Management Analysis and Analysis of the Financial Position and Results of Operations of MSC INDUSTRIAL DIRECT CO INC (Form 10-Q)

The following is intended to update the information contained in MSC Industrial
Direct Co., Inc.'s (together with its wholly owned subsidiaries and entities in
which it maintains a controlling financial interest, "MSC," "MSC Industrial,"
the "Company," "we," "us" or "our") Annual Report on Form 10-K for the fiscal
year ended August 28, 2021 and presumes that readers have access to, and will
have read, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" of Part II of such Annual Report on Form 10-K.

Overview

MSC is a leading North American distributor of a broad range of metalworking and
maintenance, repair and operations ("MRO") products and services. We help our
customers drive greater productivity, profitability and growth with inventory
management and other supply chain solutions and deep expertise from more than 80
years of working with customers across industries. We offer approximately
2.0 million active, saleable SKUs through our catalogs; our brochures; our
eCommerce channels, including our website, mscdirect.com (the "MSC website");
our inventory management solutions; and our call centers, branch offices,
customer fulfillment centers and regional inventory centers. We service our
customers from 11 customer fulfillment centers (seven customer fulfillment
centers located in the United States, including five primary customer
fulfillment centers, one located in the United Kingdom and three located in
Canada), seven regional inventory centers, and 26 branch offices. We continue to
implement our strategies to gain market share, generate new customers, increase
sales to existing customers, and diversify our customer base.

Our business model focuses on providing overall procurement cost reduction and
just-in-time delivery to meet our customers' needs. Many of our products are
carried in stock, and orders for these in-stock products are typically fulfilled
the day on which the order is received.

We focus on offering inventory, process and procurement solutions that reduce
MRO supply chain costs and improve plant floor productivity for our customers.
We will seek to continue to achieve cost reductions throughout our business
through cost-saving strategies and increased leverage from our existing
infrastructure. Furthermore, we provide additional procurement cost-saving
solutions to our customers through technology such as our Electronic Data
Interchange ("EDI") systems, vendor-managed inventory ("VMI") systems and
vending programs.

Our field sales and service associate headcount was 2,445 at November 27, 2021,
compared to 2,313 at November 28, 2020. We have migrated our sales force from
one designed to sell a spot-buy value proposition to one prepared to deliver
upon the new, more complex and high-touch role that we play, driving value for
our customers by enabling them to achieve higher levels of productivity,
profitability and growth.

Strong points

Highlights during the thirteen week period ended November 27, 2021 include the following:

? We have generated $ 57.8 million operating cash flow, compared to $ 103.2 million
for the same period of the previous fiscal year.

? We had net refunds of $ 24.0 million on our credit facilities, compared to net repayments of $ 130.0 million for the same period of the previous fiscal year.

?On October 14, 2021, the Company's Board of Directors declared a quarterly cash
dividend which resulted in aggregate payments of $41.7 million on November 30,
2021, after the end of the first quarter of fiscal year 2022. This compares to
$41.8 million in cash dividends paid during the first quarter of fiscal year
2021.

?We incurred $5.3 million in restructuring costs, compared to $4.0 million for
the same period in the prior fiscal year. Restructuring costs primarily
consisted of severance and separation costs and equity award acceleration costs.
The prior year period also includes consulting costs related to the optimization
of the Company's operations.

Recent Developments

Progress on Mission Critical

As previously reported, we have launched a company-wide project, which we call “Mission Critical”, to accelerate market share capture and improve profitability over the period up to the fiscal year. 2023. Among Mission Critical initiatives to achieve growth, we have started and plan to continue investing in our market-leading metallurgy company in

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adding to our metalworking specialist team, introducing value-added services to
our customers, expanding our vending, VMI and in-plant solutions programs,
building out our sales force, and diversifying our customers and end-markets. We
also are focused on critical structural cost reductions in order to improve
return on invested capital. We anticipate that these cost reductions will be
comprised of savings in the areas of sales and service, supply chain and general
and administrative expenses, and include initiatives to optimize our
distribution center network and real estate footprint, renegotiate supplier
contracts, and redesign our talent acquisition and retention approach.

