| FASTENAL CO heading entitled “Item 1A Risk Factors |
| ” and is included in the registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2005 in the section thereof captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which section has been incorporated in this Form 10-K by reference |
| The registrant assumes no obligation to update either such forward-looking statements or the discussion of such risks and uncertainties |
| PRESENTATION OF DOLLAR AMOUNTS All dollar amounts in this Form 10-K are presented in thousands, except for per share dollar amounts or unless otherwise noted |
| BUSINESS Fastenal Company [“Fastenal Company” and, together with its wholly owned subsidiaries, Fastenal Company Services (this entity merged with Fastenal Company Purchasing during 2005), Fastenal Company Purchasing, Fastenal Company Leasing, Fastenal Canada Company, Fastenal Mexico S de RL de CV, Fastenal Mexico Services S de RL de CV, Fastenal Singapore PTE Ltd, Fastenal Asia Pacific, Limited, FASTCO (Shanghai) Trading Co, Ltd, Fastenal IP Company, and Fastenal Europe, BV, collectively, “the Company”] began as a partnership in 1967, and was incorporated under the laws of Minnesota in 1968 |
| As of December 31, 2005, the Company had 1cmam755 store sites located in 50 states, Puerto Rico, Canada, Mexico, Singapore, China, and the Netherlands, and employed 6cmam392 people at these sites |
| The Company sells industrial and construction supplies in a wholesale and retail fashion |
| As of December 31, 2005 these industrial and construction supplies were grouped into ten product lines described further below |
| The information contained on this web site or connected to the Company’s web site is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report |
| The Company operated twelve distribution centers in North America as of December 31, 2005 from which the Company distributes products to its store sites |
| Development of the Business Fastenal Company began in 1967 with a marketing strategy of supplying threaded fasteners to customers in small, medium-sized, and, in subsequent years, large cities |
| The Company believes its success can be attributed to its ability to offer its customers a full line of products at convenient locations and to the high quality of the Company’s employees |
| The Company opened its first store site in Winona, Minnesota, a city with a population of approximately 25cmam000 |
| The following table shows the consolidated net sales for each year during the last ten years and the number of Company store sites at the end of each of the last ten years: 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Net sales (in millions) $ 1cmam523dtta3 1cmam238dtta5 994dtta9 905dtta4 818dtta3 755dtta6 618dtta2 511dtta2 404dtta2 292dtta3 Number of store sites at year end 1cmam755 1cmam533 1cmam314 1cmam169 1cmam025 897 807 764 642 483 3 ______________________________________________________________________ As of December 31, 2005 and 2004, respectively, the Company operated store sites in: Geographic location 2005 2004 United States 1cmam619 1cmam421 Puerto Rico 8 8 Canada 112 95 Mexico 12 7 Singapore 1 1 Netherlands 2 1 China 1 0 1cmam755 1cmam533 The Company has closed only ten stores in its history; three of these locations were subsequently reopened when the expansion of the Company’s product line or the expansion of the Company’s distribution network improved the profitability of the locations |
| The Company selects new locations for its stores based on their proximity to the Company’s distribution network, population statistics, and employment data for manufacturing and construction |
| The Company intends to continue opening new store sites and currently expects the rate of new store openings to be approximately 13 to 18prca per year (calculated on the ending number of stores in the previous year) |
| The Company stocks all new stores with an inventory drawn from all of its product lines |
| Subsequent to opening, the store personnel may supplement the inventory offering to customize the selection to the needs of its customer base |
| 4 ______________________________________________________________________ The Company believes, based on the demographics of the marketplace in North America, that there is sufficient potential in this geographic area to support at least 3cmam500 total stores |
| Many of the new store sites would be in cities in which the Company currently operates |
| The Company has not operated outside of North America long enough to assess the market potential of those markets |
| In addition to the stores discussed above, the Company also operates “in-plant” sites |
| An “in-plant” site is a selling unit located in or near a customer’s facility that sells product solely to that customer |
| The Company opened the following store sites in the last five years: 2005 2004 2003 2002 2001 United States 198 198 140 136 120 Puerto Rico — 1 — 1 1 Canada 17 16 9 7 4 Mexico 5 3 2 — 2 Singapore — — — — 1 Netherlands 1 1 — — — China 1 — — — — Total openings 222 219 151 144 128 The Company plans to open additional store sites outside of the United States in the future |
| The store sites located outside the United States contributed approximately 6prca of the Company’s consolidated net sales in 2005 with approximately 83prca of this amount attributable to our Canadian operations |
