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Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to publicly update or revise such statements to reflect new circumstances or unanticipated events as they occur.
−Removed: You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “intend,” “believe,” “will likely result,” “outlook,” “project,” “may,” “can,” “plan,” “target,” “potential,” “should” and other words and expressions of similar meaning.
−Removed: No assurance can be given that the expected results in any forward-looking statement will be achieved, and actual results may differ materially due to one or more factors.
+Added: You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as “anticipate,” “estimate,” “expect,” “intend,” “believe,” “will,” “outlook,” “project,” “may,” “can,” “plan,” “target,” “potential,” “should” and other words and expressions of similar meaning.
+Added: No assurance can be given that the expected results in any forward-looking statement will be achieved, and actual results may differ materially due to one or more factors, including the risks described below in this Item 1A, below in Item 7 of this Form 10-K and elsewhere in this Form 10-K.
For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.
+Added: Investing in our securities involves multiple risks and uncertainties.
Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statement are described below.
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and globally, which we have not included below.
−Removed: Risks Relating to Macroeconomic Conditions
+Added: Risks Relating to Macroeconomic Conditions or Events
The demand for our products may be adversely affected by unfavorable economic conditions and changes in consumer discretionary spending.
−Removed: Consumer discretionary spending significantly affects our sales and is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates, wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit.
−Removed: In economic downturns or recessions, the demand for swimming pool, irrigation, landscape and related outdoor living products may decline, often corresponding with declines in discretionary consumer spending, the growth rate of pool eligible households and swimming pool construction.
−Removed: Maintenance and repair products and certain replacement and refurbishment products are required to maintain existing swimming pools, and each currently accounts for approximately 60% and 21% to 23% of net sales related to our swimming pool business.
−Removed: However, the growth in this portion of our business depends on the expansion of the installed pool base, which could also be adversely affected by decreases in construction activities, similar to the trends between late 2006 and early 2010.
−Removed: A weak economy may also cause consumers to defer discretionary replacement and refurbishment activity.
−Removed: Even in generally favorable economic conditions, severe and/or prolonged downturns in the housing market could have a material adverse impact on our financial performance.
+Added: Demand for our products is subject to fluctuations and is difficult to predict, often due to factors outside of our control.
+Added: Consumer discretionary spending significantly affects our sales and is impacted by a variety of factors, including general economic conditions, the residential housing market, unemployment rates, wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence and access to credit.
+Added: In economic downturns or recessions, the demand for swimming pool, irrigation, landscape and related outdoor living products typically declines, often corresponding with declines in discretionary consumer spending, the growth rate of pool eligible households and swimming pool construction.
+Added: Currently over 86% of our net sales are derived from sales of maintenance, repair, replacement and renovation products necessary to maintain existing swimming pools.
+Added: However, the growth in this portion of our business depends on the expansion of the installed pool base, which could also be adversely affected by decreases in construction activities, similar to the trends experienced this past year.
+Added: A weak economy may also cause consumers to defer discretionary replacement and renovation activity.
+Added: Even in generally favorable economic conditions, severe or prolonged downturns in the housing market could have a material adverse impact on our financial performance.
Such downturns expose us to certain additional risks, including but not limited to the risk of customer closures or bankruptcies, which could shrink our potential customer base and inhibit our ability to collect on those customers’ receivables.
We believe that homeowners’ access to consumer credit at attractive interest rates is a critical factor enabling the purchase of new pools, irrigation systems and outdoor living products.
−Removed: Between late 2006 and early 2010, the unfavorable economic conditions and downturn in the housing market resulted in significant tightening of credit markets, which limited the ability of consumers to access financing for new swimming pools and irrigation systems.
−Removed: Any similar tightening of consumer credit or increase in interest rates could prevent consumers from obtaining financing for pool, irrigation and related outdoor projects, which could negatively impact our sales of construction-related products.
−Removed: Discretionary spending is often adversely affected during times of economic, social or political uncertainty.
−Removed: The potential for natural or man-made disasters or extreme weather, geopolitical events and security issues, labor or trade disputes and similar events could create these types of uncertainties and negatively impact our business in ways that we cannot presently predict.