Moving and sale pending Long Island Customer Service Center

In December 2020, we announced plans to relocate our Long Island Customer
Service Center ("CSC") to a smaller facility in Melville, New York. In
connection with the announcement, we signed a 10-year lease to occupy
approximately 26,000 square feet in an office building in Melville, New York,
which commenced in September 2021. In furtherance of these plans, we entered
into a Purchase and Sale Agreement to sell our Long Island CSC. This transaction
is currently within a permitting period as outlined within the Purchase and Sale
Agreement.

Impact of COVID-19 on our business

The COVID-19 pandemic has impacted and may further impact the Company's
operations and the operations of the Company's suppliers, vendors and freight
carriers, as a result of quarantines, travel restrictions, facility closures and
safety directives. Although certain restrictions implemented earlier in the
pandemic have been lifted and economic and operating conditions have improved
since the early months of the pandemic, the pandemic continues to impact the
Company's operations and supply chain. Concurrently with the partial lifting of
pandemic-related restrictions, the United States has experienced disruptions in
the supply of certain products and services. These disruptions have affected the
price and, at times, the availability of certain products and services necessary
for the Company's operations, including fuel, labor and certain products the
Company sells or the inputs for such products. These disruptions are also
impacting our customers and their ability to conduct their business or purchase
our products and services. Such disruptions have impacted, and may continue to
impact in the future, the Company's business, financial condition and results of
operations.

As a result of the COVID-19 pandemic, we have implemented modifications to
associate travel and associate work locations and in-person events, among other
modifications. We have taken many actions to reduce spending more broadly across
the Company, including limiting our operating and capital spending on critical
items and reducing hiring and discretionary expenses. We have developed
contingency plans that we anticipate would reduce costs further if business and
financial conditions deteriorate. We will continue to actively monitor the
situation and may take further actions that alter our business operations as may
be required by federal, state and local, and foreign authorities.

In September 2021, the Federal government issued an executive order requiring
federal contractors to require their employees be vaccinated against COVID-19
(the "Contractor Mandate"). In November 2021, the U.S. Department of Labor's
Occupational Safety and Health Administration promulgated a rule requiring
employers with at least 100 employees to require that their employees be
vaccinated against COVID-19 or be tested weekly (the "Large Employer Mandate").
The legality and enforceability of both the Contractor Mandate and the Large
Employer Mandate have been challenged in federal court and are subject to
ongoing litigation. At various times, both the Contractor Mandate and the Large
Employer Mandate have been subject to injunctions preventing their
implementation and enforceability. At this time, it is not possible to predict
with certainty whether the Contractor Mandate and Large Employer Mandate will be
implemented at all or, if implemented, how they would affect us or our
workforce. Both the Contractor Mandate and the Large Employer Mandate, if
implemented and applied to the Company, may result in employee attrition, which
could materially adversely affect future revenues and costs, and have a material
adverse effect on our business and results of operations.

Our number one priority is the health and safety of our associates and their
families, our customers, and our other partners. We have taken and will continue
to take measures to reduce the risk of infection and to protect our associates
and our business, in line with guidelines issued by the authorities in the
jurisdictions in which we operate, including federal, state and local
governments and the Centers for Disease Control and Prevention. We have
instituted enhanced safety procedures to safeguard the health and safety of our
associates, including the use of additional protective equipment and the
frequent cleaning of our facilities. We have restricted non-associate access to
our sites, reorganized our workflows where permitted to maximize social
distancing, implemented extensive restrictions on associate travel, and utilized
remote working strategies where possible.

