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Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-03-16 · 366 added, 530 removed, 1080 unchanged (45% of the section changed)

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULE

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page

Report of Management on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP

Report of Independent Registered Public Accounting Firm - KPMG LLP

Consolidated Financial Statements:

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Valuation Accounts

32 | December 31, 2022 Form 10-K

Report of Management on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of The Hillman Solutions Corp..

and its consolidated subsidiaries;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of The Hillman Solutions Corp.

and its consolidated subsidiaries are being made only in accordance with authorizations of management and directors of The Hillman Solutions Corp.

and its consolidated subsidiaries are being made only in accordance with authorizations of management and directors of Hillman Solutions Corp.

and its consolidated subsidiaries, as appropriate;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of The Hillman Solutions Corp.

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of Hillman Solutions Corp.

and its consolidated subsidiaries that could have a material effect on the consolidated financial statements.

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Based on its assessment, our management has concluded that our internal control over financial reporting was effective, as of December 31, 2022, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.

We reviewed the results of management's assessment with the Audit Committee of The Hillman Companies, Inc.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.

Management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.

We reviewed the results of management's assessment with the Audit Committee of Hillman Solutions Corp.

/s/ DOUGLAS J.

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President and Chief Executive Officer Chief Financial Officer

March 16, 2022 Dated:

March 16, 2022

February 27, 2023 Dated:

February 27, 2023

33 | December 31, 2022 Form 10-K

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders' and Board of Directors

The Hillman Solutions Corp.:

Opinion on the Consolidated Financial Statements

To the Shareholders and the Board of Directors of Hillman Solutions Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hillman Solutions Corp.

and subsidiaries (the Company) as of December 25, 2021 and December 26, 2020, the related consolidated statements of comprehensive loss, cash flows, and stockholders’ equity for each of the years in the three-year period ended December 25, 2021, and the related notes and financial statement schedule II -Valuation Accounts (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 25, 2021 and December 26, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 25, 2021, in conformity with U.S.

and subsidiaries (the "Company") as of December 31, 2022, the related consolidated statements of comprehensive loss, cash flows, and stockholders’ equity, for the period ended December 31, 2022, and the related notes and the financial statement schedule II - Valuation Accounts (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill - Hardware Solutions and Protective Solutions Reporting Units - Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to their respective carrying values.

The Company used both a discounted cash flow model and a multiple of earnings approach to estimate the fair values of the Hardware Solutions (“HS”) reporting unit and the Protective Solutions (“PS”) reporting unit.

The discounted cash flow model requires management to make significant estimates and assumptions including projected net sales and earnings growth rates and discount rates.

Changes in these assumptions could have a significant impact on either the fair value of the reporting units, the amount of any goodwill impairment charge, or both.

The Company’s consolidated goodwill balance was $824 million as of December 31, 2022, of which $424 million and $129 million were allocated to the HS reporting unit and the PS reporting unit, respectively.

34 | December 31, 2022 Form 10-K

estimated fair value of the HS and PS reporting units exceeded their carrying values as of the measurement date and, therefore, no impairment was recognized.

We identified the Company’s discounted cash flow model in the impairment evaluation of goodwill for the HS and the PS reporting units as a critical audit matter because of the significant judgments made by management to estimate the fair values of these reporting units.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of certain of management’s estimates and assumptions, particularly related to projected net sales and earnings growth rates and discount rates.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimates of projected net sales and earnings growth rates and discount rates used by management to estimate the fair values of the HS and PS reporting units included the following, among others:

• We evaluated management’s ability to accurately forecast projected net sales and earnings growth rates by comparing actual results to management’s historical forecasts.

• We performed a sensitivity analysis of the projected net sales and earnings growth rates and discount rates, which included their impact on cash flows.

• We evaluated the reasonableness of management’s projected net sales and earnings growth rates by comparing the forecasts to (1) historical net sales and earnings growth rates, (2) underlying analysis detailing business strategies and growth plans, (3) internal communications to management and the Board of Directors, and (4) forecasted information included in the Company press releases, as well as in analyst and industry reports for the Company and certain of its peer companies.

• With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodologies utilized, along with valuation assumptions including the discount rates and long-term net sales growth rates selected by:

◦ Developing a range of independent estimates for the discount rates and compared those to those rates selected by management.

◦ Utilizing industry and market-specific growth trends to assess the reasonableness of the long-term net sales growth rates selected by management.

/s/ DELOITTE & TOUCHE LLP

Cincinnati, Ohio

February 27, 2023

We have served as the Company's auditor since 2022.

35 | December 31, 2022 Form 10-K

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors Hillman Solutions Corp.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Hillman Solutions Corp.

and subsidiaries (the Company) as of December 25, 2021, the related consolidated statements of comprehensive loss, cash flows, and stockholders’ equity for each of the years in the two‑year period ended December 25, 2021, and the related notes and financial statement schedule II -- Valuation Accounts) (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 25, 2021, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 25, 2021, in conformity with U.S.

generally accepted accounting principles.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill

As discussed in Note 2 to the consolidated financial statements, the goodwill balance as of December 25, 2021 was $825,371 thousand.

The Company performs goodwill impairment testing annually as of October 1st and whenever events or changes in circumstances indicate that the fair value of a reporting unit is less than the carrying value.

With the assistance of a third-party specialist, management assesses the fair value of the reporting units based on a discounted cash flow model and multiples of earnings.

Assumptions critical to the fair value estimates under the discounted cash flow model include the projected revenue growth rates and the discount rates.

We identified the assessment of the fair value of two of the Company’s reporting units within its goodwill impairment analysis as a critical audit matter.

The estimation of fair value of the two reporting units is complex and subject to significant management judgment and estimation uncertainties.

Specifically, evaluating the short-term projected revenue growth rates and the discount rates used to determine the fair value of these reporting units required challenging auditor judgment, as they involved subjective assessments of market, industry and economic conditions

that were sensitive to variation.

We performed sensitivity analyses to determine the significant assumptions used in the goodwill valuation, which required challenging auditor judgment.

Changes to those assumptions could have had a significant effect on the Company’s assessment of the fair value of the two reporting units.

Additionally, the audit effort associated with the discount rates required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design of certain internal controls related to the Company’s goodwill impairment process, including controls related to the short-term projected revenue growth rates and the discount rates.

We compared the Company’s historical revenue forecasts to actual results to assess the Company’s ability to accurately forecast.

We compared short-term projected revenue growth rates used in the valuation model against underlying business strategies and growth plans.

We evaluated the reasonableness of the Company’s forecasted short-term projected revenue growth rates for the two reporting units by comparing the growth assumptions to comparable entities within the industry.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the discount rates used by management for the two reporting units by comparing them to a range of discount rates developed using market information for comparable entities within the industry.

Determination of the accounting acquirer

As discussed in Note 3 to the consolidated financial statements, on July 14, 2021, HMAN Group Holdings, Inc.

(HMAN) and Landcadia Holdings III, Inc.

(Landcadia) consummated a business combination pursuant to a merger agreement (the Merger Agreement), with HMAN becoming a wholly-owned subsidiary of Landcadia, which was renamed Hillman Solutions Corp.

The Company accounted for the transaction as a reverse recapitalization and concluded that HMAN was the accounting acquirer based upon the terms of the Merger Agreement and evaluation of a number of indicative factors.

We identified the evaluation of the Company’s determination of the accounting acquirer as a critical audit matter.

Subjective auditor judgment was required in evaluating the relative importance of the indicative factors, individually and in the aggregate, including the post-combination voting rights, composition of the board of directors and management, the relative size of the entities, the minority voting rights, and the entity initiating the transaction.

A different conclusion would have resulted in a material difference in the accounting for the transaction.

The following are the primary procedures we performed to address this critical audit matter.

We tested the Company’s conclusion regarding the determination of the accounting acquirer by evaluating management’s assessment of the post-combination voting rights, composition of the board of directors and management, the relative size of the entities, the minority voting rights, and the entity initiating the transaction, by comparing them to amended and restated bylaws of the Company, the Merger Agreement, and certain filings with the Securities and Exchange Commission.

We have served as the Company’s auditor since 2021.

We served as the Company’s auditor from 2021 to 2022.

Cincinnati, Ohio

March 16, 2022

36 | December 31, 2022 Form 10-K

HILLMAN SOLUTIONS CORP.

