GLOBAL INDUSTRIAL Co - Quarter Report: 2022 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2022
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
COMMISSION FILE NUMBER 1-13792
Global Industrial Company
(Exact name of registrant as specified in its charter)
| Delaware | 11-3262067 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
11 Harbor Park Drive
Port Washington, New York 11050
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (516) 608-7000
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock ($.01 par value) | GIC | New York Stock Exchange | ||||||
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☒ | |||||||
| Non-accelerated filer ☐ | Smaller reporting company ☐ | |||||||
Emerging growth company ☐ | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock as of April 29, 2022 was 37,916,603.
TABLE OF CONTENTS
| Available Information | ||||||||
| Part I | Financial Information | |||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Part II | Other Information | |||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 6. | ||||||||
2
Available Information
We maintain an internet web site at investors.globalindustrial.com. We file reports with the Securities and Exchange Commission (“SEC”) and make available free of charge on or through this website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, including all amendments to those reports. These are available as soon as is reasonably practicable after they are filed with the SEC. All reports mentioned above are also available from the SEC’s website (www.sec.gov). The information on our website is not part of this or any other report we file with, or furnish to, the SEC.
Our Board of Directors has adopted the following corporate governance documents with respect to the Company (the “Corporate Governance Documents”):
•Corporate Ethics Policy for officers, directors and employees
•Charter for the Audit Committee of the Board of Directors
•Charter for the Compensation Committee of the Board of Directors
•Charter for the Nominating/Corporate Governance Committee of the Board of Directors
•Corporate Governance Guidelines and Principles
In accordance with the corporate governance rules of the New York Stock Exchange, each of the Corporate Governance Documents is available on our Company web site, investors.globalindustrial.com.
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Global Industrial Company
Condensed Consolidated Balance Sheets
(In millions)
| March 31, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS: | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 14.6 | $ | 15.4 | |||||||
| Accounts receivable, net | 118.9 | 106.8 | |||||||||
| Inventories | 204.4 | 172.8 | |||||||||
| Prepaid expenses and other current assets | 7.1 | 6.4 | |||||||||
| Total current assets | 345.0 | 301.4 | |||||||||
| Property, plant and equipment, net | 16.7 | 16.5 | |||||||||
| Operating lease right-of-use assets | 66.3 | 68.8 | |||||||||
| Deferred income taxes | 10.3 | 10.3 | |||||||||
| Goodwill, intangibles and other assets | 8.1 | 8.0 | |||||||||
| Total assets | $ | 446.4 | $ | 405.0 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY: | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 123.0 | $ | 114.4 | |||||||
| Accrued expenses and other current liabilities | 48.6 | 50.5 | |||||||||
| Short-term debt | 25.0 | 4.5 | |||||||||
| Operating lease liabilities | 10.5 | 10.5 | |||||||||
| Total current liabilities | 207.1 | 179.9 | |||||||||
| Operating lease liabilities | 65.8 | 68.5 | |||||||||
| Other liabilities | 2.7 | 3.0 | |||||||||
| Total liabilities | 275.6 | 251.4 | |||||||||
| Commitments and contingencies | |||||||||||
| Shareholders’ equity: | |||||||||||
| Preferred stock | 0.0 | 0.0 | |||||||||
| Common stock | 0.4 | 0.4 | |||||||||
| Additional paid-in capital | 197.1 | 195.8 | |||||||||
| Treasury stock | (19.8) | (20.4) | |||||||||
| Retained deficit | (10.3) | (25.5) | |||||||||
| Accumulated other comprehensive income | 3.4 | 3.3 | |||||||||
| Total shareholders’ equity | 170.8 | 153.6 | |||||||||
| Total liabilities and shareholders’ equity | $ | 446.4 | $ | 405.0 | |||||||
See Notes to Condensed Consolidated Financial Statements.
4
Global Industrial Company
Condensed Consolidated Statements of Operations (Unaudited)
(In millions, except per share amounts)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net sales | $ | 288.6 | $ | 251.1 | |||||||
| Cost of sales | 180.8 | 173.8 | |||||||||
| Gross profit | 107.8 | 77.3 | |||||||||
| Selling, distribution & administrative expenses | 78.3 | 70.7 | |||||||||
| Operating income from continuing operations | 29.5 | 6.6 | |||||||||
| Interest and other expense, net | 0.4 | 0.1 | |||||||||
| Income from continuing operations before income taxes | 29.1 | 6.5 | |||||||||
| Provision for income taxes | 7.3 | 1.0 | |||||||||
| Net income from continuing operations | 21.8 | 5.5 | |||||||||
| Net income from discontinued operations | 0.2 | 9.7 | |||||||||
| Net income | $ | 22.0 | $ | 15.2 | |||||||
| Net income per common share from continuing operations: | |||||||||||
| Basic | $ | 0.57 | $ | 0.15 | |||||||
| Diluted | $ | 0.57 | $ | 0.14 | |||||||
| Net income per common share from discontinued operations: | |||||||||||
| Basic | $ | 0.01 | $ | 0.26 | |||||||
| Diluted | $ | 0.01 | $ | 0.25 | |||||||
| Net income per common share: | |||||||||||
| Basic | $ | 0.58 | $ | 0.41 | |||||||
| Diluted | $ | 0.58 | $ | 0.39 | |||||||
| Weighted average common and common equivalent shares: | |||||||||||
| Basic | 37.9 | 37.7 | |||||||||
| Diluted | 38.1 | 37.9 | |||||||||
| Dividends declared | $ | 0.18 | $ | 0.16 | |||||||
See Notes to Condensed Consolidated Financial Statements.
5
Global Industrial Company
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income | $ | 22.0 | $ | 15.2 | |||||||
| Other comprehensive income: | |||||||||||
| Foreign currency translation | 0.1 | 0.1 | |||||||||
| Total comprehensive income | $ | 22.1 | $ | 15.3 | |||||||
See Notes to Condensed Consolidated Financial Statements.
