiration of the stated term of such Stock Option, whichever period is shorter, and any Stock Option that is unvested or unexercisable at the date of termination shall thereupon terminate.

(k) Involuntary Termination for Cause. If an Optionee ’ s employment or provision of services terminates involuntarily for Cause vesting of all outstanding Stock Options held by such Optionee shall thereupon terminate and all Stock Options held by such Optionee shall thereupon terminate.

(l) Other Termination. I f an Optionee ’ s employment or provision of services is terminated by the Optionee for any reason other than death, Disability or Retirement, any Stock Option held by such Optionee may thereafter be exercised, to

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the extent it was exercisable at the time of termination, for a period of 30 days from the date of such termination of employment or provision of services or until the expiration of the stated term of such Stock Option, whichever period is shorter, and any Stock Option that is unvested or unexercisable at the date of termination shall thereupon terminate.

(m) Exception to Termination . If the Company or an Affiliate ceases as a result of a transfer of such Optionee from the Company to an Affiliate, or from an Affiliate to the Company, such transfer shall not be a termination of employment or provision of services for purposes of this Plan, unless expressly determined otherwise by the Administrator. A termination of employment or provision of services shall occur for an Optionee who is employed by, or provides services to, an Affiliate of the Company if the Affiliate shall cease to be an Affiliate and the Optionee shall not immediately thereafter be employed by, or provide services to, the Company or an Affiliate.

(n) Notwithstanding the foregoing, to the extent permitted under Section 409A, the exercise period following a termination described in subsection (g), (h), (i), (j) or (l) above shall be tolled for any applicable window/blackout period restrictions under the Company ’ s insider trading policy.

5. STOCK APPRECIATION RIGHTS.

Stock Appreciation Rights may be granted under the Plan on a stand-alone basis only. The Administrator shall have the authority to grant Stock Appreciation Rights to any Eligible Individual . Except as otherwise provided herein, a Stock Appreciation Right shall terminate and no longer be exercisable as determined by the Administrator.

Stock Appreciation Rights shall be evidenced by stock appreciation right agreements, each in a form approved by the Administrator. The grant of a Stock Appreciation Right shall occur as of the date the Administrator determines, subject to FASB Statement 123(R) (now codified as FASB Accounting Standards Codification (ASC) Topic 718 – Stock Compensation) and guidance thereunder.

A Stock Appreciation Right may be exercised by a Participant as determined by the Administrator in accordance with this Section 5. Upon such exercise, the Participant shall be entitled to receive an amount determined in the manner prescribed in this Section 5 .

Stock Appreciation Rights shall be subject to such terms and conditions, performance requirements, restrictions, forfeiture provisions, contingencies and limitations as shall be determined by the Administrator, including the following:

(a) Stock Appreciation Right Term. The term of each Stock Appreciation Right shall be fixed by the Administrator at the time of grant.

(b) Vesting. Except as otherwise provided in the applicable stock appreciation right agreement, a Participant may not exercise a Stock Appreciation Right during the period commencing on the date of the grant of such Stock Appreciation Right to him or her and ending on the day immediately preceding the first anniversary of such date. Except as otherwise provided in the applicable stock appreciation right agreement, a Participant may (i) during the period commencing on the first anniversary of the date of the grant of a Stock Appreciation Right and ending on the day immediately preceding the second anniversary of such date, exercise the Stock Appreciation Right with respect to one-fifth of the shares to which the Stock Appreciation Right applies, (ii) during the period commencing on the second anniversary of the date of such grant and ending on the day immediately preceding the third anniversary of the date of such grant, exercise the Stock Appreciation Right with respect to two-fifths of the shares to which the Stock Appreciation Right applies, (iii) during the period commencing on the third anniversary of the date of such grant and ending on the day immediately preceding the fourth anniversary of such date, exercise the Stock Appreciation Right with respect to three-fifths of the shares to which the Stock Appreciation Right applies; (iv) during the period commencing on the fourth anniversary of the date of such grant and ending on the day immediately preceding the fifth anniversary of such date, exercise the Stock Appreciation Right with respect to four-fifths of the shares to which the Stock Appreciation Right applies; and (v) during the period commencing on the fifth anniversary of such date and ending at the time the Stock Appreciation Right expires pursuant to the terms of the Plan, exercise the Stock Appreciation Right with respect to all the shares to which the Stock Appreciation Right applies. Notwithstanding the foregoing, no Stock Appreciation Right shall be fully vested prior to the third anniversary of the date of grant of such Stock Appreciation Right, provided that Stock Appreciation Rights granted to

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non-employee directors of the Company may be fully vested by the second anniversary of the date of grant of such Stock Appreciation Right.

