What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-27 · 145 added, 68 removed, 82 unchanged (72% of the section changed)

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The Lawson operating segment primarily distributes MRO products to its customers through a network of sales representatives throughout the U.S.

The Bolt operating segment primarily distributes its MRO products through a network of 14 branches located in Alberta, Saskatchewan, Manitoba and British Columbia, Canada.

The North American MRO industry is highly fragmented.

The Bolt operating segment primarily distributes its MRO products through a netwo rk of 14 branc hes located in Alberta, Saskatchewan, Manitoba and British Columbia, Canada.

COVID-19 Pandemic

In March 2020, the World Health Organization declared a new strain of coronavirus (“COVID-19”) a pandemic.

The COVID-19 pandemic continues to negatively impact the global economy by disrupting global supply chains and financial markets and has negatively impacted our operational and financial performance.

The continued impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transports, all of which remain uncertain.

An extended period of global supply chain and economic disruption could materially affect our business, sales, results of operations and financial condition.

Lawson continues to be defined as an essential business by the state of Illinois.

A change in this status could result in the temporary closure of our business.

Additionally the COVID-19 pandemic could result in a temporary closure of some or all of our distribution facilities or the Bolt branch locations, which would negatively impact our operations.

Other disruptions to our supply chain such as reduced capacity or temporary shutdowns of freight carriers could also negatively impact our performance.

The pandemic has negatively impacted our current operations and may negatively impact our future financial results, liquidity and overall performance.

Additionally, it is possible that estimates made in support of our financial statements may be materially and adversely impacted in the near term as a result of these conditions, including delay in payment of receivables, impairment losses related to goodwill and other long-lived assets, and inability to utilize deferred tax assets.

The Company experienced the most severe impacts of the COVID-19 pandemic in the second quarter 2020.

The onset of the pandemic and government regulations, including social distancing guidelines and shutdowns of nonessential businesses, led to closure of customer businesses throughout the United States and Canada, as well as substantial restrictions on the ability of Lawson MRO sales representatives to visit customer locations and perform VMI services.

Additionally government regulations also severely restricted the ability of customers to visit Bolt branch locations.

The economic climate in the third and fourth quarters improved as many nonessential businesses have reopened in both limited capacity and full capacity.

The relaxed restrictions have resulted in consistent customer visits and increased customer contact.

While business conditions improved in the third and fourth quarters, the Company expects to continue to be adversely impacted by the COVID-19 pandemic and the various federal, state and local restrictions enacted to combat the pandemic.

In the fourth quarter of 2020, U.S.

Food and Drug Administration approved certain vaccines that have demonstrated effectiveness in preventing the spread of the COVID-19 virus.

However, it is projected that the production, distribution and administration of the vaccine to a sufficient percentage of the population to significantly minimize the future effect of the pandemic will not be reached until mid-2021 or later.

We continue to take action to mitigate the potential negative impacts of COVID-19.

The actions taken included, but are not limited to, furloughing employees, reducing base salaries and incentive awards for a period of time, canceling travel and award trips, temporarily consolidating our Suwanee distribution center operations into the McCook facility, eliminating non-critical capital expenditures and eliminating various positions throughout the Company.

We continue to monitor our balance sheet and liquidity position and take actions to protect our cash flows from operations while at the same time managing our operating expenses in relation to current sales trends.

At December 31, 2020, we had $28.4 million of unrestricted cash and cash equivalents and an additional $66.0 million of borrowing capacity, net of outstanding letters of credit.

Our outstanding letters of credit include a letter of credit for $33.0 million to secure the remaining payment of the Partsmaster acquisition.

We will continue to closely monitor the overall economic and operating environment and we will take appropriate actions to protect the safety of our employees, customers and suppliers while continuing to meet our working capital needs and remain in compliance with our debt covenants.

While COVID-19 has negatively impacted our sales, cost control measures and ability to effectively service our customers, we have continued to generate positive cash flow that has enabled us to maintain a strong financial position.

We plan to continue to respond to pandemic developments in a prompt and disciplined manner with an emphasis on protecting our employees and maintaining our strong financial position.

Sales Drivers

The North American MRO market is highly fragmented.

We compete for business with several national distributors as well as a large number of regional and local distributors.

