What changed in GLOBAL INDUSTRIAL Co's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of GLOBAL INDUSTRIAL Co's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+173 added−157 removedSource: 10-K (2024-03-12) vs 10-K (2023-02-23)
Top changes in GLOBAL INDUSTRIAL Co's 2023 10-K
173 paragraphs added · 157 removed · 125 edited across 6 sections
- Item 7. Management's Discussion & Analysis+78 / −70 · 53 edited
- Item 1. Business+41 / −37 · 30 edited
- Item 1A. Risk Factors+43 / −36 · 31 edited
- Item 5. Market for Registrant's Common Equity+4 / −7 · 4 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+4 / −4 · 4 edited
Item 1. Business
Business — how the company describes what it does
30 edited+11 added−7 removed29 unchanged
Item 1. Business
Business — how the company describes what it does
30 edited+11 added−7 removed29 unchanged
2022 filing
2023 filing
Biggest changeCustomer Service, Order Fulfillment and Support Since 2019 we have launched several initiatives with our vendors and freight partners, and in our own distribution centers, to improve our customer’s experience such as our Voice of the Customer initiative, involving phone and online surveys to obtain our customer’s input on their experiences with us and our products to ensure we deliver on the promise, to better focus our sales, service and marketing efforts on our customers' needs and to target areas of improvement to enhance the overall customer experience.
Biggest changeCustomer Service, Order Fulfillment and Support We have launched several initiatives, in the past, with our vendors and freight partners, and in our own distribution centers, to improve our customer’s experience such as our Voice of the Customer initiative.
Item 1. Business. General Global Industrial Company, through its operating subsidiaries, is a value-added industrial distributor of more than a 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. The Company was incorporated in Delaware in 1995.
Item 1. Business. General Global Industrial Company, through its operating subsidiaries, is a value-added industrial distributor of more than a million industrial and maintenance, repair and operation products in North America going to market through a system of branded e-commerce websites and relationship marketers. The Company was incorporated in Delaware in 1995.
See Note 5 to the consolidated financial statements included in Item 15 of this Form 10-K for additional financial information about our business as well as information about our geographic operations. Accelerating the Customer Experience The Company's multi-year business strategy is focused on Accelerating our Customers Experience (“ACE”).
See Note 5 to the consolidated financial statements included in Item 15 of this Form 10-K for additional financial information about our business as well as information about our geographic operations. Accelerating the Customer Experience The Company's multi-year business strategy is focused on Accelerating the Customer Experience (“ACE”).
In our most recent U.S. EEO-1 data, the associate demographic breakdown for individuals reporting was 44% female and 56% male and minorities constituted 55% of our workforce. We believe our diversity of associates is one of the Company’s considerable strengths and that our demographics are consistent with our competitors in the sales and distribution space.
In our most recent U.S. EEO-1 data, the associate demographic breakdown for individuals reporting was 44% female and 56% male and minorities constituted 46% of our workforce. We believe our diversity of associates is one of the Company’s considerable strengths and that our demographics are consistent with our competitors in the sales and distribution space.
Given these trends, financial results tend to vary quarter to quarter with sales and operating margin in the second and third quarters moderately higher than those in the first and fourth quarters respectively. 8 Table o f Contents Discontinued operations For information regarding certain discontinued operations and former lines of business, see Item 7, "Management's Discussions and Analysis of Financial Condition and Results of Operations" and Note 7 to the consolidated financial statements included in Item 15 of this Form 10-K.
Given these trends, financial results tend to vary quarter to quarter with sales and operating margin in the second and third quarters moderately higher than those in the first and fourth quarters respectively. 9 Table of Contents Discontinued operations For information regarding certain discontinued operations and former lines of business, see Item 7, "Management's Discussions and Analysis of Financial Condition and Results of Operations" and Note 8 to the consolidated financial statements included in Item 15 of this Form 10-K.
Although we have not been notified of, and are not otherwise aware of, any material real property environmental liability, claims or non-compliance, there can be no assurance that we will not be required to incur remediation or other costs in connection with real property environmental matters in the future. Seasonality Seasonality does have some effect on the Company’s sales.
Although we have not been notified of, and are not otherwise aware of, any material real property environmental liability, claims or non-compliance, there can be no assurance that we will not be required to incur remediation or other costs in connection with real property environmental matters in the future. 8 Table of Contents Seasonality Seasonality does have some effect on the Company’s sales.
Catalogs As the Company increased its focus on online and e-commerce advertising, marketing and sales activities over the years, the use of hard copy catalogs decreased as compared to earlier periods, but over the last several years, we have distributed a stable number of regular and specialty catalogs, postcards, and other physical mail and anticipate continuing to do so in the near term.
Catalogs As the Company increased its focus on online and e-commerce advertising, marketing and sales activities over the years, the use of hard copy catalogs decreased as compared to earlier periods, but over the last several years, we have distributed a stable number of regular and specialty catalogs, postcards, and other physical mail and anticipate continuing to do so.
We tend to stock items in our distribution center, and invest the requisite working capital in inventory position, after demonstrating sales volume success in the drop ship sales of that item effected through our suppliers. Orders are generally shipped by third-party delivery services and we maintain relationships with thousands of distributors and product vendors in the United States and Canada.
We tend to stock items in our distribution center, and invest the requisite working capital in inventory position, after demonstrating sales volume success in the drop ship sales of that item effected through our suppliers. Orders are generally shipped by third-party delivery services and we maintain relationships with thousands of distributors and product vendors.
Approximately 39% of our associates are customer facing including customer service, quota bearing sales representatives, inbound call center representatives, and other pre and post sales management and support.
Approximately 46% of our associates are customer facing including customer service, quota bearing sales representatives, inbound call center representatives, and other pre and post sales management and support.
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.
These are available as soon as is reasonably practicable after they are filed with the SEC. All reports mentioned above are also available on the SEC’s website ( www.sec.gov ). Unless otherwise specified, the information on our website is not part of this or any other report we file with, or furnish to, the SEC.
We have become a destination and trusted supplier of these products and continue to evaluate expansion within key end markets. 5 Table o f Contents Sales and Marketing We market our products primarily to business customers, which include for-profit businesses, state, local, and private educational organizations and government entities including federal, state, and local municipalities.
We have become a destination and trusted supplier of these products and continue to evaluate expansion within key end markets. Sales and Marketing We market our products primarily to business customers, which include for-profit businesses, state, local, and private educational organizations and government entities including federal, state, and local municipalities.
Approximately 37% of our team members are employed within distribution, logistics, and fulfillment areas, while 24% of our associate base works within administrative functions including: IT, Marketing, Product Management, Human Resources, Accounting and Finance, Legal and Risk Management and general administrative and management roles. Our worldwide workforce is made up of a diverse group of associates.
Approximately 29% of our team members are employed within distribution, logistics, and fulfillment areas, while 25% of our associate base works within administrative functions including: IT, Merchandising, Accounting and Finance, Marketing, Human Resources, Product Management, Legal and Risk Management and general administrative and management roles. Our worldwide workforce is made up of a diverse group of associates.
Products generally are categorized within the following categories: storage and shelving, safety and security, carts and trucks, HVAC and fans, furniture and decor, material handling, janitorial and facility maintenance, workbenches and shop desks, tools and instruments, plumbing and pumps, office and school supplies, packaging and shipping, lighting and electrical, food service and retail, medical and laboratory, motors and power transmission, building supplies, machining, fasteners and hardware, vehicle maintenance, and raw materials.
Products generally are categorized within the following categories: storage and shelving, safety and security, carts and trucks, HVAC and fans, furniture and decor, material handling, janitorial and facility maintenance, workbenches and shop 5 Table of Contents desks, tools and instruments, plumbing and pumps, office and school supplies, packaging and shipping, lighting and electrical, foodservice and retail, medical and laboratory, motors and power transmission, building supplies, machining, fasteners and hardware, vehicle maintenance, and raw materials.
We face competition from large diversified MRO distributors such as Uline Inc, Grainger Inc., MSC Industrial 7 Table o f Contents Direct Inc., Fastenal Inc., and other large retailers, including Amazon. We also face competition from manufacturers’ own sales representatives, who sell industrial equipment directly to customers, and from regional or local distributors.
We face competition from large diversified MRO distributors such as Uline Inc, Grainger Inc., MSC Industrial Direct Inc., Fastenal Inc., and other large retailers, including Amazon. We also face competition from manufacturers’ own sales representatives, who sell industrial equipment directly to customers, and from regional or local distributors.
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 • Conflict Mineral Disclosure In accordance with the listing standards of the New York Stock Exchange, each of the Corporate Governance Documents is available on our Company website (https://investors.globalindustrial.com) under the heading "Governance-Governance Documents".
Our Board of Directors has adopted the following corporate governance documents with respect to the Company (the “Corporate Governance Documents”), among others: • 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 • Conflict Mineral Disclosure In accordance with the corporate governance rules of the New York Stock Exchange, each of the Corporate Governance Documents is available on our Company website, https://investors.globalindustrial.com.
In addition, because the industrial products market is highly fragmented and generally less brand oriented, we believe it is well suited to private brand and white label products. Human Capital Resources As of December 31, 2022, we employed a total of approximately 1,650 associates, of whom 1,420 were in North America and 230 were in Asia.
In addition, because the industrial products market is highly fragmented and generally less brand oriented, we believe it is well suited to private brand and white label products. Human Capital Resources As of December 31, 2023, we employed a total of approximately 1,870 associates, of whom 1,620 were in North America and 250 were in Asia.
