What changed in this filing

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Item 1A. Risk Factors

2024-02-06 compared with 2023-02-07 · 97 added, 96 removed, 160 unchanged (55% of the section changed)

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While we maintain insurance coverage to mitigate a portion of this risk and may have recourse against our suppliers for losses arising out of defects in products procured from them, we could experience significant losses as a result of claims made against us to the extent adequate insurance is not in place, the products are manufactured by us or legal recourse against our suppliers is otherwise not available, or our insurers or suppliers are unwilling or unable to satisfy their obligations to us.

Our ability to successfully attract, develop, and retain qualified personnel to staff our selling locations could impact labor costs, sales at existing selling locations, and the successful execution of our growth drivers.

Our success depends in part on our ability to attract, motivate, and retain a sufficient number of qualified employees, including inside and outside branch associates, Onsite managers, national account sales representatives, and support personnel, who understand and appreciate our culture and are able to adequately represent this culture to our customers.

Qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the industry is high, particularly for less tenured employees.

If we are unable to hire and retain personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and product knowledge, our sales could be materially adversely affected.

Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees.

An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned expansion of our various selling channels.

Interruptions in the proper functioning of information systems or the inability to maintain or upgrade our information systems, or convert to alternate systems in a timely and efficient manner, could disrupt operations, cause unanticipated increases in costs and/or decreases in revenues, and result in less efficient operations.

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Our information systems are protected with robust backup systems and processes, including physical and software safeguards and remote processing capabilities.

Still, information systems are vulnerable to natural disasters, power losses, unauthorized access, telecommunication failures, and other problems.

Still, information systems are vulnerable to natural disasters, power losses, unauthorized access, cybersecurity incidents, telecommunication failures, and other problems.

In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their products or services or their relationship with us.

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The ability to adequately protect our intellectual property or successfully defend against infringement claims by others may have an adverse impact on operations.

Our business relies on the use, validity, and continued protection of certain proprietary information and intellectual property, which include current and future patents, trade secrets, trademarks, service marks, copyrights, and confidentiality agreements, as well as license and sublicense agreements to use intellectual property owned by affiliated entities or third parties.

Additionally, our business relies on the use, validity, and continued protection of certain proprietary information and intellectual property, which include current and future patents, trade secrets, trademarks, service marks, copyrights, and confidentiality agreements, as well as license and sublicense agreements to use intellectual property owned by affiliated entities or third parties.

Unauthorized use of our intellectual property by others could result in harm to various aspects of the business and may result in costly and protracted litigation in order to protect our rights.

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The development and maintenance of these processes and systems are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated.

Consequently, despite our efforts, the possibility of cyber sec urity incidents cannot be eliminated entirely.

There can be no assurance that we will not experience a cyber security incident that may materially impact our business.

Consequently, despite our efforts, the possibility of cyber security incidents cannot be eliminated entirely.

can be no assurance that we will not experience a cyber security incident that may materially impact our business.

While we also seek to obtain assurances that third parties we interact with will protect confidential information, there is a risk the confidentiality of data held or accessed by third parties may be compromised.

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New privacy security laws and regulations, including the European Union General Data Protection Regulation 2016, the California Consumer Protection Act, and other similar privacy laws, pose increasingly complex compliance challenges, which may increase compliance costs, and any failure to comply with data privacy laws and regulations could result in significant penalties.

Our success depends in part on our ability to attract, motivate, and retain a sufficient number of qualified employees, including inside and outside branch associates, Onsite managers, national account sales representatives, and logistical and administrative support personnel, who understand and appreciate our culture and are able to adequately represent this culture to our customers.

Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees.

An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned expansion of our various selling channels.

Changes in customer or product mix, downward pressure on sales prices, and changes in volume or timing of orders have caused and could continue to cause our gross profit percentage to fluctuate or decline in the future.