The extent to which the COVID-19 pandemic, including new variants of COVID-19,
will continue to impact the Company's business, financial condition and results
of operations will depend on future developments, which are highly

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uncertain and depend on, among other things, the duration, spread, severity and
impact of the COVID-19 pandemic, including emerging virus variants, the success
and speed of ongoing vaccination efforts and efficacy of vaccines over time, the
effects of the COVID-19 pandemic on the Company's customers, suppliers and
vendors and the remedial actions and stimulus measures adopted by local and
federal governments. Therefore, the Company cannot reasonably estimate future
impacts of the COVID-19 pandemic at this time.

Our strategy

Our primary objective is to grow sales profitably while offering our customers
highly technical and high-touch solutions to solve their most complex challenges
on the plant floor. Our strategy is to complete the transition from being a
spot-buy supplier to a mission-critical partner to our customers. We will
selectively pursue strategic acquisitions that expand or complement our business
in new and existing markets or further enhance the value and offerings we
provide.

Working environment

We utilize various indices when evaluating the level of our business activity,
including the Metalworking Business Index (the "MBI") and the Industrial
Production ("IP") index. Approximately 68% of our revenues came from sales in
the manufacturing sector during the first quarter of fiscal year 2022. Through
statistical analysis, we have found that trends in our customers' activity have
correlated to changes in the MBI and the IP index. The MBI is a sentiment index
developed from a monthly survey of the U.S. metalworking industry, focusing on
durable goods manufacturing. For the MBI, a value below 50.0 generally indicates
contraction and a value above 50.0 generally indicates expansion. The IP index
measures short-term changes in industrial production. Growth in the IP index
from month to month indicates growth in the manufacturing, mining and utilities
industries. Note that the composition of the IP index was revised by the Federal
Reserve in May 2021 which adjusted, among other factors, the base year with
which the IP index is calculated. This resulted in a lower level for the
historical index in recent years, however the trend in the index continues to
show growth as noted above. The MBI and the IP index over the three months ended
November 2021 and the average for the three- and 12-month periods ended November
2021 were as follows:

Period                       MBI  IP Index
September                    57.6  100.1
October                      61.8  101.8
November                     59.9  102.3

Fiscal Year 2022 Q1 average  59.8  101.4
12-month average             59.6   99.9


During the three-month period ended November 27, 2021, the MBI average remained
above 50.0, which indicated growth in manufacturing during the period.
Similarly, the average IP index for the three months ended November 27, 2021
increased to 101.4. The recent trending in these indices remains in line with
the second half of fiscal year 2021, primarily due to the recovery in economic
conditions related to the gradual lifting of government-imposed restrictions on
economic activity and the abatement of the COVID-19 pandemic. See "Impact of
COVID-19 on our Business" above. In calendar year 2021, including the three
month period ended November 27, 2021, the United States has seen significant
levels of inflation, which has included higher prices for both labor and the
products that the Company sells. The Company has sought, where possible, to
implement price realization strategies that match or exceed the level of
increased costs the Company faces. We will continue to monitor the current
economic conditions for the impact on our customers and markets and assess both
risks and opportunities that may affect our business and operations.



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Thirteen week period ended November 27, 2021 Compared to the thirteen week period ended November 28, 2020

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

                                                Thirteen Weeks Ended
                                    November 27, 2021           November 28, 2020               Change

                                       $             %              $            %           $            %
Net sales                       $    848,547        100.0%   $    771,904      100.0%   $  76,643          9.9%
Cost of goods sold                   495,951         58.4%        448,586       58.1%      47,365         10.6%
Gross profit                         352,596         41.6%        323,318       41.9%      29,278          9.1%
Operating expenses                   256,581         30.2%        238,705       30.9%      17,876          7.5%
Impairment loss, net                        -         0.0%         26,726        3.5%     (26,726)     (100.0)%
Restructuring costs                    5,283          0.6%          3,979        0.5%       1,304         32.8%
Income from operations                90,732         10.7%         53,908        7.0%      36,824         68.3%
Total other expense                   (4,122)       (0.5)%         (2,684)     (0.3)%      (1,438)        53.6%
Income before provision for
income taxes                          86,610         10.2%         51,224        6.6%      35,386         69.1%
Provision for income taxes            20,353          2.4%         12,447        1.6%       7,906         63.5%
Net income                            66,257          7.8%         38,777        5.0%      27,480         70.9%
Less: Net income attributable
to noncontrolling interest               190          0.0%            323        0.0%        (133)      (41.2)%
Net income attributable to      $
MSC Industrial                        66,067          7.8%   $     38,454        5.0%   $  27,613         71.8%