These industrial and MRO products are manufactured by other companies. Some products are manufactured for us as a white label product and some are manufactured to our own design: these products are marketed as private brand products under the trademarks: Global™, GlobalIndustrial.com™, Nexel™, Paramount™ and Interion™.
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: Global™, GlobalIndustrial.com™, Nexel™, Paramount™, Interion™ and Absocold™.
The balance of our orders are received by telephone to our inbound call center, direct dial to our inside account management team, placement through one of our field sales representatives, and to a small extent via fax. We generally provide toll-free telephone number access for our customers in countries where it is customary.
The balance of our orders are received by telephone to our inbound call center, direct dial to our inside account management team, placement through one of our field sales representatives, and to a small extent via fax.
In stock items are distributed via a network of five large distribution centers in the U.S. located in the Northeast, Midwest, West, Southeast and South Central regions, one new large distribution facility in Canada and one additional smaller distribution facilities in Canada.
In stock items are distributed via a network of five primary distribution centers in the U.S. located in the Northeast, Midwest, West, Southeast and South Central regions, one large distribution facility in Canada that was opened in the fourth quarter of 2022, replacing a smaller footprint nearby, and several smaller distribution facilities in the United States and Canada.
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, as well as any other materials filed with (or furnished to) the SEC.
Available Information We maintain an internet website at https://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.
Suppliers We purchase substantially all of our products and components directly from both large and small manufacturers as well as large wholesale distributors. No supplier accounted for 10% or more of our product purchases in 2022, 2021 and 2020. Most private brand products are manufactured by third parties to our specifications.
No supplier accounted for 10% or more of our product purchases in 2023, 2022 and 2021. Most private brand products are manufactured by third parties to our specifications.
E-commerce We currently operate multiple e-commerce sites, including: www.globalindustrial.com www.globalindustrial.ca www.industrialsupplies.com We are continually upgrading the capabilities and performance of these websites in our significant markets.
E-commerce We currently operate multiple e-commerce sites, including: www.absocold.com www.globalindustrial.com www.globalindustrial.ca www.indoff.com www.industrialsupplies.com We are continually upgrading the capabilities and performance of these websites in our significant markets. In 2022, we launched a completely new globalindustrial.com e-commerce site in the United States designed to drive personalization to further improve the digital shopping experience.
In addition to our own e-commerce websites, we have partnering agreements with several of the largest internet shopping and search engine providers who feature our products on their websites or provide “click-throughs” from their sites directly to ours. These arrangements allow us to expand our customer base at an economical cost.
Our customers have around-the-clock, online access to purchase products and we have the ability to create targeted promotions for our customers’ interests. 6 Table of Contents In addition to our own e-commerce websites, we have partnering agreements with several of the largest internet shopping and search engine providers who feature our products on their websites or provide “click-throughs” from their sites directly to ours.
Certain predecessor businesses which now constitute the Company's operations have been in business since 1949. Our headquarters office is located at 11 Harbor Park Drive, Port Washington, New York. Continuing operations The Company offers more than one million industrial and MRO products, including its own Global Industrial Exclusive Brands TM , which are marketed in North America.
Certain predecessor businesses which now constitute the Company's operations have been in business since 1949. Our headquarters office is located at 11 Harbor Park Drive, Port Washington, New York.
A growing proportion of our orders are received electronically via internet, extranet, EDI, customer punch out catalog, online chat, or through broadly utilizing vendor and customer portals such as Ariba or Coupa. These E-orders represented over 57% of our transaction count for the year ended December 31, 2022 compared to 56% for the year ended December 31, 2021.
Upgraded training and technology solutions will play a large part in continuing to improve our customer satisfaction scores. A growing proportion of our orders are received electronically via internet, extranet, EDI, customer punch out catalog, online chat, or through broadly utilizing vendor and customer portals such as Ariba or Coupa.
We also repositioned our private brand offering as Global Industrial Exclusive Brands TM with the tag line “Made to Exceed".
In 2022, we initiated our “ We Can Supply That ® ” branding campaign across our websites, emails, trade show, copy writing and our NASCAR sponsorship and we repositioned our private brand offering as Global Industrial Exclusive Brands TM with the tag line “Made to Exceed".
We maintain a database of commonly asked questions for our technical support representatives, enabling them to respond quickly to similar questions. We conduct regular on-site training seminars for our sales representatives to help ensure that they are well trained and informed regarding our latest product offerings.
We maintain a database of commonly asked questions for our technical support representatives, enabling them to respond quickly to similar questions.
Certain domestic call centers are linked to provide telephone backup in the event of a disruption in phone service.
We provide toll-free telephone number access for our customers nationwide which are linked automatically as a backup in the event of a disruption in phone service.
We have over one million brand name and private brand products available through our e-commerce sites and have access to over 1.7 million products in our database.
We offer hundreds of thousands of brand name and private brand products available through our e-commerce sites and have access to many more additional long tail products from our network of vendor partners.
Signature Campaigns We have realigned our marketing efforts, seasonal product offering, and go to market strategy around enterprise wide strategic marketing campaigns.
These arrangements allow us to expand our customer base at an economical cost. Signature Campaigns We have realigned our marketing efforts, seasonal product offering, and go to market strategy around enterprise wide strategic marketing campaigns. In 2021, our We Got This campaign aimed to help our customers navigate the supply chain disruptions that made sourcing key products more challenging.
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In 2020 we enhanced our website for full ADA/508 compliance, expanded customer self service functions such as SMS notifications, added proactive notifications through Global Assist (order tracking on the web) and added the ability to create quotes and product reviews. In addition we have upgraded the look and functionality of our mobile site.
Added
On May 19, 2023 the Company acquired 100% of the outstanding equity interests of Indoff LLC ("Indoff"), a business-to-business direct marketer of material handling products, commercial interiors and business products with operations in North America, for approximately $72.6 million in cash. This acquisition expands the Company's presence in the MRO market in North America.
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In 2021, we launched a new search engine as well as reorganizing the full category hierarchy and taxonomy of our product offering in an effort to drive improved search, conversion rates, and overall user experience. In 2022, we launched a new e-commerce site designed to drive personalization to further improve the digital shopping experience.
Added
Continuing operations The Company offers hundreds of thousands of industrial and MRO products, including its own Global Industrial Exclusive Brands TM , which are marketed in North America. These industrial and MRO products are manufactured by other companies.
Removed
Our internet sites feature over one million MRO and industrial and general business supplies. Our customers have around-the-clock, online access to purchase products and we have the ability to create targeted promotions for our customers’ interests.
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In 2023, our primary focus was to optimize the shopability of the site via enhancements to search, including bringing to market a new List View approach, which allows users to easily find and compare products.
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In 2020, this began with the Restore, Return and Rebound signature campaign addressing customer 6 Table o f Contents needs for returning to operations post pandemic and then followed with a Ready, Set, Vaccinate campaign introduced to assist hospitals and other health agency customers prepare for administering vaccines to the public.
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In addition, we launched new capabilities allowing users to create repeat subscription purchases, as well as optimized options to identify related products that would enhance their product purchases. Our internet sites feature hundreds of thousands of MRO and industrial and general business supplies.
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We continued these campaigns into 2021 with our We Got This campaign which is aimed at helping our customers navigate the recent supply chain disruptions that have made sourcing key products more challenging. During 2022, we initiated our “ We Can Supply That ® ” branding campaign across our websites, emails, trade show, copy writing and our NASCAR sponsorship.
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Our focus on Signature Campaigns continued in 2023 as we aimed to highlight how our products and solutions help our customers streamline their operations through organization, facility design, and solutions that are not only cost effective, but save time and effort.
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These efforts continued through 2021 when we further added additional improvements to the experience including offering 24x7 chat supported by both AI chatbots and live chats with our associates.
Added
This campaign primarily operated under the banner of Operational Efficiency and included key landing pages focused on industry specific tailored content and product.
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Available Information We maintain an internet website at https://investors.globalindustrial.com.
Added
Further, as we have identified more efficient means of distribution of these physical mediums, we plan on increasing the frequency and mix of catalogs, postcards, and other types of mailers in 2024.
Added
This initiative, involving phone and online surveys to obtain our customer’s input on their experiences with us and our products to ensure we deliver on the promise, to better focus our sales, service and marketing efforts on our customers' needs and to target areas of improvement to enhance the overall customer experience, led us to add additional improvements to the experience including offering 24 hour, seven days a week chat supported by both AI chatbots and live chats with our associates.
Added
As part of a culture of continuous improvement, our Customer Experience team is focusing on the idea of " Make It Right" t o ensure that when our customers experience a problem, we are able to solve if effectively and to their satisfaction the first time.
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These e-orders represented over 62% of our transaction count for the year ended December 31, 2023 compared to 57% for the year ended December 31, 2022.
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We conduct regular on-site training seminars for our sales representatives to help ensure that they are well trained and informed regarding our latest product offerings. 7 Table of Contents Suppliers We purchase substantially all of our products and components directly from both large and small manufacturers as well as large wholesale distributors.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
31 edited+12 added−5 removed103 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
31 edited+12 added−5 removed103 unchanged
2022 filing
2023 filing
Biggest changeIn addition, as privacy and information security laws and standards evolve, we may need to incur significant additional investment in technology and other processes to meet new legal requirements. • Our foreign product procurement operations are subject to risks such as foreign regulatory trade and customs requirements such as the tariffs and duties matters discussed above, and the political and economic conditions of the jurisdictions from which we procure products.