(c) Exercisability. Notwithstanding Section 5(a), the Administrator may at any time, in whole or in part, accelerate the exercisability of any Stock Appreciation Right. Notwithstanding the foregoing, no Stock Appreciation Right shall be fully exercisable prior to the third anniversary of the date of grant of such Stock Appreciation Right, provided that Stock Appreciation Rights granted to non-employee Directors of the Company may be fully exercisable prior to the second anniversary of the date of grant of such Stock Appreciation Right.

(d) Method of Exercise. Subject to the provisions of this Section 5, Stock Appreciation Rights may be exercised, in whole or in part, at such time or times during the exercisability as determined by the Administrator by giving written notice of exercise to the Company specifying the number of shares with respect to which the Stock Appreciation Right is being exercised.

(e) Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive an amount in shares of Stock, which in the aggregate are equal in value to the excess of the Fair Market Value of one share of Stock on the date of exercise over the Fair Market Value of one share of Stock on the date of grant, multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised.

(f) A Stock Appreciation Right shall be transferable only to, and shall be exercisable only by, such persons permitted in accordance with Section 4(f) .

(g) Termination by Death . If a Participant ’ s employment or provision of services terminates by reason of death, any Stock Appreciation Right held by such Participant may thereafter be exercised for a period of one year from the date of such death or until the expiration of the stated exercisability period of such Stock Appreciation Right, whichever period is shorter.

(h) Termination by Reason of Disability . If a Participant ’ s employment or provision of services terminates by reason of Disability, any Stock Appreciation Right held by such Participant may thereafter be exercised by the Participant for a period of one year from the date of such termination of employment or provision of services or until the expiration of the exercisability period of such Stock Appreciation Right, whichever period is shorter.

(i) Termination by Reason of Retirement . If a Participant ’ s employment or provision of services terminates by reason of Retirement, any Stock Appreciation Right held by such Participant may thereafter be exercised by the Participant for a period of one year from the date of such termination of employment or provision of services or until the expiration of the exercisability period of such Stock Appreciation Right, whichever period is shorter.

(j) Involuntary Termination Without Cause . If a Participant ’ s employment or provision of services terminates involuntarily without Cause, and for reasons other than death, Disability or Retirement, any Stock Appreciation Right held by such Participant may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of 30 days from the date of such termination of employment or provision of services or until the expiration of the exercisability period of such Stock Appreciation Right, whichever period is shorter, and any Stock Appreciation Right that is unvested or unexercisable at the date of termination shall thereupon terminate.

(k) Termination for Cause. If a Participant ’ s employment or provision of services terminates involuntarily for Cause vesting of all outstanding Stock Appreciation Rights held by such Participant shall thereupon terminate and all Stock Appreciation Rights held by such Participant shall thereupon terminate.

(l) Other Termination. If a Participant ’ s employment or provision of services is terminated by the Participant for any reason other than death, Disability or Retirement, any Stock Appreciation Right held by such Participant may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of 30 days from the date of such termination of employment or provision of services or until the expiration of the exercisability period of such Stock Appreciation Right, whichever period is shorter, and any Stock Appreciation Right that is unvested or unexercisable at the date of termination shall thereupon terminate.

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(m) Notwithstanding the foregoing, to the extent permitted under Section 409A, the exercise period following a termination described in subsection (g), (h), (i), (j) or (l) above shall be tolled for any applicable window/blackout period restrictions under the Company ’ s insider trading policy.

6. STOCK AWARDS OTHER THAN OPTIONS.

Stock Awards may be directly issued under the Plan (without any intervening options), subject to such terms, conditions, performance requirements, restrictions, forfeiture provisions, contingencies and limitations as the Administrator shall determine. Subject to the provisions of this Section 6, Stock Awards may be issued which vest in one or more installments over the Participant ’ s period of employment and/or other service to the Company and/or upon the attainment of specified performance objectives, and/or the Company may issue Stock Awards which entitle the Participant to receive a specified number of vested shares of Stock upon the attainment of one or more performance goals and/or service requirements established by the Administrator. Notwithstanding the foregoing and except as otherwise provided in any applicable Award agreement or other agreement approved by the Committee, the restrictions on any Stock Award shall not terminate with respect to all shares subject thereto prior to the third anniversary of the date of grant of such Stock Award, provided that restrictions on any Stock Awards granted to non-employee directors of the Company may terminate as to all the shares subject thereto by the second anniversary of the date of grant of such Stock Award.

Shares representing a Stock Award shall be evidenced in such manner as the Administrator may deem appropriate, including book-entry registration or issuance of one or more certificates (which may bear appropriate legends referring to the terms, conditions and restrictions applicable to such Award). The Administrator may require that any such certificates be held in custody by the Company until any restrictions thereon shall have lapsed and that the Participant deliver a stock power, endorsed in blank, relating to the Stock covered by such Award.

A Stock Award may be issued in exchange for any consideration which the Administrator may deem appropriate in each individual instance, including, without limitation:

(a) cash or cash equivalents;

(b) past services rendered to the Company or any Affiliate; or

(c) future services to be rendered to the Company or any Affiliate ( provided that , in such case, the par value of the stock subject to such Stock Award shall be paid in cash or cash equivalents, unless the Administrator provides otherwise).

