Item 1A. Risk Factors.
Described below and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk” are certain risks that the company’s management believes are applicable to the company’s business and the industries in which it operates. If any one or more of the described events occur, the company’s business, reputation, results of operations, financial condition, stock price, liquidity, or access to the capital markets could be materially adversely affected. When stated below that a risk may have a material adverse effect on the company’s business, it means that such risk may have one or more of these effects. There may be additional risks that are not presently material or known.
Global Operational and Economic Risks
Global and regional economic weakness and uncertainty could have a material adverse effect on the company’s financial performance.
The company’s business and financial performance depend on worldwide economic conditions and the demand for technology products and services in the markets in which the company operates. Global and regional economic weakness, market uncertainty, persistent inflation, and other adverse economic conditions have and in the future could negatively impact net revenue, gross margins, earnings, growth rates, and cash flows; result in increased expenses and interest rates; and cause difficulty in managing inventory levels, collecting customer receivables, and forecasting revenue, gross margin, cash flows and expenses.
Political developments impacting international trade, trade disputes and increased tariffs, particularly between the United States and China; political instability, such as wars or other armed conflicts; and the effects of epidemics, pandemics, or other public health crises may negatively impact markets and cause weaker macroeconomic conditions, reducing demand for the company’s products and services, particularly due to the company’s extensive international operations and business. Economic downturns may necessitate further restructuring actions, which could have a material adverse effect on the company’s business.
The company’s non-U.S. sales represent a significant portion of its revenues, and consequently, the company is exposed to risks associated with operating internationally.
In 2025, 2024, and 2023, approximately 66%, 65%, and 66%, respectively, of the company’s sales came from its operations outside the United States. As a result of the significant extent of the company’s international business and operations, the company is subject to a variety of risks, including:
import and export regulations that could erode profit margins or restrict international sales and transportation of products;
potential social unrest, military conflicts, government shutdowns and disruptions, and other geopolitical risks and uncertainties;
the burden and cost of compliance with international laws, regulations, treaties, and technical standards, including, without limitation, with respect to tax;
currency fluctuations;
trade protection measures, import and export tariffs and other restrictions, duties, and value-added taxes;
potential restrictions on transfers of funds;
transportation delays and interruptions;
uncertainties arising from local business practices and cultural considerations;
foreign laws that potentially discriminate against or disfavor companies headquartered outside the relevant jurisdiction;
stringent antitrust regulations in local jurisdictions;
volatility associated with sovereign debt of certain countries;
various jurisdictions’ environmental protection laws and regulations, including those related to climate change and sustainability disclosures; and
non-compliance with local laws.
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See also “ The company is subject to laws, regulations, and executive orders that could have a negative impact on the company’s business, including, without limitation, export and import controls, tariffs, sanctions, embargoes, international trade restrictions, anti-corruption laws, and anti-money laundering laws. In the event of non-compliance, the company could face serious consequences, that could harm its business .” Refer to “Foreign Currency Exchange Rate Risk” in Item 7.A Quantitative and Qualitative Disclosures About Market Risk for a further discussion of the company’s description of the impacts of foreign currency exchange rates on the company’s results and projections.
Business Risks
If the company is unable to maintain its relationships with its suppliers, if the suppliers materially change the terms of their existing agreements with the company or the company fails to abide by the terms of such agreements, if suppliers cease selling their products through distribution generally, or if supply chain shortages and other disruptions occur, the company’s business could be materially adversely affected.
A substantial portion of the company’s inventory is purchased from suppliers with which the company has entered into non-exclusive distribution agreements. These agreements are typically cancellable at any time or on short notice (generally 30 to 90 days). Some of the company’s business offerings rely on a limited number of suppliers to provide a high percentage of revenues. For example, sales of products from one of the company’s suppliers accounted for approximately 8% of the company’s consolidated sales in 2025. To the extent that the company’s significant suppliers reduce the number of products they sell through distribution, cease selling their products through distribution entirely, experience disruptions in their supply chains, cease doing business with the company, or are unable to continue to meet their obligations, the company’s business could be materially adversely affected. In addition, to the extent the company’s suppliers modify the terms of their contracts to the detriment of the company, limit supplies due to capacity constraints or other factors, or cancel such contracts or exercise adverse remedies thereunder due to an actual or perceived of contract terms by the company, there could be a material effect on the company’s business.
Further, the supplier landscape has continued to experience consolidation, which could negatively impact the company if the surviving, consolidated suppliers decide to exclude the company from their supply chains, and which could expose the company to increased pricing and dependence on a smaller number of suppliers, among other risks. Increasing consolidation in the industries where the company’s suppliers operate may occur as companies combine to achieve further business advantages, which could result in reduced supplies as companies seek to eliminate duplicative product lines and services, and increased prices, which could have a material adverse effect on the company’s business.
The competitive pressures the company faces, such as pricing and margin reductions, could have a material adverse effect on the company’s business.
