What changed in this filing

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Item 1A. Risk Factors

2022-02-17 compared with 2021-02-19 · 44 added, 62 removed, 180 unchanged (37% of the section changed)

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You are advised, however, to review any further disclosures we make on related subjects in our subsequent Forms 10-Q, 8-K and other reports filed with the SEC.

You should carefully consider the risks described below in addition to the other information set forth in this Annual Report on Form 10-K.

Set forth below are the material risks and uncertainties that, if they were to occur, could materially and adversely affect our business or could cause our actual results to differ materially from the results contemplated by the forward-looking statements in this report and in the other public statements we make.

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New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition, results of operations or the trading price of our securities.

The considerations and

risks that follow are organized within relevant headings but may be relevant to other headings as well.

In addition, the material risks and uncertainties described below does not indicate that the risk has not already materialized.

STRATEGIC AND OPERATIONAL RISKS

The impact of the COVID-19 pandemic has significantly impacted worldwide economic conditions, and our operations and our financial results have been and will in the future be materially adversely impacted, and the duration and extent to which it will impact our business remains uncertain.

COVID-19, a novel strain of coronavirus, was reported in December 2019, with the World Health Organization declaring it a global pandemic on March 11, 2020.

The COVID-19 pandemic has created significant volatility, uncertainty and disruption, with severe impacts on the United States and global economies.

The COVID-19 pandemic has impacted a large portion of the world, including our domestic and international operations.

If the pandemic continues to create disruptions or turmoil in the credit or financial markets, or impacts our credit ratings, it could adversely affect our ability to access capital on favorable terms or at all, meet our liquidity needs or amend and/or refinance our existing credit arrangements.

The impact of the COVID-19 pandemic has significantly impacted worldwide economic conditions, and our operations and our financial results have been and may in the future be materially impacted, and the duration and extent to which it will impact our business remains uncertain.

The COVID-19 pandemic continues to impact various aspects of our business, and the long-term impact to our business remains unknown.

The extent to which the COVID-19 pandemic impacts the Company will depend on numerous factors and future developments that we cannot predict, including the severity of the virus;

the occurrence of additional waves or spikes in infection rates;

the occurrence of additional waves or spikes in infection rates, including due to the emergence and spread of variants;

the duration of the outbreak;

governmental, business or other actions taken in response to the pandemic and the efficacy of these actions, including partial or complete shut downs, travel restrictions, and stay-at-home orders among other actions;

the effectiveness and distribution of COVID-19 vaccines;

the timing, distribution, effectiveness and public acceptance of COVID-19 vaccines;

and impacts on our supply chain, our ability to keep operating locations open, and on customer demand.

As the pandemic continues to spread throughout the United States, consumer fears about COVID-19 continue and recommendations and/or mandates from federal, state and local authorities to avoid large gatherings of people or self-quarantine have persisted and/or increased, which has and will continue to adversely affect our operations.

We have incurred and continue to incur additional costs related to efforts to protect the health and well-being of our team members, customers and the communities we serve.

We expect to continue to incur additional costs, which may be significant, as we continue to implement operational changes in response to this pandemic.

We may further restrict the operations of our various distribution centers, branches or store facilities in both of our segments if we deem such action necessary or appropriate or if recommended or mandated by local government authorities.

Additionally, we may incur significant incremental costs to ensure we meet the needs of our customers and our employees, including additional cleanings of our stores and other facilities.

Also, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate or appropriate for a particular region or the Company as a whole, we could suffer damage to our reputation and our brand, which could adversely affect our business in the future.

These items could have a further material impact on our sales and profits and could lead to significantly higher losses on outstanding customer receivables, guaranteed loans and asset impairment charges, among other things.

The COVID-19 pandemic has resulted in work and travel restrictions and delays, which have been expanded throughout the continued progression of the pandemic.

These restrictions and delays have impacted and may continue to impact suppliers and manufacturers of certain of our products.

This may make it difficult for our suppliers to source and manufacture products in, and to export our products from, affected areas.

As a result, we may continue to face delays or difficulty sourcing certain products.

These supply chain disruptions, as well as associated labor shortages within the supply chain, could cause inventory shortages, delays in order fulfillment and increased backlogs, and we may be unable to meet our customers’ expectations and requirements as result, which could negatively affect our business and financial results.

Even if we are able to find alternate sources for such products, they may cost more, which could adversely impact our profitability and financial condition.

Additional adverse changes in economic conditions as a result of the pandemic may also lead to increased credit concerns and challenges to recover accounts receivable, reduced liquidity, adverse impacts on our suppliers and customers, including on their abilities to continue to operate as a going concern.

Further, the Company and management are focused on mitigating the impact of the COVID-19 pandemic, which has required and will continue to require, a large investment of time and resources and may delay other strategic initiatives.