Biggest changeAny failure to remediate the material weaknesses identified, or the development of new material weaknesses in our internal control over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet our reporting and financial obligations, which in turn could have a negative impact on our financial condition, results of operations or cash flows and cause a decline in the market price of our stock. 16 Table of Contents • Our foreign product procurement operations are subject to risks such as foreign regulatory trade and customs requirements such as the tariffs and duties matters discussed above, and the political and economic conditions of the jurisdictions from which we procure products.
Acquisitions and other strategic transactions involve numerous risks and challenges, including the following: • diversion of management’s attention from the normal operation of our business; • potential loss of key associates and customers of the acquired companies; • difficulties managing and integrating operations in geographically dispersed locations; • the potential for deficiencies in internal controls at acquired companies; • increases in our expenses and working capital requirements, which reduce our return on invested capital; • lack of experience operating in the geographic market or industry sector of the acquired business; and • exposure to unanticipated liabilities of acquired companies.
Acquisitions and other strategic transactions involve numerous risks and challenges, including the following: • diversion of management’s attention from the normal operation of our business; • potential loss of key associates and customers of the acquired companies; • difficulties managing and integrating operations in geographically dispersed locations; 18 Table of Contents • the potential for deficiencies in internal controls at acquired companies; • increases in our expenses and working capital requirements, which reduce our return on invested capital; • lack of experience operating in the geographic market or industry sector of the acquired business; and • exposure to unanticipated liabilities of acquired companies.
D ecisions to drop ship rather than stock products in our distribution centers, decisions to offer private brand alternatives or branded offerings, price changes by manufacturers, and pricing actions taken in response to competitors, as well as a continuation of our customers’ shift to lower-priced products could also adversely affect our gross margins. 13 Table o f Contents • We rely to a great extent on our information and telecommunications systems, and significant system failures or outages, or our failure to properly evaluate, upgrade or replace our systems, or the failure of our security/safety measures to protect our systems and websites, could have an adverse effect on our results of operations.
D ecisions to drop ship rather than stock products in our distribution centers, decisions to offer private brand alternatives or branded offerings, price changes by manufacturers, and pricing actions taken in response to competitors, as well as a continuation of our customers’ shift to lower-priced products could also adversely affect our gross margins. 14 Table of Contents • We rely to a great extent on our information and telecommunications systems, and significant system failures or outages, or our failure to properly evaluate, upgrade or replace our systems, or the failure of our security/safety measures to protect our systems and websites, could have an adverse effect on our results of operations.
Richard Leeds, Robert Leeds, and Bruce Leeds (each are brothers and directors and executive officers of the Company), together with trusts for the benefit of certain members of their respective families and other entities controlled by them, control approximately 66.4% of the voting power of our outstanding common stock.
Richard Leeds, Robert Leeds, and Bruce Leeds (each are brothers and directors and executive officers of the Company), together with trusts for the benefit of certain members of their respective families and other entities controlled by them, control approximately 66.2% of the voting power of our outstanding common stock.
However, due to the highly uncertain and dynamic nature of these events, it is not currently possible to estimate with any reliable measure of certainty the impact of the Russia - Ukraine war on our business. • Adverse weather events or natural disasters, as well as pandemics such as the coronavirus, could negatively affect or disrupt our operations.
However, due to the highly uncertain and dynamic nature of these events, it is not currently possible to estimate with any reliable measure of certainty the impact on our business. • Adverse weather events or natural disasters, as well as pandemics such as the coronavirus, could negatively affect or disrupt our operations.
To the extent the U.S. dollar strengthens against foreign currencies, our foreign revenues and profits will be reduced when translated into U.S. dollars. 15 Table o f Contents • We are exposed to various inventory risks, such as being unable to profitably resell excess or obsolete inventory and/or the loss of product return from our vendors; such events could lower our gross margins or result in inventory write-downs that would reduce reported future earnings.
To the extent the U.S. dollar strengthens against foreign currencies, our foreign revenues and profits will be reduced when translated into U.S. dollars. • We are exposed to various inventory risks, such as being unable to profitably resell excess or obsolete inventory and/or the loss of product return from our vendors; such events could lower our gross margins or result in inventory write-downs that would reduce reported future earnings.
In this regard, we experienced product delivery and shipping delays due to the disrupted global product supply chains which affected our ability to timely receive and ship products, which could adversely impact sales. 10 Table o f Contents Our ability to provide efficient distribution of core business products from our third-party drop ship distribution centers is critical to our business strategy.
In this regard, we experienced product delivery 11 Table of Contents and shipping delays due to the disrupted global product supply chains which affected our ability to timely receive and ship products, which could adversely impact sales. Our ability to provide efficient distribution of core business products from our third-party drop ship distribution centers is critical to our business strategy.
In this regard, 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 have been and could again be materially disrupted by quarantines, factory slowdowns or shutdowns, border closings, and travel restrictions resulting from the Covid-19 pandemic.
In this regard, 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 have been and could again be materially disrupted by quarantines, factory slowdowns or shutdowns, border closings, and travel restrictions resulting from pandemics.
These drop ship delivery relationships enable us to make available to our customers a wide selection of products without having to maintain 12 Table o f Contents large amounts of inventory. The termination or interruption of our relationships with any of these drop ship suppliers could materially adversely affect our business.
These drop ship 13 Table of Contents delivery relationships enable us to make available to our customers a wide selection of products without having to maintain large amounts of inventory. The termination or interruption of our relationships with any of these drop ship suppliers could materially adversely affect our business.
While we have experienced lost sales due to the Covid-19 pandemic and are making efforts to secure satisfactory levels of inventory there can be no assurance that our supply chain will not experience further disruptions significant enough to adversely affect our operations. 9 Table o f Contents We have in the past experienced a decline in sales as a result of poor economic conditions and the lack of visibility relating to future orders (as well as due to the other risks discussed below).
While, in the past, we have experienced lost sales due to the COVID-19 pandemic, we continue making efforts to secure satisfactory levels of inventory; however, there can be no assurance that our supply chain will not experience further disruptions significant enough to adversely affect our operations. 10 Table of Contents We have in the past experienced a decline in sales as a result of poor economic conditions and the lack of visibility relating to future orders (as well as due to the other risks discussed below).
This consolidation has and will 11 Table o f Contents continue to cause the industry to become more competitive as greater economies of scale are achieved by competitors, or as competitors with new lower cost business models are able to operate with lower prices. • Volatility in commodity prices may adversely affect gross margins.
This consolidation has and will continue to cause the industry to become more competitive as greater economies of scale are achieved by competitors, or as competitors with new lower cost business models are able to operate with lower prices. • Volatility in commodity prices may adversely affect gross margins.
Our inability to attract and retain such personnel could have a material adverse effect on our business and financial results. 16 Table o f Contents • We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our results of operations and business.
Our inability to attract and retain such personnel could have a material adverse effect on our business and financial results. • We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our results of operations and business.
We also have processes in place to prevent 14 Table o f Contents disruptions resulting from the implementation of new software and systems of the latest technology.
We also have processes in place to prevent 15 Table of Contents disruptions resulting from the implementation of new software and systems of the latest technology.
Pandemics, such as the global coronavirus outbreak have and may in the future disrupt global supply chains, including those we rely on in China, which could materially adversely affect our operations.
Pandemics have disrupted and may in the future disrupt global supply chains, including those we rely on in China, which could materially adversely affect our operations.
For example, we currently have operations located in countries outside the United States, and non-U.S. sales accounted for approximately 6.2% of our net sales from continuing operations during 2022.
For example, we currently have operations located in countries outside the United States, and non-U.S. sales accounted for approximately 5.3% of our net sales from continuing operations during 2023.
In addition, a prolonged war in Ukraine may have adverse impacts on cyber security, global supply chains, inflationary pressures and interest rates and engender volatility in commodities and other markets, any of which could negatively affect our business.
In addition, a prolonged war in Ukraine and the Middle East, and continued shipping disruptions in the Red Sea may have adverse impacts on cyber security, global supply chains, inflationary pressures and interest rates and engender volatility in commodities and other markets, any of which could negatively affect our business.
To the extent we are unable to offset these cost increases through higher prices or other measures, our operating results may be adversely affected. • Changes in accounting standards or practices, as well as new accounting pronouncements or interpretations, may require us to account for and report our financial results in a different manner in the future, which may be less favorable than the manner used historically. 17 Table o f Contents A change in accounting standards or practices can have a significant effect on our reported results of operations.
To the extent we are unable to offset these cost increases through higher prices or other measures, our operating results may be adversely affected. • Changes in accounting standards or practices, as well as new accounting pronouncements or interpretations, may require us to account for and report our financial results in a different manner in the future, which may be less favorable than the manner used historically.
The integration of acquired businesses may not be successful may take longer or be more difficult, time-consuming or costly to accomplish than anticipated and could result in disruption to other parts of our business.
The difficulties of this integration may be further complicated by geographic distances. The integration of acquired businesses, including Indoff, may not be successful may take longer or be more difficult, time-consuming or costly to accomplish than anticipated and could result in disruption to other parts of our business.
New accounting pronouncements and interpretations of existing accounting rules and practices have occurred and may occur in the future. Changes to existing rules may adversely affect our reported financial results. Item 1B. Unresolved Staff Comments. None.
