NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Global Industrial Company, formerly known as Systemax Inc., through its operating subsidiaries, is a value-added industrial distributor of more than one million industrial and maintenance, repair and operation ("MRO") products in North America going to market through a system of branded e-commerce websites and relationship marketers. The Company operates and is internally managed in one reportable business segment. The Company sells a wide array of industrial and maintenance, repair and operation products, markets the Company has served since 1949. Because of the large number of products and product categories the Company offers, providing information on the amount of revenue derived from transactions with external customers for each product or groupings of products is impractical.
The Company's discontinued operations include its former North American Technology Group business, which was sold in December 2015 and has been winding down its operations since then. The sale of this business met the “strategic shift with major impact” criteria as defined under Accounting Standards Update ("ASU") 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which requires disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Under ASU 2014-08, in order for a disposal to qualify for discontinued operations presentation in the financial statements, the disposal must be a “strategic shift” with a major impact for the reporting entity. If the entity meets this threshold, and other requirements, only the components that were in operation at the time of disposal are presented as discontinued operations. Therefore, the prior year results of the former North American Technology business are included in discontinued operations in the accompanying consolidated financial statements.
For the years ended December 31, 2021 and December 31, 2020, net income from the discontinued North American Technology business totaled $33.2 million and $1.3 million, respectively. In the fourth quarter of 2021, the Company recorded net income of approximately $22.7 million primarily related to the resolution of certain liabilities of its previously discontinued operations. Net loss from the discontinued North American Technology business totaled $1.5 million for the year ended December 31, 2019.
Related Party Transactions
During 2021, the Company recorded approximately $3.1 million in professional fee expense from a law firm which employs an immediate family member of one of the Company's Vice Chairmen. Of the previously mentioned fees, $3.0 million were contingent fees paid upon receipt of $15.0 million in restitution received in the Company's discontinued operations. Amounts outstanding at December 31, 2021 were de minimis and were recorded in Accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets.
During 2020, the Company made inventory purchases of approximately $3.2 million from an entity owned by immediate family members of the Company's Executive Chairman. Amounts outstanding at December 31, 2020 were de minimis and were recorded in Accounts payable in the accompanying Consolidated Balance Sheets. These transactions were carried out on an arm's length basis and with prior approval of the Company's Nominating and Corporate Governance Committee.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Global Industrial Company, formerly known as Systemax Inc., and its wholly-owned subsidiaries (collectively, the “Company” or “Global Industrial”). All significant intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Year — The Company’s fiscal year ends at midnight on the Saturday closest to December 31. For clarity of presentation herein, all fiscal years are referred to as if they ended on December 31. The fiscal year is divided into four fiscal quarters that each end at midnight on a Saturday. For clarity of presentation herein, all fiscal quarters are referred to as if they ended on the traditional calendar month. The full year of 2021 and 2019 included 52 weeks, while 2020 included 53 weeks.
Use of Estimates in Financial Statements — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments about the carrying
values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Company’s business environment, therefore, actual results could differ from these estimates.
Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect the allowance for credit losses, product returns liabilities, inventory reserves, the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, litigation and related legal accruals.
Foreign Currency Translation — The Company has operations in foreign countries. The functional currency of each foreign country is the local currency. The financial statements of the Company’s foreign entities are translated into U.S. dollars, the reporting currency, using year-end exchange rates for assets and liabilities, year to date average exchange rates for the statement of operations items and historical rates for equity accounts. Translation gains or losses are recorded as a separate component of shareholders’ equity.
Cash and cash equivalents — The Company considers amounts held in money market accounts and other short-term investments, including overnight bank deposits, with an original maturity date of three months or less to be cash. Cash overdrafts are classified in accounts payable.
Restricted cash — At December 31, 2021, the Company did not have restricted cash. At December 31, 2020, the Company had restricted cash collateralizing letters of credit outstanding of $1.6 million, which was recorded in Other assets in the accompanying Consolidated Balance Sheets. Amounts included in restricted cash represent those required to be set aside by a contractual agreement with an insurer for the payment of workers' compensation claims.
Inventories — Inventories consist primarily of finished goods and are stated at the lower of cost or net realizable value. Cost is determined by using the first-in, first-out method. The Company estimates the net realizable value of its inventory by considering factors such as inventory levels, historical write-off information, historical and current demand trends, market conditions, estimated direct selling costs and physical condition of the inventory as well as credits that we may obtain for returned merchandise.
Leases — The Company has operating and finance leases for office and warehouse facilities, headquarters and call centers and certain computer, communications equipment and machinery and equipment which provide the right to use the underlying assets in exchange for agreed upon lease payments, determined by the payment schedule contained in each lease. The Company determines if an arrangement is an operating or finance lease at the inception of the lease. The Company has elected not to apply recognition requirements to leases with terms of one year or less. All other leases are recorded on the balance sheet, with Operating lease right-of-use assets representing the right to use the underlying asset for the lease term and Operating lease liabilities representing the obligation to make lease payments arising from the lease. The Company elected to adopt the available package of practical expedients. The ROU assets and corresponding liabilities are recorded based upon the net present value of the lease payments, discounted using interest rates determined by utilizing such factors as the Company's current credit facility terms, length of the lease term, the Company's expected debt credit rating and comparable company term loan yields. Certain leases may include options to extend the lease, however, the Company is not including any impact of such options in the valuation of its ROU assets or liabilities as they are not probable of being extended. The Company's lease agreements do not contain residual value guarantees or restrictive covenants. The Company has sublease agreements for certain unused facilities.
The Company’s lease portfolio consists primarily of operating leases which expire at various dates through 2032.
Property, Plant and Equipment — Property, plant and equipment is stated at cost. Furniture, fixtures and equipment are depreciated using the straight-line or accelerated method over their estimated useful lives ranging from three years to fifteen years. Leasehold improvements are amortized over the shorter of the useful lives or the term of the respective leases. During 2021, the Company disposed of property, plant and equipment of approximately $1.7 million and accumulated depreciation of $1.7 million. During 2020, the Company disposed of property, plant and equipment of approximately $10.5 million and accumulated depreciation of $10.5 million.
Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations in the period realized.