| No assurance can be given that any of the expansion plans described above will be achieved, or that new stores, once opened, will be profitable |
| It has been the Company’s experience that near-term profitability has been adversely affected by the opening of new store sites, due to the related start-up costs and the time necessary to generate a customer base |
| A new store generates its sales from direct sales calls, a slow process involving repeated contacts |
| As a result of this process, sales volume builds slowly and it typically requires nine to 12 months for a new store to achieve its first profitable month |
| Of the 74 stores opened in the first quarter of 2005, 26 were profitable in the fourth quarter of 2005 |
| 5 ______________________________________________________________________ For 2005, annual sales volumes of stores operating at least five years ranged between approximately dlra119 and dlra9cmam070, with 75prca of these stores having annual sales volumes within the range of approximately dlra447 to dlra1cmam830 |
| The data in the following table shows the growth in the average sales of the Company’s stores from 2004 to 2005 based on the age of each store |
| The stores opened in 2005 contributed approximately dlra35cmam500 (or approximately 2dtta3prca) of the Company’s consolidated net sales in 2005, with the remainder coming from store sites opened prior to 2005 |
| Age of store site as of December 31, 2005 Year opened Number of store sites in group as of December 31, 2005 Average sales 2004 Average sales 2005 Percent Change 0–1 year old 2005 222 $ — $^ 160^ ^1 — % 1–2 years old 2004 219 ^ 143^ ^1 515 — 2–3 years old 2003 151 430 578 34dtta5 3–4 years old 2002 143 551 646 17dtta2 4–5 years old 2001 128 708 840 18dtta6 5–6 years old 2000 89 659 735 11dtta5 6–7 years old 1999 44 764 899 17dtta7 7–8 years old 1998 120 864 1cmam004 16dtta2 8–9 years old 1997 157 885 1cmam018 15dtta1 9–10 years old 1996 107 951 1cmam055 10dtta9 10–11 years old 1995 60 989 1cmam068 8dtta0 11–12 years old 1994 62 917 1cmam074 17dtta1 12–16 years old 1990-1993 155 1cmam294 1cmam451 12dtta1 16+ years old 1967-1989 98 2cmam237 2cmam389 6dtta8 ^1 ^The average sales include sales of store sites open for less than the full fiscal year |
| As of December 31, 2005, the Company operated distribution centers in or near Winona, Minnesota; Indianapolis, Indiana; Dallas, Texas; Atlanta, Georgia; Scranton, Pennsylvania; Fresno, California; Seattle, Washington; Akron, Ohio; Salt Lake City, Utah; Greensboro, North Carolina; Kansas City, Kansas; and Toronto, Ontario |
| Distribution centers are located so as to permit twice-a-week to five times-a-week deliveries to Company stores using Company trucks and overnight delivery by surface common carrier |
| Approximately 85prca of the Company’s stores receive five time-a-week delivery |
| As the number of stores increases, the Company intends to add new distribution centers |
| The Company operates a central UNIX/terminal-based computer system allowing automatic data exchange between the stores and the distribution centers |
| The use of client/server technology allows the Company’s network of UNIX-based machines to serve networked personal computers and workstations |
| During the last several years, the Company has been converting a portion of this central processing system to a new computer software and operating system and plans to convert additional modules during 2006 |
| This system operates on a Microsoft Windows operating system |
| Trademarks and Service Marks The Company conducts its business under various trademarks and service marks, including Fastenal^^®^ with various designs or tag lines, FAS-N-IT^^®^, FNL^^®^, Blackstone™, and FNL G9™ |
| Although the Company does not believe its operations are substantially dependent upon any of its trademarks or service marks, the Company considers its ‘Fastenal’ name and other trademarks and service marks to be valuable to its business |
| 6 ______________________________________________________________________ Products The Company’s original product offering was fasteners and other industrial and construction supplies, many of which are sold under the Fastenal^^®^ product name |
| This product line consists of two broad categories: threaded fasteners, such as bolts, nuts, screws, studs, and related washers; and miscellaneous supplies, such as paints, various pins and machinery keys, concrete anchors, batteries, sealants, metal framing systems, wire rope, strut, private-label stud anchors, rivets, and related accessories |
| Threaded fasteners are used in most manufactured products and building projects, and in the maintenance and repair of machines and structures |
| Many aspects of the threaded fastener market are common to all cities; variations from city to city that do exist typically relate to the types of businesses operating in a market or to the environmental conditions in a market |
| Therefore, the Company opens each store with a broad selection of base stocks of inventory and then allows the local store and district leaders to tailor the additional inventory to the local market demand as it develops |
| Threaded fasteners accounted for approximately 90prca of the fastener product line sales in 2005, 2004, and 2003 |
| Concrete anchors make up the largest portion of the miscellaneous supply items included in the Fastenal^^®^ product line |
| Most concrete anchors use threaded fasteners as part of the completed anchor assembly |
