What changed in this filing

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Item 1A. Risk Factors

2022-08-12 compared with 2021-08-17 · 38 added, 36 removed, 153 unchanged (33% of the section changed)

10 unchanged sentences

Consequently, demand for our products and services has been and will continue to be influenced by most of the same factors that affect demand for and production of customers' goods and materials.

When customers or prospective customers reduce production levels because of lower demand, increased supply, higher costs, tight credit conditions, unfavorable currency exchange rates, adverse trade policies, foreign competition, other competitive disadvantage, offshoring of production, or other reasons, their need for our products and services diminishes.

When customers or prospective customers reduce production levels because of lower demand, increased supply, higher costs, supply chain or labor market disruptions, tight credit conditions, unfavorable currency exchange rates, adverse trade policies, foreign competition, other competitive disadvantage, offshoring of production, geopolitical instability, or other reasons, their need for our products and services diminishes.

Selling prices and terms of sale come under pressure, adversely affecting the profitability and the durability of customer relationships, and credit losses may increase.

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The extent to which the COVID-19 pandemic and measures taken in response thereto continue to impact our results of operations and financial condition will depend on future developments, which are uncertain and cannot be predicted.

The COVID-19 pandemic created significant volatility, uncertainty, and economic disruption.

The COVID-19 pandemic created significant volatility, uncertainty, and economic

The effects of the pandemic resulted in lost or delayed sales to us, and we experienced business disruptions as we modified our business practices (including travel, work locations, and cancellation of physical participation in meetings).

While the pandemic’s impact on social and economic conditions has subsided, the extent to which it will continue to impact our results of operations and financial condition will depend on evolving factors that are uncertain and cannot be predicted, including the following:

the duration, spread, and severity of the pandemic, including due to virus variants, in the countries in which we operate;

While the pandemic’s impact on social and economic conditions in the U.S.

has subsided, the extent to which it will continue to impact our results of operations and financial condition will depend on evolving factors that are uncertain and cannot be predicted, including the following:

the duration, spread, and severity of the pandemic, particularly due to virus variants, in the countries in which we operate or otherwise in our supply chain;

responsive measures taken by governmental authorities, businesses, and individuals;

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the effect on our suppliers and disruptions to the global supply chain;

our ability to sell and provide our products and services and otherwise operate effectively, including as a result of travel restrictions and associates working from home;

disruptions to our ability to sell and provide our products and services and otherwise operate effectively, including as a result of travel restrictions and associates working from home;

disruptions to our operations resulting from associate illness;

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and how quickly and to what extent normal economic and operating conditions can resume.

In addition, the pandemic’s impact on the economy could affect the proper functioning of financial and capital markets, foreign currency exchange rates, product and energy costs, and interest rates.

The pandemic’s effects may also amplify the other risks and uncertainties described in this Annual Report on Form 10-K, and may continue to materially and adversely affect our business, financial condition, results of operations, and/or stock price.

The pandemic’s effects may also amplify the other risks and uncertainties described in this Annual Report on Form 10-K, and may continue to adversely affect our business, financial condition, results of operations, and/or stock price.

Supply chain disruptions could adversely affect our results of operations and financial condition.

Our supply chain could be disrupted by natural or human-induced events or conditions, such as power or telecommunications outage, security incident, terrorist attack, war, other geopolitical events, public health emergency, earthquake, extreme weather events, fire, flood, other natural disasters, transportation disruption, labor actions, raw materials shortages, financial problems or insolvency, trade regulations or actions, inadequate manufacturing capacity or utilization to meet demand, or other reasons beyond our control.

For example, the COVID-19 pandemic has disrupted certain suppliers’ operations and our ability to procure product to meet customer demand fully and timely, and may continue to do so in the future.

When we can find acceptable alternate sources for certain products, they may cost more.

Impairment of our ability to meet customer demand could result in lost sales, increased costs, reduced profitability, and damage to our reputation.

Consolidation in our customers' and suppliers' industries could adversely affect our business and financial results.

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Existing competitors have, and future competitors may have, greater financial or other resources than we do, broader or more appealing product or service offerings, greater market presence, stronger relationships with key suppliers or customers, or better name recognition.

If existing or future competitors seek to gain or to retain market share by aggressive pricing strategies and sales methods, or otherwise through competitive advantage, our sales and profitability could be adversely affected.

If existing or future competitors seek to gain or to retain market share by aggressive pricing strategies or sales methods, business acquisition, or otherwise through competitive advantage, our sales and profitability could be adversely affected.