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Accounts payable $ 131,751 $ 186,126

Current portion of debt and capital lease obligations 11,404 11,481

Current portion of debt and finance lease obligations 10,570 11,404

Current portion of operating lease liabilities 12,285 13,088

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The Notes to Consolidated Financial Statements are an integral part of these statements.

37 | December 31, 2022 Form 10-K

HILLMAN SOLUTIONS CORP.

2 unchanged sentences

(dollars in thousands)

December 25, 2021 Year Ended

December 26, 2020 Year Ended December 28, 2019

Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020

Net sales $ 1,486,328 $ 1,425,967 $ 1,368,295

Cost of sales (exclusive of depreciation and amortization shown separately below) 846,551 859,557 781,815

Selling, general and administrative expenses 437,875 398,472 382,131

Selling, warehouse, and general and administrative expenses 480,993 437,875 398,472

Depreciation 57,815 59,400 67,423

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Management fees to related party — 270 577

Other (income) expense ( 2,778 ) ( 5,250 ) 5,525

Other income, net ( 1,119 ) ( 2,778 ) ( 5,250 )

Income from operations 39,893 10,314 65,766

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Loss before income taxes ( 14,667 ) ( 50,116 ) ( 33,938 )

Income tax benefit ( 11,784 ) ( 9,439 ) ( 23,277 )

Income tax expense (benefit) 1,769 ( 11,784 ) ( 9,439 )

Net loss $ ( 16,436 ) $ ( 38,332 ) $ ( 24,499 )

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Net loss from above $ ( 16,436 ) $ ( 38,332 ) $ ( 24,499 )

Other comprehensive income:

Other comprehensive income (loss):

Foreign currency translation adjustments ( 7,615 ) ( 283 ) 2,652

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The Notes to Consolidated Financial Statements are an integral part of these statements.

38 | December 31, 2022 Form 10-K

HILLMAN SOLUTIONS CORP.

2 unchanged sentences

(dollars in thousands)

December 25, 2021 Year Ended

December 26, 2020 Year Ended

Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended

December 26, 2020

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Net loss $ ( 16,436 ) $ ( 38,332 ) $ ( 24,499 )

Adjustments to reconcile net loss to net cash (used for) provided by operating activities:

Adjustments to reconcile net loss to net cash provided by (used for) operating activities:

Depreciation and amortization 120,010 120,730 126,915

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Other accrued liabilities ( 5,150 ) ( 24,131 ) 27,098

Net cash (used for) provided by operating activities ( 110,254 ) 92,080 52,359

Net cash provided by (used for) by operating activities 119,011 ( 110,254 ) 92,080

Cash flows from investing activities:

1 unchanged sentence

Capital expenditures ( 69,589 ) ( 51,552 ) ( 45,274 )

Proceeds from sale of property and equipment — — 10,400

Other investing activities ( 733 ) — —

Net cash (used for) investing activities ( 72,822 ) ( 90,454 ) ( 46,074 )

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Repayment of junior subordinated debentures — ( 108,707 ) —

Principal payments under capitalized lease obligations ( 938 ) ( 836 ) ( 683 )

Principal payments under finance lease obligations ( 1,470 ) ( 938 ) ( 836 )

Proceeds from exercise of stock options 2,609 2,670 7,340

Proceeds from sale of Holdco stock — — 750

Net cash provided by (used for) financing activities 193,329 ( 45,104 ) ( 7,053 )

Other financing activities 1,777 — —

Net cash (used for) provided by financing activities ( 28,722 ) 193,329 ( 45,104 )

Effect of exchange rate changes on cash ( 991 ) 464 645

Net (decrease) increase in cash and cash equivalents ( 6,915 ) 1,547 ( 8,261 )

Net increase (decrease) in cash and cash equivalents 16,476 ( 6,915 ) 1,547

Cash and cash equivalents at beginning of period 14,605 21,520 19,973

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The Notes to Consolidated Financial Statements are an integral part of these statements.

39 | December 31, 2022 Form 10-K

HILLMAN SOLUTIONS CORP.

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(dollars in thousands)

Common Stock Treasury Stock

Shares Amount Shares Amount Additional

Capital Retained Earnings (Accumulated Deficit) Accumulated

Shares Amount Additional

Paid-in Capital Accumulated Deficit Accumulated

Comprehensive

Stockholders'

Loss Total Stockholders'

Balance at December 28, 2019

Retroactive application of recapitalization 88,852,377 4 4,740 4,320 ( 4,324 ) — — —

Balance at December 29, 2018 - Recast 89,399,506 9 — — 549,519 ( 61,871 ) ( 37,590 ) 450,067

89,550 $ 9 $ 553,350 $ ( 147,350 ) $ ( 32,040 ) $ 373,969

Net Loss — — — ( 24,499 ) — ( 24,499 )

Stock-based compensation — — — — 2,981 — — 2,981

Proceeds from exercise of stock options 16,483 — — — 100 — — 100

Proceeds from sale of stock 88,299 — — — 750 — — 750

Vesting of restricted shares 45,327 — — — — — — —

Stock option activity, stock awards and employee stock purchase plan 1,385 — 12,465 — — 12,465

Change in cumulative foreign currency translation adjustment — — — — 2,652 2,652

Balance at December 26, 2020

90,935 $ 9 $ 565,815 $ ( 171,849 ) $ ( 29,388 ) $ 364,587

Net Loss — — — ( 38,332 ) — ( 38,332 )

Stock-based compensation — — — — 5,125 — — 5,125

Proceeds from exercise of stock options 1,208,705 — — — 7,340 — — 7,340

Vesting of restricted shares 176,610 — — — — — — —

Stock option activity, stock awards and employee stock purchase plan 523 — 17,925 — — 17,925

Recapitalization of Landcadia, net of issuance costs and fair value of assets and liabilities acquired 58,672 6 377,959 — — 377,965

Shares issued to PIPE, net of issuance costs 37,500 4 363,297 — — 363,301

Hedging activity — — — — 2,517 2,517

Warrant redemption 6,365 1 62,414 — — 62,415

Change in cumulative foreign currency translation adjustment — — — — ( 283 ) ( 283 )

Balance at December 25, 2021

193,995 $ 20 $ 1,387,410 $ ( 210,181 ) $ ( 27,154 ) $ 1,150,095

Net Loss — — — ( 16,436 ) — ( 16,436 )

Stock-based compensation — 15,255 — — 15,255

Proceeds from exercise of stock options 435,107 — — — 2,670 — — 2,670

Vesting of restricted shares 88,305 — — — — — — —

Recapitalization of Landcadia, net of issuance costs and fair value of of assets and liabilities acquired 58,672,000 6 — — 377,959 — — 377,965

Shares issued to PIPE, net of issuance costs 37,500,000 4 — — 363,297 — — 363,301

Stock option activity, stock awards and employee stock purchase plan 553 — 16,190 — — 16,190

Hedging activity — — — — 13,745 13,745

Warrant redemption 6,364,978 1 — — 62,414 — — 62,415

Change in cumulative foreign currency translation adjustment — — — — ( 7,615 ) ( 7,615 )

Other — — 760 — — 760

Balance at December 31, 2022 194,548 $ 20 $ 1,404,360 $ ( 226,617 ) $ ( 21,024 ) $ 1,156,739

The Notes to Consolidated Financial Statements are an integral part of these statements.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

40 | December 31, 2022 Form 10-K

BASIS OF PRESENTATION

The accompanying financial statements include the consolidated accounts of The Hillman Solutions Corp.

The accompanying financial statements include the consolidated accounts of Hillman Solutions Corp.

and its wholly-owned subsidiaries (collectively “Hillman” or the “Company”).

Unless the context requires otherwise, references to "Hillman," "we," "us," "our," or "our Company" refer to The Hillman Solutions Corp.

Unless the context requires otherwise, references to "Hillman," "we," "us," "our," or "our Company" refer to Hillman Solutions Corp.

and its wholly-owned subsidiaries.

The Consolidated Financial Statements included herein have been prepared in accordance with accounting standards generally accepted in the United States of America ("U.S.

GAAP") and include the accounts of the Company and its wholly-owned subsidiaries.

All significant intercompany balances and transactions have been eliminated.

All intercompany balances and transactions have been eliminated.

