POSITIONING FOR SUCCESS MSC INDUSTRIAL SUPPLY CO. …

POSITIONING FOR SUCCESS

DURING CHALLENGING TIMES

2020 ANNUAL REPORT

$3.25

$3.25

$3.00

$3.00

$2.75

$2.75

$2.50

$2.50

2018

2018

2019

2019

2020

2020

DILUTED EARNINGS PER SHARE

DILUTED EARNINGS PER SHARE

WITH MORE THAN 75 YEARS OF EXPERIENCE in metalworking and maintenance, repair and

$6.00

operations supplies and services, our dedicated team of more$6.00

than 6,300 associates brings deep

$5.00

expertise and insights to help manufacturers solve mission-critical

challenges on the plant floor.

$5.00

From small shops in need of smart business solutions to compete

to mid-sized businesses looking to

$4.00

$4.00

improve productivity to large manufacturers wanting to reduce total cost of ownership, we help our

$3.00

$3.00

customers solve their most complex inventory management and

operational challenges to improve

their growth, efficiency and profitability.

NET SALES

NET SALES

(IN BILLIONS)

2020

2020

(IN MILLIONS)

(IN MILLIONS)

$400

$400

$375

$375

$3.00

$3.00

$350

$350

$2.75

$2.75

$325

$325

2018

2018

2019

2019

2020

2020

DILUTED EARNINGS PER SHARE

DILUTED EARNINGS PER SHARE

$300

$300

$5.00

$5.00

$300

$300

$4.00

$4.00

$200

$200

$3.00

$3.00

$100

$100

2019

2019

OPERATING INCOME

OPERATING INCOME

2020

2020

(IN MILLIONS)

(IN MILLIONS)

2019

2019

2020

2020

(IN MILLIONS)

$400

$400

2018

2018

2018

2018

CASH FLOW FROM OPERATIONS

(IN MILLIONS)

CASH FLOW FROM OPERATIONS

$6.00

$6.00

$425

$425

2019

2019

$425

$425

$3.25

$3.25

$2.00

$2.00

2018

2018

OPERATING INCOME

OPERATING INCOME

(IN BILLIONS)

$3.50

$3.50

$2.50

$2.50

$2.00

$2.00

$0

$0

2018

2018

2019

2019

2020

2020

DEAR

SHAREHOLDERS

Reflecting on fiscal 2020, we continued our transformation to become a mission-critical partner to our

customers on the plant floor and capitalized on opportunities to further position MSC for growth. Our

company also rose to the occasion amid the unprecedented challenges related to the COVID-19 pandemic

and ongoing macroeconomic concerns by serving our customers and keeping our associates safe. Looking

forward, we remain steadfast in our mission to be the best industrial distributor in the world as measured by

our associates, customers, owners and suppliers.

During the first half of our fiscal 2020, we executed well in what was a weak demand environment. However,

the environment rapidly changed in March as the COVID-19 pandemic spread and the manufacturing

economy largely came to a halt. We quickly turned to driving business continuity, and protecting the health

and well-being of our associates and their families, our customers and our partners. We provided essential

services to front-line organizations, ensuring that we were doing our part to respond to COVID-19 and safely

serving our customers. Since the outset of the pandemic, we have focused on four key priorities: ensuring the

safety of our team and our customers; solidifying business continuity plans for our company and partners;

maintaining disciplined cost management; and ensuring the financial stability of the company. These

priorities have served us well, enabling us to preserve the strength of our company and expand relationships

with our customers and suppliers.

Looking at the full fiscal year, we posted an average daily sales decline of 5.1% in 2020, which primarily

reflects the impact of COVID-19 on the industrial economy, including a difficult manufacturing environment

and increased caution amongst our customers. While the pandemic and associated economic downtown will

continue to create headwinds for MSC, we are focused on those elements of our business within our control,

particularly advancing our transformation. On this front, we made solid strides towards achieving our goal

of moving increasingly from a spot-buy supplier to a mission-critical partner, where we are positioned as

experts who provide highly technical solutions to support our customers across all areas of the plant floor.

This presence deepens our customer relationships, increasing our retention rates and driving higher overall

lifetime values. We believe that this will accelerate our growth versus the market.

A key initiative of this effort included refining our sales approach to accelerate our growth. During the year,

we focused on aligning our workforce, increasing head count in growth areas of our business and investing

in digital technology to help our company deliver a world-class customer experience. In addition, we targeted

improvements in our pricing execution and supplier programs. We are very pleased with the early success

of our initiatives, as well as the positive feedback that we are receiving from customers about our customerengagement model improving their efficiency and reducing their operating costs.

At the same time, we are aligning our operating expenses to our new high-touch strategy. We have

completed a comprehensive review of our cost structure and have identified opportunities for improvement.

While much work remains to be done to achieve these benefits, we are committed to driving productivity

throughout the organization. As a result of our planned actions, we expect to generate significant cost

savings over the next few years.

DURING THE YEAR, WE

FOCUSED ON ALIGNING OUR

WORKFORCE, INCREASING

HEAD COUNT IN GROWTH

AREAS OF OUR BUSINESS

AND INVESTING IN DIGITAL

TECHNOLOGY TO HELP OUR

COMPANY DELIVER A WORLDCLASS CUSTOMER EXPERIENCE.

As we move forward with our transformation, our

company continues to be very sound financially. Our

solid position and scale have helped us weather the

pandemic and advance each of our initiatives. At the

same time, we are positioning ourselves to capture

additional business as many of our competitors will

not be able to adapt. Our disciplined capital allocation

strategy has been and will remain balanced. We will

continue to invest in strengthening our foundation,

growing our business, and returning excess capital to

our shareholders. In fiscal 2020, we paid out $167 million

in regular quarterly dividends, an increase of 14% over

fiscal 2019, and a special cash dividend of $5.00 per

share. Looking forward, we will continue to manage our

liquidity very prudently, while maintaining a very healthy

balance sheet.

Finally, we have remained committed to operating

a sustainable business and fostering an inclusive

and diverse workforce. We have been a responsible corporate citizen for more than 80 years, but we

can do more. A core value of MSC is to ¡°do the right thing,¡± and we exhibited this in how we responded

to COVID-19. Looking ahead, we are solidifying these efforts and look forward to sharing an updated

sustainability report in 2021, which will delve deeper into our formalized Environmental, Social and

Corporate Governance strategy and objectives.

In closing, I am immensely proud of how our more than 6,300 associates have responded to the extreme

adversities that we have all faced this past year. I would like to extend my sincere thanks to our associates

for their unwavering dedication, our customers and suppliers for their partnership, and our shareholders for

their continued support. We have established a clear pathway for longer-term success. Now it is a matter of

scaling our strategy, executing it consistently, and growing our business profitably.

Respectfully,

Erik Gershwind

President and Chief Executive Officer

Note: Please see ¡°Forward-Looking Statements¡± on page 1 of the accompanying Annual Report on Form 10-K.

FORM 10K

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