| Since 1993, the Company added additional product lines |
| These product lines are sold through the same distribution channel as the original Fastenal^^®^ product line |
| The Company’s product lines include the following: Product line: Year introduced Approximate number of stock items Private label product name Fasteners 1967 271cmam000 Fastenal^^® Tools and equipment 1993 98cmam000 FastTool Cutting tools and abrasives 1996 87cmam000 SharpCut Hydraulics, pneumatics, plumbing and HVAC 1996 43cmam000 Fastenal^^®^ Material handling, storage, and packaging 1996 9cmam000 EquipRite Janitorial supplies, chemical, and paints 1996 12cmam000 CleanChoice Electrical supplies 1997 16cmam000 PowerPhase Welding supplies^1 1997 22cmam000 FastArc Safety supplies 1999 15cmam000 Fastenal^^®^ Metals, alloys, and materials 2001 8cmam000 Fastenal^^®^ ^1 The Company does not sell welding gases |
| The Company plans to add other product lines in the future |
| 7 ______________________________________________________________________ Inventory Control The Company determines its inventory stocking levels through its computer systems, its sales personnel at the store, district, and region levels, and its product managers |
| The data used for this determination is derived from sales activity from all of the Company’s stores, from individual stores, and from geographic areas; it is also derived from vendor information and from customer demographic information |
| The computer system monitors the inventory level for all stock items and triggers replenishment, or prompts a buyer to purchase, as necessary, based on an established minimum-maximum level |
| All stores stock a base inventory and may expand beyond preset inventory levels as deemed appropriate by their district managers |
| Inventories in distribution centers are established from computerized data for the stores served by the respective centers |
| Manufacturing and Support Services Operations In 2005, approximately 95dtta1prca of the Company’s consolidated net sales were attributable to products manufactured by other companies to industry standards |
| The remaining 4dtta9prca of the Company’s consolidated net sales for 2005 related to products manufactured, modified or repaired by either the Company’s Manufacturing Division or its Support Services |
| The manufactured products consist primarily of non-standard sizes of threaded fasteners made to customers’ specifications |
| The services provided by the Support Services group include, but are not limited to, items such as tool repair, band saw blade welding, third-party logistics, and light manufacturing |
| The Company engages in these activities primarily as a service to its customers and expects these activities in the future to continue to contribute in the range of 4prca to 10prca of the Company’s consolidated net sales |
| Sources of Supply The Company uses a large number of suppliers for the approximately 580cmam000 standard stock items it distributes |
| Most items distributed by the Company can be purchased from several sources, although preferred sourcing is used for some stock items to facilitate quality control |
| No single supplier accounted for more than 5prca of the Company’s purchases in 2005 |
| Geographic Information Information regarding the Company’s revenues and certain of the Company’s assets by geographic location is set forth in note 10 to the Notes to Consolidated Financial Statements contained in Fastenal Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2005, which is incorporated herein by reference |
| Foreign currency fluctuations, changes in trade relations, or fluctuations in the relative strength of foreign economies could impact the Company’s ability to procure products overseas at competitive prices and the Company’s foreign sales |
| Customers and Marketing The Company believes its success can be attributed to its ability to offer customers in small, medium, and large-sized cities a full line of products at convenient locations, and to the high quality of the Company’s employees |
| Most of the Company’s customers are in the construction and manufacturing markets |
| The construction market includes general, electrical, plumbing, sheet metal, and road contractors |
| The manufacturing market includes both original equipment manufacturers and maintenance and repair operations |
| Other users of the Company’s products include farmers, truckers, railroads, mining companies, federal, state and local governmental entities, schools, and certain retail trades |
| As of December 31, 2005, the Company’s total number of active customer accounts (defined as accounts having purchase activity within the last 90 days) was approximately 232cmam000 |
| 8 ______________________________________________________________________ During each of the past three years ended December 31, 2005, no one customer accounted for a significant portion of the Company’s sales |
| The Company believes that the large number of its customers together with the varied markets that they represent provide some protection to the Company from economic downturns in a particular market |
| Store personnel generate a significant portion of the Company’s sales through direct calls on customers |
| Because of the nature of the Company’s business, the Company makes limited use of the more expensive forms of mass media advertising such as television, radio, and newspapers |