6
Global Industrial Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income from continuing operations | $ | 21.8 | $ | 5.5 | |||||||
| Adjustments to reconcile net income from continuing operations to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | 0.9 | 1.0 | |||||||||
| Provision for credit losses | 0.5 | 0.4 | |||||||||
| Stock-based compensation | 1.0 | 0.4 | |||||||||
| Provision for deferred taxes | 0.0 | 0.5 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (12.6) | (2.8) | |||||||||
| Inventories | (31.4) | (2.4) | |||||||||
| Prepaid expenses and other assets | (0.9) | 0.2 | |||||||||
| Income taxes payable | 1.1 | 0.4 | |||||||||
| Accounts payable | 8.6 | 17.3 | |||||||||
| Accrued expenses, other current liabilities and other liabilities | (3.0) | (11.6) | |||||||||
| Net cash (used in) provided by operating activities from continuing operations | (14.0) | 8.9 | |||||||||
| Net cash (used in) provided by operating activities from discontinued operations | (0.1) | 12.0 | |||||||||
| Net cash (used in) provided by operating activities | (14.1) | 20.9 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property, plant and equipment | (1.1) | (0.9) | |||||||||
| Net cash used in investing activities | (1.1) | (0.9) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from short-term borrowings | 57.1 | 19.6 | |||||||||
| Repayment of short-term borrowings | (36.6) | (19.6) | |||||||||
| Dividends paid | (7.0) | (6.4) | |||||||||
| Proceeds from issuance of common stock | 0.7 | 2.3 | |||||||||
| Payment of payroll taxes on stock-based compensation through shares withheld | (0.4) | (1.9) | |||||||||
| Proceeds from the issuance of common stock from employee stock purchase plan | 0.6 | 0.5 | |||||||||
| Net cash provided by (used in) financing activities | 14.4 | (5.5) | |||||||||
| Net (decrease) increase in cash | (0.8) | 14.5 | |||||||||
| Cash, cash equivalents and restricted cash – beginning of period | 15.4 | 24.0 | |||||||||
| Cash, cash equivalents and restricted cash – end of period | $ | 14.6 | $ | 38.5 | |||||||
7
| Supplemental disclosures: | |||||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | 14.6 | $ | 36.9 | |||||||
Restricted cash (1) | 0.0 | 1.6 | |||||||||
| Cash, cash equivalents and restricted cash | $ | 14.6 | $ | 38.5 | |||||||
(1)The Company had restricted cash collateralizing letters of credit outstanding of $0 and $1.6 million, at March 31, 2022 and 2021, respectively, which are recorded in Goodwill, intangibles and other assets in the accompanying Condensed Consolidated Balance Sheets. | |||||||||||
| Supplemental disclosures of non-cash investing and financing activities: | |||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | $ | 0.0 | $ | 0.7 | |||||||
See Notes to Condensed Consolidated Financial Statements.
8
Global Industrial Company
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
(In millions, except share data in thousands)
| Common Stock | |||||||||||||||||||||||||||||||||||||||||
| Number of Shares Outstanding | Amount | Additional Paid-in Capital | Treasury Stock | Retained (Deficit) Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | |||||||||||||||||||||||||||||||||||
| Balances, January 1, 2022 | 37,854 | $ | 0.4 | $ | 195.8 | $ | (20.4) | $ | (25.5) | $ | 3.3 | $ | 153.6 | ||||||||||||||||||||||||||||
| Stock-based compensation expense | 1.0 | 1.0 | |||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 22 | (0.4) | 0.4 | 0.0 | |||||||||||||||||||||||||||||||||||||
| Stock withheld for employee taxes | (11) | (0.4) | (0.4) | ||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of common stock | 29 | 0.1 | 0.6 | 0.7 | |||||||||||||||||||||||||||||||||||||
| Issuance of shares under employee stock purchase plan | 23 | 0.6 | 0.6 | ||||||||||||||||||||||||||||||||||||||
| Dividends | (6.8) | (6.8) | |||||||||||||||||||||||||||||||||||||||
| Change in cumulative translation adjustment | 0.1 | 0.1 | |||||||||||||||||||||||||||||||||||||||
| Net income | 22.0 | 22.0 | |||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 | 37,917 | $ | 0.4 | $ | 197.1 | $ | (19.8) | $ | (10.3) | $ | 3.4 | $ | 170.8 | ||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||||||||
| Number of Shares Outstanding | Amount | Additional Paid-in Capital | Treasury Stock | Retained (Deficit) Earnings | Accumulated Other Comprehensive Income (Loss) | Total Equity | |||||||||||||||||||||||||||||||||||
| Balances, January 1, 2021 | 37,552 | $ | 0.4 | $ | 193.5 | $ | (24.0) | $ | (66.5) | $ | 3.4 | $ | 106.8 | ||||||||||||||||||||||||||||
| Stock-based compensation expense | 0.4 | 0.4 | |||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 65 | (1.1) | 1.1 | 0.0 | |||||||||||||||||||||||||||||||||||||
| Stock withheld for employee taxes | (47) | (1.9) | (1.9) | ||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of common stock | 119 | (0.2) | 2.5 | 2.3 | |||||||||||||||||||||||||||||||||||||
| Issuance of shares under employee stock purchase plan | 29 | 0.5 | 0.5 | ||||||||||||||||||||||||||||||||||||||
| Dividends | (6.0) | (6.0) | |||||||||||||||||||||||||||||||||||||||
| Change in cumulative translation adjustment | 0.1 | 0.1 | |||||||||||||||||||||||||||||||||||||||
| Net income | 15.2 | 15.2 | |||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | 37,718 | $ | 0.4 | $ | 193.1 | $ | (22.3) | $ | (57.3) | $ | 3.5 | $ | 117.4 | ||||||||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
9
Global Industrial Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
1.Basis of Presentation
The accompanying condensed consolidated financial statements of Global Industrial Company, with its subsidiaries, (the "Company") are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America are not required in these interim financial statements and have been condensed or omitted. All significant intercompany accounts and transactions have been eliminated in consolidation.
Global Industrial Company, through its operating subsidiaries, is a value-added industrial distributor of more than one million industrial and maintenance, repair and operation ("MRO") products in North America going to market through a system of branded e-commerce websites and relationship marketers. Global Industrial Company operates and is internally managed in one reportable business segment. The Company sells a wide array of industrial and MRO products, markets the Company has served since 1949. Because of the large number of products and product categories the Company offers, providing information on the amount of revenue derived from transactions with external customers for each product or groupings of product is impractical.
The Company’s discontinued operations consist of its former North American Technology Group business, which was sold in December 2015 and has been winding down its operations since then. For the three month period ended March 31, 2022, net income from discontinued operations totaled $0.2 million (see Note 4, Discontinued Operations) and $9.7 million for the three month period ended March 31, 2021.
In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of March 31, 2022 and the results of operations for the three month periods ended March 31, 2022 and 2021, statements of comprehensive income for the three month periods ended March 31, 2022 and 2021, cash flows for the three month periods ended March 31, 2022 and 2021 and changes in shareholders’ equity for the three month periods ended March 31, 2022 and 2021. The December 31, 2021 Condensed Consolidated Balance Sheet has been derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2021 and for the year then ended included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The results for the three month period ended March 31, 2022 are not necessarily indicative of the results for the entire year.