A change in accounting standards or practices can have a significant effect on our reported results of operations. New accounting pronouncements and interpretations of existing accounting rules and practices have occurred and may occur in the future. Changes to existing rules may adversely affect our reported financial results. Item 1B. Unresolved Staff Comments. None.
In the event of significant numbers of employees having to miss work due to a widespread health situation or pandemic such as the coronavirus, we may not be able to quickly source replacement or temporary workers, which could adversely affect our operations, particularly in our distribution centers. • Our industry is evolving and consolidating, which could adversely affect our business and financial results.
In the event of significant numbers of employees having to miss work due to a widespread health situation or pandemic such as the coronavirus, we may not be able to quickly source replacement or temporary workers, which could adversely affect our operations, particularly in our distribution centers. • Our industry is evolving and consolidating, which could adversely affect our business and financial results. 12 Table of Contents The MRO and industrial equipment industry are consolidating as customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations.
The Company has made acquisitions in the past and these acquisitions resulted in the recording of significant intangible assets and/or goodwill. We are required to test goodwill and intangible assets annually to determine if the carrying values of these assets are impaired or on a more frequent basis if indicators of impairment exist.
The Company's acquisition of Indoff in May 2023 resulted in the recording of significant intangible assets and goodwill totaling approximately $64.8 million. We are required to test goodwill and intangible assets annually to determine if the carrying values of these assets are impaired or on a more frequent basis if indicators of impairment exist.
Furthermore, the ongoing military conflict between Ukraine and Russia, and the potential for retaliatory acts of cyberwarfare from Russia against U.S. companies in response to increasing sanctions on Russia could result in increased cyber-attacks against us.
Furthermore, the ongoing military conflicts between Ukraine and Russia and in the Middle East and the potential for retaliatory acts of cyberwarfare from Russia or other state or non-state actors against U.S. companies could result in increased cyber-attacks against us.
If any of our goodwill or intangible assets are determined to be impaired, we may be required to record a significant charge to earnings in the period during which the impairment is discovered.
If any of our goodwill or intangible assets are determined to be impaired, we may be required to record a significant charge to earnings in the period during which the impairment is discovered. The consolidated carrying amounts of goodwill and intangible assets are $69.3 million as of December 31, 2023. • Our business is dependent on certain key personnel.
See “Legal Proceedings”. • We exited our France business in 2018 and our North American Technology Products Group ("NATG") business in 2015 and could incur costs in excess of our estimated exit expenses.
See “Legal Proceedings”. • We exited our North American Technology Products Group ("NATG") business in 2015 and could incur costs in excess of our estimated exit expenses. The Company has substantially completed the wind-down activities related to the NATG business, although certain NATG activities related to sublet facilities continue.
Many of our competitors also compete with us for recruiting and retaining talented and experienced employees, particularly in markets where we and they have significant distribution facilities. We have also experienced high levels of turnover in our warehouse/distribution operations, consistent with current market conditions.
Many of our competitors also compete with us for recruiting and retaining talented and experienced employees, particularly in markets where we and they have significant distribution facilities. This aspect of competition is aggravated by the current tight labor market in the U.S. for such jobs.
The Company expects that total additional NATG exit costs incurred during 2023 or later may aggregate up to $0.5 million, which will be presented in discontinued operations. There can be no assurance the Company will be able to timely exit its existing NATG lease commitments at currently recorded cost levels.
The Company expects that total additional NATG exit costs incurred during 2024 or later may aggregate up to $0.5 million, which will be presented in discontinued operations. In 2023, we executed a sublease agreement for the full remaining term of the lease.
Our Board of Directors is responsible for oversight of the activities of our IT department (which reports to our Chief Executive Officer) and receives periodic presentations from our Chief Information Officer that cover, among other things, data security and cyber liability matters.
Our Audit Committee is responsible for oversight of the activities of our IT department (which reports to our Senior Vice President and Chief Information Officer ("CIO")) and receives quarterly reports from our CIO that cover, among other things, cybersecurity threats, mitigation measures, and preventative procedures and software.
To integrate acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. The difficulties of this integration may be further complicated by geographic distances.
Furthermore, our estimates regarding the earnings, operating cash flow, capital expenditures and liabilities resulting from this or any future acquisition may prove to be incorrect. To integrate acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations.
As a "controlled company", the Company has elected to opt-out of the first of these. The Company does however currently have an independent Compensation Committee and Corporate Governance and Nominating Committee. • Risk of Thin Trading and Volatility of our Common Stock Could Impact Stockholder Value Our common stock is currently listed on the NYSE and is thinly traded.
Accordingly, our common stock may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements. 17 Table of Contents • Risk of Thin Trading and Volatility of our Common Stock Could Impact Stockholder Value Our common stock is currently listed on the NYSE and is thinly traded.
In addition, the ongoing Russian invasion of Ukraine and the response of the international community has given rise to potential global security issues that may adversely affect international business and economic conditions. The short and long-term implications of the Russia-Ukraine conflict are difficult to predict at this time.
Due to the ongoing conflict in and around the Red Sea, we have experienced significant increases to our shipping costs, and we may continue to experience elevated shipping costs in the future. The short and long-term implications of global security issues are difficult to predict at this time.
Failure to achieve these expectations will result in increased cash exit costs for the Company. • We may encounter difficulties with acquisitions and other strategic transactions which could harm our business.
In the event, the sub lessee is unable to fulfill its obligations, we would be responsible for the remaining rents due under the lease. • We may encounter difficulties with acquisitions, including our recent Indoff acquisition, and other strategic transactions which could harm our business.
Removed
This aspect of competition is aggravated by the current tight labor market in the U.S. for such jobs due to the continued impacts of the Covid-19 pandemic.
Added
In addition, ongoing geopolitical conflicts around the world, including the Russian invasion of Ukraine, the outbreak of armed hostilities in the Middle East and disruptions in international shipping resulting from recent attacks by armed groups on cargo ships in the Red Sea, and the responses of the international community, may adversely affect international business and economic conditions.
Removed
The MRO and industrial equipment industry are consolidating as customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations.
Added
However, there is no guarantee that the Company will be able to identify, vet, and onboard alternative vendors that provide similar cost, and quality of existing suppliers.
Removed
Although the carrying amounts of intangible assets and goodwill are relatively small as of December 31, 2022, to the extent the Company makes acquisitions in the future there could again be material amounts of such assets recorded and subject to future impairment testing. • Our business is dependent on certain key personnel, including the recent engagement of new senior executives.
Added
In addition, as privacy and information security laws and standards evolve, we may need to incur significant additional investment in technology and other processes to meet new legal requirements. • We have identified material weaknesses in our internal control over financial reporting associated with certain Information Technology General Controls (ITGCs).
Removed
The Company has completed the wind-down activities related to the sale of the France business, but may incur additional charges related to statutory tax and other indemnities given at closing. The Company has substantially completed the wind-down activities related to the NATG business, although certain NATG activities related to sublet facilities continue.
Added
If we are unable to remediate this, or otherwise fail to maintain proper and effective internal controls, our ability to produce timely and accurate financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business, our stock price and access to the capital markets.
Removed
The United States has recently experienced historically high levels of inflation. According to the U.S. Department of Labor, the annual inflation rate for the United States was approximately 6.5% for the twelve months ended December 31, 2022. Inflationary pressures have increased our costs, including for those for transportation and labor.
Added
As a public company, we are required to establish and periodically evaluate and assess procedures with respect to our internal control over financial reporting.
Added
In connection with our year-end assessment as part of this Annual Report, we determined that, as of December 31, 2023, we did not maintain effective internal control over financial reporting due to material weaknesses we identified in the design and operation of certain ITGCs relevant to our key accounting, reporting, and proprietary information technology (IT) systems, as more fully described in Item 9A, "Controls and Procedures" of this Form 10-K.
Added
These material weaknesses did not result in any identified misstatements to the financial statements, and there were no changes to previously issued financial results. However, if we are unable to remediate this matter we cannot guarantee this will be the case in future periods.
Added
While we are in the process of implementing changes to remediate the material weaknesses identified, we cannot be certain as to when remediation will be complete or if the remediation efforts will be successful. Further, remediation efforts may place a significant burden on management and add increased pressure to our financial and IT resources and processes.
Added
As a result, we may not be successful in making the improvements necessary to remediate the material weaknesses identified by management in a timely manner or in identifying and remediating additional control deficiencies, including material weaknesses, in the future.
Added
As a controlled company, we currently rely on the exemption from the requirement that the majority of our board of directors consist of independent directors, and although we currently have an independent Compensation Committee and Nominating/Corporate Governance Committee, as long as the we remain a “controlled company,” we may elect in the future to take advantage of any of these other exemptions.
Added
On May 19, 2023 the Company acquired 100% of the outstanding equity interests of Indoff. There can be no assurance that such integration will occur on the expected timeframe or at all, or that we will realize the anticipated benefits and synergies from this or any other future acquisition.
Added
Inflationary pressures have increased our costs in the past and may again in the future.
Item 2. Properties
Properties — owned and leased real estate
3 edited+0 added−0 removed1 unchanged
Item 2. Properties
Properties — owned and leased real estate
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2022 filing
2023 filing
Biggest changeThe Company has one business to business call center and one warehouse from its discontinued NATG business that are sublet. These properties aggregate to approximately 0.4 million square feet of space. Asia As of December 31, 2022 we leased three administrative offices in Asia aggregating approximately 16,300 square feet of space.