Evaluation of Long-lived Assets — Long-lived assets are assets used in the Company’s operations and include definite-lived intangible assets, leasehold improvements, warehouse and similar property used to generate sales and cash flows. Long-lived assets are tested for impairment utilizing a recoverability test. The recoverability test compares the carrying value of an asset group to the undiscounted cash flows directly attributable to the asset group over the life of the primary asset. If the undiscounted cash flows of an asset group is less than the carrying value of the asset group, the fair value of the asset group is then measured. If the fair value is also determined to be less than the carrying value of the asset group, the asset group is impaired.
Goodwill and Intangible Assets — Goodwill represents the excess of the cost of acquired assets over the fair value of assets acquired. The Company operates in one reporting unit and in the fourth quarter of each year performs a quantitative assessment of its goodwill by comparing the Company's fair market value, or market capitalization, to the carrying value of the Company, including goodwill, to determine if impairment exists. Any excess of the carrying amount over fair value would be charged to impairment expense.
Income Taxes — The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax basis and tax credit carry forwards and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.
The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
In accordance with the guidance for accounting for uncertainty in income taxes the Company recognizes the tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefit of an uncertain tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount that is greater than 50% likely to be realized upon settlement with the tax authority. To the extent we prevail in matters for which accruals have been established or are required to pay amounts in excess of accruals, our effective tax rate in a given financial statement period could be affected.
Revenue Recognition and Accounts Receivable — 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 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 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, 2021 and 2020.
The Company offers customers rights to return product within a certain time, usually 30 days. The Company estimates its sales returns liability quarterly based upon its historical return rates as a percentage of historical sales for the trailing twelve-month period. The total accrued sales returns liability was approximately $2.2 million and $1.9 million at December 31, 2021 and 2020, respectively, and was recorded as a refund liability in Accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets.
Allowance for Credit Losses - The Company’s trade accounts receivable is one portfolio comprised of commercial businesses operating in the U.S. and to a much lesser extent, Canada. The Company develops its allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables, considering customer financial condition, historical loss experience with its customers, current market economic conditions and forecasts of future economic conditions when appropriate. When the Company becomes aware of a customer's inability to meet its financial obligation, a specific reserve is recorded to reduce the receivable to the expected amount to be collected. For the balance of its trade receivables, the Company uses a loss rate method to estimate its credit loss reserve. Historical loss experience rates are calculated using receivable write offs over a trailing twelve-month period and comparing that to the average receivable balances over the same period. That rate is applied to the current accounts receivable portfolio, excluding accounts that have been specifically reserved. Any write offs incurred are recorded against the established reserves.
The Company grants credit to commercial business customers using an electronic application process that evaluates the customer's detailed credit report, reference responses, availability under credit facilities, existing liens, tenure of management and business history, among other factors. Credit terms are typically net 30 days payment required with larger businesses eligible for up to net 90 day terms, if qualified.
Shipping and Handling Costs — The Company recognizes shipping and handling costs in cost of sales.
Advertising Costs — Expenditures for internet, television, local radio and newspaper advertising are expensed in the period the advertising takes place. Catalog preparation, printing and postage expenditures are amortized over the fiscal year during which the benefits are expected.
Net advertising expenses were $65.3 million, $60.3 million and $69.8 million during 2021, 2020 and 2019, respectively, and are included in the accompanying consolidated statements of operations.
The Company utilizes advertising programs to drive traffic to its websites, support vendors, including catalogs, internet and magazine advertising, and receives payments and credits from vendors, including consideration pursuant to volume incentive programs and cooperative marketing programs. The Company accounts for consideration from vendors as a reduction of cost of sales unless certain conditions are met showing that the funds are used for specific, incremental, identifiable costs, in which case the consideration is accounted for as a reduction in the related expense category, such as advertising expense.
Net Income (Loss) Per Common Share — Net income per common share - basic is calculated based upon the weighted average number of common shares outstanding during the respective periods presented using the two-class method of computing earnings per share. The two-class method was used as the Company has outstanding restricted stock with rights to dividend participation for unvested shares. Undistributed net income is allocated between common shares outstanding and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Undistributed net losses are not allocated to our participating securities as these participating securities do not have a contractual obligation to share in losses. Net income per common share - diluted was calculated based upon the weighted average number of common shares outstanding and included the equivalent shares for dilutive options outstanding during the respective periods, including unvested options. The dilutive effect of outstanding options and restricted stock issued by the Company is reflected in net income per share - diluted using the treasury stock method. Under the treasury stock method, options will only have a dilutive effect when the average market price of common stock during the period exceeds the exercise price of the options.
Employee Benefit Plans — The Company’s U.S. subsidiaries participate in a defined contribution 401(k) plan covering substantially all U.S. employees. Employees may invest 1% or more of their eligible compensation, limited to maximum amounts as determined by the Internal Revenue Service. The Company provides a matching contribution to the plan, determined as a percentage of the employees’ contributions. Aggregate expense to the Company for contributions to the plan was approximately $1.4 million in 2021 and 2020 and $1.1 million in 2019.
Fair Value Measurements — Fair value accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value standards establish the fair value hierarchy to prioritize the inputs used in valuation techniques. There are three levels to the fair value hierarchy (Level 1 is the highest priority and Level 3 is the lowest priority):
| | | | | |
| Level 1 - | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 - | Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. |
| Level 3 - | Unobservable inputs which are supported by little or no market activity |
Financial instruments consist primarily of investments in cash, trade accounts receivable, debt and accounts payable. The Company determines the fair value of financial instruments based on interest rates available to the Company. At December 31, 2021 and 2020, the carrying amounts of cash, accounts receivable and accounts payable are considered to be representative of their respective fair values due to their short-term nature. Cash is classified as Level 1 within the fair value hierarchy.
The fair value of goodwill, non-amortizing intangibles and long-lived assets is measured in connection with the Company’s annual impairment testing as discussed above.
The weighted average interest rate on short-term borrowings was 4.3% in 2021, 4.4% in 2020 and 6.2% in 2019.
Significant Concentrations — Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. The Company’s excess cash balances are invested with money center banks. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers and their geographic dispersion comprising the Company’s customer base. The Company also performs on-going credit evaluations and maintains allowances for potential losses as warranted.