Additionally, many of our employees are working remotely and may continue to do so for an extended period.

An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to our ability to manage our business, cyber-security and data security risks, the potential vulnerabilities to our financial reporting systems and our internal control environment and the effectiveness of our internal controls over financial reporting.

The Company and management continue to focus on mitigating the impact of the COVID-19 pandemic, which has required and will continue to require, a large investment of time and resources.

While we have added safety measures to protect our employees and customers, continued business disruption caused by COVID-19 may require further significant actions to mitigate the impact, including but not limited to, reductions in store hours and store closings as well as ongoing increases in expenses.

Conversely, if the unprecedented levels of customer demand we have experienced during the pandemic revert or subside, we may be unable to reduce expenses or otherwise react quickly and effectively to such changes.

Additional adverse changes and volatility in economic conditions as a result of the pandemic may also lead to increased credit concerns and challenges to recover accounts receivable, reduced liquidity, adverse impacts on our suppliers and customers, including on their abilities to continue to operate as a going concern.

Due to the unprecedented nature of COVID-19 and the myriad of responses thereto, we cannot identify all of the risks we face from the pandemic and its resulting impacts.

Even after the pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession that has occurred or may occur.

The pandemic could also amplify other risks and uncertainties described in our 2019 Annual Report on Form 10-K.

The pandemic could also amplify other risks and uncertainties described in this 2021 Annual Report on Form 10-K.

The ultimate adverse impacts relating to the potential effect of the COVID-19 pandemic on our business and the costs that we may incur as a result cannot be reasonably estimated but could be material.

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• changes in travel patterns, which may cause consumers to rely more on other transportation;

• the weather, as milder weather conditions may lower the failure rates of automotive parts, while extended periods of rain and winter precipitation may cause our customers to defer maintenance and repair on their vehicles;

extremely hot or cold conditions may enhance demand for our products due to increased failure

rates of our customers’ automotive parts, and global warming trends and other significant climate changes can create more variability in the short term or lead to other weather conditions that could impact our business;

• restrictions on access to diagnostic tools and repair information imposed by the original vehicle manufacturers or by governmental regulation, as consumers may be forced to have all diagnostic work, repairs and maintenance performed by the vehicle manufacturers’ dealer networks;

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These include, raw material shortages, inadequate manufacturing capacity, labor strikes, shortages and disputes anywhere within the supply and distribution chain delivering products to us, tariff and customs legislation and enforcement, transportation disruptions, tax and other legislative uncertainties, pandemics (including the current COVID-19 pandemic) and/or weather conditions.

Since the beginning of the COVID-19 pandemic, we have experienced supply chain disruptions, particularly with regard to labor shortages in the U.S.

and inventory sourced from China.

Since the beginning of the COVID-19 pandemic, we have experienced supply chain disruptions, particularly with regard to global labor shortages and inventory sourced from outside the U.S.

These disruptions have not had a material impact on our business to date, but we cannot provide any assurance that these or new supply chain disruptions will not materially or adversely impact our business, financial condition and results of operations in the future

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While we also seek to obtain assurances from third parties with whom we interact to protect confidential information, there are risks that the confidentiality or accessibility of data held or utilized by such third parties may be compromised.

To date, we have not experienced a material breach of cyber-security;

however, our computer systems have been, and will likely continue to be, subjected to unauthorized access or phishing attempts, computer viruses, malware, ransomware or other malicious codes.

In particular, in connection with the COVID-19 pandemic, there has been a spike in cyber-security attacks as shelter in place orders and work from home measures have led businesses to increase reliance on virtual environments and communications systems, which have been subjected to increasing third-party vulnerabilities and security risks.

A serious prolonged disruption of our information systems for any of the above reasons could materially impair fundamental business processes and increase expenses, decrease sales or otherwise impact earnings and cash flows.

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We may not be able to successfully implement our business initiatives in each of our business segments to grow our sales and earnings, which could adversely affect our business, financial condition, results of operations and cash flows.

We have implemented numerous initiatives in each of our business segments to grow sales and earnings, including the introduction of new and expanded product lines, strategic acquisitions, geographic expansion (including through acquisitions), sales to new markets, enhanced customer marketing programs and a variety of gross margin and cost savings initiatives.

We have implemented numerous initiatives in each of our business segments to grow sales and earnings, including the introduction of new and expanded product lines, strategic acquisitions such as the recent acquisition of Kaman Distribution Group, geographic expansion (including through acquisitions), sales to new markets, enhanced customer marketing programs and a variety of gross margin and cost savings initiatives.

If we are unable to implement these initiatives efficiently and effectively, or if these initiatives are unsuccessful, our business, financial condition, results of operations and cash flows could be adversely affected.