Biggest changeOur headquarters, administrative offices and call centers aggregate approximately 217,000 square feet of space. The Company has one business to business call center and one warehouse from its discontinued NATG business that are sublet. These properties aggregate to approximately 0.4 million square feet of space.
North Americ a As of December 31, 2022, we have seven operational distribution centers in North America which aggregate approximately 2.7 million square feet of space. The Company has sublet certain office and warehouse distribution space in Canada, which aggregates to approximately 212,000 square feet. Our headquarters, administrative offices and call centers aggregate approximately 194,000 square feet of space.
North Americ a As of December 31, 2023, we have six primary distribution centers in North America and Canada, which aggregate approximately 2.8 million square feet of space. The Company also has smaller distribution facilities located in North America and Canada. The Company has sublet certain office and warehouse distribution space in Canada, which aggregates to approximately 212,000 square feet.
Please refer to Note 4 to the consolidated financial statements for additional information about leased properties.
Asia 20 Table of Contents As of December 31, 2023 we leased three administrative offices in Asia aggregating approximately 16,300 square feet of space. Please refer to Note 5 to the consolidated financial statements for additional information about leased properties.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
4 edited+0 added−3 removed2 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
4 edited+0 added−3 removed2 unchanged
2022 filing
2023 filing
Biggest changeMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Global Industrial's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol “GIC.” The following table sets forth the high and low closing sales price for the common stock and the dividends declared per share for each quarter during 2022 and 2021.
Biggest changeMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Global Industrial's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol “GIC.” In February 2024, the Company's Board of Directors declared a regular cash dividend of $0.25 per share to common stock shareholders of record at the close of business on March 11, 2024, payable on March 18, 2024.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Liquidity and Capital Resources” and Note 9 of “Notes to Consolidated Financial Statements”.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Liquidity and Capital Resources” and Note 10 of “Notes to Consolidated Financial Statements”.
Information regarding securities authorized for issuance under equity compensation plans and a performance graph relating to the Company’s common stock is set forth in the Company’s Proxy Statement relating to the 2023 Annual Meeting of Stockholders and is incorporated by reference herein.
Information regarding securities authorized for issuance under equity compensation plans relating to the Company’s common stock is set forth in the Company’s Proxy Statement relating to the 2024 Annual Meeting of Stockholders and is incorporated by reference herein.
Under the share repurchase program, the Company is authorized to purchase shares from time to time through open market purchases, tender offerings or negotiated purchases, subject to market conditions and other factors. During 2022 and 2021, no shares were repurchased. During 2020, the Company repurchased 392,337 common shares for $7.2 million under its share repurchase authorization.
Under the share repurchase program, the Company is authorized to purchase shares from time to time through open market purchases, tender offerings or negotiated purchases, subject to market conditions and other factors. During 2023, 2022 and 2021, no shares were repurchased. The maximum number of shares that may yet be purchased under the program total approximately 1,375,000. Item 6. Reserved
Removed
High Low Dividends 2022 First Quarter $ 40.56 $ 29.25 $ 0.18 Second Quarter 36.28 30.46 0.18 Third Quarter 36.29 26.38 0.18 Fourth Quarter 31.74 22.54 0.18 2021 First Quarter $ 44.96 $ 35.36 $ 0.16 Second Quarter 45.72 32.62 0.16 Third Quarter 40.10 34.61 0.16 Fourth Quarter 44.82 37.75 1.16 On December 31, 2022, the last reported sale price of our common stock on the NYSE was $23.53 per share.
Removed
As of December 31, 2022, we had 165 shareholders of record. In February 2023, the Company's Board of Directors declared a regular cash dividend of $0.20 per share to common stock shareholders of record at the close of business on March 6, 2023, payable on March 13, 2023.
Removed
The maximum number of shares that may yet be purchased under the program total approximately 1,375,000. Item 6. Reserved
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
53 edited+25 added−17 removed25 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
53 edited+25 added−17 removed25 unchanged
2022 filing
2023 filing
Biggest changeAverage daily sales is calculated based upon the number of selling days in each period, with Canadian sales converted to US dollars using the current year's average exchange rate. • Consolidated operating income increased 19.5% to $105.2 million compared to $88.0 million last year. • Net income per diluted share from continuing operations increased 10.9% to $2.04 compared to $1.84 last year. 21 Table o f Contents Results of Operations (1) Key Performance Indicators (in millions): Years Ended December 31 Change 2022 2021 2022 vs. 2021 Results of continuing operations: Consolidated net sales $ 1,166.1 $ 1,063.1 9.7 % Consolidated gross profit $ 421.2 $ 374.3 12.5 % Consolidated gross margin 36.1 % 35.2 % 0.9 % Consolidated SD&A costs $ 316.0 $ 286.3 10.4 % Consolidated SD&A costs as % of sales 27.1 % 26.9 % 0.2 % Consolidated operating income $ 105.2 $ 88.0 19.5 % Consolidated operating margin from continuing operations: 9.0 % 8.3 % 0.7 % Effective income tax rate 24.8 % 20.0 % 4.8 % Net income from continuing operations $ 78.1 $ 70.1 11.4 % Net margin from continuing operations 6.7 % 6.6 % 0.1 % Net income from discontinued operations, net of tax $ 0.7 $ 33.2 (97.9) % 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.
Biggest changeThere were 253 selling days in the U.S. in 2023 compared to 254 selling days in 2022 and 250 selling days in Canada in 2023 compared to 251 selling days in 2022. 24 Table of Contents Results of Operations (1) Key Performance Indicators (in millions): Years Ended December 31, Change 2023 2022 2023 vs. 2022 Results of continuing operations: Consolidated net sales $ 1,274.3 $ 1,166.1 9.3 % Consolidated gross profit $ 435.8 $ 421.2 3.5 % Consolidated gross margin 34.2 % 36.1 % (1.9) % Consolidated SD&A costs $ 339.3 $ 316.0 7.4 % Consolidated SD&A costs as % of sales 26.6 % 27.1 % (0.5) % Consolidated operating income $ 96.5 $ 105.2 (8.3) % Consolidated operating margin from continuing operations: 7.6 % 9.0 % (1.4) % Effective income tax rate 25.7 % 24.8 % 0.9 % Net income from continuing operations $ 70.7 $ 78.1 (9.5) % Net margin from continuing operations 5.5 % 6.7 % (1.2) % Net income from discontinued operations, net of tax $ 0.0 $ 0.7 (100.0) % 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.
INCOME TAXES The Company recorded net tax expense in continuing operations for 2022 of $25.7 million, or 24.8%, and a net tax expense in discontinued operations of $0.2 million. Tax expense from continuing operations was primarily the result of pretax income in the U.S. and India operations, including tax expense for certain U.S. states.
The Company recorded net tax expense in continuing operations for 2022 of $25.7 million, or 24.8%, and a net tax expense in discontinued operations of $0.2 million. Tax expense from continuing operations was primarily the result of pretax income in the U.S. and India operations, including tax expense for certain U.S. states.
Offsetting these payments, were 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 $1.4 million.
Offsetting these payments, were net proceeds of $0.1 million from the issuance of common stock from stock option exercises, net of payments for payroll taxes through shares withheld and proceeds of $1.4 million from the issuance of common stock from our employee stock purchase plan.
The Company estimates the net realizable value of its inventory by considering factors such as inventory levels, historical write-off information, market conditions, estimated direct selling costs and physical condition of the inventory. Our inventory reserve estimates for the years ended December 31, 2022 and 2021 have not been materially different than our actual experience.
The Company estimates the net realizable value of its inventory by considering factors such as inventory levels, historical write-off information, market conditions, estimated direct selling costs and physical condition of the inventory. Our inventory reserve estimates for the years ended December 31, 2023 and 2022 have not been materially different than our actual experience.
In 2023 we anticipate capital expenditures to be in the range of $6.0 to $8.0 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.
In 2024 we anticipate capital expenditures to be in the range of $6.0 to $8.0 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.
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 December 31, 2022, we had no investments with maturities of greater than three 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 December 31, 2023, we had no investments with maturities of greater than three months.
Revenue Recognition The Company recognizes revenue from contracts with its customers utilizing the following steps: • Identifying the contract with the customer ▪ Identifying the performance obligations under the contract ▪ Determine the transaction price ▪ Allocate transaction price to performance obligations, if necessary ▪ Recognizing revenue as performance obligations are satisfied The Company's invoice, and the terms and conditions of sale contained therein, constitutes the evidence of an arrangement and is a contract with the customer.
Revenue Recognition The Company recognizes revenue from contracts with its customers utilizing the following steps: • Identifying the contract with the customer ▪ Identifying the performance obligations under the contract ▪ Determining the transaction price ▪ Allocating transaction price to performance obligations, if necessary ▪ Recognizing revenue as performance obligations are satisfied The Company's invoice, and the terms and conditions of sale contained therein, constitutes the evidence of an arrangement and is a contract with the customer.
We rely principally upon operating cash flows 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 and other cash requirements for at least the next twelve months.
We rely upon operating cash flow and our credit facility to meet those 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 and other cash requirements for at least the next twelve months.
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 agreements. As of December 31, 2022 we were obligated for approximately $31.7 million under these commitments.
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 agreements. As of December 31, 2023 we were obligated for approximately $32.3 million under these commitments.
As of December 31, 2022, the Company had no material uncertain tax positions. Discontinued Operations The Company's discontinued operations include the former North American Technology Group business sold in December 2015 (see Note 1 and Note 7 to the Consolidated Financial Statements).