Net Sales

Net sales increased 9.9%, or $76.6 million, to $848.5 million for the
thirteen-week period ended November 27, 2021, as compared to $771.9 million for
the same period in the prior fiscal year. The $76.6 million increase in net
sales was comprised of approximately $53.7 million of higher sales volume,
$17.8 million from improved pricing, inclusive of changes in customer and
product mix, discounting and other items, $4.0 million of net sales from fiscal
year 2021 acquisitions, and $1.1 million of favorable foreign exchange impact.
Of the $76.6 million increase in net sales during the thirteen-week period ended
November 27, 2021, national account customer sales increased by approximately
$39.1 million, sales to our core and other customers increased by approximately
$57.7 million and sales from fiscal year 2021 acquisitions were $4.0 million,
partially offset by a decrease in our government customer sales by approximately
$24.2 million.

The table below shows, among other things, the change in our average daily sales
("ADS") by total Company and by customer type for the thirteen-week period ended
November 27, 2021, as compared to the same period in the prior fiscal year:

                                          ADS Percentage Change
                                               (Unaudited)
                                                                          Thirteen Weeks Ended
                                                               November 27, 2021        November 28, 2020
Net Sales (in thousands)                                      $           848,547      $           771,904
Sales Days                                                                     62                       62
ADS(1) (in millions)                                          $              13.7      $              12.5
Total Company ADS Percent Change                                             9.9%                    -6.3%

Manufacturing Customers ADS Percent Change                                  15.7%                   -13.5%
Manufacturing Customers Percent of Total Net Sales                            68%                      65%

Non-Manufacturing Customers ADS Percent Change                              -0.6%                    10.8%
Non-Manufacturing Customers Percent of Total Net Sales                        32%                      35%

(1) ADS is calculated using the number of working days in United States for the period indicated.

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We believe that our ability to transact business with our customers directly
through the MSC website as well as through various other electronic portals
gives us a competitive advantage over smaller suppliers. Sales made through our
eCommerce platforms, including sales made through EDI systems, VMI systems,
Extensible Markup Language ordering-based systems, vending, hosted systems and
other electronic portals, represented 60.4% of consolidated net sales for the
thirteen-week period ended November 27, 2021, as compared to 60.7% of
consolidated net sales for the same period in the prior fiscal year. These
percentages of consolidated net sales do not include eCommerce sales from our
recent acquisitions.

Gross Profit

Gross profit of $352.6 million for the thirteen-week-period ended November 27,
2021 increased $29.3 million, or 9.1%, compared to the same period in the prior
fiscal year. The gross profit margin of 41.6% decreased 0.3 percentage points
when compared to the same period in the prior fiscal year. The positive spread
between price and cost was more than offset by the negative impact of customer
and product mix for the quarter.

Operating Expenses

Operating expenses increased 7.5%, or $17.9 million, to $256.6 million for the
thirteen-week period ended November 27, 2021, as compared to $238.7 million for
the same period in the prior fiscal year. Operating expenses were 30.2% of net
sales for the thirteen-week period ended November 27, 2021, as compared to 30.9%
for the same period in the prior fiscal year. The increase in Operating expenses
was primarily due to higher payroll and payroll-related costs as well as higher
freight costs.

Payroll and payroll-related costs for the thirteen-week period ended
November 27, 2021 were 57.0% of total Operating expenses, as compared to 56.4%
for the same period in the prior fiscal year. Payroll and payroll-related costs,
which include salary, incentive compensation, sales commission, and fringe
benefit costs, increased by $11.7 million for the thirteen-week period ended
November 27, 2021, as compared to the same period in the prior fiscal year. All
of these costs, with the exception of sales commissions, increased for the
thirteen-week period ended November 27, 2021, as compared to the same period in
the prior fiscal year.