The MRO business is influenced by the overall strength of the manufacturing sector of the U.S.

economy which has been significantly affected by the COVID-19 pandemic.

One measure used to evaluate the strength of the industrial products market is the PMI index published by the Institute for Supply Management.

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A measure of that index above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction.

The average monthly PMI was 51.2 for the year ended December 31, 2019 compared to 58.8 for the year ended December 31, 2018 indicating a reduction in the rate of growth in the U.S.

manufacturing economy in 2019 compared to 2018.

The average monthly PMI (Purchasing Managers Index) was 52.5 for the year ended December 31, 2020 compared to 51.3 for the year ended December 31, 2019.

The average monthly PMI for the fourth quarter of 2020 was 59.2, which indicates expansion of the manufacturing sector compared to the previous periods.

This is compared to the fourth quarter of 2019 which was 48.1, which indicates contraction of the manufacturing sector compared to the previous periods.

One metric we use to measure our success is Average Daily Sales ("ADS") in which we calculate our total sales divided by the number of selling days, which exclude weekends and holidays.

Our sales are affected by the number and effectiveness of sales representatives and the amount of sales each representative can generate from providing products and services to our customers, which we measure as average sales per day per sales representative.

We had an average of 1,012 sales representatives working for us in 2020, a 2.1% increase over 2019.

Results of operations are examined in detail following a recap of our major activities in 2019.

2019 Activities

New Credit Agreement - In October 2019 the Company signed a new credit agreement which increased our borrowing capacity from $40 million to $100 million.The new agreement included JP Morgan Chase, Bank of America, and CIBC Bank USA with which we continue our long-term banking relationship.

Share Repurchase Plan - In the second quarter of 2019, our Board of Directors authorized a program in which we may repurchase up to $7.5 million of our common stock.

Lean Six Sigma - Over the past four years we have had over 100 employees complete Lean Six Sigma training, which is a systematic data driven approach to analyzing and improving business processes.

Improved Operational Performance - We continued to improve the fundamentals of our business, measured as improved customer service levels to our customers.

We believe we have created a scalable infrastructure that will allow us to take advantage of future growth opportunities.

We continue to strive to be our customers' first choice for maintenance, repair and operational solutions.

Excluding the Partsmaster acquisition, we had an average of 944 sales representatives working for us in 2020.

Partsmaster Acquisition

In August 2020, we acquired Partsmaster, a leading Maintenance, Repair and Operations ("MRO") distributor from NCH Corporation ("NCH").

Partsmaster has approximately 200 sales representatives and serves approximately 16,000 customers throughout the United States and Canada.

We also subleased the Partsmaster distribution center located in Greenville, Texas from NCH, and we will continue to fulfill orders from this facility as we integrate Partsmaster into our MRO segment operations.

The purchase price of the acquisition was $35.3 million in cash and the assumption of certain liabilities.

We paid $2.3 million at the time of the acquisition and we will pay the remaining $33.0 million in May 2021.

We plan to pay the remaining portion of the purchase price with cash on hand with any remaining portion using our existing credit facility.

Assets acquired and liabilities assumed as a result of the acquisition were accounted for at their fair value on the acquisition date.

The identified assets include $5.0 million of intangible assets for customer relationships and $2.8 million for trade names with estimated useful lives of 10 years and 5 years, respectively.

Goodwill of $15.8 million related to this acquisition reflects the purchase price less the fair market value of the identifiable assets.

The liabilities assumed include approximately $2.9 million relating to deferred employee compensation and $4.1 million of accounts payable and other accrued liabilities.

The appropriate fair values of the assets acquired and liabilities assumed are based on preliminary estimates and assumptions.

These preliminary estimates and assumptions could change during the purchase price measurement period as we finalize the valuations of the assets acquired and liabilities assumed.

Additional information related to the Partsmaster acquisition is provided in Note 3 - Acquisition in the notes to the consolidated financial statements.

The Partsmaster acquisition is reported in the Lawson MRO segment.