As of December 31, 2023, the Company had no material uncertain tax positions. Discontinued Operations The Company's discontinued operations include the former North American Technology Group business sold in December 2015 (see Note 1 and Note 8 to the Consolidated Financial Statements).
Revenue is reduced for any early payment discounts or volume incentive rebates offered to customers. 27 Table o f Contents The Company’s revenue is shown as “Net sales” in the accompanying Consolidated Statements of Operations and is measured as the determined transaction price, net of any variable consideration consisting primarily of rights to return product.
Revenue is reduced for any early payment discounts or volume incentive rebates offered to customers. The Company’s revenue is shown as “Net sales” in the accompanying Consolidated Statements of Operations and is measured as the determined transaction price, net of any variable consideration consisting primarily of rights to return product.
The Company has elected to omit discussion of the earliest year presented, December 31, 2020, in MD&A. This discussion can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for the year ended December 31, 2021, filed on March 17, 2022.
The Company has elected to omit discussion of the earliest year presented, December 31, 2021, in MD&A. This discussion can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for the year ended December 31, 2022, filed on February 23, 2023.
Accordingly, we do not believe that our cash balances have significant exposure to interest rate risk. At December 31, 2022 cash balances held in foreign subsidiaries totaled approximately $3.1 million. These balances are held in local country banks and are held primarily to support local working capital needs.
Accordingly, we do not believe that our cash balances have significant exposure to interest rate risk. At December 31, 2023 cash balances held in foreign subsidiaries totaled approximately $4.2 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 $137 million of liquidity (cash and an undrawn line of credit) in the U.S. as of December 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.
The Company had in excess of $131 million of liquidity (cash and an undrawn line of credit) in the U.S. as of December 31, 2023. Material Cash Requirements We are obligated under non-cancelable operating and finance leases for the rental of our facilities and certain of our equipment which expire at various dates through 2032.
Discontinued Operations The Company's discontinued operations include the results of the North American Technology Group ("NATG") business sold in December 2015 (see Note 1 and Note 7 to the Consolidated Financial Statements). Operating Conditions The North American industrial products market is highly fragmented and we compete against numerous competitors in multiple distribution channels.
Discontinued Operations The Company's discontinued operations include the results of the North American Technology Group ("NATG") business sold in December 2015 (see Note 1 and Note 8 to the Consolidated Financial Statements). 22 Table of Contents Operating Conditions The North American industrial products market is highly fragmented and we compete against companies in multiple distribution channels.
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: Global™, GlobalIndustrial.com™, Nexel™, Paramount™ and Interion™.
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: Global™, GlobalIndustrial.com™, Nexel™, Paramount™, Interion™ and Absocold™.
This discussion should be read in conjunction with the consolidated financial statements included herein. • Consolidated sales increased 9.7% to $1.17 billion in U.S. dollars compared to $1.06 billion last year. Sales increased 9.3% on an average daily sales basis.
This discussion should be read in conjunction with the consolidated financial statements included herein. • Consolidated sales increased 9.3% to $1.27 billion in U.S. dollars compared to $1.17 billion last year.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview 19 Table o f Contents 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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Overview Global Industrial Company, through its subsidiaries, is a value-added industrial distributor of more than hundreds of thousands of industrial and MRO products in North America going to market through a system of branded e-commerce websites and relationship marketers.
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. We are not currently interest rate sensitive, as we have minimal debt.
However, we do not believe that there is a direct correlation between any specific macroeconomic indicator and our revenues, cash flows or financial condition. We are not currently interest rate sensitive, as we have no outstanding debt.
For clarity of presentation, fiscal years are described as if they ended on the last day of the respective calendar month. Fiscal years 2022 and 2021 ended on December 31, 2022 and January 1, 2022, respectively. The fiscal years ended 2022 and 2021 included 52 weeks.
For clarity of presentation, fiscal years are described as if they ended on the last day of the respective calendar month. Fiscal years 2023 and 2022 ended on December 30, 2023 and December 31, 2022, respectively.
In 2023 we anticipate cash expenditures of approximately $7.9 million related to these commitments. In addition to the previously mentioned commitments, we had $1.4 million of standby letters of credit outstanding as of December 31, 2022.
In 2024 29 Table of Contents we anticipate cash expenditures of approximately $7.8 million related to these commitments. In addition to the previously mentioned commitments, we had $1.6 million of standby letters of credit outstanding as of December 31, 2023.
Investing Activities Net cash used in investing activities from continuing operations totaled $7.1 million and $3.4 million for 2022 and 2021, respectively. In 2022, investing activities was used for warehouse machinery and equipment, primarily related to our new Canadian distribution center, leasehold improvements, computer equipment and software.
In 2022, investing activities was used for warehouse machinery and equipment, primarily related to our new Canadian distribution center, leasehold improvements, computer equipment and software. Financing Activities Net cash used in financing activities was $29.7 million in 2023 and 2022, respectively.
However, if in the future our estimates are materially different than our actual experience we could have a material loss adjustment.
However, if in the future our estimates are materially different than our actual experience we could have a material loss adjustment. Business Combinations We follow ASC 805, Business Combinations, for our acquisition accounting.
As of December 31, 2022 we were obligated for approximately $128.2 million under these non-cancelable operating leases. In 2023 we anticipate cash expenditures of approximately $17.7 million for these operating leases. We have sublease agreements for unused space, as well as excess space in facilities we are currently 26 Table o f Contents occupying, in the United States and Canada.
As of December 31, 2023 we were obligated for approximately $117.6 million under these non-cancelable operating leases. In 2024 we anticipate cash expenditures of approximately $19.0 million for these operating leases. We have sublease agreements for unused space, as well as excess space in facilities we are currently occupying, in the United States and Canada.
Offsetting this increase are the changes in our working capital accounts, which used $38.2 million in cash compared $28.7 million used in 2021, primarily the result of changes in the inventory, accounts payable, income taxes and accounts receivable balances. Net cash provided by operating activities from discontinued operations was $0.4 million and $2.2 million in 2022 and 2021, respectively.
In addition, changes in our working capital accounts provided $26.7 million in 2023 compared to $38.2 million used in 2022, primarily the result of changes in inventory and accounts payable balances. Net cash provided by operating activities from discontinued operations was $0.0 million and $0.4 million in 2023 and 2022, respectively.
Tax expense from continuing operations was also benefited by approximately $0.8 million of stock option exercises. Non-deductible expenses, including executive compensation, was approximately $0.4 million. Tax expense in discontinued operations is attributed to pretax income recorded in the discontinued North American Technology Products Group business.
Non-deductible expenses, including executive compensation, was approximately $3.0 million. Tax expense in discontinued operations is attributed to pretax income recorded in the discontinued North American Technology Products Group business.
Financial Condition, Liquidity and Capital Resources Selected liquidity data (in millions): December 31, 2022 2021 $ Change Cash and cash equivalents $ 28.5 $ 15.4 $ 13.1 Accounts receivable, net $ 108.0 $ 106.8 $ 1.2 Inventories $ 179.4 $ 172.8 $ 6.6 Prepaid expenses and other current assets $ 9.8 $ 6.4 $ 3.4 Accounts payable $ 96.9 $ 114.4 $ (17.5) Accrued expenses and other current liabilities $ 43.2 $ 50.5 $ (7.3) Short-term debt $ 0.6 4.5 $ (3.9) Operating lease liabilities $ 12.4 $ 10.5 $ 1.9 Working capital $ 172.6 $ 121.5 $ 51.1 24 Table o f Contents Historical Cash Flows Year Ended December 31, 2022 2021 Net cash provided by operating activities from continuing operations $ 49.8 $ 47.6 Net cash provided by operating activities from discontinued operations $ 0.4 $ 2.2 Net cash used in investing activities from continuing operations $ (7.1) $ (3.4) Net cash used in financing activities from continuing operations $ (29.7) $ (55.0) Effects of exchange rates on cash $ (0.3) $ 0.0 Net increase (decrease) in cash and cash equivalents $ 13.1 $ (8.6) Our primary liquidity needs are to support working capital requirements in our business, including inflationary cost pressures within inventory, funding recently declared and any future dividends, funding capital expenditures and inventory purchases related to our new distribution center 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, sales force productivity and automation, continuing investment in upgrading and expanding our distribution footprint and funding acquisitions.
Financial Condition, Liquidity and Capital Resources Selected liquidity data (in millions): December 31, 2023 2022 $ Change Cash and cash equivalents $ 34.4 $ 28.5 $ 5.9 Accounts receivable, net $ 130.7 $ 108.0 $ 22.7 Inventories $ 150.8 $ 179.4 $ (28.6) Prepaid expenses and other current assets $ 13.9 $ 9.8 $ 4.1 Accounts payable $ 111.0 $ 96.9 $ 14.1 Accrued expenses and other current liabilities $ 49.1 $ 43.2 $ 5.9 Short-term debt $ 0.0 0.6 $ (0.6) Operating lease liabilities $ 14.1 $ 12.4 $ 1.7 Working capital $ 155.6 $ 172.6 $ (17.0) 27 Table of Contents Historical Cash Flows Year Ended December 31, 2023 2022 Net cash provided by operating activities from continuing operations $ 112.0 $ 49.8 Net cash provided by operating activities from discontinued operations $ 0.0 $ 0.4 Net cash used in investing activities from continuing operations $ (76.2) $ (7.1) Net cash used in financing activities from continuing operations $ (29.7) $ (29.7) Effects of exchange rates on cash $ (0.2) $ (0.3) Net increase in cash and cash equivalents $ 5.9 $ 13.1 Our primary liquidity needs are to support working capital requirements in our business, funding recently declared and any future dividends, funding capital expenditures and inventory purchases, continuing investment in upgrading and expanding our technological capabilities specifically related to additional functionality and enhanced navigation of our new web platform, continuing investment in upgrading our distribution footprint and funding acquisitions.