Changes in our customer and product mix have caused our gross profit percentage to decline and could cause our gross profit percentage to further fluctuate or decline.

For example, we have experienced a long-term increase in the proportion of our sales attributable to both non-fastener products and national accounts and Onsite customers.

For example, we have experienced a sustained increase in the proportion of our sales attributable to both non-fastener products and national accounts and Onsite customers.

Non-fastener products typically have a lower gross profit percentage than fasteners because in many cases non-fastener products are less technical, have shorter supply chains, and are easier to transport.

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Whether and to what extent this adverse mix impact will result in a decline of our gross profit percentage in any given year will depend on the extent to which they are offset by positive impacts to gross profit percentage during such year.

For instance, in 2022, we executed initiatives intended to drive key account penetration, which resulted in relative growth in our national account and Onsite customers and a decline in our gross profit percentage from customer mix.

In contrast, the strength of the manufacturing economy in 2022 resulted in relatively faster growth in our more economically cyclical fastener product line over our non-fastener product lines, resulting in an increase in our gross profit percentage from product mix.

Setting aside the circumstances of any given year or period, however, customer and product mix have contributed to the decline of our gross profit percentage over time and will likely continue to reduce our gross profit percentage into the foreseeable future.

There are other variables that could cause our gross profit percentage to decline, including downward pressure on sales prices due to deflation, pressure from customers to reduce costs, or increased competition.

Setting aside the circumstances of any given year or period, however, customer and product mix have contributed to the decline of our gross profit percentage over time and, based on the anticipated sources of our future growth, will likely continue to reduce our gross profit percentage into the foreseeable future.

There are other variables that could cause our gross profit percentage to decline, including downward pressure on sales prices due to deflation, increases in overseas freight charges, the inability of freight revenue to leverage the expenses associated with our captive trucking fleet, pressure from customers to reduce costs, or increased competition.

We could experience reductions in the volume of purchases we make from our suppliers, which could reduce supplier volume allowances.

We may not be able to pass higher product costs along to customers if those customers have ready product or supplier alternatives in the marketplace.

Failure to implement an effective Environmental, Social, and Governance (ESG) strategy could result in financial losses or a tarnished corporate reputation .

Customers, suppliers, employees, community partners, shareholders, and regulatory agencies are increasingly scrutinizing our ESG disclosures and practices and factoring the social impact of our policies and practices into whether and how they engage with us.

Our ability to achieve any ESG objective is subject to numerous risks, many of which are outside of our control.

Examples of such risks include:

• the availability and cost of low- or non-carbon-based energy sources;

• the evolving regulatory requirements affecting ESG standards or disclosures;

• the availability of suppliers that can meet sustainability, diversity, and other ESG standards that we may set;

• the availability of effective and acceptable emission offset technologies or strategies in the event such tools will be necessary to achieve overall emission reduction and mitigation goals;

• our ability to recruit, develop, and retain diverse talent in our labor markets;

• the success of our organic growth and acquisitions and dispositions of businesses or operations.

Furthermore, increasing reporting and operating regulations around ESG matters may result in higher operating expenses and/or capital expenditures that could reduce our profitability and/or cash flow.

An actual or perceived inability to satisfactorily address the concerns and disclosure expectations of our stakeholders could adversely affect our corporate reputation, image, identity, brand equity, and status, which could hurt our ability to retain and acquire customers and employees, lead to penalties for non-compliance, and/or negatively impact the price performance of our common stock.

We experienced a number of these variables in 2023.

A softer manufacturing economy caused relative weakness in our more cyclical and higher gross margin fastener product line versus our non-fastener product lines.

Similarly, we continued to execute initiatives aimed at accelerating key account penetration, which resulted in relative growth in our lower gross margin national account and Onsite customers.

The combination of these two events produced pressure on our product gross profit percentage in 2023 from product and customer mix.

Our operating and administrative expenses could grow more rapidly than net sales which could result in failure to achieve our goals related to leveraging revenue growth into higher net earnings.