A Stock Award that is subject to restrictions on transfer and/or forfeiture provisions may be referred to as an award of “ Restricted Stock ” or “ Restricted Stock Units . ” Except as provided in the applicable restricted stock agreement or restricted stock unit agreement, the restrictions on any Stock Award shall terminate as follows: (a) as to one-half of the restricted shares granted thereby, on the third anniversary of the date of grant of such Stock Award; (b) as to an additional one-fourth of the restricted shares granted thereby, on the fourth anniversary of the date of grant of such Restricted Stock; and (c) as to an additional one-fourth of the restricted shares granted thereby, on the fifth anniversary of the date of grant of such Restricted Stock. A Participant, at his or her option, will be entitled to make the election permitted under section 83(b) of the Code, to include in gross income in the taxable year in which the Restricted Stock are transferred to him or her, the fair market value of such shares at the time of transfer, notwithstanding that such shares are subject to a substantial risk of forfeiture within the meaning of the Code, or he or she may elect to include in gross income the Fair Market Value of the Restricted Stock as of the date or date on which such restrictions lapse. Notwithstanding the foregoing, the Administrator shall adopt, from time to time, such rules with respect to the return of executed Restricted Stock Agreements as it deems appropriate and failure by a Participant to comply with such rules shall, without limitation, terminate the grant of such Restricted Stock to such Participant and/or cause the forfeiture of any Restricted Stock as to which restrictions have not yet lapsed.

Any Participant selected by the Administrator may be granted dividends or dividend equivalents based on the dividends declared on shares of Stock that are subject to any Stock Award, to be credited as of dividend payment dates, during the period between the date the Stock Award is granted and the date the Stock Award is exercised, vests, or expires, as determined by the Administrator. Such dividends or dividend equivalents shall be converted to cash or

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additional shares of Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator.

7. PERFORMANCE AWARDS.

(a) Performance Conditions and Cash Awards . The right of a Participant to exercise or receive a grant or settlement of any Stock Appreciation Right, Stock Option or Stock Award, and its timing, may be subject to performance conditions specified by the Administrator at the time of grant (except as provided in this Section 7). In addition, the Administrator may grant to Eligible Individuals Cash Awards, based on the achievement of specified performance conditions for annual periods or such other time periods as determined by the Administrator, in such amounts and upon such terms as the Administrator shall specify at the time of grant consistent with this Section 7. The maximum aggregate dollar amount paid in respect of Cash Awards to any one Participant in respect of a performance period of one fiscal year or less shall not exceed $4,000,000 in any fiscal year , and the maximum aggregate dollar amount paid in respect of Cash Awards to any one Participant in respect of a performance period longer than one fiscal year shall not exceed $4,000,000 in any fiscal year . The Administrator may use business criteria and other measures of performance it deems appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase amounts payable under any Award subject to performance conditions, except as limited under Sections 7(b) hereof in the case of a Performance Award intended to qualify under Section 162(m) of the Code.

(b) Performance Awards Granted to Designated Covered Employees . If the Administrator determines that a Performance Award to be granted to a person the Administrator regards as likely to be a Covered Employee should qualify as “ performance-based compensation ” for purposes of Section 162(m) of the Code, the grant and/or settlement of such Performance Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 7(b)

(i) Performance Goals Generally . The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to such criteria, as specified by the Administrator consistent with this Section 7(b). Performance goals shall be objective and shall otherwise meet the requirements of Section 162(m) of the Code, including the requirement that the level or levels of performance targeted by the Administrator result in the performance goals being “ substantially uncertain. ” The Administrator may determine that more than one performance goals must be achieved as a condition to settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants.

(ii) Business Criteria. One or more of the following business criteria for the Company, on a consolidated basis, and/or for specified Subsidiaries or business units of the Company (except with respect to the total stockholder return and earnings per share criteria), shall exclusively be used by the Administrator in establishing performance goals for such Performance Awards: (a) attainment of the Company ’ s Key Operating Metrics, (b) attainment of the Company ’ s Key Business Initiatives, (c) total stockholder return; (d) such total stockholder return as compared to total return (on a comparable basis) of a publicly available index; (e) net income; (f) pre-tax earnings; (g) EBIT; ( h ) EBITDA; ( i ) pre-tax operating earnings after interest expense and before bonuses, service fees, and extraordinary or special ite ms; (j) operating margin; (k) earnings per share; (l) return on equity; (m ) return on capital; ( n) return on investment; (o ) operating income, excluding the effect of charges for acquired in-process technology and before payment of executive bonuses; (p ) earnings per share, excluding the effect of charges for acquired in-process technology and before payment of executive bonuses; ( q) working capital; (r ) net capital provided by operating activities less expenditures for p roperty, plant and equipment; (s ) total revenues; ( t) free cash flow; and (u ) a percentage of incremental revenue dollars converted into operating income ( “ read through ” ).