The company competes for both customers and suppliers in a highly competitive international environment against other large multinational and national electronic components and enterprise computing solutions distributors, as well as numerous other smaller, specialized competitors who generally focus on narrower market sectors, products, or industries. Such robust competition broadly, and within each region and market sector, creates pricing and margin pressure and continuous demand for the company to improve service and product offerings. Additionally, some of the company’s competitors may have more extensive customer and/or supplier bases than the company in one or more of its regions and/or market sectors. Other competitive factors include rapid technological changes, product availability, credit availability, speed of delivery, ability to tailor solutions to changing customer needs, quality and depth of product lines and training, and increasing demand for customer service and support. The company also faces competition from its own suppliers and from companies in the logistics and product fulfillment, catalog distribution, e-commerce, design services, and supply chain services markets. Reduced pricing power and reduced margins, as well as a failure to adequately address evolving customer demand and otherwise respond to these competitive factors, could adversely impact the company’s results of operations.
As the company continues to expand its business into new areas to stay competitive in the market, the company may encounter increased competition from current and/or new competitors, making it difficult to retain or increase its market share. Further, supplier consolidation may result in suppliers with greater scale, market presence, and purchasing power.
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As a result, distributors such as the company may experience difficulty maintaining favorable pricing and margins and experience related adverse impacts on operating results.
The company’s success depends upon its ability to attract, retain, motivate, and develop key executive and employee talent.
Any failure to attract, retain, motivate, and develop key executive and employee talent may materially and adversely affect the company’s business.
The company’s success depends, to a significant extent, on the capability, expertise, and continued service of its key executives and employees. The company relies on the expertise and experience of certain key executives and employees in developing business strategies, managing business operations, and cultivating new and maintaining existing relationships with customers and suppliers. If the company were to lose any of its key executives or employees, it may not be able to find a suitable replacement with comparable knowledge and experience in a timely manner, or if at all, at a similar level of remuneration and other benefits.
The company is currently conducting a search for a permanent President and CEO, following the appointment of William F. Austen as Interim President and CEO on September 16, 2025. Changes to executive leadership may create uncertainty, divert resources and management attention, or impact public or market perception, any of which could negatively impact the company's ability to operate effectively or execute its strategies and result in an adverse impact on its business. Further, new executives may have different backgrounds, experiences, and perspectives than the previous executives and thus may have different views on the company’s strategy and other significant matters, potentially resulting in employee, customer, and supplier uncertainty.
The company relies on its employee workforce to execute the business strategy, service customers and suppliers, and perform daily operations. From time to time, and most recently in connection with the Operating Expense Efficiency Plan, the company has and may need to reduce the size of its workforce in response to adverse market conditions or for strategic business realignment. Such workforce reductions may adversely affect the morale and performance of remaining employees as well as the company’s ability to attract, motivate, retain, and develop skilled personnel, which could have a significant impact on the company’s operations and financial condition.
Restrictions on immigration or changes in immigration laws could have adverse impacts on macroeconomic conditions, limit the company’s access to qualified and skilled professionals, increase the cost of doing business, delay international business travel, or otherwise disrupt operations.
Overestimating customer demand for certain products or a decline in the value of the company’s inventory or pre-paid IT solutions could materially adversely affect the company’s business.
The market for the company’s products and services is subject to rapid technological changes, evolving industry standards, changes in end-market demand, evolving customer expectations and demands, oversupply of product, and regulatory requirements, which can contribute to the decline in value or the obsolescence of the company’s inventory. Although some of the company’s suppliers provide the company with certain protections from the loss in value of inventory (such as price protection and certain rights of return), the company cannot be sure that (i) such protections will fully compensate it for the loss in value, (ii) the suppliers will choose to, or be able to, honor such agreements, or (iii) the company will be able to continue to secure such protections in the future. For example, many of the company’s suppliers will not allow products to be returned after they have been held in inventory beyond a certain amount of time, and, in most instances, the return rights are limited to a certain percentage of the amount of products the company purchased in a particular time frame. Therefore, the company is not fully protected shifts in customer demand or in the value of its inventory, which could result in increased inventory-management costs, write-downs, or write-offs, which could have a material effect on the company’s assets and operations.
The company, within global ECS, has multi-year distribution agreements under which it has non-cancellable purchase obligations through 2032, giving the company the right to sell certain IT solutions in specific regions. In 2025, the company recorded net losses of $18.3 million due to lower demand and profit expectations on certain contracts, which negatively
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impacted the company’s gross profit margins. If the sales under these or other agreements do not meet the company’s purchase obligations in future periods, the company’s business and results of operations could be materially negatively affected. Refer to “Business environment and other trends” in Item 7 for a further discussion of these multi-year distribution agreements.
If the company fails to successfully invest in and implement digital, AI, and other technological developments, or its suppliers are not able to continue to offer competitive components and electronic computing solutions, it could materially adversely impact results.
The company’s industry is subject to rapid and significant technological changes, and the company’s ability to meet its customers’ needs and expectations is key to the company’s ability to grow sales and earnings. The company’s customers and suppliers increasingly expect the company’s platforms to include digital technologies to facilitate distribution of components and electronic computing solutions. For example, the ability of customers to access their accounts, place orders, and otherwise interface with the company using digital technology is an important aspect of the distribution industry, and distribution companies are rapidly introducing new digital and other technology-driven products and services that aim to improve customer experience and reduce costs. If the company is unable to sufficiently maintain and enhance its digital platforms, cloud platforms, and AI tools to keep pace with competitors and align with evolving customer and supplier expectations and demands, there could be an adverse impact on the company’s sales revenues and ability to retain existing, and attract new, customers. Additionally, the company has made, and may continue to make, acquisitions of, or investments in new services or technologies to expand its current service offerings and product lines, which may involve risks that may differ from those traditionally associated with the company’s core business. See also “ Acquisitions, , or joint ventures may cause the company to experience operating and other consequences that may impact the company’s business, financial condition, and operating results, and the company may not be to consummate transactions or integrate acquired businesses. ”
The company’s sales are also partially dependent on continued innovations in components and electronic computing solutions by its suppliers, the competitiveness of its suppliers’ offerings, and the company’s ability to partner with new and emerging technology providers. As a result, the company may have difficulty offering components, services, and solutions that anticipate and respond to rapid and continuing changes in technology and meet customers’ evolving demands. See also “ The competitive pressures the company faces, such as pricing and margin reductions, could have a material adverse effect on the company’s business. ”
Additionally, laws and regulations concerning the use of AI are rapidly evolving and create uncertainty. Compliance with these laws and regulations may impose significant operational costs or limit the manner in which the company can utilize systems that incorporate AI technologies.
The company’s revenues originate primarily from the sales of semiconductor, IP&E, and IT hardware and software products, the sales of which are traditionally cyclical and may be impacted by shortages and other disruptions in the global supply chain.
The semiconductor industry historically has experienced fluctuations in product supply and demand, often associated with changes in technology and manufacturing capacity and significant economic market upturns and downturns. Sales of semiconductor products and related services represented approximately 50%, 53%, and 60%, of the company’s consolidated sales in 2025, 2024, and 2023, respectively. The sale of the company’s IP&E products closely tracks the semiconductor market.
Accordingly, the company’s revenues and profitability, particularly in its global components reportable segment, have been, and may be, adversely affected by weakness in the semiconductor market. During 2023, the company’s global components reportable segment entered a cyclical downturn that endured throughout 2024 and part of 2025, characterized by declining sales due to elevated customer inventory levels, which were largely a result of the normalization of shortages in electronic components markets toward the end of 2022. A cyclical downturn in semiconductor markets and the technology industry has adversely impacted the company’s business and financial results in the past, and a recurrence of such conditions in the future could have a material adverse effect on the company’s business, profitability, and, consequently, stock price.
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The company’s lack of long-term sales contracts may have a material adverse effect on its business.
Most of the company’s sales are made on an order-by-order basis, rather than through long-term sales contracts. The company generally works with its customers to develop non-binding forecasts for future orders. Based on such non-binding forecasts, the company makes commitments regarding the level of business that it will seek and accept, the inventory that it purchases, and the levels of utilization of personnel and other resources. A variety of conditions over which the company has little or no control, both specific to each customer or generally affecting each customer’s industry or the broader market, may cause customers to cancel, reduce, or delay orders that were previously made or anticipated, file for bankruptcy protection; or default on their payments owed to the company, which could materially adversely affect the company’s business.
If the company is unable to implement its Operating Expense Efficiency Plan effectively, it could materially adversely impact financial results.
In 2024, the company began a multi-year restructuring plan (the “Operating Expense Efficiency Plan” or the “Plan”) designed to improve operational efficiency through various measures, including reduction and relocation of parts of the company’s employee workforce. For further discussion of the Plan, refer to Note 9 - “Restructuring, Integration, and Other” within Item 8.
The Operating Expense Efficiency Plan could adversely impact the company due to any of the following: a decrease in employee morale; difficulty hiring qualified employees; current cost-effective regions becoming more expensive; inefficiency due to geographic segmentation of employees and operations; disruptions in operations; delays in finalizing the scope of, and implementing, the restructuring; failure to achieve targeted cost savings; failure to meet operational targets and customer requirements; failure to manage supplier relationships; and failure to maintain adequate internal control over financial reporting. These risks are further complicated by the company’s extensive international operations, which subject the company to different legal and regulatory requirements that govern the extent and speed of the company’s ability to reduce or consolidate its operations and workforce. See also “ The company’s depends upon its ability to attract, retain, and motivate key executive and employee talent. ”
Changes in the company’s global mix of earnings, tax laws, and regulations could cause fluctuations in the company’s effective tax rate and adversely impact financial results.
The company’s effective tax rate may be adversely affected by fluctuations in the geographic distribution of earnings, which may subject earnings to different or multiple statutory tax rates. Shifts in the business environment or changes in tax laws and regulations in each jurisdiction in which the company operates may also adversely affect the company’s effective tax rate. For further details on the company’s deferred tax assets and liabilities and uncertain tax positions, refer to Note 1 – “Summary of Significant Accounting Policies” within Item 8.
In recent years, numerous domestic and international tax proposals have been issued and enacted which have increased the tax burden on large multinational companies. For example, the OECD has advanced new tax proposals affecting international taxation, including the establishment of a global minimum tax of 15%, which many countries are either considering implementing or have already implemented. Any new tax legislation could impact the company’s tax obligations in the countries where it operates, leading to increased taxation of its international earnings.
Moreover, changes to U.S. or foreign tax laws could have broader implications, including indirect effects on the economy, currency markets, inflation, or competitive dynamics, which are difficult to predict and may negatively impact the company. Such tax developments could further increase uncertainty and have a material adverse impact on the company’s cash flows, effective tax rate, and financial results.
The company is regularly audited by U.S. and foreign tax authorities. Although the company provisions for income taxes and tax estimates, the final resolution of these audits may differ, in some cases materially, from the estimates reflected in the company’s financial results. Additionally, economic and political pressures to increase tax revenue by various jurisdictions may make resolving tax disputes more challenging.
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Acquisitions, divestitures, or joint ventures may cause the company to experience operating difficulties and other consequences that may negatively impact the company’s business, financial condition, and operating results, and the company may not be able to successfully consummate favorable transactions or integrate acquired businesses.
From time to time, the company has, and may continue to, evaluate potential acquisitions, divestitures, joint ventures, or other strategic transactions. As part of the company’s growth strategy, it has acquired other businesses and continues to evaluate strategic opportunities to acquire additional businesses from time to time. The company has also in the past, and may in the future, divest or reduce its investment in certain businesses and product lines. Acquisitions and divestitures involve numerous risks, including:
effectively combining and integrating the acquired operations, technologies, or products;
unanticipated costs or assumed or retained liabilities, including, but not limited to, those associated with combining and integrating operations, technologies, and facilities;
costs associated with regulatory approvals, actions, or investigations;
difficulty identifying potential acquirers or other divestiture options on favorable terms;
the inability to retain and obtain required regulatory approvals, licenses, and permits;
delayed completion due to local consultation laws;
not realizing the anticipated financial benefit from the acquired companies;
in the event the acquisition is funded with proceeds of indebtedness, adverse impacts on the company’s leverage ratios and an associated downgrade of its credit rating as well as increased interest costs;
diversion of management’s attention;
negative effects on existing customer and supplier relationships;
disruption due to the integration and rationalization of operations, products, technologies, and personnel;
liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims; data privacy and security issues; violations of laws and regulations; liabilities associated with violations of anticorruption, sanctions, or trade control laws; commercial disputes; tax liabilities; environmental issues and remediation expenditures; and other known and unknown liabilities;
change in the company’s effective tax rate;
difficulty separating assets or businesses (or portions thereof) from the company’s other businesses;
decrease in margins, loss of revenue, operating income, or disruption to customer relationships as a result of a divestiture;
litigation or other claims in connection with an acquired company or a divestiture, including claims from terminated employees, customers, current or former equity holders, or other third parties;
significant costs associated with exit or disposal activities or related impairment charges; and
potential loss of key employees of the company or acquired companies.
If the company is not able to successfully manage any of these risks in relation to future acquisitions or divestitures, it could have a material adverse effect on the company’s business.
Cybersecurity, Privacy, and Technology Risks
Cybersecurity incidents may hurt the company’s business, damage its reputation, increase its costs, and cause losses.
The company’s information technology and other systems could be subject to significant cybersecurity and privacy incidents, including, but not limited to, invasion, malicious intrusion, inducement (fraudulent or otherwise) by third parties to obtain information from employees, customers, or suppliers; cyber-attacks; ransom demands; cybersecurity breaches caused by third parties as well as employees and others with authorized access; social engineering; nation-state attacks; exploitation of unpatched or unmanaged vulnerabilities; or destruction or other misuse of data that could harm the company, its operations, or its competitive position. The company and its service providers have been, and continue to be, the subjects of cyber-attacks. While cybersecurity incidents have not had a material impact on the company’s business, strategy, results of operations, or financial condition, there can be no assurance that such incidents will not have a material impact on the company in the future.
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Any such incident, whether successful or unsuccessful, could result in, without limitation, disruption to the company’s operations; loss or compromise of, or damage to, the company’s or any of its customers’, suppliers’, or end-users’ data; theft and misuse of confidential or personal information; significant legal, regulatory, and financial exposure; damage to the company’s reputation; significant costs related to rebuilding internal systems, managing company brand and reputation, litigation, fines, damages, responding to regulatory inquiries, and taking other remedial steps; loss of competitive advantage; and a loss of confidence in the security of the company’s information technology systems, any of which could have an impact on the company’s business and relationships with customers or suppliers, including by the company’s ability to sell its products and services. Because the techniques used to cause these and access to, disable, or the company’s information technology systems and data stored on those systems change frequently and often are not recognized until they are initiated, the company may be to anticipate them or to implement adequate preventive or protective measures to guard them. Further, third parties, such as hosted solution providers, are a source of risk because they could be subject to the same or other similar types of , for example in the event of a of their own systems and infrastructure or if they experience their own privacy or security event, which could create risks similar to those described above. These third parties could include organizations in the company’s supply chain, which if subject to an , could impact the company’s ability to service its customers and suppliers. Additionally, a cyber-attack or information technology system affecting the company’s suppliers or customers could and impact the company’s operations.
Failure to maintain satisfactory compliance with certain privacy and data protections laws and regulations may subject the company to substantial negative financial consequences and civil or criminal penalties.
Global privacy legislation, enforcement, and policy activity are rapidly expanding and creating a complex compliance environment. The company’s actual or perceived failure to comply with privacy or data protection laws and regulations in any of the jurisdictions in which it operates could result in damage to the company’s reputation as well as legal proceedings against the company by governmental entities or others, which could have a material adverse effect on its business.
The company relies heavily on its internal information systems, which, if not properly functioning, could materially adversely affect the company’s business.
The company relies on its information systems to support daily operations and generate timely, accurate, and reliable financial and operational data. The company’s current global operations reside on multiple technology platforms, some of which are currently undergoing projects intended to streamline or optimize these platforms. The size and complexity of the company’s information systems make them vulnerable to breakdown, defective software updates from the company’s IT vendors, failure to keep software updated and current, and ransomware attacks. Failure to properly or adequately address such issues could impact the company’s ability to perform necessary business operations, which could materially adversely affect the company’s business.
Technologies used in or integrated into the company’s operations, such as cloud-based services, AI, and automation, may cause an adverse shift in the way the company’s existing business operations are conducted. In addition, AI algorithms may be flawed. Datasets used to train the models which support the company’s AI offerings or internal use may be insufficient or contain biased information or lead to unexpected or unintended outcomes, which could erode trust in the company’s AI systems and subject the company to competitive harm, regulatory action, and legal liability.
Regulatory and Legal Risks
The company is subject to laws, regulations, and executive orders that could have a negative impact on the company’s business, including, without limitation, export and import controls, tariffs, sanctions, embargoes, international trade restrictions, anti-corruption laws, and anti-money laundering laws. In the event of non-compliance, the company could face serious consequences that could harm its business.
The company is subject to complex and evolving laws and regulations worldwide that differ among jurisdictions and affect its operations, including the EAR, U.S. Customs regulations, and various other trade laws, regulations, executive orders, and sanctions administered by the U.S. Departments of State, Commerce, and Treasury, as well as other U.S. and foreign governmental agencies. Products the company sells which are either manufactured in the United States or based on U.S.
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technology (“U.S. Products”) are subject to the EAR when exported and re-exported to and from all international jurisdictions, in addition to the local jurisdiction’s export regulations applicable to individual shipments. If a regulator determines, even in error, that the company or its subsidiaries are not in compliance with applicable laws, regulations, or executive orders or designates the company or its subsidiaries as sanctioned entities or otherwise prohibits third-parties from transacting with them, such determination could result in negative impacts to the company’s sales, customer relationships, and reputation that could have a material negative impact on the company’s business and financial condition.
For example, on October 8, 2025, three of the company’s subsidiaries in China were added to the “Entity List” of the BIS, which restricted their ability to receive exports of U.S. technology from suppliers. On October 17, 2025, the BIS issued a temporary authorization that allowed these entities to resume their normal business activities, and the entities were formally removed from the Entity List on November 11, 2025; however, during the intervening time period, the subsidiaries were unable to receive shipments from many suppliers and fulfill corresponding customer orders, which had an adverse impact on the Company’s operating results for the fourth quarter of 2025.
In addition, licenses or proper license exceptions may be required by export regulations, including the EAR, for the shipment of certain U.S. Products to certain countries, including China, India, and other countries in which the company operates. The company may not be able to effectively monitor the activities of all of its employees involved in regulated export or shipment activities, which may lead to the company’s failure to prevent violations of such regulations.
Failure to obtain and apply required authorizations, or other non-compliance with the EAR, OFAC regulations, or other applicable export regulations could result in a wide range of penalties including the denial or restriction of export privileges, significant fines, criminal penalties, and the seizure of inventories, any of which could have a material adverse effect on the company’s business. The company’s distribution process also includes the use of third parties that operate outside of the company’s direct control. Noncompliance with applicable import, export, and other laws, regulations, or executive orders by these third parties may result in substantial liability to the company and harm the company’s reputation.
Further, the company is also subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, and other anti-bribery and anti-money laundering laws in the countries in which it conducts business. The company can be held liable under these laws, which are often interpreted broadly, for the corrupt or other illegal activities of its employees, agents, contractors, counterparties, and third parties it engages to provide services, even if it does not explicitly authorize or have actual knowledge of such activities. Any violations of these laws and regulations may result in substantial civil and criminal fines, penalties, disgorgement, imprisonment, the loss of export or import privileges, debarment, tax , of contract and , reputational , and other consequences.
The company’s global business also could be negatively affected by trade barriers, such as tariffs, export restrictions, embargoes, and other governmental protectionist measures, which may decrease demand for the company’s products. Such measures can be imposed suddenly and unpredictably and, in the case of tariffs, may increase the prices of many of the products that the company purchases from its suppliers. Tariffs and other protectionist measures, and the additional operational costs incurred in minimizing the number of products subject to them, could adversely affect the operating profits for certain of the company’s businesses and customer demand for certain products, which could have an adverse effect on the company’s business and results of operations.
In the event that the company pays tariffs for imported products that are re-exported outside of the United States, the company may be eligible for refunds of certain tariffs. In order to qualify for these tariff drawbacks, the company must provide data and documentation to the U.S. government that it must obtain from third-party sources, such as its suppliers. There is no guarantee the company will be able to obtain this additional data and documentation from those other sources, which could result in the U.S. government rejecting the drawback requests. There have been, and there could be, additional administrative costs in furtherance of these efforts.
Ongoing litigation regarding U.S. tariffs issued pursuant to the International Emergency Economic Powers Act, including two matters recently heard by the U.S. Supreme Court, has created additional uncertainty regarding the potential effects that tariffs may have on the company’s business. The U.S. Supreme Court’s ruling in those or other similar matters could result in significant changes to U.S. tariff policies, the effects of which are difficult to predict, but could include the
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imposition of different or additional duties, refunds to the company that may be difficult or impossible to collect, or litigation with third parties concerning prior tariff-related payments, any of which could have a material negative impact on the company’s business.
Products sold, designed, or integrated by the company may be found to be defective and, as a result, warranty and/or product liability claims may be asserted against the company, which may have a material adverse effect on the company.
As a distributor, the company sells its components or services at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. As a result, the company may face claims for damages (such as consequential damages) that are disproportionate to the revenues and profits it receives from the components involved in such claims. Further, the company’s ability to avoid such liabilities pursuant to defective product provisions in its supplier agreements may be limited as a result of various factors, such as the inability to exclude such damages due to third party contractual provisions or the laws of some of the countries where the company does business. The company’s business could be materially adversely affected as a result of a significant quality or performance issue in the products sold by the company if it is required to pay for the associated damages. The company’s product liability insurance is limited in coverage and amount and may not be sufficient to cover all possible . Further, when relying on contractual liability exclusions, the company could customers if their are not addressed to their .
In the company’s rendering of integration services, the company may be exposed to increased risks associated with product defects. Defects arising from integration services could lead to product liability claims, recalls, fines, and penalties. These risks are particularly pronounced in applications for aerospace, automotive, and medical products, where product failures could result in serious harm to end users. Any such adverse events could affect the company’s financial condition, operating results, and reputation.
The company is subject to environmental laws and regulations, and may be impacted by climate change, in ways that could materially adversely affect its business.
A number of jurisdictions in which the company’s products are sold have enacted laws and regulations addressing environmental and other impacts from product disposal, use of hazardous materials in products, use of chemicals in manufacturing, recycling of products at the end of their useful life, and other related matters. These laws and regulations prohibit the use of certain substances in the manufacture of products sold by the company and impose a variety of requirements for manufacturing processes, registration, chemical testing, labeling, and other activities. Failure to comply with these laws and regulations could result in litigation, fines, or suspension of sales. Additionally, these laws and regulations may restrict or prohibit the sale of certain products, which may negatively affect the value of the company’s inventory.
Certain environmental laws impose liability, sometimes without fault, for investigating or cleaning up contamination on or emanating from the company’s currently or formerly owned, leased, or operated property, as well as for damages to property or natural resources and for personal injury arising out of such contamination. Under these laws and regulations, the company may be responsible for investigating, removing, or otherwise remediating hazardous substances released at properties or facilities it owns or operates, regardless of when such substances were released. For example, the company is currently obligated to perform environmental remediation on sites that it obtained as part of an acquisition transaction (refer to Note 15 - “Contingencies” within Item 8 for additional information related to environmental remediation. The presence of environmental contamination at any of the company’s locations could also interfere with ongoing operations or adversely affect the company’s ability to sell or lease its properties. The discovery of environmental contamination, the enactment of new laws and regulations, or changes in the enforcement of existing regulations, could require the company to incur costs for compliance or subject it to liabilities.
Additionally, long-term climate change impacts, including the frequency and magnitude of severe weather events and natural disasters may significantly impact the company’s operations and business, either directly or indirectly, by adversely affecting the price and availability of energy, and the supply of other services or materials throughout the company’s supply chain, any of which could have a material adverse effect on the company’s business. Proposed and existing efforts to address concerns over climate change could also directly or indirectly affect the company’s costs of energy and other operating costs.
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The company is subject to a variety of additional laws, regulations, and executive orders in the U.S. and other jurisdictions, and could be subject to claims, investigations, and litigation that could adversely affect the company’s results of operations and harm the company’s reputation.
The company is subject to various laws, regulations, and executive orders involving numerous subject areas in the U.S. and other countries in which it operates, the requirement of which vary across jurisdictions. The company has in the past and may in the future be subject to claims, investigations, regulatory proceedings, and lawsuits in and outside the ordinary course of business, including related to product liability and warranties, investigations by governmental agencies, litigation alleging the infringement of intellectual property rights, securities and shareholder litigation, and litigation related to employee matters and commercial disputes. Such matters are unpredictable. Managing, defending, and responding to claims, investigations, and lawsuits may divert management’s attention, the company’s reputation, and cause the company to incur significant expenses, even if there is no evidence of by the company. In addition, the company may be required to pay awards, , , or settlements, or become subject to or other equitable remedies, which could have a material effect on the company’s business, financial condition, results of operations, and cash flows. Moreover, any insurance or indemnification rights that the company has may be or to protect the company potential exposures.