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It is also possible that in the future we will elect to make investments in operating and administrative expenses that would result in costs growing faster than net sales.

In addition, market variables, such as labor rates, energy costs, legal costs, and health care costs, could move in such a way as to cause us to not be able to manage our operating and administrative expenses in a way that would enable us to leverage our revenue growth into higher net earnings.

In addition, market variables, which include but are not exclusive of labor rates, energy costs, legal costs, and health care costs, could move in such a way as to cause us to not be able to manage our operating and administrative expenses so as to leverage our revenue growth into higher net earnings.

Should any of these scenarios, or a combination of them, occur in the future, it is possible that our operating and pre-tax profit margins could decline even if we are able to grow revenue.

We may be unable to meet our goals regarding the growth drivers of our business.

Our sales growth is dependent primarily on our ability to attract new customers and increase our activity with existing customers within North America and abroad.

In recent years, we have increased the resources devoted to developing a multi-dimensional, differentiated service offering, including our Digital Footprint (which incorporates our FMI and e-procurement capabilities), Onsites, national accounts, international capabilities, and process and consumption analytics.

While we have taken steps to build momentum in the growth drivers of our business, we cannot assure you those steps will lead to sales growth.

Failure to achieve any of our goals regarding our Digital Footprint, Onsites, national accounts, international capabilities, analytics, or other growth drivers could negatively impact our long-term sales and profit growth.

For instance, a lack of customer access during the COVID-19 pandemic in 2020 and 2021 resulted in signings of Onsites and FMI devices, both important indicators of future sales growth, being below target levels for those years, which had adverse implications on sales growth in 2022.

In addition, failure to identify appropriate targets for the growth drivers of our business or failure to persuade the appropriate targets to adopt these offerings once identified may adversely impact our internally developed and/or externally communicated deployment objectives.

The ability to identify new products and product lines, and integrate them into our selling locations and distribution network, may impact our ability to compete, our ability to generate additional sales, and our profit margins.

Our success depends in part on our ability to develop product expertise at the selling location level and identify future products and product lines that complement existing products and product lines and that respond to our customers' needs.

We may not be able to compete effectively unless our product selection keeps up with trends in the markets in which we compete or trends in new products.

In addition, our ability to integrate new products and product lines into our branches and distribution network could impact sales and profit margins.

Our competitive advantage in FMI solutions, which includes industrial vending (FASTVend) and bin stock (FASTStock and FASTBin) tools could be eliminated and, in the case of FASTVend, the loss of key suppliers of equipment and services could be impactful and result in failure to deploy devices.

Certain circumstances could lead to a short-term inability to promote and/or install our FMI solutions.

We believe we have a competitive advantage in industrial vending and bin stock due to our hardware and software, our local branch presence (allowing us to service devices and bins more rapidly and with less burden on our customers), our depth of products that lend themselves to being dispensed through industrial vending devices or bin stocks, and, in North America, our distribution strength.

These advantages have developed over time;

however, other competitors could respond to our expanding industrial vending and bin stock position with highly competitive platforms of their own.

Such competition could negatively impact our ability to expand our industrial vending and bin stock tools or negatively impact the economics of that business.

In addition, we currently rely on a limited number of suppliers for the vending devices used in our FASTVend platform.

While devices, software, and services can be obtained from other sources, loss of our current suppliers could be disruptive and could result in our failure to meet short- or long-term goals related to the numbers of FASTVend devices we are able to deploy.

Certain circumstances may reduce short-term customer receptivity to adopting our FMI services.

For instance, when economic activity slows, some customers may prioritize managing existing operations over adopting new technologies until business circumstances change.

For instance, in 2020 and 2021 we experienced a slowdown in the signing of FMI devices as customers limited access to decision-makers and facilities to minimize risks related to the COVID-19 pandemic.