(iii) Except as limited by Section 162(m) of the Code, t he Administrator may adjust such criteria targets to mitigate the effect of unbudgeted or unplanned events not foreseen at the time the targets were established, such as (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; (d) any reorganization and restructuring programs; (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management ’ s discussion and analysis of financial condition and results of operations

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appearing in the Company ’ s annual report to shareholders for the applicable year; (f) acquisitions or divestitures; and (g) foreign exchange gains and losses.

(iv) Performance Period: Timing For Establishing Performance Goals . Achievement of performance goals in respect of such Performance Awards shall be measured over such periods as may be specified by the Administrator. Performance goals shall be established on or before the dates that are required or permitted for “ performance-based compensation ” under Section 162(m) of the Code.

(v) Payment or Settlement of Performance Awards; Other Terms . Payment of Cash Awards shall be made in cash and settlement of other Performance Awards may be in cash or Stock, or other Awards, or other property, in the discretion of the Administrator. The time of payment or settlement of Cash Awards or other Performance Awards subject to Section 409A shall be specified by the Administrator in accordance with the requirements of Section 409A . The Administrator may, in its discretion, reduce the amount of a payment or other settlement otherwise to be made in connection with such Performance Awards, but may not exercise discretion to increase any such amount payable in respect of a Performance Award subject to this Section 7(b). Subject to the requirements of Sections 162(m) and 409A of the Code, the Administrator shall specify other terms relating to Performance Awards, including the circumstances in which such Performance Awards shall be forfeited or paid in the event of a termination of employment.

8. CHANGE IN CONTROL PROVISIONS.

(a) Impact of Event . Notwithstanding any other provision of the Plan to the contrary and except as otherwise provided in any applicable Award agreement or other agreement approved by the Committee, in the event of a Change in Control resulting from a Business Combination:

(i) Subject to Section 8(a)(i ii ) hereof, the vesting and exercisability of any Stock Options and Stock Appreciation Rights outstanding immediately prior to the date such Change in Control is determined to have occurred and not then vested and exercisable shall become fully vested and exercisable and shall thereafter terminate upon such Change in Control if not exercised;

(ii) Subject to Section 8(a)(i ii ) hereof, any restrictions applicable to any outstanding Stock Awards shall lapse and the Stock relating to such Awards shall become free of all restrictions and fully vested and transferable;

(iii) Outstanding Stock Options, Stock Appreciation Rights and other Stock Awards shall be subject to any agreement relating to a Business Combination that effects a Change in Control and shall not be subject to Sections 8(a)(i) and 8(a)(ii), if such agreement provides for:

(A) The continuation of the outstanding Awards by the Company, if the Company is the surviving corporation;

(B) The assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary;

(C) The substitution by the surviving corporation or its parent or subsidiary of equivalent awards for the outstanding Awards; or

(D) Subject to Section 409A, settlement of each share of Stock subject to an outstanding Award for the Fair Market Value of a share of Stock immediately prior to the Change in Control ( less, to the extent applicable, the per share exercise price, or, if the per share exercise price equals or exceeds such Fair Market Value , the outstanding Award shall terminate and be canceled ) ; and

In addition, in the event of a Change in Control (whether or not resulting from a Business Combination), if a Participant's employment is terminated without Cause within 12 months following such Change in Control (whether by the Company or by any other surviving corporation in any Business Combination or any affiliate of the Company or such

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surviving corporation ) , any Stock Options or Stock Appreciation Rights held by such Participant (including any assumed or substituted s tock o ptions or stock a ppreciate r ights) shall become fully vested and exercisable , and shall remain exercisable for a period of three (3) months following such termination (but not later than the expiration date of such Award or award ), and any restrictions applicable to any Stock Awards (including assumed or substituted s tock a wards) held by such Participant shall lapse and the Stock (or other securities) relating to such Awards (or awards) shall become free of all restrictions and fully vested and transferable .

For the purposes of this Section 8(a) , a Stock Option, Stock Appreciation Right or Other S tock Award shall be considered assumed or substituted for if following the Change in Control the Award confers the right to purchase or receive, for each s hare of Stock subject to the Stock Option, Stock Appreciation Right or Other Stock Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting the Change in Control by holders of Stock for each s hare of Stock held on the effective date of such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding s hares of Stock ); provided, however, that if such consideration received in the transaction constituting a Change in Control is not solely common stock of the successor company, the Administrator may, with the consent of the successor company, provide that the consideration to be received up on the exercise or vesting of a Stock Option, Stock Appreciation Right or Other Stock Award, for each s hare of Stock subject thereto, will be solely common stock of the successor company with a fair market value substantially equal to the per s hare consideration received by holders of S tock in the transaction constituting a Change in Control. The determination of whether fair market value is substantially equal shall be made by the Administrator in its sole discretion and its determination shall be conclusive and binding.