| Forms of advertising used by the Company include signs, catalogs, and direct mailings |
| Competition The Company’s business is highly competitive |
| Competitors include both large distributors located primarily in large cities and smaller distributors located in many of the same cities in which the Company has stores |
| The Company believes that the principal competitive factors affecting the markets for the Company’s products are customer service and convenience |
| Some competitors use vans to sell their products in markets away from their main warehouses, while others rely on mail order or telemarketing sales |
| The Company, however, believes that the convenience provided to customers by operating stores in small, medium, and large markets, each offering a wide variety of products, is a competitive selling advantage and that the large number of stores in a given area, taken together with the Company’s ability to provide frequent deliveries to such stores from centrally located distribution centers, makes possible the prompt and efficient distribution of products |
| Having trained personnel at each store also enhances the Company’s ability to compete (see “Employees” below) |
| Employees As of December 31, 2005, the Company employed a total of 9cmam306 full and part-time employees, 6cmam392 being store managers and store employees, and the balance being employed in the Company’s distribution centers, manufacturing operations, service operations, and home office |
| The Company believes the quality of its employees is critical to its ability to compete successfully in the markets it currently serves and to its ability to open new stores in new markets |
| The Company fosters the growth and education of skilled employees throughout the organization by operating training programs (see Fastenal School of Business below) and by decentralizing decision-making |
| Wherever possible, promotions are from within the Company |
| For example, most new store managers are promoted from an outside sales position or from an assistant manager’s position at another store; and district managers (who supervise a number of stores) are usually former store managers |
| The Fastenal School of Business (FSB) is a comprehensive corporate university which fosters Fastenal employees’ continual development and business success through education |
| FSB provides core curricula focused on key competencies determined to be critical to successful Fastenal employees performance as well as provide specialized educational tracks within various institutes of learning |
| These institutes of learning are advanced levels that provide specific concentrations of education and development and have been designed to focus on the critical aspects of our business |
| These institutes provide a focused educational experience to enhance employee performance in relevant business areas such as leadership, effective store best practices, sales and marketing, product education, and distribution |
| The Company’s sales personnel participate in incentive bonus arrangements that place emphasis on achieving increased sales on a store and regional basis, while still attaining targeted levels of gross profit and collections |
| As a result, a significant portion of the Company’s total employment cost varies with sales volume |
| The Company also pays incentive bonuses to its leadership personnel based on one or more of the following factors: sales growth, profit growth, profitability, and return on assets, and to its other personnel for achieving pre-determined cost containment goals |
| 9 ______________________________________________________________________ None of the Company’s employees is subject to a collective bargaining agreement and the Company has experienced no work stoppages |
| The Company believes its employee relations are good |
| Posting of Periodic and Current Reports Fastenal Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge on or through the Company’s website at www |
| com as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission |
| ITEM 1A RISK FACTORS In addition to the other information in this Annual Report on Form 10-K for the fiscal year ended December 31, 2005, the following factors should be considered in evaluating our business |
| Our operating results depend upon many factors and are subject to various risks and uncertainties |
| The material risks and uncertainties known to us which may cause the operating results to vary from anticipated results or which may negatively affect our operating results and profitability are as follows: A downturn in the economy and other factors may affect customer spending, which could harm our operating results |
| In general, our sales represent spending on discretionary items or consumption needs by our customers |
| This spending is affected by many factors, including, among others: • general business conditions, • interest rates, • inflation, • the availability of consumer credit, • taxation, • fuel prices and electrical power rates, • unemployment trends, • terrorist attacks and acts of war, and • other matters that influence consumer confidence and spending |
| A downturn in either the national or local economy where our stores operate or changes in any of the other factors described above could negatively impact sales at our established stores (more than two years old) and their level of profitability |
| Our current estimate for total store market potential in North America could be incorrect |