RESULTS OF OPERATIONS FOR 2020 AS COMPARED TO 2019

Year Ended December 31,

(Dollars in thousands)

% of Net Sales

Year Ended December 31, Year-to-Year

2020 2019 Change

(Dollars in thousands) Amount % of Net Sales Amount % of Net Sales Amount %

Revenue $ 351,591 100.0 % $ 370,785 100.0 % $ (19,194) (5.2) %

Cost of goods sold

165,053 46.9 173,431 46.8 (8,378) (4.8)

186,538 53.1 197,354 53.2 (10,816) (5.5)

Operating expenses:

Selling expenses

76,775 21.8 85,342 23.0 (8,567) (10.0)

General and administrative expenses

89,213 25.5 102,946 27.8 (13,733) (13.3)

Total operating expenses

165,988 47.3 188,288 50.8 (22,300) (11.8)

Operating income 20,550 5.8 9,066 2.4 11,484

Interest expense

Other income (expense), net

(654) (0.2) (603) (0.1) (51)

Other income, net 889 0.3 1,211 0.3 (322)

Income before income taxes

20,785 5.9 9,674 2.6 11,111

Income tax expense

5,672 1.6 2,453 0.7 3,219

$ 15,113 4.3 % $ 7,221 1.9 % $ 7,892

Non-GAAP Financial Measure - Adjusted Operating Income

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Operating income was $20.6 million for 2020 inclusive of $2.0 million of stock-based compensation compared to $9.1 million in 2019 which included $17.8 million of stock-based compensation.

Excluding stock-based compensation, severance and other non-recurring items, adjusted operating income increased to $28.6 million from $18.4 million on higher sales and leveraging operating costs.

Excluding stock-based compensation, severance and other non-recurring items, adjusted operating income decreased to $27.4 million from $28.6 million on lower sales, offset by cost control measures enacted in response to the COVID-19 pandemic and the contribution of Partsmaster to the adjusted non-GAAP operating income of $1.7 million.

Reconciliation of GAAP Operating Income to Adjusted Non-GAAP Operating Income (Unaudited)

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Severance expense (2)

Building impairment

Goodwill impairment (3)

Acquisition related costs (4)

Discontinued operations accrual

Real estate gain

Adjusted non-GAAP operating Income $ 27,434 $ 28,610

(1) Expense for stock-based compensation, of which a portion varies with the Company's stock price

(2) Includes severance expense from actions taken in 2020 and 2019 along with 2020 severance and retention costs related to the Partsmaster acquisition.

(3) Represents the goodwill impairment related to the 2018 acquisition of Screw Products, Inc as the carrying value of the reporting unit exceeded its estimated fair value.

(4) Primarily legal and accounting costs pertaining to the Partsmaster acquisition.

Sales and Gross Profits

Sales and gross profit results by operating segment for the years ended December 31, 2020 and 2019 were as follows:

Year Ended December 31,

Increase (Decrease)

(Dollars in thousands)

Year Ended December 31, Increase (Decrease)

(Dollars in thousands) 2020 2019 Amount %

$ 312,803 $ 329,367 $ (16,564) (5.0) %

38,788 41,418 (2,630) (6.3) %

$ 351,591 $ 370,785 $ (19,194) (5.2) %

$ 171,258 $ 181,567 $ (10,309) (5.7) %

15,280 15,787 (507) (3.2) %

$ 186,538 $ 197,354 $ (10,816) (5.5) %

Gross profit margin

Consolidated revenue in 2019 increased 6.0% to $370.8 million from $349.6 million in 2018.

The Lawson segment total sales were positively impacted by a 2.3% improvement in sales productivity of Lawson sales representatives and strong performance in our sales to Government customers.

Sales were also positively impacted by a 13.3% improvement in Bolt Supply sales spread across multiple product categories and a $1.9 million increase in sales contributed by Screw Products which was acquired in the fourth quarter of 2018.

Average daily sales improved to $1.471 million in 2019 compared to $1.393 million in 2018 with one more selling day in 2019.

Excluding the impact of currency fluctuations of $1.9 million , consolidated sales increased 6.6% year over year.

Gross profit increased to $197.4 million in 2019 from $189.5 million in 2018 and decreased as a percent of sales to 53.2% from 54.2% a year ago.

Higher service-related costs and lower gross margin as a percent of sales on both the Bolt Supply and Screw Products businesses contributed to the lower consolidated percentage.