The Company purchases substantially all of its 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 2021, 2020 and 2019. Most private brand products are manufactured by third parties to our specifications.
Recent Accounting Pronouncements
Public companies in the United States are subject to the accounting and reporting requirements of various authorities, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). These authorities issue numerous pronouncements, most of which are not applicable to the Company’s current or reasonably foreseeable operating structure. Below are the new authoritative pronouncements that management believes are relevant to Company’s current operations.
On January 1, 2021 the Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles and the methodology for calculating income tax rates in an interim period, among other updates. The adoption of this ASU did not have a material impact on the Company's financial position or results of operations.
On January 1, 2021, the Company adopted ASU 2020-10, Codification Improvements. This ASU amends a variety of topics in the Codification to improve consistency and clarify the guidance. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. The adoption of this ASU did not have a material impact on the Company's financial position or results of operations.
3.CREDIT LOSSES
The following is a rollforward of the allowances for credit losses related to the Company's receivables for the year ended December 31, 2021 and 2020 (in millions):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Balance at beginning of period | | $ | 1.7 | | | $ | 6.8 | |
| Current period provision | | 2.8 | | | 1.2 | |
| Write-offs - trade accounts receivable | | (2.0) | | | (0.7) | |
| Write-offs - notes and other receivables* | | 0.0 | | | (5.6) | |
| | | | |
Balance at end of period | | $ | 2.5 | | | $ | 1.7 | |
*$5.6 million of reserves related to notes and other receivables originated in 2016 and this balance was written off in the second quarter of 2020.
4.LEASES
The Company has operating and finance leases for office and warehouse facilities, headquarters, call centers, machinery and certain computer and communications equipment which provide the right to use the underlying assets in exchange for agreed upon lease payments, determined by the payment schedule contained in each lease. The Company’s lease portfolio consists primarily of operating leases which expire at various dates through 2032.
The Company's operating lease costs, included in continuing operations, was $13.9 million, $13.1 million and $12.0 million, for the years ended December 31, 2021, 2020 and 2019, respectively.
Information relating to operating leases for continuing and discontinued operations as of December 31, 2021 and, 2020:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | | 2021 | | 2020 |
| Weighted Average Remaining Lease Term | | | | |
| Operating leases | | 8.1 years | | 8.7 years |
| | | | |
| Weighted Average Discount Rate | | | | |
| Operating leases | | 5.2 | % | | 5.2 | % |
| | | | |
| ROU assets obtained in exchange for operating lease obligations | | $ | 2.6 | | | $ | 28.7 | |
Maturities of lease liabilities were as follows (in millions):
| | | | | | | | | | | |
| Year Ending December 31 | | | Operating Leases | | |
| 2022 | | | $ | 14.5 | | | |
| 2023 | | | 13.9 | | | |
| 2024 | | | 12.7 | | | |
| 2025 | | | 11.5 | | | |
| 2026 | | | 9.6 | | | |
| Thereafter | | | 37.4 | | | |
| Total lease payments | | | 99.6 | | | |
| Less: interest | | | (20.6) | | | |
| Total present value of lease liabilities | | | $ | 79.0 | | | |
The Company currently leases its headquarters office facility from an entity owned by the Company’s principal shareholders. Total rent expense recorded to related parties was $1.0 million in 2021, 2020 and 2019.
The Company has sublease agreements for certain unused facilities related to continuing and discontinued operations. These sublease agreements, one of which was to expire in February 2022, which has been extended to February 2023, includes an option to extend the lease term and the other sublease agreement expires in August 2023. Total sublease income of $1.3 million, $1.7 million and $1.9 million was recorded for the years ended December 31, 2021, 2020 and 2019, respectively. Future rent streams related to sublease agreements of $1.9 million to be collected in less than one year and $0.4 million to be collected between one and three years.
5.REVENUE
Disaggregation of Revenues
The Company believes its presentation of revenue by geography most reasonably depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic and industry factors, including fluctuations in exchange rates between the U.S. and Canada. The following table presents the Company's revenue, from continuing operations, by geography for the year ended December 31, 2021, 2020 and 2019 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Net sales: | | | | | | |
| United States | | $ | 993.9 | | | $ | 968.1 | | | $ | 901.3 | |
| Canada | | 69.2 | | | 60.9 | | | 45.6 | |
| | | | | | |
| Consolidated | | $ | 1,063.1 | | | $ | 1,029.0 | | | $ | 946.9 | |
6. DISCONTINUED OPERATIONS
The Company's discontinued operations include the former North American Technology Group which was sold in December 2015 and has been winding down operations since then (see Note 1).
For the year ended December 31, 2021, the Company recorded net income in its discontinued operations of approximately $33.2 million primarily related to the resolution of certain liabilities of these previously discontinued operations of $31.7 million, pre-tax, and recorded approximately $15.0 million in restitution receipts, offset by $3.0 million of related professional fees and recorded approximately $10.7 million for the provision for income taxes.
For the year ended December 31, 2020, the Company's discontinued operations recorded approximately $1.9 million in restitution receipts offset by approximately $0.5 million of professional fees and $0.5 million for the provision for income taxes. For the year ended December 31, 2019, the Company's discontinued operations recorded approximately $2.1 million in selling, distribution and administrative expenses and recorded approximately $0.6 million for the benefit for income taxes.
The Company has completed the wind-down activities related to the sale of the France business, as disclosed in previous 10-K filings, 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 former North American Technology Group business, although certain activities related to sublet facilities continue. The net assets and liabilities of discontinued operations are immaterial other than the exit costs disclosure below. The Company expects that total additional exit charges related to discontinued operations after this year may aggregate up to $0.5 million.
The Company has not incurred any special charges in continuing operations for the year ended December 31, 2021 or 2020. In the third quarter of 2019 and year ended December 31, 2019, within continuing operations, the Company's former German branch recorded special gains of approximately $0.8 million related to a buyout for its outstanding lease obligation.