References to 2022, 2021, and 2020 are for fiscal years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively.

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The Company has a 52-53 week fiscal year ending on the last Saturday in December.

In a 52 week fiscal year, each of the Company’s quarterly periods will comprise of 13 weeks.

In a 52 week fiscal year, each of the Company’s quarterly periods will consist of 13 weeks.

The additional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks.

The Company’s first 53 week fiscal year will occur in fiscal year 2022.

In the current year, 2022, the Company had its first 53 week fiscal year.

Nature of Operations:

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The Canada segment also produces fasteners, stampings, fittings, and processes threaded parts for automotive suppliers, industrial Original Equipment Manufacturers (“OEMs”), and industrial distributors.

On April 16, 2021, the Company completed the acquisition of Oz Post International, LLC ("OZCO"), a leading manufacturer of superior quality hardware that offers structural fasteners and connectors used for decks, fences and other outdoor structures, for a total purchase price of $ 38,902 .

The Company entered into an amendment ("OZCO Amendment") to the term loan credit agreement dated May 31, 2018 (the "2018 Term Loan"), which provided $ 35,000 of incremental term loan funds to be used to finance the acquisition.

Ozco has business operations in the United States and its financial results reside within our Hardware and Protective Solutions segment.

In the fourth quarter of 2019, the Company implemented a plan to restructure the management and operations of our U.S.

business to achieve synergies and cost savings associated with the recent acquisitions.

The restructuring plan includes management realignment, integration of sales and operations functions, and strategic review of our product offerings.

See Note 17 - Restructuring for more information

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Resharp has existing operations in the United States and its operating results reside within the Company's Robotics and Digital reportable segment.

See Note 6 - Acquisitions for additional information.

41 | December 31, 2022 Form 10-K

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Under that guidance, receivables are considered sold when they are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the receivables, and the Company has surrendered control over the transferred receivables.

The Company has received proceeds from the sales of trade accounts receivable of approximately $ 322,509 and $ 323,715 for the years ended December 25, 2021 and December 26, 2020, respectively, and has included the proceeds in net cash provided by operating activities in the Consolidated Statements of Cash Flows.

Related to the sale of accounts receivable, the Company recorded losses of approximately $ 1,433 and $ 1,782 for the years ended December 25, 2021 and December 26, 2020, respectively.

Inventories :

Inventories consisting predominantly of finished goods are valued at the lower of cost or net realizable value, cost being determined principally on the standard cost method.

The Company has received proceeds from the sales of trade accounts receivable of approximately $ 374,105 , $ 322,509 and $ 323,715 for the years ended December 31, 2022, December 25, 2021 and December 26, 2020, respectively, and has included the proceeds in net cash provided by operating activities in the Consolidated Statements of Cash Flows.

Related to the sale of accounts receivable, the Company recorded losses of approximately $ 4,432 , $ 1,433 and $ 1,782 for the years ended December 31, 2022, December 25, 2021 and December 26, 2020, respectively.

Inventories consisting predominantly of finished goods are valued at the lower of cost or net realizable value, cost being determined principally on the standard cost method, which approximates the first-in-first-out “FIFO” method.

The historical usage rate is the primary factor used in assessing the net realizable value of excess and obsolete inventory.

A reduction in the carrying value of an inventory item from cost to net realizable value is recorded for inventory with excess on-hand quantities as determined based on historic and projected sales, product category, and stage in the product life cycle.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Property and Equipment:

5 unchanged sentences

Once the software is completed and placed into service, such costs are amortized over the estimated useful lives.

When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and the resulting gain or loss is reflected in income (loss) from operations.

42 | December 31, 2022 Form 10-K

Property and equipment, net, consists of the following at December 31, 2022 and December 25, 2021:

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If, after assessing the totality of events or circumstances, the Company determines that the fair value of a reporting unit is less than the carrying value, then the Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The Company’s annual impairment assessment is performed for it's reporting units as of October 1st.

The Company’s annual impairment assessment is performed for its reporting units as of October 1st.

With the assistance of an independent third-party specialist, management assessed the value the of the reporting units based on a discounted cash flow model and multiple of earnings.

Assumptions critical to our fair value estimates under the discounted cash flow model include the discount rate and projected average revenue growth.

Assumptions critical to our fair value estimates under the discounted cash flow model include the discount rate and projected net sales and earnings growth rates.

The results of the quantitative assessment in 2022, 2021, and 2020 indicated that the fair value of each reporting unit was in excess of its carrying value.

Therefore goodwill was not impaired as of our annual testing dates.

No impairment charges were recorded in the years ended December 25, 2021, December 26, 2020, or December 28, 2019.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Goodwill amounts by reportable segment are summarized as follows:

Goodwill at Goodwill at

December 26, 2020 Acquisitions Disposals Other (1)

December 25, 2021 Acquisitions (2)

Disposals Other (1)

December 31, 2022

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(1) The "Other" change to goodwill relates to adjustments resulting from fluctuations in foreign currency exchange rates for the Canada and Mexico reporting units.

(2) The amount relates to the OZCO acquisition, see Note 6 - Acquisitions for additional information.

Intangible Assets:

Intangible assets arise primarily from the determination of their respective fair market values at the date of acquisition.

With the exception of certain trade names, intangible assets are amortized on a straight-line basis over periods ranging from 5 to 20, representing the period over which the Company expects to receive future economic benefits from these assets.

With the exception of certain trade names, intangible assets are amortized on a straight-line basis over periods ranging from 5 to 20 years, representing the period over which the Company expects to receive future economic benefits from these assets.

Other intangibles, net, as of December 31, 2022 and December 25, 2021 consist of the following:

43 | December 31, 2022 Form 10-K

(Years) December 31, 2022 December 25, 2021

9 unchanged sentences

2023 $ 62,244

2023 $ 61,697

2024 $ 61,697

2025 $ 61,217

2026 $ 56,812

Thereafter $ 351,402

The Company also evaluates indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually or more frequently if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount.

With the assistance of an independent third-party specialist, management assessed the fair value of our indefinite-lived intangible assets based on a relief from royalties model.

An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.

An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date as of October 1st.

No impairment charges related to indefinite-lived intangible assets were recorded by the Company in 2022, 2021, or 2020 as a result of the quantitative annual impairment test.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Long-Lived Assets:

Long-lived assets, such as property plant and equipment and definite-lived intangibles assets, are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

Long-lived assets, such as property and equipment and definite-lived intangible assets, are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by the asset or asset group to its carrying value.

1 unchanged sentence

Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary.

No impairment charges were recorded in 2021.

In the year ended December 26, 2020 and December 28, 2019, the Company recorded an impairment charge of $ 210 and $ 7,887 , respectively, related to the loss on the disposal of our FastKey self-service duplicating kiosks and related assets in our Robotics and Digital Solutions operating segment.

All of the aforementioned impairment charges incurred were included within the respective other income/expense on the Consolidated Statements of Comprehensive Loss.

No impairment charges were recorded in 2022 or 2021.

In the year ended December 26, 2020, the Company recorded an impairment charge of $ 210 related to the loss on the disposal of our FastKey self-service duplicating kiosks and related assets in our Robotics and Digital Solutions reportable segment.

The aforementioned impairment charge incurred was included within other income/expense on the Consolidated Statements of Comprehensive Loss.

Approximately 95 % of the Company’s long-lived assets are held within the United States.

5 unchanged sentences

See Note 7 - Income Taxes for additional information.

44 | December 31, 2022 Form 10-K

In accordance with guidance regarding the accounting for uncertainty in income taxes, the Company recognizes a tax position if, based solely on its technical merits, it is more likely than not to be sustained upon examination by the relevant taxing authority.

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Historical group insurance loss experience forms the basis for the recognition of group health insurance reserves.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Retirement Benefits:

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Retirement benefit costs were $ 4,055 , $ 4,218 , and $ 3,343 in the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively .

Warrant Liabilities:

The Company accounts for the warrants in accordance with the guidance contained in ASC 815-40 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities.

Accordingly, the Company classified the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period.

The warrants were fully redeemed in the year ended December 25, 2021, see Note 8 - Warrants for additional information.

45 | December 31, 2022 Form 10-K

Revenue Recognition:

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A portion of the cost of the rebate is allocated to each underlying sales transaction.

Discounts and rebate are included in the determination of net sales.