The transport costs were $ 36.2 million for the period of thirteen weeks ended
November 27, 2021, compared to $ 31.8 million for the same period of the previous fiscal year. The main drivers of the increase in transportation costs were increased sales and higher fuel costs due to higher commodity costs.

Loss of value, net

In September 2020, the Company prepaid approximately $26.7 million for the
purchase of nitrile gloves to be sourced from manufacturers in Asia and
experienced significant delays in obtaining possession of this personal
protective equipment ("PPE"). The Company evaluated the potential recoverability
of these assets and, as a result, recorded an impairment charge of $26.7 million
in the first quarter of fiscal year 2021 to reflect the fact that the Company
would not ultimately obtain this PPE or recover its related prepayment. This
impairment charge was reflected in the unaudited Condensed Consolidated
Statement of Income during the first quarter of fiscal year 2021. In the second
half of fiscal year 2021, the Company entered into a legal settlement agreement
with a vendor and, as a result, received $20.8 million of loss recovery related
to this prepayment, which was reflected in the unaudited Condensed Consolidated
Statements of Income. The Company continues to pursue its legal avenues for
recovery of the remaining loss.

Restructuring costs

We incurred $5.3 million in restructuring costs for the thirteen-week period
ended November 27, 2021, as compared to $4.0 million for the same period in the
prior fiscal year. These charges include associate severance and separation
costs, equity award acceleration costs and other exit-related costs.
Restructuring costs for the same period in the prior fiscal year also include
consulting costs related to the optimization of the Company's operations. See
Note 9, "Restructuring Costs" in the Notes to Condensed Consolidated Financial
Statements for additional information.

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Income from operations

Income from operations increased 68.3%, or $36.8 million, to $90.7 million for
the thirteen-week period ended November 27, 2021, as compared to $53.9 million
for the same period in the prior fiscal year. Income from operations as a
percentage of net sales increased to 10.7% for the thirteen-week period ended
November 27, 2021, as compared to 7.0% for the same period in the prior fiscal
year. This increase was primarily attributable to the prior year impairment loss
discussed above.

Provision for Income Taxes

The Company's effective tax rate for the thirteen-week period ended November 27,
2021 was 23.5%, as compared to 24.3% for the same period in the prior fiscal
year. The decrease in the effective tax rate was primarily due to a higher tax
benefit from stock-based compensation.

Net revenue

Factors that affected the net income for the thirteen-week period ended
November 27, 2021, compared to the same period of the previous fiscal year, were discussed above.

Liquidity and capital resources

                                  November 27,    August 28,
                                      2021           2021       $ Change
                                          (Dollars in thousands)
Total debt                       $      762,802  $   786,049   $ (23,247)

Less: Cash and cash equivalents 62,875 40,536 22,339 Net debt

                         $      699,927  $   745,513   $ (45,586)
Equity                           $    1,193,034  $ 1,161,872   $   31,162


As of November 27, 2021, we had $62.9 million in cash and cash equivalents,
substantially all with well-known financial institutions. Historically, our
primary financing needs have been to fund our working capital requirements
necessitated by our sales growth and the costs of acquisitions, new products,
new facilities, facility expansions, investments in vending solutions,
technology investments, and productivity investments. Cash generated from
operations, together with borrowings under our credit facilities and net
proceeds from the private placement notes, have been used to fund these needs,
to repurchase shares of the Company's Class A Common Stock, par value $0.001 per
share ("Class A Common Stock") from time to time, and to pay dividends to our
shareholders. More recently, we have taken the actions discussed above under
"Impact of COVID-19 on our Business" to improve our business operations, lower
costs and preserve financial flexibility through the COVID-19 pandemic.