Global Industrial Company manages its business and reports using a 52-53 week fiscal year that ends at midnight on the Saturday closest to December 31. For clarity of presentation herein, fiscal years and quarters are referred to as if they ended on the traditional calendar month. The actual fiscal first quarters ended on April 2, 2022 and April 3, 2021, respectively. The first quarters of both 2022 and 2021 included 13 weeks.
Recent Accounting Pronouncements
Public companies in the United States are subject to the accounting and reporting requirements of various authorities, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). These authorities issue numerous pronouncements, most of which are not applicable to the Company’s current or reasonably foreseeable operating structure.
There were no accounting pronouncements issued in the quarter or with future effective dates that are either applicable or are expected to have a material impact on the Company's Condensed Consolidated Financial Statements.
10
2.Revenue
Disaggregation of Revenues
The Company believes its presentation of revenue by geography most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic and industry factors, including fluctuations in exchange rates between the U.S. and Canada. The following table presents the Company's revenue, from continuing operations, by geography for the three months ended March 31, 2022 and 2021, respectively (in millions):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net sales: | |||||||||||
| United States | $ | 267.2 | $ | 233.5 | |||||||
| Canada | 21.4 | 17.6 | |||||||||
| Consolidated | $ | 288.6 | $ | 251.1 | |||||||
The Company will record a contract liability in cases where customers pay in advance of the Company satisfying its performance obligation. The Company did not have any material unsatisfied performance obligations or liabilities as of March 31, 2022 and December 31, 2021.
11
3.Credit Losses
The Company’s trade accounts receivable is one portfolio comprised of commercial businesses as well as public sector organizations operating in the U.S. and to a lesser extent, Canada. The Company develops its allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables, considering customer financial condition, historical loss experience with its customers, current market economic conditions and forecasts of future economic conditions when appropriate. When the Company becomes aware of a customer's inability to meet its financial obligation, a specific reserve is recorded to reduce the receivable to the expected amount to be collected. For the balance of its trade receivables, the Company uses a loss rate method to estimate its credit loss reserve. Historical loss experience rates are calculated using receivable write offs over a trailing twelve-month period and comparing that to the average receivable balances over the same period. That rate is applied to the current accounts receivable portfolio, excluding accounts that have been specifically reserved. Any write offs incurred are recorded against the established reserves.
The Company grants credit to commercial business customers using an electronic application process that evaluates the customer's detailed credit report, reference responses, availability under credit facilities, existing liens, tenure of management and business history, among other factors. Credit terms are typically net 30 days payment required with larger businesses eligible for up to net 90 day terms, if qualified.
The following is a rollforward of the allowances for credit losses related to trade accounts receivable for March 31, 2022 (in millions):
| March 31, 2022 | ||||||||
| Balance at beginning of period | $ | 2.5 | ||||||
| Current period provision | 0.5 | |||||||
| Write-offs - trade accounts receivable | (0.4) | |||||||
Balance at end of period | $ | 2.6 | ||||||
The following is a rollforward of the allowances for credit losses related to trade receivables for the year ended December 31, 2021 (in millions):
| December 31, 2021 | ||||||||
| Balance at beginning of period | $ | 1.7 | ||||||
| Current period provision | 2.8 | |||||||
| Write-offs - trade accounts receivable | (2.0) | |||||||
Balance at end of period | $ | 2.5 | ||||||
12
4.Discontinued Operations
In the first quarter ended March 31, 2022, the Company's discontinued operations recorded net income of approximately $0.2 million primarily related to the resolution of certain liabilities. The Company expects that total additional exit charges related to discontinued operations after this quarter may aggregate up to $0.5 million.
In the first quarter ended March 31, 2021, the Company's discontinued operations received approximately $15.0 million in restitution receipts offset by approximately $3.0 million of professional fees related to the ongoing restitution proceedings and recorded approximately $0.1 million in vendor settlements. Discontinued operations also recorded approximately $0.5 million in benefit from settlement of payable accounts and recorded approximately $2.9 million for the provision for income taxes.
13
5.Net Income per Common Share
Net income per common share - basic was calculated based upon the weighted average number of common shares outstanding during the respective periods presented using the two-class method of computing earnings per share. The two-class method was used as the Company has outstanding restricted stock with rights to dividend participation for unvested shares. Undistributed net income is allocated between common shares outstanding and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Undistributed net losses are not allocated to our participating securities as these participating securities do not have a contractual obligation to share in losses. Net income per common share - diluted was calculated based upon the weighted average number of common shares outstanding and included the equivalent shares for dilutive options outstanding during the respective periods, including unvested options. The dilutive effect of outstanding options and restricted stock issued by the Company is reflected in net income per share - diluted using the treasury stock method. Under the treasury stock method, options will only have a dilutive effect when the average market price of common stock during the period exceeds the exercise price of the options.
The following table presents the computation of basic and diluted net income per share under the two-class method for the three months ended March 31, 2022 and 2021 (in millions, except for per share amounts):
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Net income from continuing operations | $ | 21.8 | $ | 5.5 | ||||||||||
| Less: Undistributed net income available to participating securities | (0.1) | 0.0 | ||||||||||||
| Numerator for basic net income per share: | ||||||||||||||
| Undistributed and distributed net income available to common shareholders | $ | 21.7 | $ | 5.5 | ||||||||||
| Add: Undistributed net income allocated to participating securities | 0.1 | 0.0 | ||||||||||||
| Less: Undistributed net income reallocated to participating securities | (0.1) | 0.0 | ||||||||||||
| Numerator for diluted net income per share: | ||||||||||||||
| Undistributed and distributed net income available to common shareholders | $ | 21.7 | $ | 5.5 | ||||||||||
| Denominator: | ||||||||||||||
| Weighted average shares outstanding for basic net income per share | 37.9 | 37.7 | ||||||||||||
| Effect of dilutive securities | 0.2 | 0.2 | ||||||||||||
| Weighted average shares outstanding for diluted net income per share | 38.1 | 37.9 | ||||||||||||
| Net income per share from continuing operations: | ||||||||||||||
| Basic | $ | 0.57 | $ | 0.15 | ||||||||||
| Diluted | $ | 0.57 | $ | 0.14 | ||||||||||
| Net income from discontinued operations | $ | 0.2 | $ | 9.7 | ||||||||||
| Net income per share from discontinued operations: | ||||||||||||||
| Basic | $ | 0.01 | $ | 0.26 | ||||||||||
| Diluted | $ | 0.01 | $ | 0.25 | ||||||||||
| Net income per share: | ||||||||||||||
| Basic | $ | 0.58 | $ | 0.41 | ||||||||||
| Diluted | $ | 0.58 | $ | 0.39 | ||||||||||
| Potentially dilutive securities | 0.1 | 0.2 | ||||||||||||
14
Potentially dilutive securities attributable to outstanding stock options, restricted stock units, and performance share units are excluded from the calculation of diluted earnings per share when the combined exercise price and average unamortized fair value are greater than the average market price of Global Industrial Company's common stock during the period, and their inclusion would be anti-dilutive.