The following table details liabilities related to the exit costs of the sold businesses that remain for 2021 (in millions):
| | | | | | | | | | | | | | |
| | | | | | | | Accrued exit costs |
| Balance January 1, 2021 | | | | | | | | $ | 2.8 | |
| Charged to expense | | | | | | | | 0.4 | |
| Paid or otherwise settled | | | | | | | | (0.5) | |
| Balance December 31, 2021 | | | | | | | | $ | 2.7 | |
The following table details liabilities related to the exit costs of the sold businesses for 2020 (in millions):
| | | | | | | | | | | | | | |
| | | | | | | | | Accrued exit costs |
| Balance, January 1, 2020 | | | | | | | | $ | 2.8 | |
| Charged to expense | | | | | | | | 0.4 | |
| Paid or otherwise settled | | | | | | | | (0.4) | |
| Balance, December 31, 2020 | | | | | | | | $ | 2.8 | |
7. GOODWILL, INTANGIBLES AND OTHER ASSETS
The following table provides information related to the carrying value of goodwill, intangibles (indefinite lived and definite lived) and other assets (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Goodwill | $ | 5.5 | | | $ | 5.5 | |
| Intangibles | 1.3 | | | 1.5 | |
| Other assets | 1.2 | | | 2.6 | |
| Balances, December 31 | $ | 8.0 | | | $ | 9.6 | |
Indefinite-lived intangible assets:
The following table provides information related to the carrying value of indefinite lived intangibles as of December 31, 2021 and 2020, respectively (in millions):
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
| | | |
| | | |
| Balance, December 31 | $ | 0.7 | | | $ | 0.7 | |
| | | |
Definite-lived intangible assets:
The following table summarizes information related to definite-lived intangible assets as of December 31, 2021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| Amortization
Period (Years) | | Gross Carrying
Amount | | Accumulated
Amortization | | Net Book Value | | Weighted avg
useful life |
| Client lists | 5-10 yrs | | $ | 2.0 | | | $ | 1.4 | | | $ | 0.6 | | | 3.1 |
| | | | | | | | | |
| Domain name | 5 yrs | | 3.4 | | | 3.4 | | | 0.0 | | | 0.0 |
| Total | | | $ | 5.4 | | | $ | 4.8 | | | $ | 0.6 | | | 3.1 |
The following table summarizes information related to definite-lived intangible assets as of December 31, 2020 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| Amortization
Period (Years) | | Gross Carrying
Amount | | Accumulated
Amortization | | Net Book Value | | Weighted avg
useful life |
| Client lists | 5-10 yrs | | $ | 2.0 | | | $ | 1.2 | | | $ | 0.8 | | | 4.1 |
| | | | | | | | | |
| Domain name | 5 yrs | | 3.4 | | | 3.4 | | | 0.0 | | | 0.0 |
| | | | | | | | | |
| Total | | | $ | 5.4 | | | $ | 4.6 | | | $ | 0.8 | | | 4.1 |
The aggregate amortization expense for these intangibles was approximately $0.2 million in 2021. The estimated amortization for future years ending December 31 is as follows (in millions):
| | | | | |
| 2022 | $ | 0.2 | |
| 2023 | 0.2 | |
| 2024 | 0.2 | |
| 2025 | 0.0 | |
| |
| Total | $ | 0.6 | |
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following (in millions):
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Land improvements | $ | 0.8 | | | $ | 0.8 | |
| Furniture and fixtures, office, computer and other equipment and software | 37.8 | | | 36.5 | |
| Leasehold improvements | 13.5 | | | 13.1 | |
| | 52.1 | | | 50.4 | |
| Less accumulated depreciation and amortization | 35.6 | | | 33.8 | |
| Property, plant and equipment, net | $ | 16.5 | | | $ | 16.6 | |
Depreciation charged to continuing operations for property, plant and equipment including capital leases in 2021, 2020, and 2019 was $3.5 million, $3.9 million and $3.9 million, respectively, and is reported within selling, distribution and administrative expenses. During 2021, the Company disposed of property, plant and equipment of approximately $1.7 million and accumulated depreciation of $1.7 million and during 2020, the Company disposed of property, plant and equipment of approximately $10.5 million and accumulated depreciation of $10.5 million.
9. CREDIT FACILITIES AND SHORT-TERM DEBT
The Company maintains a $75 million secured revolving credit facility with one financial institution, which provides for borrowings in the United States. In October 2021, the Company extended this facility for an additional five-year term, maturing on October 19, 2026. The credit agreement contains certain operating, financial and other covenants, including limits on annual levels of capital expenditures, availability tests related to payments of dividends and stock repurchases and fixed charge coverage tests related to acquisitions. The revolving credit agreement requires that a minimum level of availability be maintained. If such availability is not maintained, the Company will be required to maintain a fixed charge coverage ratio (as defined). The borrowings under the agreement are subject to borrowing base limitations of up to 85% of eligible accounts receivable and the inventory advance rate computed as the lesser of 60% or 85% of the net orderly liquidation value (“NOLV”). Borrowings are secured by substantially all of the borrower’s assets, as defined, including all accounts, accounts receivable, inventory and certain other assets, subject to limited exceptions, including the exclusion of certain foreign assets from the collateral. The interest rate under the amended and restated facility is computed at applicable market rates based on the London interbank offered rate (“LIBOR”), the Federal Reserve Bank of New York (“NYFRB”) or the Prime Rate, plus an applicable margin. The applicable margin varies based on borrowing base availability. As of December 31, 2021, eligible collateral under the credit agreement was $75.0 million, total availability was $72.5 million, total outstanding letters of credit was $1.5 million, total outstanding borrowings was $4.5 million and total excess availability was $66.5 million. The Company was in compliance with all of the covenants of the credit agreement in place as of December 31, 2021.