As of November 27, 2021, total borrowings outstanding, representing amounts due
under our credit facilities and notes, as well as all finance leases and
financing arrangements, were $762.8 million, net of unamortized debt issuance
costs of $1.7 million, as compared to total borrowings of $786.0 million, net of
unamortized debt issuance costs of $1.9 million, as of the end of fiscal year
2021. The decrease was driven by repayments on our committed credit facility.
See Note 6, "Debt" in the Notes to Condensed Consolidated Financial Statements
for more information about these balances.

We believe, based on our current business plan, that our existing cash,
financial resources and cash flow from operations will be sufficient to fund
necessary capital expenditures and operating cash requirements for at least the
next 12 months. The Company further believes that its financial resources, along
with managing discretionary expenses, will allow us to manage the anticipated
further impact of the COVID-19 pandemic on our business operations for the
foreseeable future, which will include reduced sales and net income levels for
the Company. We will continue to evaluate our financial position in light of
future developments, particularly those relating to the COVID-19 pandemic, and
to take appropriate action as it is warranted.


?

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The table below summarizes certain information concerning the Company’s cash flows for the periods indicated:

                                                           Thirteen Weeks Ended
                                                      November 27,       November 28,
                                                          2021               2020
                                                          (Dollars in thousands)
Net cash provided by operating activities            $        57,804    $   

103,230

Net cash used in investing activities                       (15,262)        

(7,893)

Net cash used in financing activities                       (19,794)        

(167,658)

Effect of foreign exchange rate changes on cash                (409)        

214

and cash equivalents
Net increase (decrease) in cash and cash             $        22,339    $   

(72,107)

equivalent

Cash flow from operating activities

Net cash provided by operating activities was $57.8 million for the thirteen
weeks ended November 27, 2021 compared to $103.2 million for the thirteen weeks
ended November 28, 2020. The decrease was primarily due to the following:

?an increase in the change in accounts receivable and inventories primarily
attributable to higher sales volume, and a decrease in the change in accounts
payable and accrued expenses primarily due to prior year increases in income
taxes payable and payroll taxes payable related to the CARES Act deferral that
did not recur in the current year;

partially offset by an increase in net income as described above.

The table below summarizes certain information concerning the Company’s operations during the periods indicated:

                              November 27,   August 28,    November 28,
                                  2021          2021           2020
                                       (Dollars in thousands)
Working Capital (1)          $     762,133   $  752,317   $     634,329
Current Ratio (2)                      2.3          2.3             2.2

Days' Sales Outstanding (3)           61.8         61.1            57.7
Inventory Turnover (4)                 3.3          3.4             3.3


(1) Working capital is calculated as current assets less current liabilities.

(2) The current ratio is calculated by dividing the total current assets by the total current liabilities.

(3) The number of days of outstanding sales corresponds to accounts receivable divided by net sales.

(4) Inventory turnover is calculated as the total cost of goods sold divided by inventory using a 13 month average of inventory.

Working capital and the current ratio remained substantially consistent with
August 28, 2021. The increases compared to November 28, 2020 were primarily due
to increases in accounts receivable and inventories and a decrease in dividends
payable, partially offset by an increase in the current portion of debt.

The increase in Accrued expenses and other current liabilities from August 28,
2021 to November 27, 2021 was due to the $41.7 million in dividends payable. See
Note 8, "Shareholders' Equity" in the Notes to Condensed Consolidated Financial
Statements for more information about our dividends.

The increase in days' sales outstanding as of November 27, 2021 as compared to
August 28, 2021 and November 28, 2020 was primarily due to the receivables
portfolio consisting of a greater percentage of our national account program
sales, which typically have longer payment terms.

Stock rotation at November 27, 2021 has remained in compliance with the periods indicated.

Cash flow from investing activities

Net cash used in investing activities for the thirteen-week periods ended
November 27, 2021 and November 28, 2020 has been $ 15.3 million and $ 7.9 million, respectively. The use of cash for both periods was primarily due to capital expenditures related primarily to mission critical projects.