The Lawson gross margin decreased as a percentage of sales primarily due to higher service-related costs included in gross profit.

54.7 % 55.1 %

39.4 % 38.1 %

53.1 % 53.2 %

Consolidated revenue in 2020 decreased 5.2% to $351.6 million from $370.8 million in 2019.

Sales were negatively impacted by the COVID-19 pandemic and lower sales to oil and gas customers.

All customer categories have been negatively impacted by the effect of the COVID-19 pandemic.

The most acute negative impacts of the COVID-19 pandemic were experienced in the second quarter at the onset of the pandemic.

Restrictions related to the pandemic began to be relaxed in the third quarter and continued to be relaxed in the fourth quarter, which led to improved customer activity, as well as increased customer contact for Lawson MRO sales representatives and greater foot traffic for the Bolt branches compared to the second quarter.

Excluding Partsmaster, sales decreased 11.3% primarily as a result of the pandemic.

The decrease in sales was offset by the inclusion of $22.6 million of sales contributed by the Partsmaster acquisition since August 31, 2020.

Average daily sales decreased to $1.390 million in 2020 compared to $1.471 million in 2019 with one more selling day in 2020.

Excluding a foreign currency effect of $0.7 million, consolidated revenue decreased by 5.0% for the year.

Gross profit decreased to $186.5 million in 2020 from $197.4 million in 2019 driven primarily by the decrease in sales due to the COVID-19 pandemic, partially offset by the inclusion of $13.2 million of gross profit from Partsmaster.

Gross profit as a percent of sales decreased to 53.1% from 53.2% a year ago.

Gross profit as a percentage of sales generated by sales representatives acquired from the Partsmaster acquisition was 58.4% post-acquisition.

The organic Lawson MRO (excluding Bolt, Screw Products, and Partsmaster) gross margin as a percent of sales declined to 59.8% compared to the prior year organic gross margin percent of 60.7% primarily as a result of lower margin products comprising a larger portion of our sales compared to the prior year and fixed distribution costs allocated over a lower sales base.

Selling, General and Administrative Expenses

Year Ended December 31,

Increase (Decrease)

Year Ended December 31, Increase (Decrease)

(Dollars in thousands) 2020 2019 Amount %

Selling expenses

$ 73,706 $ 81,999 $ (8,293) (10.1) %

3,069 3,343 (274) (8.2) %

$ 76,775 $ 85,342 $ (8,567) (10.0) %

General and administrative expenses

$ 79,837 $ 93,085 $ (13,248) (14.2) %

9,376 9,861 (485) (4.9) %

$ 89,213 $ 102,946 $ (13,733) (13.3) %

Selling expenses decreased to $76.8 million in 2020 from $85.3 million in 2019 and, as a percent of sales decreased to 21.8% in 2020 from 23.0% in 2019.

The decrease in selling expense as a percent of sales was primarily due to leveraging selling expenses over a higher sales base and higher service-related costs included in gross margins.

General and administrative expenses increased to $102.9 million in 2019 from $92.7 million in 2018 primarily due to an increase in stock-based compensation expense of $10.3 million, a portion of which varies with the company stock price, and increased severance expense of $0.9 million compared to 2018.

The decrease in selling expense as a percent of sales was primarily driven by reduced sales compensation driven by lower sales and a reduction of travel related expenses after the onset of the COVID-19 pandemic.

These declines were partially offset by an inclusion of $6.5 million of selling expenses from the Partsmaster acquisition.

General and administrative expenses decreased to $89.2 million in 2020 from $102.9 million in 2019 primarily due to a decrease in stock-based compensation expense of $15.8 million, a portion of which varies with the Company stock price, and lower employee compensation, lower travel expense and other cost control measures in order to mitigate the negative impacts of COVID-19.

The decline was offset by the inclusion of $7.4 million of General and administrative expense from the Partsmaster acquisition and the goodwill impairment of $1.9 million related to the 2018 acquisition of Screw Products as the carrying value of the reporting unit exceeded its fair value.

Additionally the Company recorded $1.4 million under the Canada Emergency Wage Subsidy ("CEWS") as a reduction of general and administrative expenses.

Goodwill Impairment

The Company performed a quantitative goodwill impairment analysis as of December 1, 2020 for the Screw Products reporting unit.