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in millions):
| | | | | | | | | | | |
| December 31, |
| | 2021 | | 2020 |
| Payroll and employee benefits | $ | 22.3 | | | $ | 26.4 | |
| | | |
| Sales and VAT tax payable | 2.8 | | | 3.8 | |
| Freight | 11.4 | | | 7.4 | |
| | | |
| Income taxes payable | 4.9 | | | 0.9 | |
| | | |
| Other | 9.1 | | | 12.2 | |
| | $ | 50.5 | | | $ | 50.7 | |
11. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share - basic was calculated based upon the weighted average number of common shares outstanding during the respective periods presented using the two-class method of computing earnings per share. The two-
class method was used as the Company has outstanding restricted stock with rights to dividend participation for unvested shares. Undistributed net income is allocated between common shares outstanding and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Undistributed net losses are not allocated to our participating securities as these participating securities do not have a contractual obligation to share in losses. Net income per common share - diluted was calculated based upon the weighted average number of common shares outstanding and included the equivalent shares for dilutive options outstanding during the respective periods, including unvested options. The dilutive effect of outstanding options and restricted stock issued by the Company is reflected in net income per share - diluted using the treasury stock method. Under the treasury stock method, options will only have a dilutive effect when the average market price of common stock during the period exceeds the exercise price of the options.
The following table presents the computation of basic and diluted net income (loss) per share under the two-class method for the year ended December 31, 2021, 2020 ad 2019 (in millions, except for per share amounts):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Net income from continuing operations | | $ | 70.1 | | | $ | 64.1 | | | $ | 50.0 | |
| Less: Distributed net income available to participating securities | | (0.3) | | | (0.8) | | | (0.1) | |
| Less: Undistributed net income available to participating securities | | 0.0 | | | 0.0 | | | (0.2) | |
| Numerator for basic net income per share: | | | | | | |
| Undistributed and distributed net income available to common shareholders | | $ | 69.8 | | | $ | 63.3 | | | $ | 49.7 | |
| Add: Undistributed net income allocated to participating securities | | 0.0 | | | 0.0 | | | 0.2 | |
| Less: Undistributed net income reallocated to participating securities | | 0.0 | | | 0.0 | | | (0.2) | |
| | | | | | |
| Numerator for diluted net income per share: | | | | | | |
| Undistributed and distributed net income available to common shareholders | | $ | 69.8 | | | $ | 63.3 | | | $ | 49.7 | |
| Denominator: | | | | | | |
| Weighted average shares outstanding for basic net income per share | | 37.8 | | | 37.5 | | | 37.5 |
| Effect of dilutive securities | | 0.2 | | | 0.2 | | | 0.2 |
| Weighted average shares outstanding for diluted net income per share | | 38.0 | | | 37.7 | | | 37.7 | |
| | | | | | |
| Net income per share from continuing operations: | | | | | | |
| Basic | | $ | 1.85 | | | $ | 1.69 | | | $ | 1.33 | |
| Diluted | | $ | 1.84 | | | $ | 1.68 | | | $ | 1.32 | |
| | | | | | |
| Net income (loss) from discontinued operations | | $ | 33.2 | | | $ | 1.3 | | | $ | (1.5) | |
| | | | | | |
| Less: Undistributed net income available to participating securities | | $ | (0.2) | | | $ | 0.0 | | | $ | 0.0 | |
| Numerator for basic net income per share: | | | | | | |
| Undistributed and distributed net income (loss) available to common shareholders | | $ | 33.0 | | | $ | 1.3 | | | $ | (1.5) | |
| | | | | | |
| Add: Undistributed net income allocated to participating securities | | $ | 0.2 | | | $ | 0.0 | | | $ | 0.0 | |
| Less: Undistributed net income reallocated to participating securities | | $ | (0.2) | | | $ | 0.0 | | | $ | 0.0 | |
| | | | | | |
| Numerator for diluted net income (loss) per share: | | | | | | |
| Undistributed and distributed net income (loss) available to common shareholders | | $ | 33.0 | | | $ | 1.3 | | | $ | (1.5) | |
| | | | | | |
| Net income (loss) per share from discontinued operations: | | | | | | |
| Basic | | $ | 0.88 | | | $ | 0.03 | | | $ | (0.04) | |
| Diluted | | $ | 0.87 | | | $ | 0.03 | | | $ | (0.04) | |
| | | | | | |
| Net income per share: | | | | | | |
| Basic | | $ | 2.73 | | | $ | 1.72 | | | $ | 1.29 | |
| Diluted | | $ | 2.71 | | | $ | 1.71 | | | $ | 1.28 | |
| | | | | | |
| Potentially dilutive securities | | 0.1 | | | 0.5 | | | 0.4 | |
Potentially dilutive securities attributable to outstanding stock options, restricted stock units, and performance share units excluded from the calculation of diluted earnings per share where the combined exercise price and average unamortized fair value are greater than the average market price of Global Industrial Company's common stock, and their inclusion would be anti-dilutive.
12. STOCK REPURCHASES
In 2018, the Company's Board of Director's approved a share repurchase program with a repurchase authorization of up to two million shares of the Company's common stock. During 2021, no shares were repurchased. In 2020, the Company repurchased 392,337 common shares for approximately $7.2 million. The maximum number of shares that may yet be purchased under the Plan was approximately 1,375,000 at December 31, 2021.
13. SHAREHOLDERS’ EQUITY
Stock-Based Compensation Plans
The Company currently has two equity compensation plans which reserve shares of common stock for issuance to key employees, directors, consultants and advisors to the Company. The following is a description of these plans:
The 2010 Long-term Stock Incentive Plan (“2010 Plan”) - This plan was adopted in April 2010 and allows the Company to issue incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock and restricted stock units, performance awards and other stock based awards authorized by the Compensation Committee of the Board of Directors. Options and awards issued under this plan expire ten years after the options and awards are granted. The maximum number of shares granted per type of award to any individual may not exceed 1,500,000 in any calendar year. Restricted stock grants and common stock awards reduce stock options otherwise available for future grant. Awards for a maximum of 7,500,000 shares may be granted under this plan. The Company is no longer granting options or awards under this plan. A total of 372,257 options and 74,202 restricted stock units were outstanding under this plan as of December 31, 2021.
The 2020 Omnibus Stock Incentive Plan (“2020 Omnibus Plan”) - This plan was adopted in June 2020 and allows the Company to issue incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock based awards authorized by the Compensation Committee of the Board of Directors. Options and awards issued under this plan expire ten years after the options and awards are granted. The maximum number of shares granted per type of award to any individual may not exceed 1,500,000 in any calendar year (or $10.0 million in the case of cash performance awards). Restricted stock grants and common stock awards reduce stock options otherwise available for future grant. Awards for a maximum of 7,500,000 shares may be granted under this plan. A total of 91,047 options and 61,244 restricted stock units were outstanding under this plan as of December 31, 2021.