Our success will also be affected by our ability to continue to provide competitive offerings as customer preferences or demands evolve, for example with respect to product and service types, brands, quality, or prices.

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Our business could be adversely affected if we do not successfully execute our strategies to grow sales and earnings.

We have numerous strategies and initiatives to grow sales, leveraging the breadth of our product offering, supplier relationships, and value-added technical capabilities to differentiate us and improve our

competitive position.

We also continually seek to enhance gross margins, manage costs, and otherwise improve earnings.

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Many of our relationships with key product suppliers are longstanding, but are terminable by either party.

The loss of key supplier authorizations, or a substantial decrease in the availability of their products, could put us at a competitive disadvantage and have a material adverse effect on our business.

Supply interruptions could arise from raw materials shortages, inadequate manufacturing capacity or utilization to meet demand, financial problems or insolvency, trade issues, labor disputes, public health emergencies, weather conditions affecting suppliers' production, transportation disruptions, or other reasons beyond our control.

The loss of key supplier authorizations, or a substantial decrease in the availability of their products (including due to supply chain disruptions, as noted above), could put us at a competitive disadvantage and have a material adverse effect on our business.

In addition, as a distributor, we face the risk of key product suppliers changing their relationships with distributors generally, or us in particular, in a manner that adversely impacts us.

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the geographic or product line breadth of distributor authorizations;

the number of distributor authorizations;

supplier purchasing incentive or other support programs;

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Certain product suppliers have historically offered to their distributors, including us, incentives for purchasing their products.

In addition to market or customer account-specific incentives, certain suppliers pay incentives to the distributor for attaining specific purchase volumes during a program period.

In addition to market, customer account-specific, or transaction-specific incentives, certain suppliers pay incentives to the distributor for attaining specific purchase volumes during a program period.

In some cases, to earn incentives, we must achieve year-over-year growth in purchases with the supplier.

When demand for our products declines, we may be less inclined to add inventory to take advantage of certain incentive programs, thereby potentially adversely impacting our profitability.

Volatility in product, energy, and other costs can affect our profitability.

Volatility in product, energy, labor, and other costs can affect our profitability.

Product manufacturers may adjust the prices of products we distribute for many reasons, including changes in their costs for raw materials, components, energy, labor, and tariffs and taxes on imports.

In addition, a portion of our own distribution costs is composed of fuel for our sales and delivery vehicles, freight, and utility expenses for our facilities.

Our ability to pass along increases in our product and distribution costs in a timely manner to our customers depends on execution, market conditions, and contractual limitations.

Failing to pass along price increases timely in an inflationary environment, or not maintaining sales volume while increasing prices, could significantly reduce our profitability.

While increases in the cost of products or energy could be damaging to us, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit margin to deteriorate.

Labor costs are our largest expense.

Our ability to pass along increases in our costs in a timely manner to our customers depends on execution, market conditions, and contractual limitations.

Failing to pass along price increases timely in an inflationary environment, such as the current economic climate, or not maintaining sales volume while increasing prices, could significantly reduce our profitability.

While increases in the cost of products, labor, or energy could be damaging to us, decreases in those costs, particularly if severe, could also adversely impact us by creating deflation in selling prices, which could cause our gross profit margin to deteriorate.

Changes in energy or raw materials costs can also adversely affect customers;

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A disruption or security breach could materially affect our business, financial condition, or results of operation.

We depend on information systems to, among other things, process customer orders, manage inventory and accounts receivable collections, purchase products, manage accounts payable processes, ship products to customers on a timely basis, maintain cost-effective operations, provide superior service to customers, conduct business communications, and compile financial results.

A serious, prolonged disruption of our information systems, due to man-made or natural causes, including power or telecommunications outage, or breach in security, could materially impair fundamental business processes and increase expenses, decrease sales, or otherwise reduce earnings.

Because of our reliance on information systems, we are vulnerable to the growing threat of damage or intrusion from computer viruses or other cyber-attacks, including ransomware and business e-mail compromise, on our systems.

proprietary or confidential information, or the breach of customer, supplier, or employee information.

Despite precautions taken to prevent or mitigate the risks of such incidents, breaches of our systems could not only cause business disruption, but could also result in the theft of funds, the theft, loss, or disclosure of proprietary or confidential information, or the breach of customer, supplier, or employee information.

A security incident involving our systems, or even an inadvertent failure to comply with data privacy and security laws and regulations, could negatively impact our sales, damage our reputation, and cause us to incur unanticipated legal liability, remediation costs, and other losses and expenses.