The Company engaged a third-party valuation firm to determine the value of the Screw Products reporting unit and determined that the carrying value of the net assets exceeded the fair value of the reporting unit and accordingly recognized an impairment charge of $1.9 million..

The impairment charge is included in general and administrative expense.

Interest Expense

Interest expenses decreased $0.4 million in 2019 over the prior year, due primarily to lower average outstanding balances throughout the year.

Other Income (expense), Net

Other income, net was $1.2 million in 2019 compared to other expense, net of $1.3 million in 2018.

Other income (expense), net in both years was driven by fluctuations in the Canadian currency exchange rate.

Interest expenses increased $0.1 million in 2020 over the prior year, due primarily to the inclusion of imputed interest expense from our accrued acquisition liability offset by lower average outstanding balances under our credit agreement.

Other Income, Net

Other income, net was $0.9 million in 2020 compared to other income, net of $1.2 million in 2019.

Other income, net in both years was driven by fluctuations in the Canadian currency exchange rate.

Income Tax Expense

Income tax expenses were $5.7 million resulting in a 27.3% effective tax rate for 2020 compared to income tax expense of $2.5 million and a 25.4% effective tax rate for 2019.

The lower effective tax rate in 2018 was primarily due to the finalization of the calculation for previously untaxed foreign earnings and profits as a result of the 2017 Tax Cuts and Jobs Act.

The higher effective tax rate in 2020 is due primarily to increases in uncertain tax positions and lower stock compensation deductions.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities was $9.2 million and $20.3 million in 2019 and 2018 , respectively, reflecting operating results, net of depreciation and amortization.

Cash paid in relation to stock-based compensation increased to $13.4 million in 2019 compared to $0.1 million in 2018, due to employee exercises of stock performance rights.

Cash provided by operating activities was $32.5 million and $9.2 million in 2020 and 2019, respectively, reflecting stronger operating results along with tightly managing its working capital.

Capital expenditures of $1.7 million and $2.0 million in 2020 and 2019 respectively, were primarily for improvements to our distribution centers and information technology.

In 2018 we invested $5.3 million to acquire Screw Products.

In the second quarter of 2019, our Board of Directors authorized a program in which we may repurchase up to $7.5 million of our common stock from time to time in open market transactions, privately negotiated transactions or by other methods.

During 2019 we purchased 32,362 shares of our common stock at an average purchase price of $38.13 under the repurchase program.

In the third quarter of 2020, the Company paid $2.3 million in cash related to the Partsmaster acquisition.

In 2019, our Board of Directors authorized a program in which we may repurchase up to $7.5 million of our common stock from time to time in open market transactions, privately negotiated transactions or by other methods.

In the first quarter of 2020 we purchased 47,504 shares of our common stock at an average purchase price of $36.93 under the repurchase program.

During 2019, the Company purchased 32,362 shares of common stock at an average purchase price of $38.13 under the repurchase program.

On December 31, 2020, the Company had $4.5 million available under its repurchasing program.

Credit Agreement

In October, 2019, we entered into a Credit Agreement (the "Credit Agreement") with J.P.

Morgan Chase Bank, N.A.

as administrative agent, and including CIBC Bank USA and Bank of America, N.A.

as other lenders.

The Credit Agreement matures on October 11, 2024 and provides for $100.0 million of revolving commitments.

The terms of the Credit Agreement are more fully detailed in Note 12 - Credit Agreement of the Consolidated Financial Statements included in Item 8 of this Form 10-K.

At December 31, 2019 , we had $2.3 million of borrowings under the Credit Agreement and had borrowing availability of $96.7 million .

At December 31, 2020, we had no borrowings under the Credit Agreement and had borrowing availability of $66.0 million.

See Note 13 - Credit Agreement for further information on the Company Credit Agreement.

In addition to other customary representations, warranties and covenants, the Credit Agreement contains certain financial covenants.

The following chart reflects the EBITDA to fixed charges ratio and total net leverage ratio covenant:

Quarterly Financial Covenants

Quarterly Financial Covenants Requirement Actual

EBITDA to fixed charges ratio 1.15 :

Total net leverage ratio 3.25 :

The Company was in compliance with all covenants as of December 31, 2019.