| One of our primary growth strategies is to grow our business through the introduction of stores into new markets |
| Based on a snapshot of current marketplace demographics in the US, Canada, and Mexico, we currently estimate there is potential market opportunity in North America to support approximately 3cmam500 stores |
| We cannot guarantee that our market potential estimates are accurate or that we will open stores to reach the full market opportunity |
| In addition, a particular local market’s ability to support a store may change because of a change in our store format or the presence of a competitor’s store |
| 10 ______________________________________________________________________ We may be unable to meet our goals regarding new store openings |
| Our growth is primarily dependent on our ability to attract new customers, and the most effective way to attract new customers is by opening new stores |
| Our current business strategy focuses on opening stores at a rate of approximately 13prca to 18prca each year, which is consistent with our historical average |
| Failure to open stores at this rate could negatively impact our long-term growth |
| Neither our current business strategy that focuses on stores with an industrial-leaning retail look and feel nor our new business strategy of opening certain stores with additional product selection has been proven successful on a long-term basis |
| In 2002, we began implementing our current business strategy that focuses on store locations with an industrial-leaning retail look and feel, which we refer to as the Customer Service Project or CSP The viability of this business strategy has not been proven on a long-term basis |
| We recently transitioned from opening CSP stores to expanding certain stores with additional product selection, which requires an additional dlra62 thousand in inventory, two additional sales specialists and two additional vehicles in each store |
| We refer to this new, larger store format as CSP2 |
| The results we achieved at our CSP format stores may not be indicative of the results we achieve at our CSP2 format stores |
| The new format increases our operating costs per store, but may not lead to proportionately increased revenues per store |
| Our mix of higher and lower margin merchandise in the CSP2 stores differs from the merchandise mix in our smaller stores and, therefore, may negatively impact our gross margins in our larger format stores |
| In addition, we may not carry the appropriate merchandise mix during our busiest seasons in our larger format stores |
| We cannot assure our success in operating the CSP2 format stores on a profitable basis |
| If a CSP2 format store is unprofitable, the impact on our financial results could be greater than the impact of an unprofitable smaller format store |
| Lower volume orders and changes in our customers and product mix could cause our gross margin percentage to fluctuate or decline in the future |
| From time to time, we have experienced changes in product mix and inbound inventory costs |
| For example, marketing activities to existing customers and needs communicated to us from existing and prospective customers have caused us to change our product mix in the past |
| When we change our product mix, there can be no assurance that we will be able to maintain our historical gross margins |
| Furthermore, there is no assurance that we will be able to continue to incrementally increase our gross margin percentage by varying product mix as we have over the last several years |
| Changes in our customers, product mix, or the volume of our orders could cause our gross margin percentage to fluctuate or decline |
| Opening stores in new markets presents increased risks that may prevent us from being profitable in these new locations |
| We intend to open stores in new markets pursuant to our growth strategy |
| New stores do not typically achieve operating results comparable to our existing stores until after several years of operation, and stores in new markets face additional challenges to achieving profitability |
| A new store generates its sales from direct sales calls, a slow process involving repeated contacts |
| In new markets, we have less familiarity with local customer preferences, and customers in these markets are less familiar with Fastenal’s name and capabilities |
| In addition, entry into new markets may bring us into competition with new, unfamiliar competitors |
| We cannot assure success in operating our stores in new markets on a profitable basis |
| 11 ______________________________________________________________________ New store openings may negatively impact our operating results |
| While new stores build the infrastructure for future growth, the first year sales in new stores are low, and the added expenses related to payroll, occupancy, and transportation costs can impact our ability to leverage earnings |
| It has been our experience that new stores take approximately ten to twelve months to achieve profitability |
| We cannot assure you that we will be successful in operating our new stores on a profitable basis |
| Our ability to develop product expertise at the store level, identify future products and product lines that complement existing products and product lines, and integrate new products and product lines into our stores and distribution network could impact sales and margins |