The Company also establishes reserves for customer returns and allowances.

Discounts and rebates are included in the determination of net sales.

The Company also establishes a reserve for customer returns and allowances.

The reserve is established based on historical rates of returns and allowances.

2 unchanged sentences

The following table disaggregates our revenue by product category:

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue

3 unchanged sentences

Keys and Key Accessories — 193,633 3,344 196,977

Engraving — 58,555 77 58,632

Resharp — 276 — 276

Engraving and Resharp — 56,264 47 56,311

Consolidated $ 1,076,813 $ 249,897 $ 159,618 $ 1,486,328

3 unchanged sentences

Keys and Key Accessories — 190,697 1,826 192,523

Engraving — 51,423 6 51,429

Resharp — 36 — 36

Engraving and Resharp — 58,831 77 58,908

Consolidated $ 1,024,974 $ 249,528 $ 151,465 $ 1,425,967

3 unchanged sentences

Keys and Key Accessories — 157,828 2,878 160,706

Engraving — 50,613 9 50,622

Resharp — 22 — 22

Engraving and Resharp — 51,459 6 51,465

Consolidated $ 1,024,392 $ 209,287 $ 134,616 $ 1,368,295

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

46 | December 31, 2022 Form 10-K

The following table disaggregates our revenue by geographic location:

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Freight and shipping costs and the cost of our in-store merchandising services teams are recognized in selling, general, and administrative expense when control over products is transferred to the customer.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

The Company used the practical expedient regarding the existence of a significant financing component as payments are due in less than one year after delivery of the products.

47 | December 31, 2022 Form 10-K

Shipping and Handling:

The costs incurred to ship product to customers, including freight and handling expenses, are included in selling, general, and administrative (“SG&A”) expenses on the Company's Consolidated Statements of Comprehensive Loss.

The costs incurred to ship product to customers, including freight and handling expenses, are included in selling, warehouse, general, and administrative (“SG&A”) expenses on the Company's Consolidated Statements of Comprehensive Loss.

Shipping and handling costs were $ 59,911 , $ 60,991 , and $ 50,891 in the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively.

Research and Development:

The Company expenses research and development costs consisting primarily of internal wages and benefits in connection with improvements to the Company's fastening product lines along with the key duplicating and engraving machines.

The Company expenses research and development costs, which are included in selling, warehouse, general, and administrative (“SG&A”) expenses on the Company's Consolidated Statements of Comprehensive Loss;

consisting primarily of internal wages and benefits in connection with improvements to the fastening products along with the key duplicating and engraving machines.

The Company's research and development costs were $ 2,349 , $ 2,442 , and $ 2,876 in the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively.

Stock-Based Compensation:

2021 Employee Stock Purchase Plan

Our Employee Stock Purchase Plan ("ESPP") became effective on July 14, 2021, in which 1,140,754 shares of common stock were available for issuance under the ESPP.

Under the ESPP, eligible employees are granted options to purchase shares of common stock at 85% of the fair market value at the time of exercise.

The option period commences on the first payroll date in January, April, July, and October of each year and ends approximately three months later on the last business day in March, June, September or December.

No employee may be granted an option under the Plan if, immediately after the option is granted, the employee would own stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company.

The first option period began on January 1, 2022 and the first purchase was made in April of 2022.

2021 Equity Incentive Plan

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The dividend yield on our common stock is assumed to be zero since we have not historically paid dividends on these awards and have no current plans to do so in the future.

Determining the fair value of stock options at the grant date requires judgment, including estimates for the expected life of the share-based award, stock price volatility, dividend yield, and interest rate.

Determining the fair value of stock options at the grant date requires judgment, including estimates for the expected life of the share-based award,

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stock price volatility, dividend yield, and interest rate.

These assumptions may differ significantly between grant dates because of changes in the actual results of these inputs that occur over time.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

The Company applied assumptions in the determination of the fair value of the common stock underlying the stock-based awards granted.

2 unchanged sentences

• The Company’s financial results and future financial projections;

• The market value of equity interests in substantially similar businesses, which equity interests can be valued through nondiscretionary, objective means;

• The market value of equity interests in substantially similar businesses, which equity interests can be valued through non-discretionary, objective means;

• The lack of marketability of the Company’s common stock;

11 unchanged sentences

The valuation of the Company’s common stock was historically performed at the end of our fiscal year.

The share prices for the years ended December 26, 2020 and December 28, 2019 were $1,647.13 and $1,315.00, respectively.

The increases in the share price year over year reflect the Company’s revenue growth over that time period along with projected future growth in discounted cash flows and with the market inputs.

The share price for the year ended December 26, 2020 was $1,647.13.

Stock-based compensation expense is recognized using a fair value based recognition method.

Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite vesting period or performance period of the award on a straight-line basis.

The stock-based compensation expense is recorded in general and administrative expenses.

The stock-based compensation expense is recorded in selling, warehouse, general and administrative expenses.

The plans are more fully described in Note 13 - Stock-Based Compensation.

11 unchanged sentences

For interest rate swaps, the notional amounts, rates, and maturities of our interest rate swaps are closely matched to the related terms of hedged debt obligations.

The critical terms of the interest rate swap are matched to the critical terms of the underlying hedged item to determine whether the derivatives used for hedging

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

transactions are highly effective in offsetting changes in the cash flows of the underlying hedged item.

If it is determined that a derivative ceases to be a highly effective hedge, the hedge accounting is discontinued and all subsequent derivative gains and losses are recognized in the Statement of Comprehensive Loss.

The critical terms of the interest rate swap are matched to the critical terms of the underlying hedged item to determine whether the derivatives used for hedging transactions are highly effective in offsetting changes in the cash flows of the underlying hedged item.

If it is determined that a derivative ceases to be a highly effective

49 | December 31, 2022 Form 10-K

hedge, the hedge accounting is discontinued and all subsequent derivative gains and losses are recognized in the Statement of Comprehensive Loss.

Derivative instruments designated in hedging relationships that mitigate exposure to the variability in future cash flows of the variable-rate debt and foreign currency exchange rates are considered cash flow hedges.

1 unchanged sentence

If the derivative is designated as a cash flow hedge and the hedging relationship qualifies for hedge accounting, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income or loss.

The change in fair value for instruments not qualifying for hedge accounting are recognized in the Statement of Comprehensive Income or Loss in the period of the change.

The change in fair value for instruments not qualifying for hedge accounting are recognized in the Statement of Comprehensive Loss in the period of the change.

See Note 15 - Derivatives and Hedging for additional information.

2 unchanged sentences

dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period.

Cumulative translation adjustments are recorded as a component of accumulated other comprehensive loss in stockholders' equity.

Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders' equity.

Use of Estimates in the Preparation of Financial Statements:

1 unchanged sentence

Actual results may differ from these estimates.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to:

the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions including interest rates, employment rates and health insurance coverage, the speed of the anticipated recovery, and governmental and business reactions to the pandemic.

The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts COVID-19 as of December 25, 2021 and through the date of this report.

The accounting matters assessed included, but were not limited to the carrying value of the goodwill and other long-lived assets.

In 2020, the pandemic had a significant impact on the Company's business, driving high demand for personal protective equipment, including face masks, disposable gloves, sanitizing wipes, and disinfecting sprays.

During 2020, at the request of our customers, the Company began to sell certain categories of protective and cleaning equipment that are not a part of our core product offerings, including wipes, sprays, masks and bulk boxes of disposable gloves.

High demand and limited supply of these products available for retail sale drove prices and cost up in 2020.

In contrast, in 2021 the pandemic has had less of an impact on the Company's business, economic activity has generally recovered, and consumer access to personal protective equipment has normalized.

By the end of the third quarter of 2021 the Company's product mix has begun to normalize back to near pre-pandemic levels.

In 2021, demand for certain protective products softened as vaccines were rolled out and supply returned to a more normal level.

In the third quarter of 2021, we evaluated our customers' needs and the market conditions and ultimately decided to exit certain protective product categories.

In connection with the exit of these product lines, the Company recorded an inventory valuation charge of $32,026 including the write off of inventory along with costs for donation and disposal of the remaining inventory on hand.

Excluding the inventory valuation charge, there was not a material impact to the Company’s consolidated financial statements as of and for the year ended December 25, 2021, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s Consolidated Financial Statements in future reporting periods.