Failure to maintain an effective system of internal controls over business processes and/or financial reporting could materially impact our business and results.

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Any failure to maintain an effective system of internal controls over business processes and financial reporting could limit our ability to report our financial results accurately and timely or to detect and prevent fraud, and could expose us to litigation, economic loss, or adversely affect the market price of our common stock.

Our competitive advantage in FMI solutions, which includes industrial vending (FASTVend) and bin stock (FASTStock and FASTBin) tools could be eliminated and, in the case of FASTVend and FASTBin, the loss of key suppliers of equipment and services could be impactful and result in failure to deploy devices.

Certain circumstances could lead to a short-term inability to promote and/or install our FMI solutions.

We believe we have a competitive advantage in industrial vending and bin stock due to our hardware and software, our local presence (allowing us to service devices and bins more rapidly and with less burden on our customers), our depth of products that lend themselves to being dispensed through industrial vending devices or bin stocks, and, particularly in North America, our distribution strength.

These advantages have developed over time;

however, other competitors could respond to our expanding industrial vending and bin stock position with highly competitive platforms of their own.

Such competition could negatively impact our ability to expand our industrial vending and bin stock tools or negatively impact the economics of that business.

In addition, we currently rely on a limited number of suppliers for our vending devices, RFID technology, and IR technology used in our FASTVend and FASTBin platforms.

Certain circumstances may reduce short-term customer receptivity to adopting our FMI services.

For instance, during periods of dramatic change in economic activity, some customers may prioritize managing existing operations over adopting new technologies until business circumstances change.

Our inability to attract or transition key executive officers may divert the attention of other members of our senior leadership and adversely impact our existing operations.

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In addition, difficulties in smoothly implementing any transition to new members of our executive team, or recruiting suitable replacements, could divert the attention of other members of our senior leadership team from our existing operations.

Failure to implement an effective Environmental, Social, and Governance (ESG) strategy could result in financial losses or impair our corporate reputation .

Our ability to achieve any ESG objective is subject to numerous risks, many of which are outside of our control.

Examples of such risks include:

• the availability and cost of low- or non-carbon-based energy sources;

• the evolving regulatory requirements affecting ESG standards or disclosures;

• increases in reporting and operating regulations around ESG may result in higher operating expenses and/or capital expenditures that could reduce our profitability and/or cash flow;

• the availability of suppliers that can meet sustainability, diversity, and other ESG standards that we may set;

• the availability of effective and acceptable emission offset technologies or strategies in the event such tools will be necessary to achieve overall emission reduction and mitigation goals;

• our ability to recruit, develop, and retain diverse talent in our labor markets.

We may be unable to meet our goals regarding the growth drivers of our business.

Our sales growth is dependent primarily on our ability to attract new customers and increase our activity with existing customers within North America and abroad.

While we have taken steps to build momentum in the growth drivers of our business, we cannot assure you those steps will lead to sales growth.

The ability to identify new products and product lines, and integrate them into our selling efforts and distribution network, may impact our ability to compete, our ability to generate additional sales, and our profit margins.

Our success depends in part on our ability to develop product expertise at our selling locations and through our specialist roles and identify future products and product lines that complement existing products and product lines and that respond to our customers' needs.

We may not be able to compete effectively unless our product selection keeps up with trends in the markets in which we compete or trends in new products.

In addition, our ability to integrate new products and product lines into our selling locations and distribution network could impact sales and profit margins.

The ability to adequately protect our reputation may have an adverse impact on operations and profitability.

The Fastenal name is valuable to our business, as well as to the implementation of our strategies for expanding our business.

Maintaining, promoting, and positioning our brand will depend largely on our ability to provide high quality products, deliver consistent services, and improve our customer's business operations.

Further, information on our company, including our products and services, can be more easily accessed and more quickly disseminated through traditional and social media and digital channels.