15
6.Credit Facilities and Short-term Debt
The Company maintains a $75.0 million secured revolving credit facility with one financial institution, which has a five year term, maturing on October 19, 2026 and provides for borrowings in the United States. The credit agreement contains certain operating, financial and other covenants, including limits on annual levels of capital expenditures, availability tests related to payments of dividends and stock repurchases and fixed charge coverage tests related to acquisitions. The revolving credit agreement requires that a minimum level of availability be maintained. If such availability is not maintained, the Company will be required to maintain a fixed charge coverage ratio (as defined). The borrowings under the agreement are subject to borrowing base limitations of up to 85% of eligible accounts receivable and the inventory advance rate computed as the lesser of 60% or 85% of the net orderly liquidation value (“NOLV”). Borrowings are secured by substantially all of the Borrower’s assets, as defined, including all accounts, accounts receivable, inventory and certain other assets, subject to limited exceptions, including the exclusion of certain foreign assets from the collateral. The interest rate under the amended and restated facility is computed at applicable market rates based on the London interbank offered rate (“LIBOR”), the Federal Reserve Bank of New York (“NYFRB”) or the Prime Rate, plus an applicable margin. The applicable margin varies based on borrowing base availability. As of March 31, 2022, eligible collateral under the credit agreement was $75.0 million, total availability was $72.4 million, total outstanding letters of credit was $1.5 million, total outstanding borrowings was $25.0 million and total excess availability was $45.9 million. The Company was in compliance with all of the covenants of the credit agreement as of March 31, 2022.
7.Fair Value Measurements
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 fair value standards establish the fair value hierarchy to prioritize the inputs used in valuation techniques. There are three levels to the fair value hierarchy (Level 1 is the highest priority and Level 3 is the lowest priority):
| Level 1 - | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | ||||
| Level 2 - | Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. | ||||
| Level 3 - | Unobservable inputs which are supported by little or no market activity | ||||
Financial instruments consist primarily of investments in cash, trade accounts receivable, outstanding debt and accounts payable. The Company determines the fair value of financial instruments based on interest rates available to the Company. At March 31, 2022 and December 31, 2021, the carrying amounts of cash, accounts receivable, outstanding debt and accounts payable are considered to be representative of their respective fair values due to their short-term nature. Cash is classified as Level 1 within the fair value hierarchy.
The fair value with respect to goodwill, definite and indefinite-lived intangible assets are measured in connection with the Company’s annual impairment testing. The Company operates in one reporting unit and in the fourth quarter of each year performs a quantitative assessment of its goodwill by comparing the Company's fair market value, or market capitalization, to the carrying value of the Company, including goodwill, to determine if impairment exists. Any excess of the carrying amount over fair value would be charged to impairment expense.
Long-lived assets are assets used in the Company’s operations and include leasehold improvements, warehouse and similar property used to generate sales and cash flows. Long-lived assets are tested for impairment utilizing a recoverability test. The recoverability test compares the carrying value of an asset group to the undiscounted cash flows directly attributable to the asset group over the life of the primary asset. If the undiscounted cash flows of an asset group is less than the carrying value of the asset group, the fair value of the asset group is then measured. If the fair value is also determined to be less than the carrying value of the asset group, the asset group is impaired.
8.Legal Proceedings
The Company and its subsidiaries are from time to time involved in various lawsuits, claims, investigations and proceedings which may include commercial, employment, tax, customs and trade, customer, vendor, personal injury, creditors rights and health and safety law matters, which are handled and defended in the ordinary course of business. In addition, the Company is from time to time subjected to various assertions, claims, proceedings and requests for damages and/or indemnification concerning sales channel practices and intellectual property matters, including patent infringement
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suits involving technologies that are incorporated in a broad spectrum of products the Company sells or that are incorporated in the Company’s e-commerce sales channels, as well as trademark/copyright infringement claims. The Company is also audited by (or has initiated voluntary disclosure agreements with) various U.S. Federal and state authorities, as well as Canadian authorities, concerning potential income tax and/or sales tax. These matters are in various stages of investigation, negotiation and/or litigation. The Company intends to vigorously defend these matters and believes it has strong defenses.
Although the Company does not expect, based on currently available information, that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial position or results of operations, the ultimate outcome is inherently unpredictable. Therefore, judgments could be rendered or settlements entered, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company regularly assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable and estimable. In this regard, the Company establishes accrual estimates for its various lawsuits, claims, investigations and proceedings when it is probable that an asset has been impaired or a liability incurred at the date of the financial statements and the loss can be reasonably estimated. At March 31, 2022 the Company has established accruals for certain of its various lawsuits, claims, investigations and proceedings based upon estimates of the most likely outcome in a range of loss or the minimum amounts in a range of loss if no amount within a range is a more likely estimate. The Company does not believe that at March 31, 2022 any reasonably possible losses in excess of the amounts accrued would be material to the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Risk Factors.
This report contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. Any such statements that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on management’s estimates, assumptions and projections and are not guarantees of future performance. Forward-looking statements may include, but are not limited to statements regarding: i) projections or estimates of revenue, income or loss, exit costs, cash flow needs and capital expenditures; ii) fluctuations in general economic conditions, including effects of rising inflation; iii) future operations, such as risks regarding strategic business initiatives, plans relating to new distribution facilities, plans for utilizing alternative sources of supply in response to government tariff and trade actions and/or due to supply chain disruptions arising from the Coronavirus pandemic, war, geopolitical conflicts and plans for new products or services; iv) plans for acquisition or sale of businesses, including expansion or restructuring plans; v) financing needs, and compliance with financial covenants in loan agreements; vi) assessments of materiality; vii) predictions of future events and the effects of pending and possible litigation; and viii) assumptions relating to the foregoing. In addition, when used in this report, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” and “plans” and variations thereof and similar expressions are intended to identify forward-looking statements.
Forward-looking statements in this report are based on the Company’s beliefs and expectations as of the date of this report and are subject to risks and uncertainties which may have a significant impact on the Company’s business, operating results or financial condition. Investors are cautioned that these forward-looking statements are inherently uncertain and undue reliance should not be placed on them. We undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events.