+Added: Unfavorable economic conditions or a downturn in the housing market could result in a significant tightening of credit markets, which can limit the ability of consumers to access financing for new swimming pools and irrigation systems.
+Added: During 2022 and 2023, interest and inflation rates were higher than the three years prior to 2022, economic uncertainties increased, and consumer credit tightened, which led to a slowdown in new pool permits (signaling a decline in new construction projects).
+Added: During 2023, the heightened demand for our products during the pandemic moderated as consumers applied less disposable income to pools and other home improvements.
+Added: These economic events reduced our revenues in 2023 and are expected to similarly impact our revenues in 2024.
+Added: Discretionary spending is often adversely affected during times of economic, social or political uncertainty, whether caused by health threats, man-made or natural disasters, or other similar events discussed below in this item 1A.
+Added: These events could create uncertainties that negatively impact our business in ways that we cannot presently predict.
Changes in our customer base could also impact us.
Our business could be adversely impacted if (i) consolidation of our customers leads to changes in purchasing habits, (ii) more people choose to live in urban settings or (iii) more homeowners bypass our customers by directly procuring their own supplies or undertaking their own improvement projects.
−Removed: During 2022, interest rates and inflation rose, economic activity slowed and consumer credit tightened, which led to a slowdown in new pool permits (signaling a decline in new construction projects).
−Removed: Many experts are predicting a further downturn in 2023 for the United States economy and much of the global economy.
−Removed: Although the severity and duration of any such downturn is difficult to predict, we expect the heightened demand for our products during the pandemic to moderate as consumers apply less disposable income to pools and other home improvements.
−Removed: The COVID-19 pandemic, other major public health crises in the future, and associated responses could adversely impact our business and results of operations.
−Removed: The COVID-19 pandemic and its aftermath significantly impacted economic activity and markets throughout the world.
−Removed: Even as efforts to contain the pandemic, including vaccinations, have fostered progress and eased restrictions, new variants of the virus have caused additional outbreaks and uncertainties.
−Removed: Our increased growth rates in the latter half of 2020 through the first half of 2022 were driven by home-centric trends influenced by the COVID-19 pandemic, during which many consumers spent more time at their homes due to travel restrictions and remote work arrangements.
−Removed: We believe the easing of the pandemic in 2022 led to more travel and other out-of-home activities.
−Removed: Impacts from the COVID-19 pandemic, coupled with heightened demand, adversely impacted our supply chain in the latter half of 2021 through the beginning of 2022, making it difficult to source and receive products needed to keep our customers adequately supplied.
−Removed: Notwithstanding recent improvements, there are continuing uncertainties regarding how long COVID-19 and its variant strains will continue to impact the global economy and our supply chain and the effect of the pandemic on our operational and financial performance will depend on future developments, including its impact on our customers and trade partners, all of which remain uncertain.
−Removed: Accordingly, COVID-19, or any other future major public health crisis, may have negative impacts on our business in the future, and any future adverse impacts on our business may be worse than we anticipate.
+Added: An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic, could adversely impact our business and results of operations.
+Added: An outbreak of disease or similar public health threat, such as the recent COVID-19 pandemic and its negative impact on the worldwide economy, could have an adverse impact on our workforce, supply chain or operations.
+Added: Although our revenues increased during the COVID-19 pandemic that began in early 2020, we cannot assure you that our revenues would increase in the event of a future public health emergency.
+Added: New variants of COVID-19 could continue to cause outbreaks and uncertainties, and any future epidemics, pandemics or similar public health crises could adversely impact our business and results of operations.
+Added: Other catastrophic events or societal unrest could adversely impact our operations.
+Added: Terrorist attacks, wars, rioting, labor strife, civil disturbances, societal unrest or political instability could negatively impact us directly by interfering with our ability to operate or indirectly by depressing macroeconomic conditions.
+Added: Our customers could also encounter hardships that negatively impact their ability to make timely payments to us or to continue doing business with us.
Risks Relating to Our Business and Industry
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Unseasonably late warming trends in the spring or early cooling trends in the fall can shorten the length of the pool season.
−Removed: Also, unseasonably cool weather or extraordinary rainfall during the peak season can have an adverse impact on demand due to decreased swimming pool use, installation and maintenance, as well as decreased irrigation installations.