The Administrator , in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Stock Option and Stock Appreciation Right outstanding shall terminate within a specified number of days after notice to the Participant, and/or that each Participant shall receive, with respect to each s hare of Stock subject to such Stock Option or Stock Appreciation Right, an amount equal to the excess of the Fair Market Value of such s hare of Stock immediately prior to the occurrence of such Change in Control over the exercise price per s hare of such Stock Option and/or Stock Appreciation Right; such amount to be payable in cash, in one or more kinds of stock or property (including the stock or property, if any, payable in the transaction) or in a combination thereof, as the Administrator , in its discretion, shall determine; provided that if the per s hare exercise price of any Stock Option or Stock Appreciation Right equals or exceeds such Fair Market Value, then the Stock Option or Stock Appreciation Right shall terminate without any payment .

(b) Definition of Change in Control .

(i) For purposes of the Plan, a “ Change in Control ” shall occur or be deemed to have occurred only if any of the following events occur:

(A) any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act ) (a “ Person ” ), other than Mitchell Jacobson or Marjorie Gershwind or a member of the Jacobson or Gershwind families or any trust established principally for members of the Jacobson or Gershwind families or an executor, administrator or personal representative of an estate of a member of the Jacobson or Gershwind families and/or their respective affiliates, becomes the beneficial owner, directly or indirectly, of fifty percent ( 5 0%) or more of the combined voting power of the C ompany’ s outstanding voting securities ordinarily having the right to vote for the election of directors of the C ompany ; provided, however, that for purposes of this subparagraph (A ), the following acquisitions shall not constitute a Change in Control: any acquisition by any corporation pursuant to a transaction which complies with clauses ( I ), ( II ) and ( III ) of subparagraph ( C ) of this paragraph (b)(i) ;

(B) during any twenty-four (24) month period , individuals who, at the beginning of such period, constitute the Board of Directors of the C ompany , together with any new director(s) (other than (I) a director designated by a Person who shall have entered into an agreement with the C ompany to effect a transaction described in subparagraphs ( A ) or ( C ) of this paragraph (b)(i) and (II) a director whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of directors of the Company ) whose election by the Board

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or nomination for election by the C ompany’ s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the twenty-four (24) month period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof;

(C) consummation of a reorganization, merger or consolidation involving the C ompany (a “ Business Combination ” ), in each case, unless, following such Business Combination, ( I ) all or substantially all of the individuals and entities who were beneficial owners of the C ompany’ s outstanding voting securities ordinarily having the right to vote for the election of directors of the C ompany immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities ordinarily having the right to vote for the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the C ompany or all or substantially all of the C ompany’ s assets either directly or through one or more subsidiaries) in substantially the same proportion as their ownership, immediately prior to such Business Combination, of the C ompany’ s outstanding voting securities, ( II ) no Person (excluding any corporation resulting from such Business Combination) other than Mitchell Jacobson or Marjorie Gershwind or a member of the Jacobson or Gershwind families or any trust established principally for members of the Jacobson or Gershwind families or an executor, administrator or personal representative of an estate of a member of the Jacobson or Gershwind families and/or their respective affiliates, beneficially owns, directly or indirectly, 5 0% or more of the combined voting power of the then outstanding voting securities of the corporation resulting from s uch Business Combination, and (III ) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the incumbent Board of Directors of the C ompany at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination;

(D) a liquidation or dissolution of the C ompany approved by the shareholders; or

(E) consummation of a sale of all or substantially all of the assets of the C ompany .

Notwithstanding any provision of this Plan to the contrary, to the extent an Award subject to Section 409A shall be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of a Change in Control and such Change in Control does not constitute a “change in the ownership or effective control” or a “change in the ownership or a substantial portion of the assets” of the Company within the meaning of Section 409A, then even though such Award may be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of the Change in Control or any other provision of this Plan, payment will be made, to the extent necessary to comply with the provisions of Section 409A, to the Participant on the date payment otherwise would have been made pursuant to the regular payment terms of the Award in the absence of any provisions in this Plan to the contrary.

9. MISCELLANEOUS.

(a) Amendmen t ; Prohibition on R epricing . The Board may at any time terminate, amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would adversely affect the rights of a Participant under an Award theretofore granted without the Participant ’ s consent, except such an amendment (i) made to avoid an expense charge to the Company or an Affiliate under applicable law or regulation, (ii) made to permit the Company or an Affiliate a deduction under the Code, or (iii) made to avoid the violation of Section 409A. No such amendment or alteration shall be made without the approval of a majority vote of the Company ’ s shareholders, present in person or by proxy at any special or annual meeting of the shareholders to the extent such approval is required by law, agreement or the rules of any stock exchange or market on which the Stock is listed. Further, other than adjustments made pursuant to Section 3, without the approval of a majority vote of the Company’s shareholders, present in person or by proxy at any special or annual meeting of the shareholders, the Company may not (X) amend the terms of outstanding Stock Options or Stock Appreciation Rights to reduce the exercise price of such outstanding Stock Options or Stock Appreciation Rights ; (Y) cancel outstanding Stock Options or Stock Appreciation Rights in exchange for Stock Options

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or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Stock Options or Stock Appreciation Rights; or (Z) cancel outstanding Stock Options or Stock Appreciation Rights with an exercise price above the current stock price in exchange for cash or other securities .