Other factors that may affect our future results of operations and financial condition include, but are not limited to, unanticipated developments in any one or more of the following areas, as well as other factors which may be detailed from time to time in our Securities and Exchange Commission filings:
•general economic conditions, such as customer inventory levels, consumer prices and inflation, interest rates, borrowing ability and economic conditions in the manufacturing and/or distribution industries generally, as well as government spending levels will continue to impact our business;
•delays in the timely availability of products from our suppliers has in the past and could in the future delay receipt of needed product, resulting in delayed or lost sales;
•global supply chains and the timely availability of products, particularly products, or product components used in domestic manufacturing, imported from China and other Asian nations as well as from other countries, have been, and in the future could continue to be adversely affected by allocation restrictions of difficult to source products by our vendors;
•quarantines, factory slowdowns or shutdowns, border closings and travel restrictions resulting from the Coronavirus pandemic have in the past and could in the future adversely affect the timely availability of products, resulting in delayed or lost sales;
•the imposition of tariffs and other trade barriers, as well as retaliatory trade measures, have caused us to raise the prices on certain of our products and seek alternate sources of supply, which could negatively impact our sales or disrupt our operations if we are not able to mitigate these measures;
•our use of alternate sources of supply, such as utilizing new vendors in additional countries, entails various risks, such as identifying, vetting and managing new business relationships, reliance on new vendors and maintaining quality control over their products, and protecting our intellectual property rights;
•increases in freight and shipping costs, including fuel costs, could affect our margins to the extent the increases cannot be passed along to customers, as has occurred in the past;
•extreme weather conditions have delayed or disrupted global product supply chains and have affected our ability to timely receive and ship products, which have and could adversely impact sales;
•other critical factors affecting the shipping and distribution of products imported to the United States by us or our domestic vendors, such as a global shortage in availability of shipping containers, shipping port congestion, and
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pandemic related labor shortages, have in the past and could in the future adversely affect the timely availability of products, resulting in delayed or lost sales, as well as adversely affecting our margins;
•our reliance on common carrier delivery services for shipping inventoried merchandise to customers;
•our reliance on drop ship deliveries directly to customers by our product vendors for products we do not hold in inventory;
•our ability to maintain available capacity in our distribution operations for stocked inventory and to enable on time shipment and deliveries, such as by timely implementing additional temporary or permanent distribution resources, whether in the form of additional facilities we operate or by outsourcing certain functions to third-party distribution and logistics partners;
•we compete with other companies for recruiting, training, integrating and retaining talented and experienced employees, particularly in markets where we and they have central distribution facilities; and this aspect of competition is aggravated by the current tight labor market in the U.S. for such jobs and at a time this market is undergoing competitive changes due to the Coronavirus pandemic;
•risks involved with e-commerce, including possible loss of business and customer dissatisfaction if outages or other computer-related problems should preclude customer access to our products and services;
•our information systems and other technology platforms supporting our sales, procurement and other operations are critical to our operations and disruptions or delays have occurred and could occur in the future, and if not timely addressed could have a material adverse effect on us;
•a data security breach due to our e-commerce, data storage or other information systems being hacked by those seeking to steal Company, vendor, employee or customer information, or due to employee error, resulting in disruption to our operations, litigation and/or loss of reputation or business;
•managing various inventory risks, such as being unable to profitably resell excess or obsolete inventory and/or the loss of product return rights from our vendors;
•meeting credit card industry compliance standards in order to maintain our ability to accept credit cards;
•rising interest rates, increased borrowing costs or limited credit availability, could impact both our and our customers’ ability to fund purchases and conduct operations in the ordinary course;
•pending or threatened litigation and investigations, and other government actions, such as anti-dumping, unclaimed property, or trade and customs actions by U.S. or foreign governmental authorities, have occurred in the past and although had no material impact to our business, there can be no assurance that such events would not have such impact on our business and results of operation.
Should one or more of the risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Statements in this report, particularly in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Notes to Condensed Consolidated Financial Statements, as well as information under the heading “Risk Factors” in our Annual Report on Form 10-K for fiscal year 2021, describe certain factors, among others, that could contribute to or cause such differences.
Overview
Global Industrial Company, through its subsidiaries, is a value-added industrial distributor of more than one million industrial and maintenance, repair and operation ("MRO") products in North America going to market through a system of branded e-commerce websites and relationship marketers.
Continuing Operations
The Company sells a wide array of industrial and MRO products, which are marketed in North America. These industrial and MRO products are manufactured by other companies. Some products are manufactured for us and sold as a white label product, and some are manufactured to our own design and marketed as private brand products under the trademarks: GlobalTM, GlobalIndustrial.comTM, NexelTM, ParamountTM and InterionTM..
See Note 2 to the condensed consolidated financial statements for additional financial information about our business' geographic operations.
Discontinued Operations
As disclosed above, the operating results of discontinued operations in the accompanying financial statements are from the NATG business sold in 2015.
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Operating Conditions
The North American industrial products market is highly fragmented and we compete against multiple distribution channels. Industrial products distribution is working capital intensive, requiring us to incur significant costs associated with the warehousing of many products, including the costs of maintaining inventory, leasing warehouse space, inventory management systems and employing personnel to perform the associated tasks. We supplement our on-hand product availability by maintaining relationships with major distributors and manufacturers, utilizing a combination of stock and drop-shipment fulfillment.
The primary component of our operating expenses historically has been employee-related costs, which includes items such as wages, commissions, bonuses, employee benefits and equity-based compensation, as well as marketing expenses, primarily comprised of digital marketing spend, and occupancy related charges associated with our leased distribution and call center facilities. We continually assess our operations to ensure that they are efficient, aligned with market conditions and responsive to customer needs.
The discussion of our results of operations and financial condition that follows will provide information that will assist in understanding our financial statements, the factors that we believe may affect our future results and financial condition as well as information about how certain accounting policies and estimates affect the consolidated financial statements. This discussion should be read in conjunction with the condensed consolidated financial statements included herein and in conjunction with the audited financial statements as of December 31, 2021 and the other information provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
The Company had strong top line performance as first quarter revenue increased 14.9% to $288.6 million. Sales reflect continued strength in core categories, as personal protective equipment returned to pre-pandemic levels. Customer demand was strong each month during the quarter, and Global Industrial branded products led our growth. Gross margin reached a record level for the third consecutive quarter with year over year expansion in both product and freight margins, supplemented by a higher balance of sales from our private branded products. Selling, distribution and administrative ("SD&A") management remained disciplined and delivered operating leverage in key expense categories within our distribution and logistics costs, compensation costs, and marketing costs, resulting in operating income of $29.5 million and operating margin exceeding 10%. For the first time in Global Industrial's history, the Company was able to achieve double digit operating margin on a cumulative trailing twelve month basis.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in Item 15 of the Company’s 2021 Annual Report on Form 10-K. Certain accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty, and as a result, actual results could differ materially from those estimates. These judgments are based on historical experience, observation of trends in the industry, information provided by customers, forecasts of future economic conditions and information available from other outside sources, as appropriate. Management has identified revenue recognition, allowances for credit losses, inventory valuation and income taxes as policies that entail significant judgments or estimates. Management believes that full consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial statements of the Company accurately reflect management's best estimate of the consolidated results of operations, financial position and cash flows of the Company for the years presented.