−Removed: While warmer weather conditions favorably impact our sales, global warming trends and other significant climate changes can create more variability in the short term or lead to other unfavorable weather conditions that could adversely impact our sales or operations.
+Added: Also, unseasonably cool weather or excessive rainfall during the peak season can have an adverse impact on demand due to decreased swimming pool use, installation and maintenance, as well as decreased irrigation installations.
+Added: While warmer weather conditions generally impact our sales favorably, global warming trends and other significant climate changes can create more variability in the short term or lead to other unfavorable weather conditions that could adversely impact our sales or operations.
Drought conditions or water management initiatives may lead to government-imposed water use restrictions.
Such restrictions could result in decreased pool and irrigation system installations which could negatively impact our sales.
−Removed: Certain extreme weather events, such as hurricanes, tornadoes, earthquakes, tropical storms, floods, drought and wildfires, may adversely impact us in several ways, including interfering with our ability to deliver our products and services, interfering with our receipt of supplies from our vendors, reducing demand for our products and services, and damaging our facilities.
+Added: Certain extreme weather events and natural disasters, such as hurricanes, tornadoes, earthquakes, tropical storms, floods, drought and wildfires, may adversely impact us in several ways, including interfering with our ability to deliver our products and services, interfering with our receipt of supplies from our vendors, reducing demand for our products and services, and damaging our facilities.
We have experienced short-term impacts on our sales due to closures from weather events in recent years, including Hurricane Ian in Florida in 2022.
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For additional discussion regarding seasonality and weather, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Seasonality and Quarterly Fluctuations,” of this Form 10-K.
−Removed: Our distribution business is highly dependent on our ability to maintain favorable relationships with suppliers.
+Added: Our distribution business is highly dependent on our ability to maintain favorable and stable relationships with suppliers.
As a distribution company, maintaining favorable relationships with our suppliers is critical to our success.
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A decision by our largest suppliers, acting individually or in concert, to sell their products directly to retailers or other end users of their products, bypassing distribution companies like ours, would have an adverse effect on our business.
−Removed: Additionally, if our suppliers experience difficulties or disruptions in their operations, if there is any material interruption in our supply chain (such as the interruptions caused by the COVID-19 pandemic and exacerbated by the invasion of Ukraine) or if we lose a single significant supplier due to financial failure or a decision to sell exclusively to retailers or end-use consumers, we may experience increased supply costs or delays in establishing replacement supply sources that meet our quality and control standards, which may affect our profitability.
−Removed: We depend on a global network of suppliers to source our products, including our own branded products and products we have exclusive distribution rights to.
+Added: Additionally, if our suppliers experience difficulties or disruptions in their operations, if there is any material interruption in our supply chain (such as the interruptions caused by the COVID-19 pandemic and exacerbated by the war in Ukraine) or if we lose a single significant supplier due to financial failure or a decision to sell exclusively to retailers or end-use consumers, we may experience increased supply costs or delays in establishing replacement supply sources that meet our quality and control standards, which may affect our profitability.
Failure to achieve and maintain a high level of product and service quality and safety could damage our reputation, expose us to litigation and negatively impact our financial performance.
−Removed: We rely on manufacturers and other suppliers to provide us with the products we distribute.
+Added: We rely on a global network of manufacturers and other suppliers to provide us with the products we distribute.
To succeed, we must continue to maintain effective business relationships with qualified suppliers who can timely and efficiently supply us with high quality products.
−Removed: As we increase the number of Pool Corporation and affiliate branded products we distribute, our exposure to potential liability claims may increase.
+Added: As we increase the number of our proprietary and exclusive brand products.
+Added: we distribute, our exposure to potential liability claims may increase.
Product and service quality issues could negatively impact customer confidence in our brands and our business.
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Within our industry, we directly compete against various regional and local distributors for the business of pool owners and other end-use customers.
−Removed: We indirectly compete against mass market retailers and large pool or irrigation supply retailers as they purchase the great majority of their needs directly from manufacturers.
−Removed: We compete to a lesser extent with internet retailers, as they purchase the majority of their needs from distributors.
+Added: We indirectly compete against mass market retailers and large pool or irrigation supply retailers as they purchase the great majority of their supplies directly from manufacturers.