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Cash flow from financing activities

Net cash used in financing activities was $19.8 million for the thirteen-weeks
ended November 27, 2021 compared to $167.7 million for the thirteen weeks ended
November 28, 2020, primarily due to the following:

?net repayments on credit facilities of $24.0 million during the thirteen weeks
ended November 27, 2021 compared to net repayments of $130.0 million during the
thirteen weeks ended November 28, 2020;

?no dividends paid during the thirteen weeks ended November 27, 2021 (dividend
declared on October 14, 2021 was paid on November 30, 2021) compared to
$41.8 million of dividends paid during the thirteen weeks ended November 28,
2020;

? repurchases of Class A ordinary shares of $ 4.6 million during the thirteen completed weeks November 27, 2021 in relation to the buybacks of $ 3.2 million during the thirteen completed weeks November 28, 2020; and

?proceeds from the exercise of stock options of $7.1 million during the thirteen
weeks ended November 27, 2021 compared to $5.6 million during the thirteen weeks
ended November 28, 2020.

Capital Expenditures

We continue to invest in sales productivity initiatives, e-commerce and sales platforms, customer fulfillment centers and distribution networks, as well as other infrastructure and technologies.

Long-term debt

Credit facilities

In April 2017, the Company entered into a $600.0 million revolving credit
facility which was subsequently amended and extended in August 2021. As of
November 27, 2021, the Company also had three uncommitted credit facilities,
totaling $208.0 million of aggregate maximum uncommitted availability. See Note
6, "Debt" in the Notes to Condensed Consolidated Financial Statements for more
information about our credit facilities. As of November 27, 2021, we were in
compliance with the operating and financial covenants of our credit facilities.
The current unused balance of $341.8 million from the revolving credit facility,
which is reduced by outstanding letters of credit, is available for working
capital purposes if necessary. See Note 6, "Debt" in the Notes to Condensed
Consolidated Financial Statements for more information about these balances.

Private placement debt and pre-sale facility agreements

In July 2016, we completed the issuance and sale of unsecured senior notes. In
January 2018, we entered into two note purchase and private shelf agreements
(together, the "Shelf Agreements"). In June 2018 and March 2020, we entered into
additional note purchase agreements. Pursuant to the terms of the Shelf
Agreements, no new unsecured senior notes may be issued and sold after
January 12, 2021. See Note 6, "Debt" in the Notes to Condensed Consolidated
Financial Statements for more information about these transactions.

Financing modalities

From time to time, we enter into financing arrangements with vendors to purchase
certain information technology equipment or software. See Note 6, "Debt" in the
Notes to Condensed Consolidated Financial Statements for more information about
our financing arrangements.

Leases

As of November 27, 2021, certain of our operations were conducted on leased
premises. These leases are for varying periods, the longest extending to fiscal
year 2031. In addition, we are obligated under certain equipment and automobile
operating and finance leases, which expire on varying dates through fiscal year
2026. See Note 7, "Leases" in the Notes to Condensed Consolidated Financial
Statements for more information about our finance and operating leases.

Critical accounting estimates

On an ongoing basis, we evaluate our critical accounting policies and estimates,
including those related to revenue recognition, inventory valuation, allowance
for credit losses, warranty reserves, contingencies and litigation, income
taxes, 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 unaudited Condensed Consolidated
Financial Statements and accompanying Notes. Estimates are based on historical
experience and on various other assumptions that are

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considered reasonable in the circumstances. The estimates are used to form the basis for making judgments about the book values ​​of assets and liabilities and the amount of reported income and expenditure that is not readily apparent from other sources. Actual results may differ from these estimates.

There have been no material changes outside the ordinary course of business in
the Company's critical accounting policies, as disclosed in its Annual Report on
Form 10-K for the fiscal year ended August 28, 2021.

Recently published accounting standards

See note 1, “Basis of presentation” in the notes to the condensed consolidated financial statements.

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