Should we fail to deliver a positive customer experience or should our public image be tarnished by negative publicity, whether or not based in fact, it could jeopardize our reputation and discourage customers from purchasing our products and services, which in turn could adversely affect our ability to grow our revenues and profitability.

We may not be able to compete effectively against traditional or non-traditional competitors, which could cause us to lose market share or erode our gross and/or operating income profit and/or percentage.

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We can provide no assurance that the above-average historical volatility of our stock versus the broader market will moderate.

Volatility in our stock price could also result in the filing of securities class action litigation, which could result in substantial costs and the diversion of our management's time, attention, and resources.

Volatility in our stock price could also result in the

filing of securities class action litigation, which could result in substantial costs and the diversion of our management's time, attention, and resources.

There can be no assurance that our stock price will continue to reflect the current multiple of earnings over time.

Stock prices, including ours, are commonly thought to be a function of earnings compounded by a multiple.

This is often referred to as a price-to-earnings (P/E) ratio.

Historically, investors have given our earnings a higher multiple, or premium, than is typical of the broader industrial sector of which we are typically associated.

This is often referred to as a price-to-earnings (P/E) ratio, although other forms of multiples are often utilized by investors to value our company's shares.

Historically, investors have given our earnings a higher multiple, or premium, than is typical of the broader industrial sector with which we are typically associated.

We believe we have earned this premium by virtue of a long history of superior growth, profitability, and returns.

However, to the extent that we fail to successfully execute our growth strategies and/or poorly navigate the risks that surround our business, including those described throughout this section, or to

the extent our industry (industrial distribution, or industrial stocks in general) loses favor in the marketplace, there can be no assurance that investors will continue to afford a premium multiple to our earnings which could adversely affect our stock price.

However, to the extent that we fail to successfully execute our growth strategies and/or poorly navigate the risks that surround our business, including those described throughout this section, or to the extent our industry (industrial distribution, or industrial stocks in general) loses favor in the marketplace, there can be no assurance that investors will continue to afford a premium multiple to our earnings which could adversely affect our stock price.

We cannot provide any guaranty of future dividend payments or that we will continue to purchase shares of our common stock pursuant to our share purchase program.

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• interest rates;

• increases (inflation) or decreases (deflation) in the cost of products from our vendors, transportation services, energy and fuel prices, and electrical power rates;

• liquidity in credit markets;

• government regulations and actions;

• energy and fuel prices and electrical power rates,

• the impact on customer demand or availability of goods and services based on labor shortages or work stoppages;

• unemployment trends;

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• impact of higher sustained global temperatures (global warming);

• acts of God, which may include, but are not limited to, weather events, earthquakes, pandemics, etc., and

• acts of God, which may include, but are not limited to, weather events, earthquakes, pandemics, etc.;

• other matters that influence customer confidence and spending.

A downturn in either the national or local economies where we operate, or in the principal markets served by us, or changes in any of the other factors described above, could negatively impact sales at our in-market locations, sales through our other selling channels, and the level of profitability of those in-market locations and other selling channels.

In 2022, we experienced a weakening in the value of many local currencies relative to the United States dollar.

As a result, in certain international markets our relatively healthy local currency sales were weak or weakened in certain international markets when reported in our functional currency.

This was particularly pronounced in Europe.

In 2022, a loosening of China’s "zero tolerance" COVID-19 domestic policy, and the resulting surge in infections, caused a weakening in local currency results in our Chinese and Southeast Asian markets.

In 2022, the Russo-Ukrainian war adversely affected European energy markets and business activity, resulting in a weakening of sales growth in local currency for our Continental European business unit.

Products manufactured in foreign countries may cease to be available, which could adversely affect our inventory levels and opera ting results.

The primary variable affecting our results in 2023 was a softening in manufacturing sector business conditions.

Products manufactured in foreign countries may cease to be available, which could adversely affect our inventory levels and operating results.

We obtain certain of our products, and our suppliers obtain certain of their products, from China, Taiwan, South Korea, and other foreign countries.