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 65% (previously 60%) or 85% of the net orderly liquidation value (“NOLV”).
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 65% or 85% of the net orderly liquidation value (“NOLV”).
While obsolescence and resultant markdowns have been within expectations, there can be no guarantee that we will continue to experience the same level of markdowns we have in the past.
If market conditions are less favorable than projected or if technological developments result in accelerated obsolescence, additional write-downs may be required. While obsolescence and resultant markdowns have been within expectations, there can be no guarantee that we will continue to experience the same level of markdowns we have in the past.
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 segments where the need to adjust prices to gain or hold market share is prevalent.
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.
The total accrued sales returns liability was approximately $2.2 million at December 31, 2022 and 2021, respectively, and was recorded as a refund liability in Accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets. Inventory Valuation We value our inventories at the lower of cost or net realizable value; cost being determined on the first-in, first-out method.
The total accrued sales returns liability was approximately $2.1 million at December 31, 2023 and $2.2 million at December 31, 2022, and was recorded as a refund liability in Accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets.
We expect that future accounts receivable, inventory and accounts payable balances will fluctuate with net sales and the product mix of our net sales.
Inventory turns were 5.3 in 2023 compared to 3.8 in 2022 and accounts payable days outstanding were 50.0 in 2023 compared to 56.6 in 2022. 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 provided by operating activities from continuing operations was $49.8 million attributable to cash generated from net income adjusted by other non-cash items which provided $88.0 million in 2022 compared to $76.3 million provided by these items in 2021.
Operating Activities Net cash provided by operating activities from continuing operations was $112.0 million attributable to cash generated from net income adjusted by other non-cash items which provided $85.3 million in 2023 compared to $88.0 million provided in 2022. This decrease is primarily the result of lower income in 2023 offset by increased depreciation and amortization expenses.
Tax expense from continuing operations was primarily the result of pretax income in the U.S. and India operations, including tax expense for certain U.S. states.
INCOME TAXES The Company recorded net tax expense in continuing operations for 2023 of $24.5 million, or 25.7%. Tax expense from continuing operations was primarily the result of pretax income in the U.S. and India operations, including tax expense for certain U.S. states. Non-deductible expenses, including executive compensation, was approximately $2.5 million.
The Company has elected to treat shipping and handling revenues as activities to fulfill its performance obligation. Billings for freight and shipping and handling are recorded in net sales and costs of freight and shipping and handling are recorded in cost of sales in the accompanying Consolidated Statements of Operations.
The Company has elected to treat shipping and handling revenues as activities to fulfill its performance obligation.
There were 254 selling days in the U.S. in 2022 compared to 253 selling days in 2021 and 251 selling days in Canada in 2022 compared to 250 selling days in 2021. 22 Table o f Contents Management’s discussion and analysis that follows will include current operations and discontinued operations.
There were 253 selling days in the U.S. in 2023 compared to 254 selling days in 2022 and 250 selling days in Canada in 2023 compared to 251 selling days in 2022.
As of December 31, 2022, eligible collateral under the credit agreement was $116.4 million, total availability was $113.7 million, total outstanding letters of credit was $1.4 million, total outstanding borrowings was $0.6 million and total excess availability was $111.7 million.
As of December 31, 2023, eligible collateral under the credit agreement was $105.4 million, total availability was $102.8 million, total outstanding letters of credit was $1.6 million, total excess availability was $101.2 million and there were no outstanding borrowings. The Company was in compliance with all of the covenants of the credit agreement in place as of December 31, 2023.
The Company was in compliance with all of the covenants of the credit agreement in place as of December 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.
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.
Average daily sales is calculated based upon the number of selling days in each period, with Canadian sales converted to US dollars using the current year's average exchange rate.
Excluding Indoff, operating income was $90.8 million, a decrease of 13.7%. • Net income per diluted share from continuing operations decreased 9.8% to $1.84 compared to $2.04 last year. *Average daily sales is calculated based upon the number of selling days in each period, with Canadian sales converted to US dollars using the current year's average exchange rate.
DISCONTINUED OPERATIONS The Company's discontinued operations include the results of the NATG businesses sold in December 2015 (see Note 1 and Note 7 to the Consolidated Financial Statements).
DISCONTINUED OPERATIONS The Company's discontinued operations include the results of the NATG businesses sold in December 2015 (see Note 1 and Note 8 to the Consolidated Financial Statements). 26 Table of Contents During 2023, the Company's discontinued operations net loss was de minimis as sublet income and resolution of certain liabilities offset the operating expenses incurred during the year.
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 December 31, 2022. The Company offers customers rights to return product within a certain time, usually 30 days.
The Company had approximately $3.3 million of contract obligations or liabilities as of December 31, 2023 and $0.0 million as of December 31, 2022. The increase in the contract liability balance is related to the Indoff acquisition. The Company offers customers rights to return product within a certain time, usually 30 days.
OPERATING MARGIN The Company's operating margin increased 70 basis points in 2022 compared to 2021, driven by improved gross margin that resulted primarily from the product mix shift to in stock and private brand products and efficiencies in our marketing efforts.
In 2022, operating margin increased primarily due to the product mix shift to in stock and private brand products and efficiencies in our marketing efforts. INTEREST AND OTHER EXPENSE, NET Interest and other expense, net from continuing operations was $1.1 million for 2023 and 2022.
During 2021, the Company had net borrowings under its credit facility of approximately $4.5 million and proceeds from the issuance of common stock from stock option exercises, net of payments for payroll taxes through shares withheld, which totaled $1.9 million. Proceeds from the issuance of common stock from our employee stock purchase plan totaled $1.1 million.
Offsetting these payments, were 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 $1.4 million. 28 Table of Contents The Company maintains a $125.0 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.
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.
The Indoff accounts are included in the accompanying consolidated financial statements from the date of acquisition. See Note 4, Acquisition, of Notes to Consolidated Financial Statements for additional financial information regarding the acquisition. Continuing Operations The Company sells a wide array of industrial and MRO products, which are marketed in North America.
During 2022, the Company recorded net income in its discontinued operations of approximately $0.7 million primarily related to the resolution of certain liabilities. 23 Table o f Contents During 2021, the Company recorded net income in its discontinued operations of approximately $33.2 million primarily related to the resolution of certain liabilities and restitution receipts offset by related professional fees and the provision for income taxes.
During 2022, the Company recorded net income in its discontinued operations of approximately $0.7 million primarily related to the resolution of certain liabilities. OPERATING MARGIN The Company's operating margin declined 140 basis points in 2023 compared to 2022, primarily driven by the gross margin decline offset by savings in SD&A expenses.
In 2021, net cash used in financing activities primarily related to the special dividend and regular quarterly 25 Table o f Contents dividends, which totaled approximately $62.5 million.
In 2023, net cash used in financing activities primarily related to the regular quarterly dividend of $0.20 per common share which totaled $30.6 million and net repayments of short-term borrowings of $0.6 million.
SELLING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES (“SD&A”) Selling, distribution and administrative expenses totaled $316.0 million and $286.3 million for the years ended December 31, 2022 and 2021, respectively. SD&A costs as a percentage of sales increased in 2022 compared to 2021 by 20 basis points.
The Company may also experience margin variability in future periods due to the current economic environment, inflationary pressures and historical seasonality. SELLING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES (“SD&A”) Selling, distribution and administrative expenses totaled $339.3 million and $316.0 million for the years ended December 31, 2023 and 2022, respectively.
Increased costs in 2022 reflect the increased loan balances year over year and higher interest rate environment. The Company also recorded foreign exchange losses of approximately $0.3 million in 2022 and 2021.
These costs reflect the outstanding loan balance, utilized to partially fund the Indoff acquisition in May 2023, which were repaid in the third quarter of 2023 and to partially fund inflationary inventory costs in 2022. The Company also recorded foreign exchange losses of approximately $0.2 million in 2023 and $0.3 million in 2022.
Our private brand offering was an area of focus and opportunity during 2022 and for the year it represented approximately 50% of total sales. U.S. sales increased 10.1% compared to 2021 and Canada sales, in local currency, were up 7.7%. In USD, Canada sales increased 3.8%. Consolidated sales increased 9.3% on an average daily sales basis compared to 2021.
Our private brand offering continued to represent approximately 50% of total sales, down slightly from prior year associated with improved volume offset by lower price capture. U.S. sales, including Indoff, increased 10.2% compared to the full year of 2022 and Canada sales declined 5.3%, 1.7% in local currency.
In 2021, investing activities was used primarily for warehouse machinery and equipment related to our New Jersey distribution center and for other distribution centers, as well as, leasehold improvements. Financing Activities Net cash used in financing activities was $29.7 million and $55.0 million in 2022 and 2021, respectively.
Investing Activities Net cash used in investing activities totaled $76.2 million and $7.1 million for 2023 and 2022 respectively In 2023, $72.6 million was used for the purchase of Indoff, offset by $0.3 million of cash acquired, with the balance of $3.9 million used for warehouse machinery and equipment for our U.S. warehouses and new Canadian distribution center, leasehold improvements, computer equipment upgrades and molds.