Certain of the company’s products and services include intellectual property owned primarily by the company’s third-party suppliers and, to a lesser extent, the company itself, and there is risk of litigation regarding these intellectual property rights. Third parties (including companies which acquire patents for the purpose of seeking artificial licensing revenue and not actually developing technology) may assert patent, copyright, or other intellectual property rights to technologies that are important to the company’s business, for which the company may not be able to obtain indemnification. In addition, the company is exposed to potential liability, for which it may not have indemnification protection, for technology it develops and when it combines multiple technologies of its suppliers. The company may also be required to indemnify and defend a customer in the event it becomes a target of intellectual property litigation.
Any infringement or indemnification claim brought against the company, regardless of the duration, outcome, or size of any potential monetary award, could result in substantial cost to the company, could be time consuming and costly to defend, or could cause product shipment delays. Moreover, in the event of an adverse determination, the company may be required to seek royalty or license arrangements, which may not be available on commercially reasonable terms or may be unavailable entirely. An adverse determination could require that the company stop selling certain products or technologies, which could negatively affect the company’s operations and ability to compete in the market. The payment of any such damages or royalties may significantly increase the company’s operating expenses and materially harm the company’s operating results and financial condition.
The company may not be able to adequately anticipate, prevent, or mitigate damage resulting from criminal and other illegal or fraudulent activities committed against it or as a result of misconduct or other improper activities by its employees or contractors.
Global businesses are facing increasing operational risks, including fraudulent acts that potentially violate criminal and civil law. Due to the evolving nature of such threats, considering new and sophisticated methods used by criminals, including phishing, misrepresentation, social engineering, deepfake video and audio, and forgery, it is increasingly difficult for the company to anticipate and adequately mitigate these risks. In addition, designing and implementing measures to defend against, prevent, and detect these types of activities are increasingly costly and invasive to business operations. Misconduct or failure by employees or contractors to adhere to the company’s policies and procedures may further heighten such risks. As a result, the company could experience a material if its controls and other measures implemented to address these to prevent or detect these types of , , and acts.
In addition, misconduct by the company’s employees or contractors may include intentional or negligent failures to comply with applicable laws and regulations, safeguard personally identifiable information, report financial information or data accurately, or disclose unauthorized activities to the company. Such misconduct could result in legal action by government agencies or impacted third parties, including customers and suppliers, against the company, and, as a result, could cause significant harm to the company, including to its reputation.
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It is not always possible to identify and deter employee misconduct, and precautions the company takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting the company from governmental investigations or other actions, including lawsuits on behalf of customers, suppliers, or other parties. If the company is not successful in defending itself or asserting its rights in any such actions, those actions could result in the imposition of significant civil, criminal, and administrative monetary judgments or penalties, which could have a significant impact on the company’s business. Regardless of whether the company is successful in defending against such actions, it could incur substantial costs, including legal fees, and divert the attention of management.
Expectations and regulations related to corporate stewardship and corporate responsibility matters, and related disclosures, expose the company to potential liabilities, increased costs, reputational harm, and other adverse effects on the company’s business.
Certain investors, customers, regulators, governments, and other stakeholders continue to emphasize and assert expectations in connection with environmental, social, and governance matters, as well as other corporate stewardship considerations, and the company may fail to meet these expectations. The company has made statements about various standards, policies, and targets in connection with these expectations, and a number of the company’s customers and suppliers require adherence to specific environmental and human rights standards. Failing to meet these expectations and standards may result in reputational damage, loss of business, or potential liability. Whether the company discloses, or chooses not to disclose, initiatives related to environmental, social, governance, or other corporate stewardship matters, it could face scrutiny regarding the adequacy of its actions, including from investors and proxy advisory firms. In addition, individual stakeholders may consider different criteria and apply different methodologies in evaluating the company’s performance in connection with these matters. This lack of standardization creates potential for wide disparity in assessments, including or assessments of the company’s corporate stewardship program and initiatives. to meet the expectations of investors, proxy advisors, customers, suppliers, and other stakeholders in this area may also result in diluted market valuation, an to attract or retain customers and suppliers, and an to attract or retain top talent.
Additionally, the company is or may be obligated to comply with new requirements related to environmental, social, governance, or other corporate stewardship matters under U.S. federal and state laws, regulations, and executive orders; the European Green Deal; and the laws and regulations of various other jurisdictions. As regulations in these areas increase in number and scope, the company may be required to develop additional governance and compliance frameworks, implement new processes, establish controls, monitor performance metrics, undergo independent assessments, and prepare detailed public reports on an ongoing basis regarding the financial and non-financial risks and impacts associated with the company’s operations and value chains. These laws, regulations, and executive orders may result in significant legal, compliance, accounting, operational, and administrative costs to the company, and may strain the company’s personnel, systems, and other resources. Any actual or perceived violations of these requirements could result in reputational harm, litigation costs, monetary penalties, or other sanctions.
Certain of the company’s business units contract or subcontract with U.S. government agencies, and on January 21, 2025, the U.S. President issued certain executive orders imposing new requirements on federal contractors and subcontractors prohibiting certain “diversity, equity, and inclusion” practices in employment, procurement, and contracting activities, and requiring a certification that the contractor or subcontractor does not operate diversity, equity, and inclusion programs that violate federal anti-discrimination laws. If the company is deemed to have violated these executive orders and any related laws or regulations, it may jeopardize the ability of the company’s business units to continue to do business as federal contractors or subcontractors, and could negatively affect the company’s revenue.