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• our ability to effectively manage our costs;

• our ability to continue to grow through acquisitions and successfully integrate acquired businesses in our existing operations, including in particular the challenges associated with the integration of foreign operations to ensure the adequacy of internal controls;

• our ability to continue to grow through acquisitions and successfully integrate acquired businesses, including Kaman Distribution Group, in our existing operations, including in particular the challenges associated with the integration of foreign operations to ensure the adequacy of internal controls;

• our ability to identify and successfully implement appropriate technological, digital and e-commerce solutions;

• the rate of adoption of electric vehicles, hybrid vehicles, ride sharing services, alternative transportation means and autonomously driven vehicles and future legislation related thereto;

• the economy of each of the nations in which we operate in general, including the monetary policies of the Federal Reserve, which are influenced by various factors, including inflation, unemployment and short-term and long-term changes in the international trade balance and the fiscal policies of the U.S.

• the occurrence of unusually severe weather events, which can disrupt our operations (forcing temporary closure of retail and distribution centers, prohibiting shipment of inventory and products) and negatively impact our results in the affected geographies;

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• the adequacy of our disclosure controls and procedures and internal controls over financial reporting.

We recognize the growing demand for business-to-business and business-to-customer e-commerce options and solutions, and we could lose business if we fail to provide the e-commerce options and solutions our customers wish to use.

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Pursuing strategic transactions is also a time-consuming process that can involve significant expenses and management attention.

For each of our acquisitions, we need to successfully integrate the target company’s products, services, associates and systems into our business

For each of our acquisitions, we need to successfully integrate the target company’s products, services, associates and systems into our business operations.

Integration can be a complex and time-consuming process, and if the integration is not fully successful or is delayed for a material period of time, we may not achieve the anticipated synergies or benefits of the acquisition.

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Our business is global, so changes to existing international trade agreements, blocking of foreign trade or imposition of tariffs on foreign goods could result in decreased revenues and/or increases in pricing, either of which could have an adverse impact on our business, results of operations, financial condition and cash flows in future periods.

For instance, the United States imposed Section 232 tariffs on many imported products of steel and aluminum in March 2018 and expanded the tariffs to additional derivative products of steel and aluminum effective February 8, 2020.

February 8, 2020.

The United States imposed Section 301 tariffs on most imported products from China starting in July 2018.

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As a result, we may incur additional costs, including taxes and penalties for historical periods, that may have a material and adverse effect on our business, financial condition, results of operations and cash flows.

Uncertainty and/or deterioration in general macro-economic conditions domestically and globally, including unemployment, inflation or deflation, changes in tax policies, changes in energy costs, uncertain credit markets, or other economic conditions, could have a negative impact on our business, financial condition, results of operations and cash flows.

Our business and operating results have been and may in the future be adversely affected by uncertain global economic conditions, including domestic outputs, political uncertainty and unrest, employment rates, inflation or deflation, changes in tax policies, instability in credit markets, declining consumer and business confidence, fluctuating commodity prices, interest rates, volatile exchange rates, and other challenges that could affect the global economy.

Uncertainty and/or deterioration in general macro-economic conditions domestically and globally, including inflation or deflation, employment rates and wages, changes in tax policies, changes in energy costs, uncertain credit markets, or other economic conditions, could have a negative impact on our business, financial condition, results of operations and cash flows.

Our business and operating results have been and may in the future be adversely affected by uncertain global economic conditions, including inflation or deflation, domestic outputs, political uncertainty and unrest, employment rates and wages, including increases in minimum wage, changes in tax policies, changes in energy costs, instability in credit markets, declining consumer and business confidence, fluctuating commodity prices, interest rates, volatile exchange rates, and other challenges that could affect the global economy.

Both our commercial and retail customers may experience deterioration of their financial resources, which could result in existing or potential customers delaying or canceling plans to purchase our products.

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Financial Conduct Authority announced in 2017 that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021.

It is not possible to predict whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere.

It is not possible to predict whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere.

It is expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next several years.

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If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently, which may affect our net interest income, change our market risk profile and require changes to our risk, pricing and hedging strategies.

We may also incur costs to re-form existing derivative contracts and other financial instruments to which we are a party to address these

differences in performance relative to LIBOR or relative to adjustments made in other loans, derivative contracts or financial instruments where we are a party.

We may also incur costs to re-form existing derivative contracts and other financial instruments to which we are a party to address these differences in performance relative to LIBOR or relative to adjustments made in other loans, derivative contracts or financial instruments where we are a party.

Any failure to adequately manage this transition could adversely impact our business, results of operations and cash flows.

The U.K.'s exit from the European Union (“E.U.”) will continue to have uncertain effects and could adversely impact our business, results of operations and financial condition.

On January 31, 2020, the U.K.

exited from the E.U.