| One of our growth strategies is to continue to lead our industry in product selection and expertise at the store level by enhancing existing product selection and by developing and marketing new product selections that respond to customer 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 |
| Increases in energy costs and the cost of raw materials used in our products could impact our cost of goods and distribution and occupancy expenses, which may result in lower operating margins |
| Those vendors typically look to pass their increased costs along to us through price increases |
| The fuel costs of our distribution operation are rising as well |
| While we typically try to pass increased vendor prices and fuel costs through to our customers or to modify our activities to mitigate the impact, we may not be successful |
| Failure to fully pass these 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 margins |
| Our ability to successfully attract and retain qualified personnel to staff our stores could impact labor costs, sales at existing stores, and the rate of new store openings |
| Our success depends in part upon our ability to attract, motivate, and retain a sufficient number of qualified employees, including store managers and store associates, 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 |
| 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 openings of new stores |
| Any such delays, any material increases in employee turnover rates at existing stores, or any increases in labor costs could have a material adverse effect on our business, financial condition or operating results |
| Inclement weather and other disruptions to the transportation network could impact our distribution system |
| Our ability to provide efficient distribution of core business products to our store network is an integral component of our overall business strategy |
| Disruptions at distribution centers or shipping ports, due to events such as the hurricanes of 2005 and the longshoreman’s strike on the West Coast in 2002, may affect our ability to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our results of operations |
| In addition, severe weather conditions could adversely affect demand for our products in particularly hard hit regions |
| 12 ______________________________________________________________________ We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase our costs to procure products and our foreign sales |
| Because the functional currency related to most of our foreign operations is the applicable local currency, we are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business, such as sales to third party customers and purchases from suppliers denominated in foreign currencies |
| In addition, fluctuations in the relative strength of foreign economies could impact our ability to procure products overseas at competitive prices and our foreign sales |
| Our primary exchange rate exposure is with the Canadian Dollar |
| We may not be able to compete effectively against our competitors, which could harm our business and operating results |
| The industrial, construction, and maintenance supply industry, although consolidating, still remains a large, fragmented industry that is highly competitive |
| We believe that sales of industrial, construction, and maintenance industry supplies will become more concentrated over the next few years, which may make the industry even more competitive |
| Our current or future competitors include companies with similar or greater market presence, name recognition, and financial, marketing, and other resources, and we believe they will continue to challenge us with their product selection, financial resources, and services |
| Increased competition in markets in which we have stores or the adoption by competitors of aggressive pricing strategies and sale methods could cause us to lose market share or to reduce our prices or increase our spending, thus eroding our margins |
| Our revenues and net income may be adversely affected by the economic conditions, political situations and changing laws and regulations in foreign countries, over which we have no control |
| Our vendors could discontinue selling products manufactured in foreign countries at any time for reasons that may or may not be in our control or the vendor’s control, including foreign government regulations, political unrest, war, disruption or delays in shipments, changes in local economic conditions and trade issues |
| Our operating results and inventory levels could suffer if we are unable to promptly replace a vendor who is unwilling or unable to satisfy our requirements with a vendor providing equally appealing products |
| The industrial, construction, and maintenance supply industry is consolidating, which could cause it to become more competitive and could negatively impact our business |
| The industrial, construction and maintenance supply industry in North America is currently 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 |
| 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 that we will be able in the future to take advantage effectively of the trend toward consolidation |
| The trend in our industry toward consolidation could make it more difficult for us to maintain operating margins |
| Furthermore, as our industrial and construction 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 and growth prospects |