+Added: We compete to a lesser extent with internet retailers, as they purchase the majority of their supplies from distributors.
Outside of our industry, we compete indirectly with alternative suppliers of big-ticket consumer discretionary products, such as boat and motor home distributors, and with other companies who rely on discretionary homeowner expenditures, such as home remodelers.
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Historically, mass market retailers have generally expanded by adding new stores and product breadth, but their product offering of pool and irrigation related products has remained relatively constant.
−Removed: Should store‑ and internet-based mass market retailers increase their focus on the pool or irrigation industries, or increase the breadth of their pool and
−Removed: irrigation and related product offerings, they may become a more significant competitor for our direct customers and end-use consumers, which could have an adverse impact on our business.
+Added: Should store‑ and internet-based mass market retailers increase their focus on the pool or irrigation industries or increase the breadth of their pool and irrigation and related product offerings, they may become a more significant competitor for our direct customers and end-use consumers, which could have an adverse impact on our business.
Additionally, because the internet facilitates competitive entry, price transparency and comparison shopping, increased internet sales by us or our competitors could increase the level of competition we face or reduce our margin.
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This includes succession planning related to our executive officers and key management personnel.
−Removed: Hiring and retaining such qualified individuals may be adversely impacted by global and domestic economic uncertainty, and increased competition for such qualified individuals.
+Added: Hiring and retaining such qualified individuals may be adversely impacted by several factors, including (i) uncertainties regarding general economic conditions or our industry, (ii) our failure to offer competitive compensation and (iii) increased competition for qualified individuals.
If we are unable to attract and retain key personnel, our operating results could be adversely affected.
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These developments have made it more difficult for us to attract and retain top talent.
−Removed: We do not expect these developments to have a material adverse impact on us, but we can provide no assurances to this effect.
+Added: While we do not expect these developments to have a material adverse impact on us, we can provide no assurances to this effect.
Past growth may not be indicative of future growth.
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• identify and divest assets which do not continue to create value consistent with our objectives.
−Removed: If we do not manage these potential difficulties successfully, our operating results could be adversely affected.
−Removed: Our results in 2020 through the first half of 2022 were positively impacted by home-centric trends resulting from the COVID-19 pandemic.
−Removed: Recent trends, including a lower number of permits issued for new pools, suggest that new construction activities are moderating.
−Removed: While we expect home-centric trends to continue, we do not expect to realize the same growth that we recognized at the height of the pandemic.
−Removed: These trends may not continue, or may reverse, which could adversely impact our results of operations.
−Removed: In addition, in recent years our customers have had difficulty employing a sufficient number of qualified individuals to keep up with the demand for pool installation, maintenance and refurbishment.
−Removed: If this trend continues or accelerates, our results of operations could be negatively impacted.
+Added: If we do not successfully manage these potential difficulties or successfully execute our business strategies and initiatives, our operating results could be adversely affected.
+Added: The COVID-19 pandemic positively impacted home-centric trends in all of our markets, which led to a non-recurring surge of investment in pools and other backyard products.
+Added: This surge abated in mid-2022, when spending on these products began to decrease.
+Added: Although we expect our financial performance to match or exceed pre-pandemic levels, we do not expect our near-term sales to match the levels experienced at the height of the pandemic.
We are subject to inventory management risks.
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If we maintain insufficient inventory levels and prices rise for these products, we could be forced to purchase products at higher prices and forego profitability in order to meet customer demand.
−Removed: While always present, these challenges have been heightened over the past couple years, as the pandemic altered consumer spending trends and caused us to increase our investments in inventory.
−Removed: Our business, financial condition and results of operations could be negatively impacted if either or both of these situations occur frequently or in large volumes.
+Added: While always present, these challenges have been heightened over the past couple of years, as the pandemic altered consumer spending trends and caused us to increase our investments in inventory.
+Added: Our business, financial condition and results of operations could be negatively impacted if we are unable to accurately forecast demand for our products.
Risks Relating to Technology, Cybersecurity and Data Privacy
We rely on information technology systems to support our business operations.
−Removed: A significant disturbance, breach or cybersecurity attack of our technological infrastructure could adversely affect our financial condition and results of operations.
+Added: A significant disruption, breach or cybersecurity attack of our technological infrastructure could adversely affect our financial condition and results of operations.
Information technology supports several aspects of our business, including among others, product sourcing, pricing, customer service, transaction processing, inventory management, financial reporting, collections and cost management.
Our ability to operate effectively on a day-to-day basis, communicate with our customers and accurately report our results depends on a reliable technological infrastructure, which is inherently susceptible to internal and external threats.
−Removed: We are vulnerable to interruption by fire, natural disaster, power loss, telecommunication failures, internet failures, security breaches and other catastrophic events.
−Removed: Exposure to various types of cyber-attacks such as malware, computer viruses, worms, ransomware or other malicious acts, as well as human error, could also potentially disrupt our operations, result in a significant interruption in the delivery of our goods and services or result in the loss of sensitive data.
+Added: We are vulnerable to interruption, including by fire, natural disaster, power loss, telecommunication failures, internet failures, security breaches and other catastrophic events.
+Added: Exposure to various types of cyber-attacks such as malware, computer viruses, worms, ransomware, social engineering or other malicious acts, as well as human error, could also potentially disrupt our operations, result in a significant interruption in the delivery of our goods and services or result in the loss of sensitive data.
We are making, and expect to continue to make, investments in technology to maintain and update our computer systems and to expand our ability to engage in e-commerce with our customers.
−Removed: We may not implement these changes as quickly or successfully as our customers expect.
+Added: We may experience delays in making these updates and may not implement these changes as quickly or successfully as our customers expect.
In addition, implementing significant system changes increases the risk of computer system disruption.
−Removed: The potential problems and interruptions associated with implementing technology initiatives or conversions (including those contemplated under our multi-year systems upgrade project), as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency.
+Added: The potential problems and interruptions associated with implementing technology initiatives or conversions (including those contemplated under our multi-year digital transformation project), as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency.
Advances in computer and software capabilities, encryption technology and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms.
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A lack of sophistication or reliability of our information systems could adversely impact our operations and customer service and could require major repairs or replacements, resulting in significant costs and foregone revenue.
−Removed: Like other companies our size, we devote significant resources to protect our systems and data from cyber-attacks.
−Removed: Despite our substantial efforts to defend against these attacks, we have faced various attempted cyber-attacks that did not result in a material adverse effect on our operations, operating results or financial condition.
−Removed: The risk of breaches is likely to continue to increase due to several factors, including the increasing sophistication of cyber-attacks, the wider accessibility of cyber-attack tools and increased reliance on e-commerce, open source software, cloud computer services and work-from-home staffing.
+Added: We devote significant resources to protect our systems and data from cyber-attacks.
+Added: In recent years we have faced, and expect to continue to face, various attempted cyber-attacks of increasing sophistication.
+Added: To date, we are not aware of any cybersecurity incident or threat that materially impacted or could reasonably be anticipated to materially affect our business, results of operations or financial condition.
+Added: However, we cannot guarantee that we will not experience such an incident in the future.
+Added: The risk of breaches is likely to continue to increase due to several factors, including the increasing sophistication of cyber-attacks, the wider accessibility of cyber-attack tools, the expanded size, use and complexity of our systems, and our increased reliance on e-commerce, open source software, cloud computer services and work-from-home staffing.
Known and newly discovered software and hardware vulnerabilities are constantly evolving, which increases the difficulty of detecting and successfully defending against them.
−Removed: Consequently, we may not be able to implement security barriers or other preventative measures that repel all future cyber-attacks or detect such attacks in a timely manner to minimize the potential business disruption and unfavorable financial impacts.
+Added: Consequently, we may not be able to implement security barriers or other preventative measures that repel all future cyber-attacks or detect such attacks in a timely manner, which may result in significant expenses from system downtime, lower sales, increases in insurance costs, fines and fees, lost business relationships, managerial distractions, litigation, increases to regulatory oversight, expenditures for additional threat prevention technologies or reputational harm, any of which could materially impact us.
Although we maintain insurance coverage that may, subject to policy terms and conditions (including self-insured deductibles, coverage restrictions and monetary coverage caps), cover certain aspects of our cyber risks, such insurance coverage may be unavailable or insufficient to cover our losses.
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The failure to maintain security over and prevent unauthorized access to our data, our customers’ personal information, including credit card information, or data belonging to our suppliers, could put us at a competitive disadvantage.
−Removed: Such a breach could result in damage to our reputation and subject us to potential litigation, liability, fines and penalties and require us to incur significant expense to
−Removed: address and remediate or otherwise resolve these issues, resulting in a possible material adverse impact on our financial condition and results of operations.
+Added: Such a breach could result in damage to our reputation and subject us to potential litigation, liability, fines and penalties and require us to incur significant expense to address and remediate or otherwise resolve these issues, resulting in a possible material adverse impact on our financial condition and results of operations.
A variety of state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, security, disclosure, transfer and other processing of personal and other data.
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Our costs of doing business could increase as a result of changes in, expanded enforcement of, or adoption of new federal, state or local laws and regulations.
−Removed: We are subject to regulation under federal, state, local and international employment, environmental, health, transportation and safety requirements, which govern such things as packaging, labeling, handling, transportation, storage and sale of chemicals and fertilizers.
+Added: We are subject to numerous federal, state, local and international laws and regulations, many of which are complex and subject to varying interpretations, including regulations related to employment, environmental, health, transportation and safety requirements, which govern such things as packaging, labeling, handling, transportation, storage and sale of chemicals and fertilizers.
These laws and regulations, and related interpretations and enforcement activity, may change as a result of a variety of factors, including political, economic or social events.
−Removed: Changes in, expanded enforcement of, or adoption of new federal, state or local laws and regulations governing minimum wage or living wage requirements, the classification of exempt and non-exempt employees or other wage, labor or workplace regulations could increase our costs of doing business and adversely impact our results of operations.
+Added: Changes in, expanded enforcement of, or adoption of new federal, state, local or international laws and regulations, including those governing minimum wage or living wage requirements, the classification of exempt and non-exempt employees or other wage, labor or workplace regulations, could increase our costs of doing business and adversely impact our results of operations.
We sell algaecides and pest control products that are regulated as pesticides under the Federal Insecticide, Fungicide and Rodenticide Act and various state pesticide laws.
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Governmental actions designed to address climate change or the failure to meet environmental social and governance (ESG) expectations or standards or achieve our ESG goals could adversely affect our business.
−Removed: Concern over climate change has led to and may in the future lead to new or increased legal and regulatory requirements designed to reduce or mitigate the effects of climate change or increase disclosure related to climate change, which could increase our operating or capital expenses and compliance burdens.
+Added: Concern over climate change has led to, and may in the future lead to, new or increased legal and regulatory requirements designed to reduce or mitigate the effects of climate change, which could increase our operating or capital expenses and compliance burdens.
In particular, advocates of change are continuing to explore ways to reduce greenhouse gas emissions.
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These initiatives reflect our current plans and aspirations, and it is possible that we may not be able to achieve such targets or our desired impact, which may cause us to suffer from legal claims, reputational damage or a loss of demand for our products.
−Removed: Actions we take to achieve
−Removed: our strategy or targets could result in increased costs to our operations.
+Added: Actions we take to achieve our strategy or targets could result in increased costs to our operations.
Investors or other stakeholders could react negatively to our targets or other positions we take on ESG matters, which could negatively impact our relationships with such stakeholders.
+Added: Various governmental bodies in Europe and the United States, particularly in the state of California, have adopted or proposed laws or regulations increasing the obligations of companies to disclose information about their emissions and other similar data.
+Added: We expect that these initiatives will increase our operating costs and expose us to additional risk.
We store chemicals, fertilizers and other combustible materials that involve fire, safety and casualty risks.
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Fluctuations in other factors relating to international trade, such as tariffs, transportation costs and inflation are additional risks for our international operations.
−Removed: We do not have operations in Russia or Ukraine.
−Removed: However, the contributory effects of the war in Ukraine and prolonged geopolitical conflict globally may continue to result in increased inflation, increased labor costs, escalating energy and commodity prices and increasing costs of materials and services (together with shortages or inconsistent availability of materials and services), which could negatively affect our business (particularly our European operations), results of operations and financial condition.
+Added: We do not have operations in Israel, Russia or Ukraine.
+Added: However, the contributory effects of the wars in Israel or Ukraine and prolonged geopolitical conflict globally may result in higher inflation, labor costs, energy and commodity prices and costs of materials and services (together with shortages or inconsistent availability of materials and services), which could negatively affect our business (particularly our European operations), results of operations and financial condition.
Changes in import policy or trade relations, interruptions in our supply chain or increased commodity or supply chain costs could adversely affect our results of operations.
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Because we source certain products from outside the United States, major changes in tax policy, import or export regulations or trade relations, such as the disallowance of tax deductions for imported products or the imposition of additional tariffs or duties on imported products, could adversely affect our business, results of operations, effective income tax rate, liquidity and net income.
−Removed: We may have exposure to higher duty and tariff costs on certain of our imported products.
−Removed: We recorded $13.0 million within Cost of sales in the fourth quarter of 2022 related to duties and tariffs for certain imported chemicals.
−Removed: This amount primarily relates to 2022 purchases from China, where we determined, prior to submission of final liquidation amounts of our import duties and tariffs, that the initial code we used to classify the product may only apply to bulk purchases.
+Added: The variability and complexity of tariffs and duties exposes us to the risk of higher costs and inadvertent noncompliance associated with our imported products.
+Added: In December 2022, we recorded $13.0 million within Cost of sales related to duties and tariffs for certain imported chemicals that we determined, prior to submission of final liquidation amounts of our import duties and tariffs, that the initial code we used to classify the product may only apply to bulk purchases.
To protect against potential penalties and receive clarification on the issue, we voluntarily filed a disclosure with U.S.
Customs and Border Protection in December 2022.
−Removed: Changes in laws, court rulings, or differences in interpretation on product classification could lead to increased duty and tariff rates on these or other imported products.
+Added: Changes in laws, court rulings, or differences in interpretation on product classification could lead to changes in duty and tariff rates on these or other imported products.
Excess tax benefits or deficiencies recognized from our accounting for share-based awards impact our reported earnings.
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Risks Relating to Our Indebtedness
−Removed: Increases in interest rates would increase the cost of servicing our debt and could reduce our profitability.
+Added: The cost of servicing our debt could reduce our profitability if interest rates remain at elevated levels.
Our unsecured syndicated senior credit facility, term facility and receivable facility bear interest at variable rates.
We have entered into interest rate swap contracts and a forward-starting interest rate swap contract to reduce our exposure to fluctuations in variable interest rates on current and future interest payments that we owe on a portion of our variable rate borrowings.
−Removed: Increases in interest rates for any amount of our variable rate debt not covered by our interest rate swaps could increase the cost of servicing our debt and could materially reduce our profitability and cash flows.
+Added: Interest rates over the past two years have been substantially higher than the three years prior to 2022, which has increased our debt expense.
+Added: If interest rates remain elevated or increase, the cost of servicing our variable rate debt not covered by our interest rate swaps could materially reduce our profitability and cash flows.
For additional information regarding our interest rate risk, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” of this Form 10-K.
−Removed: We may be adversely affected by the transition away from LIBOR and the use of SOFR or other alternative reference rates.
−Removed: Borrowings under our unsecured syndicated senior credit facility, term facility and interest rate swap contracts are indexed to the London Inter-bank Offering Rate (“LIBOR”).
−Removed: On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intended to phase out LIBOR by the end of 2021.
−Removed: dollar LIBOR, the cessation date has been deferred to June 30, 2023 for the most commonly used tenors (overnight and one, three and six months).
−Removed: The Federal Reserve System, in conjunction with the Alternative Reference Rates Committee, has recommended the replacement of LIBOR with a new index, calculated by short-term repurchase agreements collateralized by U.S.
−Removed: Treasury securities, called the Secured Overnight Financing Rate (“SOFR”).
−Removed: Using SOFR as the basis on which interest on our variable-rate debt and/or under our interest rate swaps is calculated may result in interest rates and/or payments that do not directly correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form.
−Removed: The potential effect of the replacement of LIBOR on our cost of capital cannot yet be determined.
General Risks
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We cannot assure you these measures will be effective.
−Removed: Unresolved Staff Comments
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.