The fair value of employee share options is recognized in expense over the vesting period of the options, using the graded attribution method. The fair value of employee share options is determined on the date of grant using the Black-Scholes option pricing model. The Company has calculated its dividend yield by dividing the annualized regular quarterly dividend by the current stock price at grant date. The Company has used historical volatility in its estimate of expected volatility. The expected life represents the period of time (in years) for which the options granted are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve. Stock-based compensation expense includes an estimate for forfeitures and is recognized over the expected term of the award.
The fair value of the restricted stock ("RSU") and performance restricted stock ("PRSU") is the closing stock price on the NYSE of the Company's common stock on the date of grant or the closing stock price of the Company's common stock on the last business day prior to the grant date. Upon delivery, a portion of the RSU/PRSU award may be withheld to satisfy the statutory withholding taxes. The remaining RSU's/PRSU's will be settled in shares of the Company's common stock after the vesting period and on the prescribed delivery date. These RSUs/PRSU's have none of the rights as other shares of common stock, other than rights to cash dividends, until common stock is distributed.
Shares issued under our share-based compensation plans are usually issued from shares of our common stock held in the treasury.
Compensation cost related to non-qualified stock options recognized in continuing operations (selling, distribution and administrative expenses) for 2021, 2020 and 2019 was $1.1 million, $1.8 million, and $3.3 million respectively. In the first
quarter of 2019, the Company repriced approximately 0.6 million shares of outstanding stock options and recorded approximately $0.6 million of related compensation expense and for the year ended December 31, 2019, the Company recorded $0.7 million of related compensation expense. The related future income tax benefits recognized for 2021, 2020 and 2019 were $0.3 million, $0.4 million and $0.7 million, respectively.
Stock Options
The following table presents the weighted-average assumptions used to estimate the fair value of options granted in 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Expected annual dividend yield | 1.4 | % | | 2.0 | % | | 1.9 | % |
| Risk-free interest rate | 0.75 | % | | 1.38 | % | | 2.65 | % |
| Expected volatility | 51.9 | % | | 51.1 | % | | 50.4 | % |
| Expected life in years | 5.0 | | 5.2 | | 5.0 |
The following table summarizes information concerning outstanding and exercisable options:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Weighted Average |
| | 2021 | | 2020 | | 2019 |
| | Shares | | Weighted
Avg. Exercise
Price | | Shares | | Weighted
Avg. Exercise
Price | | Shares | | Weighted
Avg. Exercise
Price |
| Outstanding at beginning of year | 661,024 | | | $ | 19.78 | | | 764,784 | | | $ | 17.31 | | | 596,148 | | | $ | 11.64 | |
| Granted | 110,112 | | | $ | 38.02 | | | 111,872 | | | $ | 23.60 | | | 1,038,536 | | | $ | 15.76 | |
| Exercised | (196,639) | | | $ | 15.37 | | | (191,780) | | | $ | 11.68 | | | (224,750) | | | $ | 8.92 | |
| Canceled or expired | (111,193) | | | $ | 26.87 | | | (23,852) | | | $ | 23.71 | | | (645,150) | | | $ | 12.50 | |
| Outstanding at end of year | 463,304 | | | $ | 24.28 | | | 661,024 | | | $ | 19.78 | | | 764,784 | | | $ | 17.31 | |
| | | | | | | | | | | |
| Options exercisable at year end | 223,158 | | | | | 302,283 | | | | | 227,598 | | | |
| Weighted average fair value per option granted during the year | $ | 18.50 | | | | | $ | 9.12 | | | | | $ | 9.16 | | | |
The total intrinsic value of options exercised was $4.5 million in 2021, $3.9 million in 2020 and $3.4 million in 2019.
The following table summarizes information about options vested and exercisable or non-vested that are expected to vest (non-vested outstanding less expected forfeitures) at December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Range of Exercise Prices | | Options Outstanding and
Exercisable | | Weighted
Average
Exercise
Price | | Weighted Average
Remaining
Contractual Life | | Aggregate
Intrinsic
Value (in
millions) |
| $ | 5.00 | | to | $ | 15.00 | | | 48,250 | | | $ | 5.92 | | | 4.64 | | $ | 1.7 | |
| $ | 15.01 | | to | $ | 25.00 | | | 351,223 | | | $ | 23.53 | | | 6.95 | | 6.1 | |
| $ | 25.01 | | to | $ | 35.00 | | | 8,880 | | | $ | 33.71 | | | 9.39 | | 0.1 | |
| $ | 35.01 | | to | $ | 45.00 | | | 54,951 | | | $ | 43.69 | | | 9.23 | | 0.0 | |
| | | | | | | | | | |
| | | | | | | | | | |
| $ | 5.00 | | to | $ | 45.00 | | | 463,304 | | | $ | 24.28 | | | 7.02 | | $ | 7.9 | |
The aggregate intrinsic value in the tables above represents the total pretax intrinsic value (the difference between the closing stock price on the last day of trading in 2021 and the exercise price) that would have been received by the option holders had all options been exercised on December 31, 2021. This value will change based on the fair market value of the Company’s common stock.
The following table reflects the activity for all unvested stock options during 2021:
| | | | | | | | | | | |
| | Shares | | Weighted
Average Grant-
Date Fair Value |
| Unvested at January 1, 2021 | 358,741 | | | $ | 9.63 | |
| Granted | 110,112 | | | $ | 18.50 | |
| Vested | (117,514) | | | $ | 10.49 | |
| Forfeited | (111,193) | | | $ | 10.66 | |
| Unvested at December 31, 2021 | 240,146 | | | $ | 12.80 | |
At December 31, 2021, there was approximately $1.3 million of unrecognized compensation costs related to unvested stock options, which is expected to be recognized over a weighted average period of 2.96 years. The total fair value of stock options vested during 2021, 2020 and 2019 was $1.2 million, $2.5 million and $4.0 million, respectively.