Our suppliers could discontinue or experience disruption in selling products manufactured in foreign countries at any time for reasons that may or may not be in our control or our suppliers’ control, including foreign government regulations, domestic government regulations, disruption in trade relationships and agreements, political unrest, war, disease, labor availability, or change in local economic conditions.

Our suppliers could discontinue or experience disruption in selling products manufactured in foreign countries at any time for reasons that may or may not be in our control or our suppliers' control, including foreign government regulations, domestic government regulations, disruption in trade relationships and agreements, political unrest, war, disease, labor availability, or changes in local economic conditions.

Additionally, the shipment of goods from foreign countries could be delayed by container shipping companies encountering financial, capacity, or other difficulties.

Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier or shipper who is unwilling or unable to satisfy our requirements with another supplier or shipper providing products and services of comparable quality and utility.

We experienced this in 2021 and 2022, as a strong recovery in global product demand following the COVID-19 pandemic created disruptions due to a shortage of shipping capacity and the effect of labor capacity restraints on the ability to produce sufficient goods in a timely manner.

We and our customers experienced a shortage of certain products and elevated transportation costs as a result.

Our operating results and inventory levels could suffer if we are unable to promptly replace a supplier or shipper who is

unwilling or unable to satisfy our requirements with another supplier or shipper providing products and services of comparable quality and utility.

Trade policies could make sourcing product from overseas more difficult and/or more costly, and could adversely impact our gross and/or operating profit percentage.

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Failure to fully pass any such increased prices and costs through to our customers or to modify our activities to mitigate the impact would have an adverse effect on our operating income.

We experienced resource inflation in 2021 and 2022, as a strong recovery in global demand following the COVID-19 pandemic created tightness in the market for certain raw materials and energy.

This caused our company and our suppliers to increase product prices to address higher input costs.

We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase the cost of purchasing products and impact our foreign sales.

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Fluctuations in the relative strength of foreign economies and their related currencies could adversely impact our ability to procure products at competitive prices and our foreign sales.

Historically, our primary exchange rate exposure has been with the Canadian dollar.

Historically, our primary exchange rate exposure has been with the Canadian dollar as our Mexican activities are primarily conducted in United States dollars and our non-North American operations are relatively small in scale.

There can be no assurance that currency exchange rate fluctuations with the Canadian dollar and other foreign currencies will not adversely affect our results of operations, financial condition, and cash flows.

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Within North America, we believe the potential market opportunity for industrial vending is approximately 1.7 million devices and we have identified over 12,000 customer locations with the potential to implement our Onsite service model within our traditional manufacturing and construction customer base.

We have identified additional markets, such as government, healthcare, and academia, and geographies into which we can sell our FMI solutions, which would increase the number of identified potential FMI solutions or customer locations.

However, our presence in emerging markets and geographies is not as established as is the case in our traditional markets and geographies, which could extend the sales cycle.

Similar to the case for total market size, we use our own experience and data to arrive at the size of these potential opportunities and not independent sources.

These estimates are based on our business model today, and the introduction or expansion of other business strategies, such as on-line retailing, could cause them to change.

In addition, the market potential of a particular business strategy may vary from expectations due

to a change in the marketplace (such as changes in customer concentration or needs), a change in the nature of that business strategy, or weaker than anticipated acceptance by customers of that business strategy.

As is the case for total market size, we use our own experience and data to arrive at the size of these potential opportunities and not independent sources.

These estimates are based on our business model today, and the introduction or expansion of other business strategies could cause them to change.

addition, the market potential of a particular business strategy may vary from expectations due to a change in the marketplace (such as changes in customer concentration or needs), a change in the nature of that business strategy, or weaker than anticipated acceptance by customers of that business strategy.

We cannot guarantee that our market potential estimates are accurate or that we will ultimately decide to expand our industrial vending or Onsite service models as we anticipate to reach the full market opportunity.