MERGER AGREEMENT

1 unchanged sentence

Pursuant to the Merger Agreement, at the closing date of the Merger, the outstanding shares of Old Hillman common stock were converted into 91,220,901 shares of New Hillman common stock as calculated pursuant to the Merger Agreement.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

The Merger was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP.

2 unchanged sentences

Accordingly, for accounting purposes, the Merger was treated as the equivalent of New Hillman issuing shares for the net assets of Landcadia, accompanied by a recapitalization.

The net assets of Landcadia was stated at carrying value, with no goodwill or other intangible assets recorded.

The net assets of Landcadia were stated at carrying value.

The historical statements of the combined entity prior to the Merger are presented as those of Old Hillman with the exception of the shares and par value of equity recast to reflect the exchange ratio on the Closing Date, adjusted on a retroactive basis.

9 unchanged sentences

The change in number of shares outstanding as a result of the reverse recapitalization is summarized as follows:

50 | December 31, 2022 Form 10-K

Common shares issued to new Hillman shareholders (5)

9 unchanged sentences

This exchange ratio was applied to Old Hillman's common shares which further impacted common stock held at par value and additional paid in capital as well as the calculation of weighted average shares outstanding and loss per common share.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

The Company issued 50,000,000 shares to the public shareholders and 8,672,000 shares to the SPAC sponsor shareholders at the Closing Date .

RECENT ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842).

Subsequently, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842):

Targeted Improvements and ASU 2018-10, Codification Improvements to Topic 842, Leases.

Effective December 30, 2018, the Company adopted the comprehensive new lease standard issued by the FASB.

The most significant impact was the recognition of right-of-use ("ROU") assets and liabilities for operating and finance leases applicable to lessees.

The Company elected to utilize the transition guidance within the new standard that allowed the Company to carry forward its historical lease classification(s).

Operating and finance ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date.

As the implicit rate is not determinable for most of the Company's leases, management uses the Company's incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

The Company elected to not separate lease and non-lease components for all classes of underlying assets in which it is the lessee and made an accounting policy election to not account for leases within an initial term of 12 months or less on the accompanying Consolidated Balance Sheets.

The expected lease terms include options to extend or terminate the lease when its reasonably certain that the Company will exercise such option.

Lease expense for minimum lease payments is recognized over a straight-line basis over the expected lease term.

As of December 30, 2018, the Company recorded an Operating ROU Asset of $ 72,785 and a Finance ROU Asset of $ 672 within our Consolidated Balance Sheets.

Short-term and long-term operating lease liabilities were recorded as $ 12,040 and $ 63,291 , respectively.

Short-term and long-term finance lease liabilities were determined to be $ 436 and $ 477 , respectively.

The adoption of this guidance did not have an impact on net income.

Refer to Note 8 - Leases for full lease-related disclosures.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts.

This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures.

The Company adopted this ASU in the first quarter of fiscal 2020, and it did not have a material impact on the Company's Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The amendments in this update remove certain exceptions of Topic 740 including:

exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain from other items;

exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;

exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary;

exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

There are also additional areas of guidance in regards to:

franchise and other taxes partially based on income and the interim recognition of enactment of tax laws and rate changes.

The provisions of this ASU are effective for years beginning after December 15, 2020.

The Company adopted this standard during fiscal 2021 and the adoption did not have a material impact on the Company's Consolidated Financial Statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform.

The new guidance provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

2 unchanged sentences

The Company is currently evaluating contract and the optional expedients provided by the new standard.

In January 2021, FASB issued ASU 2021-01, Reference Rate Reform to expand the scope of ASU 2020-04 by allowing an entity to apply the optional expedients, by stating that a change to the interest rate used for margining, discounting or contract price alignment for a derivative is not considered to be a change to the critical terms of the hedging relationship that requires

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

The entity may apply the contract modification relief provided in ASU 2020-04 and continue to account for the derivative in the same manner that existed prior to the changes resulting from reference rate reform or the discounting transition.

The Company is currently evaluating contract and the optional expedients provided by the new standard.

In August 2021, the FASB issues ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946) which amends SEC paragraphs in Topic 205, Topic 942 and Topic 946 from the Codification in response to the issuance of SEC Final Rule Nos.

33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses, and 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.

These edits are predominantly formatting and paragraph references, with new guidance duplicated from SEC requirements on the presentation of financial statements for funds acquired or to be acquired.

In October 28, 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

On October 28, 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends ASC 805 to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

2 unchanged sentences

The amendment is effective on December 15, 2022.

The Company has evaluated the impact provided by the new standard and does not expect it to have a material impact on its financial statements.

On March 28, 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815):

Fair Value Hedging which clarifies the guidance in ASC Topic 815, Derivatives and Hedging on fair value hedge accounting of interest rate risk

51 | December 31, 2022 Form 10-K

for portfolios of financial assets.

The ASU amends the guidance in ASU 2017-12 which established the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible.

ASU 2022-01 renames that method the "portfolio layer'' method.

Under current guidance, the last-of-layer method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets without having to consider prepayment risk or credit risk when measuring those assets.

ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and non-prepayable financial assets.

The amendment is effective for fiscal years beginning after December 15, 2022.

The Company has evaluated the impact provided by the new standard and does not expect it to have a material impact on its financial statements.

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50) to enhance the transparency of supplier finance programs.

The amendments in this update apply to all entities that use supplier finance programs in connection with the purchase of goods and services.

Supplier finance programs include reverse factoring, payables finance, or structured payables arrangements that allow a buyer to offer its suppliers the option for access to payment in advance of an invoice due date.

The amendments in this update require that a buyer in a supplier finance program disclose sufficient information about the program including the program’s nature and activity during the period, changes from period to period, and potential magnitude as well as disclosure of the qualitative and quantitative information about its supplier finance programs.

The amendments in this update are effective for fiscal years beginning after December 15, 2022 and should be applied retrospectively to each period in which a balance sheet is presented.

The amendment on roll forward information is effective for fiscal years beginning after December 15, 2023, which should be applied prospectively.

The Company is currently evaluating the impact provided by the new standard.

RELATED PARTY TRANSACTIONS

The Company has recorded aggregate management fee charges and expenses from CCMP and Oak Hill Funds of $ 270 , $ 577 , and $ 562 for the years ended December 25, 2021, December 26, 2020, and December 28, 2019, respectively.

Subsequent to the Merger, the Company is no longer being charged management fees, Note 3 - Merger Agreement for additional details.

The Company has recorded aggregate management fee charges and expenses from CCMP and Oak Hill Funds of $ 270 and $ 577 for the years ended December 25, 2021 and December 26, 2020, respectively.

Subsequent to the Merger, the Company is no longer being charged management fees, see Note 3 - Merger Agreement for additional details.

Two members of our Board of Directors, Rich Zannino and Joe Scharfenberger, are partners at CCMP.

Another director, Teresa Gendron, is the CFO of Jefferies.

The Company recorded proceeds from the sale of stock to members of management and the Board of Directors for $ 750 during year ended December 28, 2019.

There were no such sales in fiscal 2021 nor fiscal 2020.

Gregory Mann and Gabrielle Mann are employed by Hillman.

Hillman leases an industrial warehouse and office facility from companies under the control of the Manns.

Rental expense for the lease of this facility was $ 351 for the year ended December 25, 2021 and December 26, 2020, and $ 350 for the year ended December 28, 2019.

Rental expense for the lease of this facility was $ 205 for the year ended December 31, 2022 and $ 351 for the years ended December 25, 2021 and December 26, 2020.

The building was sold to a third party in 2022 and is an arms length transaction from the date of sale forward.

At the Closing, Hillman, the Sponsors, CCMP Investors and the Oak Hill Investors entered into the A&R Registration Rights Agreement, pursuant to which, among other things, the parties to the A&R Registration Rights Agreement agreed not to effect any sale or distribution of any equity securities of Hillman held by any of them during the lock-up period described therein and were granted certain registration rights with respect to their respective shares of Hillman common stock, in each case, on the terms and subject to the conditions therein.

Sales to related parties, which are included in net sales, consist primarily of the sale of excess inventory to Ollie's Bargain Outlet Holdings, Inc.

John Swygert, President and Chief Executive Officer of Ollie's, is a member of our Board of Directors.