Prior to October 2019, the Company had a credit agreement with CIBC Bank USA.

Bolt also had a Commitment Letter with BMO Bank of Montreal.

On October 11, 2019 the Company paid off its previous loans to CIBC USA and BMO.

Lawson was in compliance with all covenants associated with these borrowing agreements at the time of payoff.

No cash dividends have been paid in the three years ended December, 31 2019 .

Dividends are subject to certain restrictions as detailed in our Credit Agreement.

The Company was in compliance with all financial covenants as of December 31, 2020.

No cash dividends have been paid in the two years ended December, 31 2020.

Dividends are subject to certain restrictions under our Credit Agreement.

Partsmaster Acquisition Liability

As a part of the Partsmaster acquisition, payment of $33.0 million is due to the sellers in May 2021.

The payment has been guaranteed under the Purchase Agreement, which includes the issuance of a $33.0 million irrevocable standby letter of credit.

Payment will be made with cash on hand and with any remaining portion using our existing credit facility.

The $33.0 million obligation has been discounted to its present value and is recognized as a current liability of $32.7 million in our condensed consolidated balance sheet as of December 31, 2020.

OFF-BALANCE SHEET ARRANGEMENTS

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Allowance for Doubtful Accounts — We evaluate the collectability of accounts receivable based on a combination of factors.

In circumstances where we are aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filings, substantial down-grading of credit ratings), a specific reserve for bad debts is recorded against amounts due to reduce the receivable to the amount we believe will be collected.

In circumstances where we are aware of a specific customer’s inability to meet its financial obligations (e.g.,

bankruptcy filings, substantial down-grading of credit ratings), a specific reserve for bad debts is recorded against amounts due to reduce the receivable to the amount we believe will be collected.

For all other customers, we recognize reserves for bad debts based on our historical experience of bad debt write-offs as a percent of accounts receivable outstanding.

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Significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances, including the estimation of valuation allowances and the evaluation of uncertain tax positions.

Goodwill Impairment – Goodwill is tested annually during the fourth quarter, or when events occur or circumstances change that would more likely than not reduce the fair value of each reporting unit below its carrying value.

Qualitative factors are reviewed to determine if it is more likely than not that the fair value of the reporting unit is greater than the carrying value.

The Company considers factors such as macroeconomic, industry and market conditions, cost factors, overall financial performance and other relevant factors that would affect the individual reporting segments.

Goodwill Impairment – Goodwill represents the cost of business acquisitions in excess of the fair value of identifiable net tangible and intangible assets acquired.

Goodwill is allocated to the appropriate reporting unit as reviewed by the Company's segment managers.

The Company reviews goodwill for potential impairment annually on December 1st, or when an event or other circumstances change that would more likely than not reduce the fair value of the asset below its carrying value.

The first step in the multi-step process to determine if goodwill has been impaired and to what degree is to review the relevant qualitative factors that could cause the fair value of the reporting unit to decrease below the carrying value of the reporting unit.

If we determine that it is more likely than not that the fair value of the reporting unit is greater than the carrying value of the reporting unit, then no further impairment testing is needed.

If we determine that it is more likely than not that the carrying value of the reporting unit is greater than the fair value of the reporting unit, the Company will move to the next step in the process.

The Company will estimate the fair value of the reporting unit and compare it to the reporting unit's carrying value.

If the carrying value of the reporting unit exceeds its fair value, the Company will record an impairment of goodwill equal to the amount the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill previously recognized.

Revenue Recognition - For reporting purposes, the Company has two separate performance obligations including products and vendor managed inventory services.

The revenue allocation involves assumptions and judgments based on the estimated standalone sales prices of such products and services.

The allocation of product and service revenue as well as the estimation of service costs requires judgments and assumptions including the standalone prices, the period of time that it takes for the service obligation to be fulfilled and the amount of time spent on vendor managed inventory services during the sales process.

The allocation of product and service revenue as well as the estimation of service costs requires judgments and assumptions including the standalone selling prices, the period of time that it takes for the service obligation to be fulfilled and the amount of time spent on vendor managed inventory services during the sales process.

Changes in various assumptions could increase or decrease the allocation of service revenue and related costs;

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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 7. Management’s Discussion and Analysis