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Financial Risks
The company may not have adequate or cost-effective liquidity or capital resources, which could have a material adverse impact on its ability to maintain cash necessary to operate its business or return capital to shareholders.
The company requires cash or committed liquidity facilities for general corporate purposes, such as funding its ongoing working capital, acquisitions, capital expenditure needs, refinancing, returning capital to shareholders, and implementing the Operating Expense Efficiency Plan. The company’s committed and undrawn liquidity stands at over $2.5 billion in addition to $306.5 million of cash on hand as of December 31, 2025. The company’s ability to satisfy its cash needs depends on its ability to generate cash from operations and to access the financial markets, both of which are partially subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the company’s control.
The company’s ability to obtain external financing is affected by various factors, including general financial market conditions, the company’s debt ratings, and the company’s financial performance. For example, economic uncertainty or adverse economic conditions resulting from the impacts of and responses to changes in global, national, or regional economies; natural disasters; inflation; governmental policies; political unrest; military action and armed conflicts; pandemics and other public health issues; terrorist activities; political and social turmoil; civil unrest; and other crises could result in significant or sustained disruption of global financial markets, thereby reducing the company’s access to capital.
Credit rating agencies consider numerous financial and industry-related metrics in determining a company’s credit ratings. If the company fails to satisfy these metrics, these agencies may choose to downgrade the company’s debt ratings, which could impair the company’s ability to obtain additional financing on favorable terms, redeem existing indebtedness, or renew existing credit facilities; negatively impact the company’s stock price; increase the company’s interest payments under existing debt agreements; and have other negative implications for the company’s business. Under the terms of any additional external financing, the company may incur higher financing expenses and become subject to additional restrictions and covenants that may adversely impact the company’s operations and ability to pursue strategic initiatives. An increase in the company’s financing costs or loss of access to cost-effective capital resources could also have a material adverse effect on the company’s business.
The agreements governing some of the company’s financing arrangements contain various covenants and restrictions that limit some of management’s discretion in operating the business and could prevent the company from engaging in some activities that may be beneficial to its business.
Some of the company’s financing agreements contain covenants and restrictions that, in certain circumstances, could limit its ability to:
grant liens on assets;
make investments or certain acquisitions;
merge, consolidate, or transfer all or substantially all of its assets;
incur additional debt; or
engage in certain transactions with affiliates.
As a result of these covenants and restrictions, the company may be limited in how it conducts its business and may be unable to raise additional debt, compete effectively, or make investments.
Further, if an event of default under any of the company’s existing debt agreements occurred or became imminent, the lenders under any such facility may have the right to declare all outstanding indebtedness immediately due and payable, and lenders under the company’s other debt facilities may likewise be able to declare a cross-default. If such an event causes the company to lose access to capital under its existing credit facilities, the company may be forced to identify alternative sources of capital that are more expensive or restrictive. Further, the company may be unable to borrow additional amounts under the relevant credit facility or under its other credit facilities (in the event of a cross-default), and
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as a result may be unable to make acquisitions, fund share repurchases, or meet other financial obligations. Any such circumstance would have a material adverse effect on the company’s financial position and operations.
The company’s goodwill and identifiable intangible assets could become impaired, which could reduce the value of its assets and reduce its net income in the year in which the write-off occurs.
The company may incur impairment charges on goodwill or identifiable intangible assets if it determines that the fair value of the goodwill or identifiable intangible assets are less than their current carrying value. If events or circumstances occur that indicate all, or a portion, of the carrying amount of goodwill or identifiable intangible assets is or may no longer be recoverable, an impairment charge to earnings may become necessary.
An impairment charge might also be required if valuations of the company’s reporting units are negatively impacted by a decline in general economic conditions, a substantial increase in market interest rates, persistence of a high market-interest rate environment, an increase in income tax rates, or the company’s inability to meet long-term working capital or operating income projections, which could impact the company’s consolidated balance sheets, as well as the company’s consolidated statements of operations.
If the company fails to maintain an effective system of internal controls or discovers material weaknesses in its internal control over financial reporting, it may not be able to report its financial results accurately or timely, or detect fraud, which could have a material adverse effect on its business.
An effective internal control environment is necessary for the company to produce reliable financial reports, safeguard assets, and is an important part of its effort to prevent financial fraud. There are inherent limitations to the effectiveness of internal controls, including collusion, employee override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate financial statement risk. If the company fails to maintain an effective system of internal controls, or if management or the company’s independent registered public accounting firm discovers a material weakness in the company’s internal controls, the company may be unable to produce reliable financial reports or prevent fraud, which could have a material adverse effect on the company’s business. In addition, the company may be subject to sanctions or investigations by government agencies or other entities, such as the SEC or the NYSE. Any such actions could result in an reaction in the financial markets due to a of confidence in the reliability of the company’s consolidated financial statements, which could affect the company’s stock price and limit the company’s access to capital.