Except as limited by Section 162(m) of the Code in respect of Awards intended to qualify as “ performance-based compensation, ” t he Administrator may amend the terms of any Stock Option or other Award theretofore granted, prospectively or retroactively, but except as provided in Section 3 hereof no such amendment shall adversely affect the rights of a Participant without the Participant ’ s consent.

(b) Unfunded Status of Plan. It is intended that this Plan be an “ unfunded ” plan for incentive and deferred compensation. The Administrator may authorize the creation of trusts or other arrangements to meet the obligations created under this Plan to deliver Stock or make payments, provided that , unless the Administrator otherwise determines, the existence of such trusts or other arrangements is consistent with the “ unfunded ” status of this Plan.

(i) Unless the shares to be issued in connection with an Award are registered prior to the issuance thereof under the Securities Act of 1933, as amended, the Administrator may require each person purchasing or receiving shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares for his or her own account as an investment without a view to or for sale in connection with, the distribution thereof. The certificates for such shares may include any legend which the Administrator deems appropriate to reflect any restrictions on transfer.

All certificates for shares of Stock or other securities delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations and other requirements of the Commission, any stock exchange or market on which the Stock is then listed and any applicable Federal or state securities law, and the Administrator may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

(i) Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting other or additional compensation arrangements for its employees.

(ii) The adoption of the Plan shall not confer upon any employee, director, associate, consultant or advisor any right to continued employment, directorship or service, nor shall it interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the employment or service of any employee, consultant or advisor at any time.

(iii) No later than the date as of which an amount first becomes includible in the gross income of the Participant for Federal income tax purposes with respect to any Award under the Plan, the Participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any Federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Administrator, withholding obligations may be settled with Stock, including Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company, its Subsidiaries and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Participant. The Administrator may establish such procedures as it deems appropriate for the settlement of withholding obligations with Stock.

(iv) The Administrator shall establish such procedures as it deems appropriate for a Participant to designate a beneficiary to whom any amounts payable in the event of the Participant ’ s death are to be paid. In the event of the death of a Participant, a condition of exercising any Award shall be the delivery to the Company of such tax waivers and other documents as the Administrator shall determine.

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(v) Neither any Participant nor his or her legal representatives, legatees or distributees shall be or be deemed to be the holder of any share of Stock covered hereby unless and until a certificate for such share has been issued. Upon payment of the purchase price thereof, a share shall be fully paid and non-assessable.

(vi) The grant of an Award shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets, or issue bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock, or take any other corporate act or proceeding whether of a similar character or otherwise.

(vii) If any payment or right accruing to a Participant under this Plan (without the application of this Section 9(c)(viii)), either alone or together with other payments or rights accruing to the Participant from the Company or an Affiliate ( “ Total Payments “ ) would constitute a “ parachute payment ” (as defined in Section 280G of the Code and regulations thereunder), such payment or right shall be reduced to the largest amount or greatest right that will result in no portion of the amount payable or right accruing under this Plan being subject to an excise tax under Section 4999 of the Code or being disallowed as a deduction under Section 280G of the Code; provided , however , that the foregoing shall not apply to the extent provided otherwise in an Award or in the event the Participant is party to an agreement with the Company or an Affiliate that explicitly provides for an alternate treatment of payments or rights that would constitute “ parachute payments. ” The determination of whether any reduction in the rights or payments under this Plan is to apply shall be made by the Administrator in good faith after consultation with the Participant, and such determination shall be conclusive and binding on the Participant. The Participant shall cooperate in good faith with the Administrator in making such determination and providing the necessary information for this purpose. The foregoing provisions of this Section 9(c)(viii) shall apply with respect to any person only if, after reduction for any applicable Federal excise tax imposed by Section 4999 of the Code and Federal income tax imposed by the Code, the Total Payments accruing to such person would be less than the amount of the Total Payments as reduced, if applicable, under the foregoing provisions of this Plan and after reduction for only Federal income taxes.

(viii) To the extent that the Administrator determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Administrator in its discretion may modify those restrictions as it determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.

(ix) The headings contained in this Plan are for reference purposes only and shall not affect the meaning or interpretation of this Plan.

(x) If any provision of this Plan shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not effect any other provision hereby, and this Plan shall be construed as if such invalid or unenforceable provision were omitted.

(xi) This Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon a Participant, and all rights granted to the Company hereunder, shall be binding upon the Participant ’ s heirs, legal representatives and successors.

(xii) This Plan and each agreement granting an Award constitute the entire agreement with respect to the subject matter hereof and thereof, provided that in the event of any inconsistency between this Plan and such agreement, the terms and conditions of the Plan shall control.

(xiii) In the event there is an effective registration statement under the Securities Act pursuant to which shares of Stock shall be offered for sale in an underwritten offering, a Participant shall not, during the period requested by the underwriters managing the registered public offering, effect any public sale or distribution of shares of Stock received, directly or indirectly, as an Award or pursuant to the exercise or settlement of an Award.

(xiv) None of the Company, an Affiliate or the Administrator shall have any duty or obligation to disclose affirmatively to a record or beneficial holder of Stock or an Award, and such holder shall have no right to be

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advised of, any material information regarding the Company or any Affiliate at any time prior to, upon or in connection with receipt or the exercise of an Award or the Company ’ s purchase of Stock or an Award from such holder in accordance with the terms hereof.

(xv) This Plan, and all Awards, agreements and actions hereunder, shall be governed by, and construed in accordance with, the laws of the state of New York (other than its law respecting choice of law).

(d) Section 409A .

(i) To the extent that any amounts or benefits payable under this Plan are or become subject to Section 409A due to a failure to qualify for an exemption from the definition of nonqualified deferred compensation under Section 409A, this Plan is intended to comply in form and operation with the applicable requirements of Section 409A with respect to such amounts or benefits. This Plan shall be interpreted and administered to the extent possible in a manner consistent with the foregoing statement of intent.

(ii) If, at the time of a Participant’s separation from service (within the meaning of Section 409A), (i) the Participant shall be a specified employee (within the meaning of Section 409A and using the identification methodology selected by the Company from time to time) and (ii) the Company shall make a good faith determination that an y amount payable under this Plan constitutes deferred compensation (within the meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A in order to avoid taxes or penalties under Section 409A, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest, on the earlier of the first business day of the seventh month after such six-month period or , if earlier, promptly following the date of the Participant’s death.

10. DEFINITIONS.

For purposes of this Plan, the following terms are defined as set forth below:

(a)

“ Affiliate ” means a corporation or other entity controlled by the Company and designated by the Administrator as such.

(b)

“ Award ” means a Stock Appreciation Right, Stock Option, Stock Award or Cash Award.

(c)

“ Board ” means the Board of Directors of the Company.

(d)

“ Cash Award ” means an award granted under Section 7 which is denominated and payable in cash based on the achievement of specified performance conditions.

(e)

“ Cause ” means (i) the willful and continued failure by the Participant to substantially perform his or her duties with the Company and its subsidiaries (other than any such failure resulting from his or her incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Company which demand specifically identifies the manner in which the Company believes that the Participant has not substantially performed his or her duties, (ii) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise, or (iii) the Participant’s conviction of, or entering a plea of nolo contendere to, a felony. For purposes of clauses (i) and (ii), no act or failure to act on the Participant’s part shall be deemed “willful” unless done, or omitted to be done, by the Participant not in good faith or without reasonable belief that his or her action or omission was in the best interest of the Company and its subsidiaries. Unless there has been a Change in Control, the determination of Cause shall be made by the Administrator, in its sole discretion.

(f)

“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.

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(g)

“ Commission ” means the Securities and Exchange Commission or any successor agency.

(h)

“ Committee ” means a committee of Directors appointed by the Board to administer this Plan. Insofar as the Committee is responsible for granting Awards to Participants hereunder, it shall consist solely of two or more directors, each of whom is a “ non-employee director ” within the meaning of Rule 16b-3, an “ outside director ” under Section 162(m) of the Code, an “ independent director ” as defined by the Sarbanes-Oxley Act of 2002, and “ independent ” as defined by the rules of any stock exchange or market on which the Stock is listed.

(i)

“ Covered Employee ” means a person who is a “ covered employee ” within the meaning of Section 162(m) of the Code.

(j)

“ Director ” means a member of the Company ’ s Board.

(k)

“ Disability ” means mental or physical illness that entitles the Participant to receive benefits under the long-term disability plan of the Company or an Affiliate, or if the Participant is not covered by such a plan or the Participant is not an employee of the Company or an Affiliate, a mental or physical illness that renders a Participant totally and permanently incapable of performing the Participant ’ s duties for the Company or an Affiliate; provided , however , that a Disability shall not qualify under this Plan if it is the result of (i) a willfully self-inflicted injury or willfully self-induced sickness; or (ii) an injury or disease contracted, suffered or incurred while participating in a criminal offense. Notwithstanding the foregoing, if the Participant and the Company or an Affiliate have entered into an employment or services agreement which defines the term “ Disability “ (or a similar term), such definition shall govern for purposes of determining whether such Participant suffers a Disability for purposes of this Plan. The determination of Disability shall be made by the Administrator, in its sole discretion. The determination of Disability for purposes of this Plan shall not be construed to be an admission of disability for any other purpose.