Sales to related parties were $ 687 for the year ended December 31, 2022.

There were no such sales made throughout 2021 and 2020.

Oz Post International, LLC

2 unchanged sentences

OZCO has business operations throughout North America and its financial results reside in the Company's Hardware and Protective Solutions reportable segment.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

The following table reconciles the fair value of the acquired assets and assumed liabilities to the preliminary total purchase price of OZCO.

The total purchase price is preliminary as the Company is in the process of finalizing certain working capital adjustments.

The following table reconciles the fair value of the acquired assets and assumed liabilities to the total purchase price of OZCO.

52 | December 31, 2022 Form 10-K

Accounts receivable $ 1,341

9 unchanged sentences

Total purchase price $ 39,834

Pro forma financial information has not been presented for OZCO as their associated financial results are insignificant to the financial results of the Company on a standalone basis.

Sharp Systems, LLC

On August 16, 2019, the Company acquired the assets of Sharp Systems, LLC ("Resharp"), a California-based innovative developer of automated knife sharpening systems, for a total purchase price of $ 21,100 , including a contingent consideration provision with an estimated fair value of $ 18,100 , with a maximum payout of $ 25,000 plus 1.8 % of net knife-sharpening revenues for five years after the $ 25,000 is fully paid.

Contingent consideration to be paid subsequent to December 25, 2021 is contingent upon several business performance metrics over a multi-year period.

See Note 16 - Fair Value Measurements for additional information on the contingent consideration payable as of December 25, 2021.

Resharp has existing operations in the United States and its operating results reside within the Company's Robotics and Digital Solutions reportable segment.

The following table reconciles the fair value of the acquired assets and assumed liabilities to the finalized total purchase price of the Resharp acquisition:

Property and equipment $ 218

Goodwill 9,382

Technology 11,500

Total assets acquired $ 21,100

Contingent consideration payable ( 18,100 )

Net cash paid $ 3,000

Pro forma financial information has not been presented for Resharp as their associated financial results are insignificant to the financial results of the Company on a standalone basis.

Pro forma financial information has not been presented for OZCO as their associated financial results are insignificant to the financial results of the Company.

Other Acquisitions

On July 1, 2019, the Company acquired the assets of West Coast Washers, Inc.

for a total purchase price of $ 3,135 .

The financial results of West Coast Washers, Inc.

reside within the Company's Hardware and Protective Solutions reportable

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

segment and have been determined to be immaterial for purposes of additional disclosure.

On February 19, 2020, the Company acquired the assets of Instafob LLC ("Instafob") for a cash payment of $ 800 and a total purchase price of $ 2,618 , which includes $ 1,818 in contingent and non-contingent considerations that remain payable to the seller.

The financial results of Instafob reside within the Company's Robotics and Digital Solutions reportable segment and have been determined to be immaterial for purposes of additional disclosure.

Income Taxes:

On March 7, 2022, the Company completed its acquisition of the Irvine, California-based Monkey Hook, LLC ("Monkey Hook") for a total purchase price of $ 2,800 , which includes $300 in hold-back that remains payable to the seller.

Monkey Hook products are designed to hang artwork on drywall where no stud is present.

Monkey Hook sells its products throughout North America and its financial results reside in the Company's Hardware and Protective Solutions reportable segment and have been determined to be immaterial for purposes of additional disclosure.

Loss before income taxes are comprised of the following components for the periods indicated:

December 25, 2021 Year Ended

Year Ended December 31, 2022 Year Ended

December 25, 2021 Year Ended

3 unchanged sentences

Loss before income taxes $ ( 14,667 ) $ ( 50,116 ) $ ( 33,938 )

Below are the components of the Company's income tax benefit for the periods indicated:

December 25, 2021 Year Ended

53 | December 31, 2022 Form 10-K

Below are the components of the Company's income tax expense (benefit) for the periods indicated:

Year Ended December 31, 2022 Year Ended

December 25, 2021 Year Ended

7 unchanged sentences

Valuation allowance ( 4 ) ( 437 ) ( 1,038 )

Income tax benefit $ ( 11,784 ) $ ( 9,439 ) $ ( 23,277 )

Income tax expense (benefit) $ 1,769 $ ( 11,784 ) $ ( 9,439 )

The Company has U.S.

federal net operating loss (“NOL”) carryforwards totaling $ 79,396 as of December 31, 2022 that are available to offset future taxable income.

These carryforwards expire from 2027 to 2038.

Of the $79,396 of federal carryforwards, $41,470 was generated before January 1, 2018 and expire from 2032 to 2036.

The remaining $37,926 can be carried forward indefinitely but is subject to an 80% taxable income limitation.

A portion of the U.S.

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The MinuteKey NOLs are subject to limitation under IRC §382 from current and prior ownership changes.

In addition, the Company's foreign subsidiaries have NOL carryforwards aggregating $ 23,535 .

A portion of these carryforwards expire from 2035 to 2040.

Management anticipates utilizing all foreign NOLs prior to their expiration.

In addition, the Company's Canadian subsidiary maintains an NOL carryforward of $ 2,507 .

These carryforwards expire from 2039 to 2040.

Management anticipates utilizing all U.S.

federal and foreign NOLs prior to their expiration.

The Company has state NOL carryforwards with an aggregate tax benefit of $ 3,793 which expire from 2022 to 2042.

The Company has maintained a valuation allowance of $ 9 in fiscal 2021 for the state NOLs expected to expire prior to utilization.

The Company maintains a valuation allowance of $ 51 for the state NOLs expected to expire prior to utilization.

The Company has $ 1,055 of general business tax credit carryforwards which expire from 2026 to 2042.

1 unchanged sentence

The Company has $ 769 of foreign tax credit carryforwards which expire from 2022 to 2026.

A full valuation allowance has been established for these credits given insufficient foreign source income projected to utilize these credits.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

A full valuation allowance has been established for these credits given insufficient foreign source income projections.

The table below reflects the significant components of the Company's net deferred tax assets and liabilities at December 31, 2022 and December 25, 2021:

54 | December 31, 2022 Form 10-K

December 31, 2022 December 25, 2021

9 unchanged sentences

Deferred revenue - shipping terms 354 320

Original issue discount amortization — 3,078

Transaction costs 1,701 2,218

Deferred financing fees 867 —

Federal / foreign net operating loss 16,477 31,217

9 unchanged sentences

Lease assets 18,129 21,446

Derivative security value 5,519 —

All other items — 505

10 unchanged sentences

federal and state income taxes and foreign withholding taxes of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States.

It is not practicable to estimate the amount of additional tax that would be payable on the undistributed earnings that are considered permanently reinvested.

Should management decide to repatriate the foreign earnings, the Company would need to adjust the income tax provision in the period the earnings will no longer be indefinitely invested outside the United States.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

55 | December 31, 2022 Form 10-K

Below is a reconciliation of statutory income tax rates to the effective income tax rates for the periods indicated:

December 25, 2021 Year Ended December 26, 2020 Year Ended

Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended

December 26, 2020

5 unchanged sentences

Change in valuation allowance — % 0.9 % 1.6 %

Adjustment for change in tax law 5.4 % — % — %

Permanent differences:

1 unchanged sentence

Decrease in fair value of warrant liability — % 6.2 % — %

Global Intangible Low-Taxed Income ("GILTI") ( 24.4 ) % ( 0.5 ) % — %

Reconciliation of tax provision to return ( 0.2 ) % ( 1.7 ) % 0.6 %

5 unchanged sentences

The following is a summary of the changes for the periods indicated below:

December 25, 2021 Year Ended

Year Ended December 31, 2022 Year Ended

December 25, 2021 Year Ended

6 unchanged sentences

Amount of unrecognized tax benefit that, if recognized would affect the Company's effective tax rate $ 1,101 $ 1,101 $ 1,101

Coronavirus Aid, Relief and Economic Security Act (the "CARES Act")

On March 27, 2020, the CARES Act was signed into law by the President of the United States.

The CARES Act included, among other things, corporate income tax relief in the form of accelerated alternative minimum tax ("AMT") refunds, allowed employers to defer certain payroll tax payments throughout 2020, and provided favorable corporate interest deductions for the 2019 and 2020 periods.

During 2020, the Company received an accelerated AMT income tax refund of $1,147 and was able to defer $7,136 of payroll taxes.