(commonly referred to as “Brexit”) and began a transition period that concluded on December 31, 2020.

Since the end of the transition, many companies operating in the U.K and E.U.

have experienced greater restrictions on imports and exports, additional regulatory complexity in their cross-border operations and currency fluctuations.

The long-term effects of Brexit remain uncertain and may include these immediate impacts, among others.

While we have not experienced any material financial impact from Brexit on our business to date, we cannot predict its future implications and any future impacts on our business and operations.

LEGAL AND REGULATORY RISKS

There is uncertainty surrounding legal, regulatory and policy changes by a new presidential administration in the United States that may directly affect us and the global economy.

We face regulatory and tax uncertainties on account of the 2020 U.S.

presidential election.

The new presidential administration is continuing to articulate its fiscal and legislative priorities for the next several years, however, the administration has indicated a desire to reform various aspects of existing trade and tax laws and to increase the federal minimum wage to at least $15 per hour.

The nature, timing and economic and political effects of any potential change to the current legal and regulatory framework affecting us remains highly uncertain.

Changes and uncertainty surrounding our operating environment, including U.S.

labor laws, trade policies and practices, tariffs or taxes in particular, could adversely affect our business, financial condition, results of operations and growth prospects.

We may be affected by global climate change or legal, tax, regulatory, or market responses to such change.

The concern over climate change has led to legislative and regulatory initiatives aimed at reducing greenhouse gas emissions (“GHG”).

For example, proposals that would impose mandatory requirements related to GHG continue to be considered by policy makers in the U.S.

and elsewhere.

For example, significant increases in fuel economy requirements, new federal or state restrictions on emissions of carbon dioxide or new federal or state incentive programs that may be imposed on vehicles and automobile fuels could adversely affect demand for the products we sell.

We may not be able to accurately predict, prepare for and respond to new kinds of technological innovations with respect to electric vehicles and other technologies that minimize emissions.

Laws enacted to reduce GHG could directly or indirectly affect our suppliers and could adversely affect our business, financial condition, results of operations and cash flows.

Changes in automotive technology (including the adoption of electric vehicles) and compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers all of which could adversely impact the demand for our products and our business, financial condition, results of operations or cash flows.

Because we are involved in litigation from time to time and are subject to numerous laws and governmental regulations, we could incur substantial judgments, fines, legal fees and other costs as well as reputational harm.

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Although we maintain liability insurance for some litigation claims, if one or more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover a claim our business, financial condition, results of operations and cash flows could be materially and adversely affected.

In particular, on July 8, 2021, the Washington Supreme Court overturned the order of the Washington Court of Appeals and reinstated the trial court's damage award of $77.1 million against the Company.

The damage award and statutory interest was fully paid as of December 31, 2021.

Refer to the commitments and contingencies footnote in the Notes to the Consolidated Financial Statements for more information.

Additionally, we are subject to numerous laws in the various jurisdictions in which we operate as well as governmental regulations relating to taxes, environmental protection, product quality standards, data privacy, building and zoning requirements, and employment law matters.

If we fail to comply with existing or future laws or regulations, we may be subject to governmental or judicial fines or sanctions, while incurring substantial legal fees and costs.

If we fail to comply with existing or future laws or regulations, we may be subject to governmental or judicial fines or sanctions, while incurring substantial legal fees

In addition, our capital expenses could increase due to remediation measures that may be required if we are found to be noncompliant with any existing or future laws or regulations.

We may be affected by global climate change or legal, tax, regulatory, or market responses to such change.

The concern over climate change has led to legislative and regulatory initiatives aimed at reducing greenhouse gas emissions (“GHG”).

For example, proposals that would impose mandatory requirements related to GHG continue to be considered by policy makers in the U.S.

and elsewhere.

Laws enacted to reduce GHG could directly or indirectly affect our suppliers and could adversely affect our business, financial condition, results of operations and cash flows.

GENERAL RISKS

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Many factors influence our reputation and the value of our brands including the perception held by our customers, business partners, investors, other key stakeholders and the communities in which we do business.

Our business faces increasing scrutiny related to environmental, social and governance activities and disclosures and risk of damage to our reputation and the value of our brands if we fail to act responsibly in a number of areas, such as environmental stewardship, supply chain management, climate change, diversity and inclusion, workplace conduct, human rights, philanthropy and support for local communities.

Any harm to our reputation could impact employee engagement and retention and the willingness of

customers and our partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.

Our business faces increasing scrutiny related to environmental, social and governance activities and disclosures and risk of damage to our reputation and the value of our brands if we fail to act responsibly in a number of areas, such as environmental stewardship, supply chain management, climate change, diversity, equity and inclusion, workplace conduct, human rights, philanthropy and support for local communities.

Any harm to our reputation could impact employee engagement and retention and the willingness of customers and our partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.

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

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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