Significant cost increases related to increased salary and other related costs of approximately $13.6 million, of which approximately $4.4 million related to higher variable incentive and equity compensation expenses related to the Company's financial performance and increased sales commissions of approximately $1.8 million due to the growth in sales.
Total compensation and related costs savings of approximately $4.6 million were realized, of which approximately $4.8 million related to a reduction in variable incentive and equity compensation expenses related to performance and approximately $3.9 million of decreased spend for temporary help.
Excess and obsolete or unmarketable merchandise are written down based on historical experience, assumptions about future product demand and market conditions. If market conditions are less favorable than projected or if technological developments result in accelerated obsolescence, additional write-downs may be required.
Inventory Valuation We value our inventories at the lower of cost or net realizable value; cost being determined on the first-in, first-out method or average cost method. Excess and obsolete or unmarketable merchandise are written down based on historical experience, assumptions about future product demand and market conditions.
Our working capital increased $51.1 million primarily related to increased inventory balances and lower accounts payable and accrued expense balances. Our inventory balance increase is primarily associated with increased cost of capitalized freight associated with increased costs of inbound ocean freight, as well as an expansion of safety stock levels.
Our inventory balance decrease is primarily associated with decreased cost of capitalized freight associated with normalizing costs of inbound ocean freight, as well as a reduction of safety stock levels, made possible by improved supply chain performance. Accounts receivable days outstanding were 37.3 in 2023 compared to 38.3 in 2022.
Removed
Business Outlook As we enter 2023, while uncertainty remains in the economic outlook, the Company is cautiously optimistic and excited by the opportunities we see for growth including our ability to attract new enterprise customers, penetrate new vertical markets including healthcare and hospitality, expand our Global Industrial Exclusive Brands TM products and deliver an innovative and personalized e-commerce experience. 20 Table o f Contents Highlights from 2022 vs. 2021 The following discussion of our results of operations and financial condition will provide information that will assist in understanding our financial statements and information about how certain accounting principles and estimates affect the consolidated financial statements.
Added
On May 19, 2023 the Company acquired 100% of the outstanding equity interests of Indoff, a business-to-business direct marketer of material handling products, commercial interiors and business products with operations in North America, for approximately $72.6 million in cash. This acquisition expands the Company's presence in the MRO market in North America.
Removed
NET SALES The Company's net sales increased 9.7% to $1.17 billion compared to $1.06 billion in 2021. The Company's sales reflect a leading performance by our managed sales group and our private brand offering continuing to increase as a percentage of total sales.
Added
Business Outlook As we enter 2024, we believe we have the right plan in place to build upon the progress of the last year. Initiatives across the business are designed to elevate and highlight Global Industrial’s position as an indispensable business partner, and the value we bring every day to our customers.
Removed
In 2022 sales grew by double digits during the first half of the year and growth moderated in the second half of the year as the Company experienced a softened demand environment and as the benefit of price increases that started in the third quarter of 2021 were lapped and largely waned.
Added
Investments in key performance areas are designed to strengthen our competitive position, drive operational efficiencies, and help us capture share. 23 Table of Contents Highlights from 2023 vs. 2022 The following discussion of our results of operations and financial condition will provide information that will assist in understanding our financial statements and information about how certain accounting principles and estimates affect the consolidated financial statements.
Removed
Overall, we perceive customers to be guarded in their buying decisions and the pricing environment remaining competitive. In the fourth quarter of 2022 revenue was down 0.6% as compared to the same period in 2021 and we have seen a continuation of this trend into the start of 2023.
Added
Excluding Indoff, sales declined 0.7% as compared to the year ago period and 0.3% on an average daily sales basis*. • Consolidated gross margin declined to 34.2 % compared to 36.1% last year. Excluding Indoff, gross margin was 35.5%. • Consolidated operating income from continuing operations decreased 8.3% to $96.5 million compared to $105.2 million last year.
Removed
The Company expects to see continued margin variability due to the current economic environment, inflationary pressures on both transportation and raw material costs, pricing pressures caused by inflated inventory levels and historical seasonality.
Added
The fiscal years ended 2023 and 2022 included 52 weeks. 25 Table of Contents Management’s discussion and analysis that follows will include current operations and discontinued operations. NET SALES The Company's net sales increased 9.3% to $1.27 billion compared to $1.17 billion in 2022, benefiting from the Indoff acquisition on May 19, 2023.
Removed
Gross margin was 36.1% compared to 35.2% in the prior year primarily driven by normalization of freight margins as compared to the transitory costs incurred in 2021 related to the transition to a new less-than-truckload ("LTL") freight partner, partially offset by increased freight fuel surcharges as well as increased accessorial charges that were incurred in 2022.
Added
Excluding sales contributed by Indoff, full year and average daily sales decreased 0.7% and 0.3%, respectively, compared to prior year reflecting the soft demand environment experienced in the first half of 2023 which improved as we continued through the year.
Removed
Other contributing factors to our increased gross margin include higher margin private brands capturing a larger share of our sales mix and a reduction in inventory adjustments in 2022 as compared to 2021 which included a write-down of certain personal protective equipment ("PPE") products. Maintaining our margin profile remains a key focus for the Company.
Added
Sales increased 4.1% in the second half of 2023 which benefited by our second consecutive quarter of revenue growth in the fourth quarter, which improved 5.1% over the prior year.
Removed
We have seen some early benefits from lower ocean supply chain costs; however we expect variability throughout 2023 as we work through select inventory with higher total landed costs and manage a dynamic pricing environment.
Added
The Company's sales reflect a leading performance by our web business, strong customer acquisition, and growth in our public sector sales group partially offset by lower price capture associated with passing through lowering costs of inbound transportation.
Removed
This increased SD&A reflects increased marketing investment to support both core and private brand product lines, growth initiatives, as well as increased distribution center compensation.
Added
Gross margin was 34.2% compared to 36.1% in the prior year, a 190 basis point reduction, reflecting the inclusion of Indoff's lower gross margin profile.
Removed
Other cost increases were related to our increased net marketing investment of approximately $7.2 million, costs of our new Canadian distribution center of approximately $2.2 million, increased consulting and professional fees of approximately $1.1 million related to the continued investment in upgrading and expanding our technological capabilities, specifically our e-commerce shopping experience and sales force productivity.
Added
Excluding Indoff, gross margin was 35.5%, a 60 basis points reduction compared to prior year reflecting the impact of planned proactive promotions and freight actions, as well as, the sell through of certain high cost inventory products, specifically within our cooling category.
Removed
Operating margin in 2021 was negatively impacted by PPE inventory write downs of approximately $3.5 million and continued freight pricing pressures. INTEREST AND OTHER EXPENSE, NET Interest and other expense, net from continuing operations was $1.1 million for 2022 and $0.1 million in 2021.
Added
The Company's margin reflects a nearly 40 basis point and 10 basis point benefit in the fourth quarter of 2023 and fiscal year 2023, respectively, from a one-time settlement with a former less-than-truckload ("LTL") freight partner. In 2022 gross margin benefited from strong price realization and lower inventory cost flow through, both of which have now waned in 2023.
Removed
Non-deductible expenses, including executive compensation, was approximately $3.0 million. Tax expense in discontinued operations is attributed to pretax income recorded in the discontinued North American Technology Products Group business. The Company recorded net tax expense in continuing operations for 2021 of $17.5 million, or 20.0%, and a net tax expense in discontinued operations of $10.7 million.
Added
Management of our margin profile remains a key focus for the Company. Performance will continue to reflect the impact of proactive promotion and freight actions as part of our competitive pricing initiatives, as well as, the impact of Indoff's lower gross margin profile on consolidated gross margin.
Removed
The tax rate was benefited by the reversal of valuation allowances against the Company's Canadian net operating loss carryforward and other deferred tax assets of approximately $3.4 million, as the Company believed it was more likely than not that all of the net operating losses of the Canadian subsidiary would be utilized.
Added
SD&A costs as a percentage of sales improved approximately 50 basis points in 2023 compared to 2022. SD&A primarily reflects the benefit of Indoff's lower cost structure as well as general cost controls within the organic business.
Removed
Accounts receivable days outstanding were 38.3 in 2022 compared to 38.0 in 2021. Inventory turns were 3.8 in 2022 compared to 4.7 in 2021 and accounts payable days outstanding were 56.6 in 2022 compared to 69.1 in 2021.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+0 added−0 removed2 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
4 edited+0 added−0 removed2 unchanged
2022 filing
2023 filing
Biggest changeSales would have fluctuated by approximately $7.2 million and pretax income would have had a de minimis impact if average foreign exchange rates changed by 10% in 2022.
Biggest changeSales would have fluctuated by approximately $6.8 million and pretax income would have changed by approximately $0.4 million if average foreign exchange rates changed by 10% in 2023.
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 December 31, 2022 we had no outstanding forward exchange contracts. Our exposure to market risk for changes in interest rates relates primarily to our variable rate debt.
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 December 31, 2023 we had no outstanding forward exchange contracts. Our exposure to market risk for changes in interest rates relates primarily to our variable rate debt.
Item 7A. 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 31 Table of Contents 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.
Our variable rate debt consists of short-term borrowings under our credit facilities. As of December 31, 2022, $0.6 million was outstanding under our variable rate credit facility.
Our variable rate debt consists of short-term borrowings under our credit facilities. As of December 31, 2023, we had no outstanding debt under our variable rate credit facility.