Associate Benefit Plans

12 Months Ended

Sep. 02, 2023

Share-Based Payment Arrangement [Abstract]

ASSOCIATE BENEFIT PLANS

The Company accounts for all stock-based payments in accordance with ASC Topic 718, “Compensation—Stock Compensation,” as amended. Stock-based compensation expense included in Operating expenses for fiscal years 2023, 2022 and 2021 was as follows:


	For the Fiscal Years Ended
	September 2, 2023		September 3, 2022		August 28, 2021
Stock options	$	101	$	1,261	$	2,285
Restricted stock units (1)	14,933		14,810		13,976
Performance share units (1)	3,311		2,883		1,233
Associate Stock Purchase Plan	294		310		227
Total	18,639		19,264		17,721
Deferred income tax benefit	(4,619)		(4,720)		(4,324)
Stock-based compensation expense, net	$	14,020	$	14,544	$	13,397

(1)Includes equity award acceleration costs associated with associate severance and separation.

2023 Omnibus Incentive Plan

At the Company’s annual meeting of shareholders held on January 25, 2023, the shareholders approved the MSC Industrial Direct Co., Inc. 2023 Omnibus Incentive Plan (the “2023 Omnibus Incentive Plan”). The 2023 Omnibus Incentive Plan replaced the MSC Industrial Direct Co., Inc. 2015 Omnibus Incentive Plan (the “Prior Plan”) and, beginning January 25, 2023, all awards are granted under the 2023 Omnibus Incentive Plan. Awards under the 2023 Omnibus Incentive Plan may be made in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, other share-based awards, and performance cash, performance shares or performance units. All outstanding awards under the Prior Plan will continue to be governed by the terms of the Prior Plan. Upon approval of the 2023 Omnibus Incentive Plan, the maximum aggregate number of shares of Class A Common Stock authorized to be issued under the 2023 Omnibus Incentive Plan was 2,186 shares.

Stock Options

A summary of the Company’s stock option activity for fiscal year 2023 is as follows:


	Shares	Weighted-Average Exercise Price
Outstanding - beginning of year	614	$	78.96
Granted	—	—
Exercised	(371)	77.31
Canceled/Forfeited	(25)	80.40
Outstanding - end of year	218	$	81.60
Exercisable - end of year	218	$	81.60

The aggregate intrinsic value of options exercised, which represents the difference between the exercise price and the market value of Class A Common Stock measured at each individual exercise date, during fiscal years 2023, 2022 and 2021 was $4,393, $5,855 and $5,826, respectively. There were no unrecognized stock‑based compensation costs related to stock options at September 2, 2023.

Stock option awards outstanding under the Company’s incentive plans have been granted at exercise prices that are equal to the market value of Class A Common Stock on the date of grant. Such options generally vest over a period of four years and expire at seven years after the grant date. The Company recognizes compensation expense ratably over the vesting period, net of estimated forfeitures. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The Company discontinued its grants of stock options in fiscal year 2020.

Stock option awards outstanding as of September 2, 2023 had exercise prices ranging from $79.60 to $83.21. As of September 2, 2023, there were 218 stock option awards outstanding and exercisable, with a weighted-average remaining contractual life of 1.7 years, a weighted-average exercise price of $81.60 and an intrinsic value of $4,380.

Performance Share Units

In fiscal year 2020, the Company began granting performance share units (“PSUs”) as part of its long-term share-based compensation program. PSUs cliff vest after a three-year performance period based on the achievement of specific performance goals as set forth in the applicable award agreement. Based on the extent to which the performance goals are achieved, vested shares may range from 0% to 200% of the target award amount.

The following table summarizes all transactions related to PSUs under the 2023 Omnibus Incentive Plan and the Prior Plan (based on target award amounts) at September 2, 2023:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested PSUs at the beginning of the year	88	$	80.04
Granted	51	82.16
PSU adjustment (1)	4	76.32
Vested	(26)	76.32
Canceled/Forfeited	(5)	82.85
Non-vested PSUs at the end of the year (2)	112	$	81.81

(1)PSU adjustment represents the net PSUs awarded above or below their target grants resulting from the achievement of performance goals above or below the performance targets established at grant. One grant goal was achieved at 116% of its target based on fiscal year 2020 through fiscal year 2022 financial results.

(2)Excludes approximately 12 shares of accrued incremental dividend equivalent rights on outstanding PSUs granted under the 2023 Omnibus Incentive Plan and the Prior Plan.

The fair value of each PSU is the closing stock price on the New York Stock Exchange (the “NYSE”) of Class A Common Stock on the date of grant. PSUs are expensed over the three-year performance period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate PSU forfeitures and records

stock-based compensation expense only for PSU awards that are expected to vest. Upon vesting, subject to the achievement of specific performance goals, a portion of the PSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining PSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying PSUs (in the form of additional stock units) based on dividends declared on Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying PSUs, subject to the same performance vesting requirements. The unrecognized share-based compensation cost related to the PSUs at September 2, 2023 was $3,711 and is expected to be recognized over a weighted-average period of 1.4 years.

Restricted Stock Units

A summary of the Company’s non-vested restricted stock unit (“RSU”) award activity under the 2023 Omnibus Incentive Plan and the Prior Plan for fiscal year 2023 is as follows:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested RSUs at the beginning of the year	448	$	79.71
Granted	215	82.23
Vested	(171)	79.23
Canceled/Forfeited	(25)	80.90
Non-vested RSUs at the end of the year (1)	467	$	80.98

(1)Excludes approximately 48 shares of accrued incremental dividend equivalent rights on outstanding RSUs granted under the 2023 Omnibus Incentive Plan and the Prior Plan.

The fair value of each RSU is the closing stock price on the NYSE of Class A Common Stock on the date of grant. RSUs are expensed over the vesting period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting RSU forfeitures and records stock-based compensation expense only for RSU awards that are expected to vest. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining RSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying RSUs (in the form of additional stock units) based on dividends declared on Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying RSUs. The unrecognized share-based compensation cost related to the RSUs at September 2, 2023 was $24,641 and is expected to be recognized over a weighted-average period of 2.4 years.

Associate Stock Purchase Plan

The Company has established the MSC Industrial Direct Co., Inc. Amended and Restated Associate Stock Purchase Plan (the “Associate Stock Purchase Plan”), the terms of which qualified plan allow for eligible associates (as defined in the Associate Stock Purchase Plan) to participate in the purchase of up to a maximum of five shares of Class A Common Stock at a price equal to 90% of the closing price at the end of each stock purchase period. On January 15, 2015, the shareholders of the Company approved an increase in the authorized but unissued shares of Class A Common Stock reserved for sale under the Associate Stock Purchase Plan from 1,150 shares to 1,500 shares. As of September 2, 2023, approximately 234 shares remained reserved for issuance under the Associate Stock Purchase Plan. During fiscal years 2023 and 2022, associates purchased approximately 56 shares and 58 shares, respectively, of Class A Common Stock at an average per share price of $79.41 and $74.47, respectively.

Savings Plan

The Company maintains a defined contribution plan with both a profit sharing feature and a 401(k) feature, which covers all associates who have completed at least one month of service with the Company. For fiscal years 2023, 2022 and 2021, the Company contributed $9,481, $9,019 and $7,952, respectively, to the plan. The Company contributions are discretionary.