There were no material changes in the Company’s significant accounting policies during the first quarter of 2022.
Public companies in the United States are subject to the accounting and reporting requirements of various authorities, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). These authorities issue numerous pronouncements, most of which are not applicable to the Company’s current or reasonably foreseeable operating structure. See Note 1 of Notes to Condensed Consolidated Financial Statements, Recent Accounting Pronouncements.
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Highlights from Q1 2022
The discussion of our results of operations and financial conditions that follows will provide information that will assist in understanding our financial statements and information about how certain accounting principles and estimates affect the condensed consolidated financial statements included herein.
•Consolidated sales increased 14.9% to $288.6 million compared to $251.1 million last year. Sales increased 14.8% on an average daily sales basis. Average daily sales is calculated based upon the number of selling days in each period, with Canadian sales converted to U.S. dollars using the current year's average exchange rate. There were 65 selling days in the U.S. in each of the first quarters of 2022 and 2021, respectively, and, in Canada, there were 64 selling days in the first quarter of 2022 as compared to 63 selling days in the first quarter of 2021.
•Consolidated gross margin increased to 37.4% compared to 30.8% last year.
•Consolidated operating income from continuing operations increased to $29.5 million compared to $6.6 million last year.
•Net income per diluted share from continuing operations increased to $0.57 compared to $0.14 last year.
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Results of Operations
Three Months Ended March 31, 2022 compared to the Three Months Ended March 31, 2021(1)
Key Performance Indicators* (in millions):
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||
| Net sales of continuing operations: | |||||||||||||||||
| Consolidated net sales | $288.6 | $251.1 | 14.9% | ||||||||||||||
| Consolidated gross profit | $107.8 | $77.3 | 39.5% | ||||||||||||||
| Consolidated gross margin | 37.4% | 30.8% | 6.6% | ||||||||||||||
| Consolidated SD&A costs | $78.3 | $70.7 | 10.7% | ||||||||||||||
| Consolidated SD&A costs as a % of net sales | 27.1% | 28.2% | (1.1)% | ||||||||||||||
| Operating income from continuing operations: | |||||||||||||||||
| Consolidated operating income | $29.5 | $6.6 | 347.0% | ||||||||||||||
| Consolidated operating margin from continuing operations | 10.2% | 2.6% | 7.6% | ||||||||||||||
| Effective income tax rate | 25.1% | 15.4% | 9.7% | ||||||||||||||
| Net income from continuing operations | $21.8 | $5.5 | 296.4% | ||||||||||||||
| Net income margin from continuing operations | 7.6% | 2.2% | 5.4% | ||||||||||||||
| Net income per diluted share from continuing operations | $0.57 | $0.14 | 307.1% | ||||||||||||||
| Net income from discontinued operations | $0.2 | $9.7 | (97.9)% | ||||||||||||||
| Net income per diluted share from discontinued operations | $0.01 | $0.25 | (96.0)% | ||||||||||||||
*excludes discontinued operations (See Note 4 of Notes to Condensed Consolidated Financial Statements).
| 1 | Global Industrial Company manages its business and reports using a 52-53 week fiscal year that ends at midnight on the Saturday closest to December 31. For clarity of presentation, fiscal years and quarters are described as if they ended on the last day of the respective calendar month. The actual fiscal quarters ended on April 2, 2022 and April 3, 2021, respectively, and the first quarters of both 2022 and 2021 each included 13 weeks. | ||||
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Management’s discussion and analysis that follows will include current operations and discontinued operations.
NET SALES
The Company's net sales increased 14.9% during the quarter ended March 31, 2022. The Company's sales reflect a strong customer demand environment, the benefit of pricing actions taken to offset the impact of inflation, and leading performance by our managed sales groups, which tend to have a higher average order value as compared to our transactional, unassigned web and inbound business.
U.S. sales increased 14.4% in the quarter ended March 31, 2022 compared to the same period in 2021. Canada sales were up approximately 21.6%, 21.7% in local currency. Consolidated average daily sales increased 14.8% compared to the same period last year.
There were 65 selling days in the U.S. in each the first quarters of 2022 and 2021, respectively, and in Canada there were 64 selling days in the first quarter of 2022 as compared to 63 selling days in the first quarter of 2021.
GROSS MARGIN
Gross margin is dependent on variables such as product mix including sourcing and category, competition, pricing strategy, vendor volume rebates, freight pricing decisions including the use of free or other promotional freight plans, freight cost inflation including both domestic outbound freight as well as international inbound ocean freight, inventory valuation and obsolescence and other variables, any or all of which may result in fluctuations in gross margin. The Company expects to see continued margin variability due to the current economic environment, inflationary pressures on both transportation and raw material costs, changes in mix as a result of the normalization of our customer’s demand of personal protective equipment ("PPE") and other related products, and historical seasonality.
Gross margin improved by 660 basis points in the first quarter of 2022 compared to the first quarter of 2021, driven by a normalization of freight margins as compared to the transitory costs incurred in the first quarter of 2021 related to the transition to a new less-than-truckload ("LTL") freight partner, a continued increase from our higher margin private brands capturing a larger share of our sales mix, the impact of price rationalization in an inflationary environment and a reduction in inventory adjustments as compared to a large write-down of certain personal protection equipment products that incurred last year.
SELLING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES (“SD&A”)
SD&A costs as a percentage of sales decreased 110 basis points compared to the first quarter of 2021. This improved SD&A leverage primarily reflects targeted SD&A discipline and fixed cost leverage resulting from the sales growth in the quarter. In the first quarter of 2022, the significant cost decreases include lower temporary help and contract labor costs of approximately $0.7 million. Offsetting these decreased costs was approximately $5.2 million related to increased salary and related costs, of which approximately $2.8 million related to higher variable compensation directly related to the Company's financial performance, increased catalog and internet advertising spend of approximately $1.3 million, increased insurance costs of approximately $0.2 million, and increased consulting and professional fees of approximately $0.1 million related to our continuing customer centric strategy initiatives and our e-commerce optimization project.