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Our business depends on maintaining operating activity at our headquarters and distribution centers, and being able to receive and deliver product in a timely manner.

A serious, prolonged interruption due to power or telecommunications outage, security incident, terrorist attack, public health emergency, earthquake, extreme weather events, other natural disasters, fire, flood, transportation disruption, or other interruption could have a material adverse effect on our business and financial results.

A serious, prolonged interruption due to power or telecommunications outage, security incident, terrorist attack, war, public health emergency, earthquake, extreme weather events, other natural disasters, fire, flood, transportation disruption, or other interruption could have a material adverse effect on our business and financial results.

FINANCIAL AND REPORTING RISKS

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Although the credit market turmoil of a decade ago did not have a significant adverse impact on our liquidity or borrowing costs, the availability of funds tightened and credit spreads on corporate debt increased.

If credit market volatility were to return, obtaining additional or replacement financing could be more difficult and the cost of issuing new debt or replacing a credit facility could be higher than under our current facilities.

If credit market

volatility were to return, obtaining additional or replacement financing could be more difficult and the cost of issuing new debt or replacing a credit facility could be higher than under our current facilities.

Tight credit conditions could limit our ability to finance acquisitions on terms acceptable to us.

For more information regarding borrowing and interest rates, see the following sections below:

and notes 6 and 7 to the consolidated financial statements, included below in Item 8 under the caption “Financial Statements and Supplementary Data.” That information is incorporated here by reference.

“Liquidity and Capital Resources” in Item 7 under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations;” Item 7A under the caption “Quantitative and Qualitative Disclosures about Market Risk;” and notes 6 and 7 to the consolidated financial statements, included below in Item 8 under the caption “Financial Statements and Supplementary Data.” That information is incorporated here by reference.

Our ability to maintain effective internal control over financial reporting may be insufficient to allow us to accurately report our financial results or prevent fraud, and this could cause our financial statements to become materially misleading and adversely affect the trading price of our common stock.

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Although we believe these estimates and assumptions are reasonable and reflect market conditions forecasted at the assessment date, any changes to these assumptions and estimates due to market conditions or otherwise may lead to an outcome where impairment charges would be required in future periods.

We may be adversely affected by changes in LIBOR reporting practices or the method by which LIBOR is determined.

As of June 30, 2021, we had approximately $738.6 million of aggregate consolidated indebtedness that was indexed to the London Interbank Offered Rate (“LIBOR”).

As of June 30, 2021, approximately $420.0 million of this variable rate debt was converted to a fixed rate through an interest rate swap.

The swap agreement, entered into in January 2019 and subsequently amended and extended, is indexed to LIBOR.

Financial Conduct Authority (FCA), which regulates LIBOR, announced in 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021.

However, in March 2021, the FCA proposed to extend publication of the most commonly used U.S.

dollar LIBOR tenors, including those tenors most relevant to us, through June 30, 2023.

We may be adversely affected by changes to interest rates on our borrowings.

Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced in 2017 that it will no longer persuade or require banks to submit rates for LIBOR after 2021.

At the end of 2021, the ICE Benchmark Administration, the administrator for LIBOR, ceased publishing one-week and two-month U.S.

dollar LIBOR and will cease publishing all remaining U.S.

dollar LIBOR tenors after June 30, 2023.

Any of our LIBOR-based borrowings that extend beyond June 30, 2023 will need to be converted to a replacement rate prior to that date.

Regulators and industry groups have identified recommended alternatives for certain reference rates, but there continues to be considerable uncertainty about what benchmark or benchmarks will replace LIBOR and when that will occur.

The full impact of the transition away from LIBOR remains unclear, but the transition and related changes may have a material adverse impact on the availability of financing and on our financing costs.

Possible replacement rates include the Secured Overnight Financing Rate (SOFR).

Uncertainty as to the nature of such phase out and selection of an alternative reference rate, together with disruption in the financial markets, could increase the cost of our indebtedness that is currently tied to LIBOR.

GENERAL RISK FACTORS

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We may have difficulty identifying and hiring qualified personnel.

In addition, we may have difficulty retaining such personnel once hired, and key people may leave and compete against us.

With respect to sales and customer service positions in particular, we greatly benefit from having employees who are familiar with the products and services we sell, and their applications, as well as with our customer and supplier

relationships.

In addition, we may have difficulty retaining such personnel once hired, and key people may leave and compete against

The loss of key employees or our failure to attract and retain other qualified workers could disrupt or adversely affect our business.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors