What changed in this filing

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Item 1A. Risk Factors

2022-02-25 compared with 2021-02-26 · 24 added, 19 removed, 138 unchanged (24% of the section changed)

Business Risk Factors

A novel strain of coronavirus, COVID-19,

surfaced in December 2019 and has spread around the world, including to the United States.

In March 2020, the World Health Organization declared COVID-19

pandemic adversely impacted our operations in March and April 2020 and could continue to adversely affect our business and results of operations, including as government authorities impose or reimpose mandatory closures, work-from-home orders and social distancing protocols, or impose other restrictions due to the continued high rate of viral infections that exist as of this date.

These actions could materially adversely affect our ability to adequately staff and maintain our operations, interrupt our supply lines, impair our ability to sustain sufficient financial liquidity and adversely impact our financial results.

pandemic continues to have widespread, rapidly-evolving and unpredictable impacts on financial markets and business practices.

As conditions fluctuate, governments have responded by adjusting their restrictions and guidelines accordingly.

In light of variant strains of the virus and the continued rate of viral infections that exists as of the date of this filing, there remains uncertainty concerning the magnitude of the impact and duration of the COVID-19

The full impact of the COVID-19

pandemic on our financial condition and results of operations will continue to depend on future developments, such as the ultimate duration and scope of the pandemic, its impact on our employees, customers and suppliers, potential subsequent waves of COVID-19

infection or potential new variants, the effectiveness and adoption of COVID-19

vaccines and therapeutics, the broader implications of the macro-economic recovery on our business, and the extent to which normal economic and operating conditions are impacted.

We intend to continue to actively monitor the evolution of the pandemic and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.

related factors that have impacted us, or may negatively impact, sales, gross margin and other results of operations in the future include, but are not limited to:

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and limitations on the ability of our customers to pay us on a timely basis.

Moreover, the COVID-19

pandemic could alter the mix of our business due to a shift in consumer demand towards repair of equipment rather than replacement, as well as changes in our sales mix toward value-oriented equipment and lower demand and/or disruption to new construction and commercial markets, which would result in a reduction in our sales and consequential gross margin.

As we cannot predict the duration or scope of the COVID-19

pandemic in the future, the potential negative financial impact to our results of operations cannot be reasonably estimated but could be material and last for an extended period of time.

As we cannot predict the duration or ultimate scope of the COVID-19

pandemic, the potential negative financial impact to our results of operations cannot be reasonably estimated but could be material and last for an extended period of time.

Supplier Concentration

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Given the significant concentration of our supply chain, particularly with Carrier and Rheem, any significant interruption by any of the key manufacturers or a termination of a relationship could temporarily disrupt the operations of certain of our subsidiaries.

Additionally, our operations are materially dependent upon the continued market acceptance and quality of these manufacturers’ products and their ability to continue to manufacture products that are competitive and that comply with laws relating to environmental and efficiency standards.

Additionally, our operations are materially dependent upon the continued market acceptance and quality of these manufacturers’ products and their ability to continue to manufacture

products that are competitive and that comply with laws relating to environmental and efficiency standards.

Our inability to obtain products from one or more of these manufacturers or a decline in market acceptance of these manufacturers’ products could have a material adverse effect on our results of operations, cash flows, and liquidity.

Many HVAC equipment and component manufacturers, including Carrier and Rheem, source component parts from China and/or assemble a significant amount of products for residential and light-commercial applications from Mexico.

Many HVAC equipment and component manufacturers, including Carrier and Rheem, source component parts from China and/or assemble a significant number of products for residential and light-commercial applications from Mexico.

If any restrictions, including a potential increase in tariffs, are imposed related to such products sourced or assembled from Mexico and China, including as a result of amendments to existing trade agreements, and our product costs consequently increase, we would be required to raise our prices, which may result in cost inflation, the loss of customers, and harm to our business.

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We must continuously recruit, retain, and motivate management and other employees to both maintain our current business and to execute our strategic initiatives.

Our success has also depended on the contributions and abilities of our store employees upon whom we rely to give customers a superior in-store

Our success has also depended on the contributions and abilities of our store employees upon whom we rely on to give customers a superior in-store

Accordingly, our performance depends on our ability to recruit and retain high quality employees to work in and manage our stores.

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Disruptions in the credit and capital markets could adversely affect our ability to draw on our revolving credit agreement and may also adversely affect the determination of interest rates, particularly rates based on LIBOR, which is one of the base rates under our revolving credit agreement.

LIBOR is the subject of recent proposals for reform that currently provide for the phase-out

of LIBOR after December 31, 2021.

The consequences of these developments with respect to LIBOR cannot be entirely predicted but could result in an increase in the cost of our debt, as it is currently anticipated that lenders will replace LIBOR with an alternative rate that may exceed what would have been the comparable LIBOR rate.

On March 5, 2021, the United Kingdom Financial Conduct Authority, which regulates LIBOR, confirmed that LIBOR will either cease to be provided by any administrator or will no longer be representative after June 30, 2023 for USD LIBOR reference rates.

Our revolving credit agreement provides that it may be amended to replace LIBOR with an alternate benchmark rate.

The impact of such an amendment cannot be entirely predicted but could result in an increase in the cost of our debt.

Additionally, disruptions in the credit and capital markets could also result in increased borrowing costs and/or reduced borrowing capacity under our revolving credit agreement.

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In addition to the disruptions that may occur from interruptions in our information technology systems, cybersecurity threats and sophisticated and targeted cyberattacks pose a risk to our information technology systems.

We have established security policies, processes and defenses designed to help identify and protect against intentional and unintentional misappropriation or corruption of our information technology systems and information and disruption of our operations.

Despite these efforts, our information technology systems may be damaged, disrupted or shut down due to attacks by unauthorized access, malicious software, computer viruses, undetected intrusion, hardware failures or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate.

We have established security policies, processes and defenses designed to help identify and protect against intentional and unintentional misappropriation

or corruption of our information technology systems and information and disruption of our operations.

Despite these efforts, our information technology systems may be damaged, disrupted or shut down due to attacks by hackers and other persons obtaining unauthorized access, malicious software, ransomware, computer viruses, undetected intrusion, hardware failures or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate.

These breaches or intrusions could lead to business interruption, exposure of proprietary or confidential information, data corruption, damage to our reputation, exposure to legal and regulatory proceedings and other costs.

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In addition, we could be adversely affected if any of our significant customers or suppliers experiences any similar events that disrupt their business operations or damage their reputation.

We maintain monitoring practices and protections of our information technology to reduce these risks and test our systems on an ongoing basis for potential threats.

Failure to successfully manage the operational challenges and risks associated with, or resulting from, upgrades and conversions to newer versions of our information technology systems core to our operations could adversely affect our results of operations, cash flows, and liquidity.

We maintain change management processes, monitoring practices, and protections of our information technology to reduce these risks and test our systems on an ongoing basis for potential threats.

The Audit Committee is briefed on information security matters at least once a year.

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The trading markets for our common stock rely in part on the research and reports that industry or financial analysts publish about us or our business or industry.

If one or more of the analysts who cover us downgrade our stock or our industry, or the stock of Carrier or any of our competitors, or publish negative or unfavorable research about our business, the price of our stock could decline.

If one or more of the analysts who cover us downgrade our stock or our industry, or the stock of Carrier or any of our competitors, publish negative or unfavorable research about our business, the price of our stock could decline.

If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

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Exposure to catastrophic losses has been limited by maintaining excess and aggregate liability coverage and implementing stop-loss control programs.

However, more frequent catastrophic weather events linked to climate change may impact the availability and cost of property and casualty insurance.

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.

What changed 10-K

Item 1A. Risk Factors