(l)

“ Effective Date ” means January 3, 2006.

(m)

“ Eligible Individual ” means any officer, employee, associate or director of the Company or a Subsidiary or Affiliate, or any consultant or advisor providing services to the Company or a Subsidiary or Affiliate, or employees of a corporation or other business enterprise which has been acquired by the Company or a Subsidiary, who hold options with respect to the stock of such corporation which the Company has agreed to assume. Only executive officers of the Company shall be eligible to receive Cash Awards.

(n)

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.

(o)

“ Fair Market Value ” means, as of any given date, the fair market value of the Stock as determined by the Administrator or under procedures established by the Administrator. Unless otherwise determined by the Administrator, the Fair Market Value per share on any date shall be the closing sales price per share of the Stock on the New York Stock Exchange (or the principal stock exchange or market on which the Stock is then traded) on the business day preceding the date as of which such value is being determined or the last previous day on which a sale was reported if no sale of the Stock was reported on such date on such Exchange on such business day.

(p)

“ Family Member ” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of a Participant (including adoptive relationships); any person sharing the Participant ’ s household (other than a tenant or employee); any trust in which the Participant and any of these persons have all of the beneficial interest; any foundation in which the Participant and any of these persons control the management of the assets; any corporation, partnership, limited liability company or other entity in which the Participant and any of these other persons are the direct and beneficial owners of all of the equity interests ( provided the Participant and these other persons agree in writing to remain the direct and beneficial owners of all such equity interests); and any personal representative of the Participant upon the Participant ’ s death for

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purposes of administration of the Participant ’ s estate or upon the Participant ’ s incompetency for purposes of the protection and management of the assets of the Participant.

(q)

“ Incentive Stock Option ” means any Stock Option intended to be and designated as an “ incentive stock option ” within the meaning of Section 422 of the Code.

(r)

“ Non-Qualified Stock Option ” means any Stock Option that is not an Incentive Stock Option.

(s)

“ Optionee ” means a person who holds a Stock Option.

(t)

“ Participant ” means a person granted an Award.

(u)

“ Performance Award ” means a right, granted to a Participant under Section 7, to receive Awards based upon performance criteria specified by the Administrator.

(v)

“ Representative ” means (i) the person or entity acting as the executor or administrator of a Participant ’ s estate pursuant to the last will and testament of a Participant or pursuant to the laws of the jurisdiction in which the Participant had his or her primary residence at the date of the Participant ’ s death; (ii) the person or entity acting as the guardian or temporary guardian of a Participant; (iii) the person or entity which is the beneficiary of the Participant upon or following the Participant ’ s death; or (iv) any person to whom an Option has been transferred with the permission of the Administrator or by operation of law; provided that only one of the foregoing shall be the Representative at any point in time as determined under applicable law and recognized by the Administrator.

(w)

“ Retirement ” means termination of employment or provision of services without Cause, death or Disability on or after age 65 with 5 years of service.

(x)

“ Stock ” means the Class A common stock, par value $0.001 per share, of the Company.

(y)

“ Stock Appreciation Right ” means a right granted under Section 5.

(z)

“ Stock Award ” means an Award, other than a Stock Option or Stock Appreciation Right, made in Stock or denominated in shares of Stock.

(aa)

“ Stock Option ” means an option granted under Section 4.

(bb)

“ Subsidiary ” means any company during any period in which it is a “ subsidiary corporation ” (as such term is defined in Section 424(f) of the Code) with respect to the Company.

(cc)

“ Ten Percent Holder ” means an individual who owns, or is deemed to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary corporation of the Company, determined pursuant to the rules applicable to Section 422(b)(6) of the Code.

In addition, certain other terms used herein have the definitions given to them in the first places in which they are used.

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EXHIBIT 31.1

CERTIFICATION

I, Erik Gershwind, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 8, 2015


	/s/ ERIK GERSHWIND
	Erik Gershwind President and Chief Executive Officer
	(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION

I, Jeffrey Kaczka, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 8, 2015



	/s/ JEFFREY KACZKA
	Jeffrey Kaczka Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES ‑OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc. (the “Company”) for the fiscal quarter ended November 29, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Erik Gershwind, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes ‑Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 8, 2015

By:	/s/ ERIK GERSHWIND
Name:	Erik Gershwind President and Chief Executive Officer (Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to MSC Industrial Direct Co., Inc. and will be retained by it and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906

OF THE SARBANES ‑OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of MSC Industrial Direct Co., Inc. (the “Company”) for the fiscal quarter ended November 29, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey Kaczka, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes ‑Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: January 8, 2015

By:	/s/ JEFFREY KACZKA
Name:	Jeffrey Kaczka Executive Vice President and Chief Financial Officer (Principal Financial Officer)