Restricted Stock and Restricted Stock Units
The following table reflects the activity for restricted stock awards, excluding the restricted stock issued to Directors (in millions, except shares data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Granted | | Shares Granted | | Outstanding at December 31, 2021 | | Rights to Cash Dividend | | Other Participation Rights | | Performance Award | | Compensation Expense |
| | | | | | | | | | | | Year Ended December 31, |
| | | | | | | | | | | | 2021 | | 2020 | | 2019 |
| 2012 | | 50,000 | | | — | | | Yes | | None | | No | | 0 (1) | | 0 (1) | | 0 (1) |
| 2016 | | 100,000 | | | — | | | Yes | | None | | No | | 0.0 | | | 0.0 | | | 0 (1) |
| 2019 | | 30,251 | | | 18,150 | | | Yes | | None | | No | | 0.1 | | | 0.2 | | | 0.3 | |
| 2019 | | 149,412 | | | 24,187 | | | Yes | | None | | Yes | | 0.1 | | | 1.2 | | | 1.3 | |
| 2020 | | 28,272 | | 21,204 | | | Yes | | None | | No | | 0.2 | | | 0.4 | | | 0.0 | |
| 2020 | | 43,330 | | 10,661 | | | Yes | | None | | Yes | | 0.1 | | | 0.6 | | | 0.0 | |
| 2021 | | 25,371 | | 25,371 | | | Yes | | None | | No | | 0.4 | | | 0.0 | | | 0.0 | |
| 2021 | | 32,874 | | 19,713 | | | Yes | | None | | Yes | | 0.3 | | | 0.0 | | | 0.0 | |
| | | | | | | | | | Total | | $ | 1.2 | | | $ | 2.4 | | | $ | 1.6 | |
| | | | | |
1 | less than $0.1 million of expense recorded |
Share-based compensation expense reported within continuing operations for restricted stock issued to Directors was $0.2 million in 2021, 2020 and 2019, respectively, and is recorded within selling, distribution and administrative expenses. A total of 16,160 restricted stock units from the 2020 Omnibus Plan are outstanding to the Directors as of December 31, 2021.
At December 31, 2021, there was approximately $1.7 million of unrecognized compensation cost related to the unvested RSU's, which is expected to be recognized over a weighted average period of 2.41 years.
Total compensation expense related to RSU and performance RSU's reported within continuing operations was approximately $1.4 million, $2.5 million and $1.8 million for the years ended December 31, 2021, 2020 and 2019, respectively, and is recorded within selling, distribution and administrative expenses.
The following table reflects the activity for all unvested restricted stock during 2021:
| | | | | | | | | | | |
| Shares | | Weighted
Average Grant-
Date Fair Value |
| Unvested at January 1, 2021 | 163,760 | | | $ | 23.06 | |
| Granted | 64,161 | | | $ | 37.29 | |
| Vested | (53,245) | | | $ | 23.25 | |
| Forfeited | (39,230) | | | $ | 27.36 | |
| Unvested at December 31, 2021 | 135,446 | | | $ | 28.48 | |
Employee Stock Purchase Plan
The 2018 Employee Stock Purchase Plan - This plan was approved by the Company's stockholders in December 2018 and a reserve of 500,000 shares of common stock has been established under this plan. The Company adopted this plan, the terms of which allow for eligible employees (as defined in the 2018 Employee Stock Purchase Plan) to participate in the purchase, during each six month purchase period, up to a maximum of 10,000 shares of the Company's common stock at a purchase price equal to 85% of the closing price at either the start date or the end date of the stock purchase period, whichever is lower. Compensation expense recognized in selling, distribution and administrative expenses related to this plan totaled $0.4 million for the year ended December 31, 2021 and $0.3 million for the years ended December 31, 2020 and 2019. As of December 31, 2021, approximately 350,896 shares remain reserved for issuance under this plan. Employees purchased approximately 55,248 shares of common stock during fiscal year 2021 at an average per share price of $20.09. Employees purchased approximately 49,627 shares of common stock during fiscal year 2020 at an average per share price of $16.85. During fiscal year 2019, employees purchased approximately 44,229 shares of common stock at an average per share price of $17.61.
14. INCOME TAX
The following table summarizes our U.S. and foreign components of income from continuing operations before income taxes (in millions):
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| United States | $ | 84.5 | | | $ | 80.5 | | | $ | 65.8 | |
| Foreign | 3.1 | | | 3.5 | | | 0.3 | |
| Total | $ | 87.6 | | | $ | 84.0 | | | $ | 66.1 | |
The following table summarizes the (benefit) provision for income taxes from continuing operations (in millions):
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Current: | | | | | |
| Federal | $ | 16.8 | | | $ | 17.0 | | | $ | 12.5 | |
| State | 3.8 | | | 3.3 | | | 2.1 | |
| Foreign | 0.1 | | | 0.1 | | | 0.1 | |
| Total current | $ | 20.7 | | | $ | 20.4 | | | $ | 14.7 | |
| | | | | |
| Deferred: | | | | | |
| Federal | $ | (0.6) | | | $ | (0.8) | | | $ | 1.1 | |
| State | (0.2) | | | 0.3 | | | 0.3 | |
| Foreign | (2.4) | | | 0.0 | | | 0.0 | |
| Total deferred | $ | (3.2) | | | $ | (0.5) | | | $ | 1.4 | |
| Total tax provision | $ | 17.5 | | | $ | 19.9 | | | $ | 16.1 | |
Tax expense (benefit) from discontinued operations was $10.7 million, $0.5 million and $(0.6) million for the years ended December 31, 2021, 2020 and 2019, respectively. Income taxes are accrued and paid by each foreign entity in accordance with applicable local regulations.