DISCONTINUED OPERATIONS
In the first quarter ended March 31, 2022, the Company's discontinued operations recorded net income of approximately $0.2 million. In the first quarter ended March 31, 2021, discontinued operations received approximately $15.0 million in restitution receipts offset by approximately $3.0 million of professional fees related to the ongoing restitution proceedings and recorded approximately $0.1 million in vendor settlements. Discontinued operations also recorded approximately $0.5 million in benefit from settlement of payable accounts and recorded approximately $2.9 million of income tax expense.
OPERATING MARGIN
Operating margin for the three months ended March 31, 2022 improved by 760 basis points compared to the first quarter of 2021. As discussed above, the increase was driven by pricing actions taken to offset the impact of inflation, favorable product margins as our higher margin private brands captured a larger share of our sales mix, normalization of freight margins and SD&A leverage.
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INTEREST AND OTHER EXPENSE, NET
Interest and other expense, net from continuing operations was $0.4 million in the first quarter of 2022 compared to $0.1 million in the first quarter of 2021.
INCOME TAXES
For the three month period ended March 31, 2022, the Company reported income taxes in continuing operations of approximately $7.3 million related to its U.S., Canada and India operations including tax expense for certain U.S. states.
For the three month period ended March 31, 2021, the Company reported income taxes in continuing operations of approximately $1.0 million related to its U.S. and India operations including tax expense for certain U.S. states. The first quarter 2021 tax rate was benefited by excess benefits from stock option exercises of approximately $0.4 million and pre-tax income in Canada of approximately $1.7 million where the Company had a full valuation allowance against its deferred tax assets, including net operating losses, and taxable income was fully offset by net operating losses.
Financial Condition, Liquidity and Capital Resources
The following tables present selected liquidity data and historical cash flows (in millions):
Selected liquidity data
| March 31, 2022 | December 31, 2021 | $ Change | |||||||||||||||
| Cash and cash equivalents | $ | 14.6 | $ | 15.4 | $ | (0.8) | |||||||||||
| Accounts receivable, net | $ | 118.9 | $ | 106.8 | $ | 12.1 | |||||||||||
| Inventories | $ | 204.4 | $ | 172.8 | $ | 31.6 | |||||||||||
| Prepaid expenses and other current assets | $ | 7.1 | $ | 6.4 | $ | 0.7 | |||||||||||
| Accounts payable | $ | 123.0 | $ | 114.4 | $ | 8.6 | |||||||||||
| Accrued expenses and other current liabilities | $ | 48.6 | $ | 50.5 | $ | (1.9) | |||||||||||
| Short-term debt | $ | 25.0 | $ | 4.5 | $ | 20.5 | |||||||||||
| Operating lease liabilities | $ | 10.5 | $ | 10.5 | $ | 0.0 | |||||||||||
| Working capital | $ | 137.9 | $ | 121.5 | $ | 16.4 | |||||||||||
Historical Cash Flows
| Three Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net cash (used in) provided by operating activities from continuing operations | $ | (14.0) | $ | 8.9 | |||||||
| Net cash (used in) provided by operating activities from discontinued operations | $ | (0.1) | $ | 12.0 | |||||||
| Net cash used in investing activities from continuing operations | $ | (1.1) | $ | (0.9) | |||||||
| Net cash provided by (used in) financing activities from continuing operations | $ | 14.4 | $ | (5.5) | |||||||
| Effects of exchange rates on cash | $ | 0.0 | $ | 0.0 | |||||||
| Net (decrease) increase in cash and cash equivalents | $ | (0.8) | $ | 14.5 | |||||||
Our primary liquidity needs are to support working capital requirements in our business, including inflationary cost pressure within inventory, funding recently declared and any future dividends, funding capital expenditures and inventory purchases related to a new distribution center lease in Canada, debt repayment, continuing investment in upgrading and expanding our technological capabilities and information technology infrastructure specifically related to our e-commerce shopping experience and sales force productivity and automation, continuing investment in upgrading and expanding our distribution footprint and funding acquisitions. We rely principally upon operating cash flow to meet these needs. We currently believe that current cash on hand, cash flow from operations and our availability under our credit facility will be sufficient to fund our working capital
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and other cash requirements for at least the next twelve months. We believe our current capital structure and cash resources are adequate for our internal growth initiatives. To the extent our growth initiatives expand, including major acquisitions, we would seek to raise additional capital. We believe that, if needed, we can access public or private funding alternatives to raise additional capital.
Our working capital increased $16.4 million primarily related to increased inventory balances, accounts receivable, reduced accrued expenses and other current liabilities partially offset by increased short-term debt and accounts payable balances. Our debt position reflects increased borrowings to meet working capital needs related to inventory investments to support longer lead times in our supply chain, as well as the value of inflationary costs within our inventory. Accounts receivable days outstanding were 37.8 in 2022 compared to 37.4 in 2021, inventory turns were 4.3 in 2022 compared to 5.2 in 2021 and accounts payable days outstanding were 65.9 in 2022 compared to 69.2 in 2021. We expect that future accounts receivable, inventory and accounts payable balances will fluctuate with net sales and the product mix of our net sales.
Operating Activities
Net cash used in operating activities from continuing operations was $14.0 million compared to $8.9 million provided in 2021 attributable to changes in our working capital accounts which used $38.2 million in cash compared to $1.1 million provided in 2021, primarily the result of the changes in inventory, accounts receivable, accounts payable, accrued expenses, other current liabilities and other liabilities balances. Cash generated from net income adjusted by other non-cash items, provided $24.2 million in 2022 compared to $7.8 million provided by these items in 2021 primarily due to higher net income generated in the first quarter of 2022. Net cash used in operating activities from discontinued operations was $0.1 million for the three months ended March 31, 2022 and net cash provided by operating activities from discontinued operations was $12.0 million for the three months ended March 31, 2021.
Investing Activities
Net cash used in investing activities totaled $1.1 million and was used for warehouse machinery and equipment, leasehold improvements, computer equipment and software. Net cash used in investing activities in 2021 totaled $0.9 million primarily for warehouse machinery and equipment.
Financing Activities
Net cash provided by financing activities totaled $14.4 million in 2022 primarily related to the net proceeds from short-term borrowings of $20.5 million. Proceeds from the issuance of common stock from employee stock purchase plan totaled $0.6 million and proceeds from the issuance of common stock from stock option exercises, net of payments for payroll taxes through shares withheld totaled $0.3 million. Dividends paid primarily related to the regular quarterly dividend of $0.18 per share declared in February 2022 which totaled approximately $7.0 million. Net cash used in financing activities in 2021 totaled $5.5 million primarily related to the regular quarterly dividend of $0.16 per share declared in February 2021 which totaled approximately $6.4 million. Proceeds from the issuance of common stock from stock option exercises, net of payments for payroll taxes through shares withheld totaled $0.4 million and proceeds from the issuance of common stock from our employee stock purchase plan totaled $0.5 million.