The CARES Act interest modification provisions allowed for increased interest deductions.

The Company files a consolidated income tax return in the U.S.

1 unchanged sentence

The Company is not under any significant audits for the period ended December 31, 2022.

In general, our income tax returns for the years from 2008 through the current year remain open to examination by federal and state taxing authorities.

In addition, our tax years of 2015 through current year remain open and subject to examination by local tax authorities in certain foreign jurisdictions in which we have operations.

Each whole warrant entitles the holder thereof to purchase one share of common stock at an exercise price of $ 11.50 per share and a redemption price of $.10 a share.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Landcadia's initial public offering ("Public Warrants"), and 8,000,000 private placement warrants, which were included in the units issued in the concurrent private placement at the time of Landcadia's initial public offering ("Private Placement Warrants" and, collectively with the Public Warrants, the "Warrants").

The Public and Private Placement Warrants were accounted for as liabilities and are presented as warrant liabilities on the Consolidated Balance Sheets.

As of the date of the merger, as discussed in Note 3 - Merger Agreement, there were 24,666,628 warrants outstanding consisting of 16,666,628 public warrants, which were included in the units issued in Landcadia's initial public offering ("Public Warrants"), and 8,000,000 private placement warrants, which were included in the units issued in the concurrent private placement at the time of Landcadia's initial public offering ("Private Placement Warrants" and, collectively with the Public Warrants, the "Warrants").

The Public and Private Placement Warrants were accounted for as liabilities and are presented as

56 | December 31, 2022 Form 10-K

warrant liabilities on the Consolidated Balance Sheets.

The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within loss on change in fair value of warrant liabilities in the Consolidated Statements of Comprehensive Loss.

20 unchanged sentences

Public and private warrant exercise activity and underlying Common Stock issued or surrendered for the year ended December 25, 2021 is:

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Public Warrants Private Warrants Total

4 unchanged sentences

Ending balance as of December 25, 2021

57 | December 31, 2022 Form 10-K

LONG-TERM DEBT

3 unchanged sentences

Senior Term Loan, due 2028 840,363 851,000

Senior Term Loan, due 2028 851,000 —

6.375 % Senior Notes, due 2022

11.6 % Junior Subordinated Debentures - Preferred

Junior Subordinated Debentures - Common — 3,261

Finance leases & other obligations1 6,406 1,782

$ 918,769 $ 945,782

Unamortized premium on 11.6 % Junior Subordinated Debentures

Unamortized discount on Senior Term Loan ( 5,012 ) ( 5,948 )

Current portion of long term debt and capital leases ( 11,404 ) ( 11,481 )

Current portion of long term debt and finance leases ( 10,570 ) ( 11,404 )

Deferred financing fees ( 18,551 ) ( 21,899 )

Total long term debt, net $ 884,636 $ 906,531

(1) The Company entered into an agreement to finance warehouse fixtures and equipment.

The agreement has an interest rate of 3.94% and will be repaid through August 31, 2027.

Revolving Loans and Term Loans

As of December 31, 2022, the ABL Revolver had an outstanding amount of $ 72,000 and outstanding letters of credit of $ 35,890 .

The Company has $ 124,092 of available borrowings under the revolving credit facility as a source of liquidity as of December 25, 2021.

The Company has $ 197,582 of available borrowings under the revolving credit facility as a source of liquidity as of December 31, 2022 based on the customary asset-backed loan borrowing base and availability provisions.

On July 29, 2022, the Company amended the asset-based revolving credit agreement (the “ABL Revolver") with Barclays Bank PLC, as administrative agent, and the lenders and other parties thereto (the “ABL Credit Agreement”), increasing the aggregate commitments thereunder to $375.0 million and extended the maturity.

Portions of the ABL Agreement are separately available for borrowing by the Company's United States subsidiary and Canadian subsidiary for $325.0 million and $50.0 million, respectively.

The interest rate for the ABL Revolver is, at the discretion of the Company, adjusted SOFR (or a Canadian banker’s acceptance rate in the case of Canadian Dollar loans) plus a margin varying from 1.25% to 1.75% per annum based on availability or an alternate base rate (or a Canadian prime rate or alternate base rate in the case of Canadian Dollar loans), plus a margin varying from 0.25% to 0.75% per annum based on availability, plus a 0.10% credit spread adjustment.

The stated maturity date of the revolving credit commitments under the ABL Credit Agreement is July 29, 2027.

The loans and other amounts outstanding under the ABL Credit Agreement and related documents are guaranteed by Hillman Solutions Corp., a wholly‑owned subsidiary of the Company, and, subject to certain exceptions, the Borrower’s wholly-owned domestic subsidiaries and are secured by substantially all of the Borrower’s and the guarantors’ assets plus, solely in the case of the Canadian Borrower, its and its wholly-owned Canadian subsidiary’s assets, which is guaranteed by the Canadian portion under the ABL Credit Agreement.

On April 16, 2021, the Company acquired Oz Post International, LLC ("OZCO").

1 unchanged sentence

See Note 6 - Acquisitions for additional information regarding the OZCO acquisition.

In connection with the Closing as described in Note 1 - Basis of Presentation, the Company entered into a new credit agreement (the “Term Credit Agreement”), which provided for a new funded term loan facility of $ 835,000 and a delayed draw term loan facility of $ 200,000 (of which $ 16,000 was drawn).

The Company also also entered into an amendment to their existing Asset-Based Revolving Credit Agreement (the “ABL Amendment”) extending the maturity and conformed certain provisions to the Term Credit Agreement.

The aggregate minimum principal maturities of the long-term debt obligations for each of the five years following December 31, 2022 are as follows:

Thereafter 797,812

Total $ 914,140

Note that future finance lease payments were excluded from the maturity schedule above.

Refer to Note 10 - Leases.

58 | December 31, 2022 Form 10-K

2021 Refinancing

In connection with the Closing as described in Note 1 - Basis of Presentation, the Company entered into a new credit agreement (the “Term Credit Agreement”), which provided for a new funded term loan facility of $ 835.0 million and a delayed draw term loan facility of $ 200.0 million (of which $ 16.0 million was drawn).

The Company also entered into an amendment to their existing Asset-Based Revolving Credit Agreement (the “ABL Amendment”) extending the maturity and conformed certain provisions to the Term Credit Agreement.

The proceeds of the funded term loans under the Term Credit Agreement and revolving credit loans under the ABL Credit Agreement were used, together with other available cash, to (1) refinance in full all outstanding term loans and to terminate all outstanding commitments under the credit agreement, dated as of May 31, 2018 ("2018 Term Loan" including the OZCO Amendment), (2) refinance outstanding revolving credit loans, and (3) redeem in full the senior notes due July 15, 2022 (the “ 6.375 % Senior Notes”).

Additionally, the Company fully redeemed the 11.6 % Junior Subordinated Debentures.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

The interest rate on the Term Credit Agreement is, at the discretion of the Company, either the adjusted London Interbank Offered Rate ("LIBOR") rate plus a margin varying from 2.50 % and 2.75 % and per annum or an alternate base rate plus a margin varying from 1.50 % to 1.75 % per annum.

The Term Credit Agreement is payable in installments equal 0.25 % of the original principal amount and delayed draw with a balloon payment due on the maturity date of July 14, 2028.

The interest rate on the Term Credit Agreement is, at the discretion of the Company, either the adjusted London Interbank Offered Rate ("LIBOR") rate plus a margin varying from 2.50 % and 2.75 % per annum or an alternate base rate plus a margin varying from 1.50 % to 1.75 % per annum.

The Term Credit Agreement is payable in installments equal to 0.25 % of the original principal amount and delayed draw with a balloon payment due on the maturity date of July 14, 2028.

The term loans and other amounts outstanding under the Term Credit Agreement are guaranteed by the Company's wholly-owned domestic subsidiaries and are secured by substantially all of the Borrower’s and the Guarantors' assets.

The delayed draw term loan facility under the Term Credit Agreement may be used to finance permitted acquisitions and similar investments and to replenish cash and repay revolving credit loans previously used for permitted acquisitions.

Portions of the ABL Revolver are separately available for borrowing by the Company's United States subsidiary and Canadian subsidiary for $ 200,000 and $ 50,000 , respectively.