The industrial, construction, and maintenance supply industry is consolidating, which could cause it to become more competitive and could negatively impact our market share, gross profit, and operating income.

The industrial, construction, and maintenance supply industry in North America is consolidating.

This consolidation is being driven by customer needs and supplier capabilities, which could cause the industry to become more competitive as greater economies of scale are achieved by suppliers, or as competitors with new business models are willing and able to operate with lower gross profit on select products.

Customers are increasingly aware of the total costs of fulfillment and of the need to have consistent sources of supply at multiple locations.

We believe these customer needs could result in fewer suppliers as the remaining suppliers become larger and capable of being a consistent source of supply.

There can be no assurance we will be able in the future to take effective advantage of the trend toward consolidation.

The trend in our industry toward consolidation could make it more difficult for us to maintain our current gross profit and operating income.

The industrial, construction, and maintenance supply industry in North America is consolidating, reflecting two factors.

First, our customer's needs are evolving to reflect a greater awareness of the total cost and risk of fulfillment and their need to have consistent sources of supply at multiple locations, including outside of North America.

Second, providing these capabilities to our customers requires increasing investment in hardware, software, and analytic capabilities that require a certain degree of scale to support.

While we believe that in a fragmented market such as exists for industrial supplies these emerging trends favor large distributors such as Fastenal, as the industry consolidates into fewer and larger competitors it may become more difficult to differentiate our product and service offering from that of our competitors.

We also continue to see consolidation among our suppliers.

This trend could result in fewer and larger suppliers, with greater channel power and negotiating leverage.

There can be no assurance we will be able in the future to take effective advantage of the trend toward consolidation within our industry or among our suppliers.

In either or both cases, the trend toward consolidation could make it more difficult for us to maintain our growth and/or gross and operating profit.

Furthermore, as our industrial customers face increased foreign competition, and potentially lose business to foreign competitors, or shift their operations overseas in an effort to reduce expenses, we may face increased difficulty in growing and maintaining our market share.

The occurrence of a widespread public health crisis, including COVID-19, could have a material adverse effect on our business, results of operations, and financial condition.

The occurrence of a widespread public health crisis could have a material adverse effect on our business, results of operations, and financial condition.

A public health crisis, if sufficiently widespread as to affect economic activity, could negatively impact our business.

To the extent that efforts to mitigate the effects of the crisis result in a reduction in demand, inefficiencies due to workplace accommodations, reduced availability of personnel, supply chain disruption, or constraints on product availability, among other difficulties, our financial condition could be negatively impacted.

In any such event, the severity, duration, and extent of the crisis can be difficult to predict, which can make it difficult to predict or anticipate the magnitude and length of the impact on our sales, profits, and/or cash flow.

We experienced these effects with the onset of the COVID-19 pandemic in early 2020, when government authorities and our customers imposed facility closures, work-from-home orders, social distancing protocols, and/or other restrictions in an effort to mitigate the effects on global societies.

These actions had both positive effects (strong sales of safety and sanitation supplies to government, healthcare, and warehousing customers) and negative effects (weak sales to industrial and construction customers as well as disruption in signings of Onsites and FMI devices).

COVID-19 did not have any meaningful direct impact on our financial results in 2022.

However, COVID-19 infections continue in most societies in which we operate, and we cannot predict the severity and duration of additional outbreaks, new variants of the virus, or the future availability of effective medical treatments and vaccines.

We also cannot predict the severity or duration of the net financial impact of COVID-19 or any other public health event on our operating results.

Mitigation efforts and prescriptions may be facilitated by regulatory authorities, which could limit our flexibility to pursue alternative, potentially more favorable, means of limiting these negative impacts.

The effects on our business efforts to mitigate the effects of the crisis may include a reduction in demand, inefficiencies due to workplace accommodations, reduced availability of personnel, supply chain disruption, or constraints on product availability, among other difficulties.