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The Company maintains a $75.0 million secured revolving credit facility with one financial institution, which has a five year term, maturing on October 19, 2026 and provides for borrowings in the United States. The credit agreement contains certain operating, financial and other covenants, including limits on annual levels of capital expenditures, availability tests related to payments of dividends and stock repurchases and fixed charge coverage tests related to acquisitions. The revolving credit agreement requires that a minimum level of availability be maintained. If such availability is not maintained, the Company will be required to maintain a fixed charge coverage ratio (as defined). The borrowings under the agreement are subject to borrowing base limitations of up to 85% of eligible accounts receivable and the inventory advance rate computed as the lesser of 60% or 85% of the net orderly liquidation value (“NOLV”). Borrowings are secured by substantially all of the Borrower’s assets, as defined, including all accounts, accounts receivable, inventory and certain other assets, subject to limited exceptions, including the exclusion of certain foreign assets from the collateral. The interest rate under the amended and restated facility is computed at applicable market rates based on the London interbank offered rate (“LIBOR”), the Federal Reserve Bank of New York (“NYFRB”) or the Prime Rate, plus an applicable margin. The applicable margin varies based on borrowing base availability. As of March 31, 2022, eligible collateral under the credit agreement was $75.0 million, total availability was $72.4 million, total outstanding letters of credit was $1.5 million, total outstanding borrowings was $25.0 million and total excess availability was $45.9 million. The Company was in compliance with all of the covenants of the credit agreement as of March 31, 2022.
Levels of earnings and cash flows are dependent on factors such as consolidated gross margin and selling, distribution and administrative costs, product mix and relative levels of domestic and foreign sales. Unusual gains or expense items, such as special (gains) charges and settlements, may impact earnings and are separately disclosed. We expect that past performance may not be indicative of future performance due to the competitive nature of our business where the need to adjust prices to gain or hold market share is prevalent.
Macroeconomic conditions, such as business and consumer sentiment, may affect our revenues, cash flows or financial condition. However, we do not believe that there is a direct correlation between any specific macroeconomic indicator and our revenues, cash flows or financial condition.
The expenses and capital expenditures described above will require significant levels of liquidity, which we believe can be adequately funded from our currently available cash resources, cash flow from operations and borrowing under our current credit facility. In 2022 we anticipate capital expenditures in the range of $7.0 to $9.0 million, though at this time we are not contractually committed to incur these expenditures.
In the past we have engaged in opportunistic acquisitions, choosing to pay the purchase price in cash, and may do so in the future as favorable situations arise. However, a deep and prolonged period of reduced business spending could adversely impact our cash resources and force us to either forego future acquisition opportunities or to pay the purchase price using stock, debt or a combination of consideration which could have an adverse effect on our earnings. We believe that our cash balances and future cash flows from operations and availability under our credit facility will be sufficient to fund our working capital and other cash requirements for at least the next twelve months.
We maintain our cash and cash equivalents in money market funds or their equivalent that have maturities of less than three months and in non-interest bearing accounts that partially offset banking fees. As of March 31, 2021, we had no investments with maturities of greater than three months. Accordingly, we do not believe that our cash balances have significant exposure to interest rate risk. At March 31, 2022 cash balances held in foreign subsidiaries totaled approximately $6.4 million. These balances are held in local country banks and are held primarily to support local working capital needs. The Company had in excess of $54 million of liquidity (cash and undrawn line of credit) in the U.S. as of March 31, 2022.
Material Cash Requirements
We are obligated under non-cancelable operating leases for the rental of our facilities and certain of our equipment which expires at various dates through 2032. As of March 31, 2022 we were obligated for approximately $76.3 million under these non-cancelable leases. In 2022 we anticipate cash expenditures of approximately $10.9 million for these operating leases. Additionally, in March 2022 we signed a lease for a new distribution facility in Canada consisting of approximately 334,000 square feet. The lease is for ten years and we expect to record a Right of use asset of approximately $33.0 million when the Company has use of the space, which is currently expected to be by October 1, 2022. We have sublease agreements for unused space we lease in the United States. In the event the sub lessee is unable to fulfill its obligations, we would be responsible for remaining rents due under the leases.
Our purchase and other obligations consist primarily of purchase commitments for certain employment, consulting and service
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agreements. In addition to the previously mentioned commitments, at March 31, 2022, we had $1.5 million of standby letters of credit outstanding.
We are party to certain litigation, the outcome of which we believe, based on discussions with legal counsel, will not have a material adverse effect on our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, which include changes in U.S. and international interest rates as well as changes in currency exchange rates (principally Canadian dollars) as measured against the U.S. dollar and each other.
The translation of the financial statements of our operations outside of the United States is impacted by movements in foreign currency exchange rates. Changes in currency exchange rates as measured against the U.S. dollar may positively or negatively affect income statement, balance sheet and cash flows as expressed in U.S. dollars. We have limited involvement with derivative financial instruments and do not use them for trading purposes. We may enter into foreign currency options or forward exchange contracts aimed at limiting in part the impact of certain currency fluctuations, but as of March 31, 2022 we had no outstanding option or forward exchange contracts.
Our exposure to market risk for changes in interest rates relates primarily to our variable rate debt. Our variable rate debt consists of short-term borrowings under our credit facilities. As of March 31, 2022, $25.0 million was outstanding under our variable rate credit facility. A hypothetical change in average interest rates of one percentage point is not expected to have a material effect on our financial position, results of operations or cash flows.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2022. Based upon this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.
The Company’s internal control over financial reporting is designed 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. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during the quarterly period ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For a description of the Company's legal proceedings, see Note 8, Legal Proceedings, of Notes to Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
For information regarding Risk Factors related to the economy, our industries, our Company and our business, see Item 1A. "Risk Factors" of the Company's 2021 Annual Report on Form 10-K.
There were no material changes to the Company’s risk factors during the first quarter of 2022.
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Item 6. Exhibits
| Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
| Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
| Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
| Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
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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.
| GLOBAL INDUSTRIAL COMPANY | ||||||||
| Date: May 6, 2022 | By: | /s/ Barry Litwin | ||||||
| Barry Litwin | ||||||||
| President and Chief Executive Officer | ||||||||
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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.
| GLOBAL INDUSTRIAL COMPANY | ||||||||
| Date: May 6, 2022 | By: | /s/ Thomas Clark | ||||||
| Thomas Clark | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
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