A reconciliation of the difference between the income tax expense and the computed income tax expense from continuing operations based on the Federal statutory corporate rate is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Income tax at Federal statutory rate | $ | 18.4 | | | 21.0 | % | | $ | 17.6 | | | 21.0 | % | | $ | 13.9 | | | 21.0 | % |
| | | | | | | | | | | |
| State and local income taxes, net of federal tax benefit | 2.9 | | | 3.3 | % | | 3.0 | | | 3.5 | % | | 2.4 | | | 3.7 | % |
| Impact of state rate changes | 0.0 | | | 0.0 | % | | 0.0 | | | 0.0 | % | | 0.1 | | | 0.1 | % |
| | | | | | | | | | | |
| Reversal of valuation allowances | (3.4) | | | (3.8) | % | | (0.9) | | | (1.0) | % | | (0.3) | | | (0.4) | % |
| | | | | | | | | | | |
| Stock based compensation | (0.8) | | | (0.9) | % | | (0.5) | | | (0.6) | % | | (0.5) | | | (0.8) | % |
| Non-deductible items | 0.5 | | | 0.5 | % | | 0.8 | | | 0.9 | % | | 0.8 | | | 1.2 | % |
| Other items, net | (0.1) | | | (0.1) | % | | (0.1) | | | (0.1) | % | | (0.3) | | | (0.4) | % |
| Income tax | $ | 17.5 | | | 20.0 | % | | $ | 19.9 | | | 23.7 | % | | $ | 16.1 | | | 24.4 | % |
The deferred tax assets and liabilities are comprised of the following (in millions):
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Assets: | | | |
| Accrued expenses and other liabilities | $ | 2.4 | | | $ | 2.5 | |
| Inventory | 2.8 | | | 1.7 | |
| Operating lease obligations | 18.8 | | | 20.9 | |
| Intangible & other | 0.0 | | | 0.6 | |
| | | |
| Net operating loss and credit carryforwards | 8.8 | | | 15.5 | |
| Valuation allowances | (6.1) | | | (15.2) | |
| Total deferred tax assets | $ | 26.7 | | | $ | 26.0 | |
| Liabilities: | | | |
| Operating lease right-of-use assets | $ | 16.4 | | | $ | 18.4 | |
| Other | 0.2 | | | 0.1 | |
| Total deferred tax liabilities | $ | 16.6 | | | $ | 18.5 | |
The following table summarizes the changes in valuation allowance (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at
Beginning of
Period | | Benefit Recognized in Expense | | Write-offs | | Other | | Balance at
End of Period |
| 2021 | | $ | (15.2) | | | $ | 3.0 | | | $ | 7.0 | | | $ | (0.9) | | | $ | (6.1) | |
| 2020 | | $ | (16.8) | | | $ | 1.0 | | | $ | 0.6 | | | $ | 0.0 | | | $ | (15.2) | |
During 2021 the Company utilized approximately $6.9 million in state NOL carryforwards to reduce the current year tax expense. As of December 31, 2021, the Company has foreign tax credits and NOLs of $7.2 million which expire through 2034 and foreign tax credit carryforwards of $0.8 million expiring in years through 2029. The Company has recorded valuation allowances of approximately $6.1 million, including valuations against foreign NOLs of $5.3 million and $0.8 million against foreign tax carryforwards. Valuation allowances have been recorded against these assets as the Company believes it is more likely than not that these NOLs, temporary differences and foreign tax credits will not be utilized in the near future.
The Company has not provided for federal income taxes applicable to the undistributed earnings of its foreign subsidiaries, primarily in India and Canada, of approximately $6.3 million as of December 31, 2021, since these earnings are considered permanently reinvested in the subsidiaries. The Company's permanent reinvestment assertion has not changed following the enactment of the TCJA. If the Company ceases to be permanently reinvested in its foreign subsidiaries, the Company may be subject to foreign withholding and other taxes on undistributed earnings and may need to record a deferred tax liability for any outside basis difference in its investments in its foreign subsidiaries.
Under the TCJA each U.S. shareholder of a controlled foreign corporation ("CFC") must include in its gross taxable income in any tax year the aggregate net GILTI, or net income, of its CFCs. In 2021 the Company has included in taxable income the net income of its subsidiaries in the Netherlands, India, and Canada. The Company has elected to treat GILTI expense as a period cost when incurred.
The Company is routinely audited by federal, state and foreign tax authorities with respect to its income taxes. The Company regularly reviews and evaluates the likelihood of audit assessments. The Company’s federal income tax returns have been audited through 2016. The Company has not signed any consent to extend the statute of limitations for any subsequent years. The Company’s significant state tax returns have been audited through 2016. The Company considers its significant tax jurisdictions in foreign locations to be Canada and India.
As of December 31, 2021, the Company had no uncertain tax positions. Interest and penalties, if any, are recorded in income tax expense. There were no accrued interest or penalty charges related to unrecognized tax benefits recorded in income tax expense in 2021, 2020 or 2019.
15. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company and its subsidiaries are from time to time involved in various lawsuits, claims, investigations and proceedings which may include commercial, employment, tax, customs and trade, customer, vendor, personal injury, creditors rights and health and safety law matters, which are handled and defended in the ordinary course of business. In addition, the Company is from time to time subjected to various assertions, claims, proceedings and requests for damages and/or indemnification concerning sales channel practices and intellectual property matters, including patent infringement suits involving technologies that are incorporated in a broad spectrum of products the Company sells or that are incorporated in the Company’s e-commerce sales channels, as well as trademark/copyright infringement claims. The Company is also audited by (or has initiated voluntary disclosure agreements with) various U.S. Federal and state authorities, as well as Canadian authorities, concerning potential income tax and/or sales tax. These matters are in various stages of investigation, negotiation and/or litigation. The Company intends to vigorously defend these matters and believes it has strong defenses.
Although the Company does not expect, based on currently available information, that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial position or results of operations, the ultimate outcome is inherently unpredictable. Therefore, judgments could be rendered or settlements entered, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company regularly assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable and estimable. In this regard, the Company establishes accrual estimates for its various lawsuits, claims, investigations and proceedings when it is probable that an asset has been impaired or a liability incurred at the date of the financial statements and the loss can be reasonably estimated. At December 31, 2021 the Company has established accruals for certain of its various lawsuits, claims, investigations and proceedings based upon estimates of the most likely outcome in a range of loss or the minimum amounts in a range of loss if no amount within a range is a more likely estimate. The Company does not believe that at December 31, 2021 any reasonably possible losses in excess of the amounts accrued would be material to the financial statements.