In any such event, the severity, duration, and extent of the crisis can be difficult to predict, which can make it difficult to anticipate the magnitude and length of the impact on our sales, profits, and/or cash flow.

It can also be difficult to anticipate what the effect on business conditions will be as the impacts of any public health crisis fades and mitigating policies are reversed.

Inclement weather and other disruptions to the transportation network could adversely impact our distribution system and demand for our products.

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While we have implemented policies and procedures designed to facilitate compliance with these laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations, or our policies.

such violations could result in the imposition of fines and penalties, damage to our reputation, and, in the case of laws and regulations relating specifically to governmental contracts, the loss of those contracts.

Any such violations could result in the imposition of fines and penalties, damage to our reputation, and, in the case of laws and regulations relating specifically to governmental contracts, the loss of those contracts.

Tax laws and regulations require compliance efforts that can increase our cost of doing business and changes to these laws and regulations could impact financial results.

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In 2022, the Inflation Reduction Act was passed which contained tax-related provisions.

We do not anticipate any meaningful near-term impact to our tax rates from the legislation.

We did not experience, and do not anticipate experiencing in the near future, any meaningful impact to our tax rates from the legislation.

Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.

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The implementation of new accounting standards could also require certain systems, internal process, internal control, and other changes that could increase our operating costs.

We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our business.

From time to time, we are involved in lawsuits or other legal proceedings that arise from business transactions or the operation of our business.

Due to the nature of our business, these proceedings may, for example, relate to product liability claims, commercial disputes, suits arising from our trucking operations, or employment matters.

In addition, we could face claims over other matters, such as claims arising from our status as a government contractor, intellectual property matters, or corporate or securities law matters.

The defense and ultimate outcome of lawsuits or other legal proceedings may result in higher operating expenses, which could have a material adverse effect on our business, financial condition or results of operations.

Credit and Liquidity Risks

Tight credit markets could impact our ability to obtain financing on reasonable terms or increase the cost of existing or future financing and interest rate fluctuations could adversely impact our results.

As of December 31, 2022, we had $555.0 of outstanding debt obligations, of which $330.0 is in the form of senior unsecured promissory notes issued under our master note agreement (the Master Note Agreement), while $225.0 is in the form of loans outstanding under our revolving credit facility (the Credit Facility).

Loans under the Credit Facility generally bear interest at a rate per annum equal to Daily Simple Secured Overnight Financing Rate (SOFR) and mature on September 28, 2027.

The notes issued under our Master Note Agreement consist of six series an d are described in further detail in Note 9 of the Not es to Consolidated Financial Statements in this Form 10-K.

As of December 31, 2023, we had $260.0 of outstanding debt obligations, all in the form of senior unsecured promissory notes issued under our master note agreement (the Master Note Agreement).

The notes issued under our Master Note Agreement carry a fixed interest rate and consist of five series and are described in further detail in Note 9 of the Not es to Consolidated Financial Statements in this Form 10-K.

We also have borrowing capacity under our revolving credit facility (the Credit Facility) of $835.0, but no loans were outstanding as of December 31, 2023.

Loans under the Credit Facility generally bear interest at a rate per annum equal to Daily Simple Secured Overnight Financing Rate (SOFR), the rate on which may vary daily, and mature on September 28, 2027.

We currently have the capacity under our Credit Facility and Master Note Agreement to increase borrowings in the future to finance stock purchases, dividends, capital expenditures, working capital additions, acquisitions, or other investments.

1 unchanged sentence

This was not a material consideration in 2023.

However, during any future periods of credit market volatility, the cost of servicing any existing balances on our Credit Facility at that time could increase due to the SOFR-based interest rate provided for under our Credit Facility.

UNRESOLVED STAFF COMMENTS

The cost of servicing any existing balances on our Credit Facility could increase if interest rates increase due to the SOFR-based interest rate provided for under our Credit Facility.

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