The interest rate for the ABL Revolver is, at the discretion of the Company, either adjusted LIBOR (or a Canadian banker’s acceptance rate in the case of Canadian Dollar loans) plus a margin varying from 1.25 % to 1.75 % per annum based on availability or an alternate base rate (or a Canadian prime rate or alternate base rate in the case of Canadian Dollar loans) plus a margin varying from 0.25 % to 0.75 % per annum based on availability.

The stated maturity date of the revolving credit commitments under the ABL Credit Agreement is May 31, 2026.

The loans and other amounts outstanding under the ABL Credit Agreement and related documents are guaranteed by Holdings and, subject to certain exceptions, the Borrower’s wholly-owned domestic subsidiaries and are secured by substantially all of the Borrower’s and the guarantors’ assets plus, solely in the case of the Canadian Borrower, its and its wholly-owned Canadian subsidiary’s assets, which has guaranteed by the Canadian portion under the ABL Credit Agreement.

In connection with the Term Credit Agreement, the Company recorded $ 23,432 in deferred financing fees and $ 6,380 in discount which are recorded as long term debt on the Consolidated Balance Sheet.

In connection with the Term Credit Agreement, the Company recorded $ 23,432 in deferred financing fees and $ 6,380 in discounts which are recorded as long term debt on the Consolidated Balance Sheet.

In connection with the ABL Amendment, the Company recorded $ 3,035 in deferred financing fees which are recorded as other non-current assets on the Consolidated Balance Sheet.

Additionally, the Company recorded a loss (gain) on extinguishment of debt for each debt instrument included in the refinancing as detailed below.

The Company amended it's interest rate swaps in connection with the refinancing, see Note 15 - Derivatives and Hedging for additional details.

The Company amended its interest rate swaps in connection with the refinancing, see Note 15 - Derivatives and Hedging for additional details.

Loss (gain) on extinguishment of debt

5 unchanged sentences

Total $ 8,070

Additional information with respect to the fair value of the Company’s fixed rate Senior Notes and Junior Subordinated Debentures is included in Note 16 - Fair Value Measurements.

The interest rate on the 2018 Term Loan was, at the discretion of the Company, either the adjusted LIBOR rate plus 4.00 % per annum for LIBOR loans or an alternate base rate plus 3.00 % per annum.

1 unchanged sentence

6.375% Senior Notes, due 2022

On June 30, 2014, Hillman Group issued $ 330,000 aggregate principal amount of its senior notes due July 15, 2022 (the “6.375% Senior Notes”), which are guaranteed by The Hillman Solutions Corp.

On June 30, 2014, Hillman Group issued $ 330.0 million aggregate principal amount of its senior notes due July 15, 2022 (the “6.375% Senior Notes”), which are guaranteed by Hillman Solutions Corp.

and its domestic subsidiaries other than the Hillman Group Capital Trust.

Hillman Group pays interest on the 6.375 % Senior Notes semi-annually on January 15 and

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

July 15 of each fiscal year.

Hillman Group pays interest on the 6.375 % Senior Notes semi-annually on January 15 and July 15 of each fiscal year.

The 6.375% senior notes were fully redeemed in 2021 in connection with the refinancing discussed above.

Guaranteed Preferred Beneficial Interest in the Company's Junior Subordinated Debentures

59 | December 31, 2022 Form 10-K

In September 1997, The Hillman Group Capital Trust ("Trust"), a Grantor trust, completed a $ 105,443 underwritten public offering of 4,217,724 Trust Preferred Securities (“TOPrS”).

12 unchanged sentences

The Trust Preferred Securities were fully redeemed in 2021 in connection with the refinancing discussed above.

The aggregate minimum principal maturities of the long-term debt obligations for each of the five years following December 25, 2021 are as follows:

2022 $ 10,638

Thereafter 806,322

Note that future finance lease payments were excluded from the maturity schedule above.

Refer to Note 10 - Leases.

Additional information with respect to the Company's fixed rate Senior Notes and Junior Subordinated Debentures is included in Note 16 - Fair Value Measurements

The Company determines if a contract is or contains a lease at inception or modification of a contract.

3 unchanged sentences

Certain lease arrangements include escalating rent payments and options to extend the lease term.

Expected lease terms include these

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.

Expected lease terms include these options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.

The Company's leasing arrangements do not contain material residual value guarantees nor material restrictive covenants.

The components of operating and finance lease cost for the year ended December 31, 2022 and December 25, 2021 were as follows:

December 25, 2021 Year Ended

Year Ended December 31, 2022 Year Ended

December 25, 2021

6 unchanged sentences

Rent expense is recognized on a straight-line basis over the expected lease term.

Rent expense totaled $ 27,183 , $ 22,491 and $ 24,774 in the year ended December 25, 2021, December 26, 2020 and December 28, 2019, respectively.

Rent expense totaled $ 28,658 , $ 27,183 and $ 22,491 in the years ended December 31, 2022, December 25, 2021 and December 26, 2020, respectively.

Rent expense includes operating lease cost as well as expense for non-lease components such as common area maintenance, real estate taxes, real estate insurance, variable costs related to our leased vehicles and also short-term rental expenses.

The implicit rate is not determinable in most of the Company’s leases, as such management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

The implicit rate is not determinable in most of the Company’s leases, as such management uses the Company’s incremental borrowing rate based on the information available at the commencement date in determining the

60 | December 31, 2022 Form 10-K

present value of future payments.

The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of December 31, 2022 and December 25, 2021:

4 unchanged sentences

Supplemental balance sheet information related to the Company's finance leases as of December 31, 2022 and December 25, 2021:

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

December 31, 2022 December 25, 2021

3 unchanged sentences

Total principal payable on finance leases $ 4,629 $ 1,782

Supplemental cash flow information related to our operating leases was as follows for the year ended December 25, 2021 and December 26, 2020:

December 25, 2021 Year Ended

Supplemental cash flow information related to our operating leases was as follows for the years ended December 31, 2022 and December 25, 2021:

Year Ended December 31, 2022 Year Ended

December 25, 2021

4 unchanged sentences

As of December 31, 2022, our future minimum rental commitments are immaterial for lease agreements beginning after the current reporting period.

Maturities of our lease liabilities for all operating and finance leases are as follows a s of December 25, 2021:

Maturities of our lease liabilities for all operating and finance leases are as follows as of December 31, 2022:

Operating Leases Finance Leases

8 unchanged sentences

Present value of lease liabilities $ 73,641 $ 4,629

Beginning in 2022, the Company will have an additional operating lease for a new property located in Shannon, Georgia for the purposes of office, warehouse, and distribution that had not yet commenced with estimated future minimum rental commitments of approximately $26,721.

In the first quarter of 2023 the Company began an additional operating lease for a new property located in Shannon, Georgia for the purposes of office, warehouse, and distribution.

The estimated future minimum rental commitments are approximately $26,721.

In addition, on February 1, 2023, the Company began a new operating lease for a distribution center located in Belton, Missouri.

The estimated future minimum rental commitments are approximately $13,636.

61 | December 31, 2022 Form 10-K

The Company has certain arrangements for key duplication equipment under which we are the lessor.

4 unchanged sentences

The Company is permitted to make a 25 % matching contribution on deferred amounts up to $ 10 , subject to a five year vesting schedule.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

As of December 31, 2022 and December 25, 2021, the Company's Consolidated Balance Sheets included $ 1,155 and $ 1,686 , respectively, in restricted investments representing the assets held in mutual funds to fund deferred compensation liabilities owed to the Company's current and former employees.

3 unchanged sentences

EQUITY AND ACCUMULATED OTHER COMPREHENSIVE LOSS

The Hillman Solutions Corp.

Hillman Solutions Corp.

has one class of common stock.

Accumulated Other Comprehensive Loss

The following is the detail of the change in the Company's accumulated other comprehensive loss from December 29, 2018 to December 25, 2021 including the effect of significant reclassifications out of accumulated other comprehensive income (net of tax):

Foreign Currency Translation

The following is the detail of the change in the Company's accumulated other comprehensive loss from December 28, 2019 to December 31, 2022 including the effect of significant reclassifications out of accumulated other comprehensive loss (net of tax) :

62 | December 31, 2022 Form 10-K

Accumulated Other Comprehensive Loss

Balance at December 28, 2019 $ ( 32,040 )

11 unchanged sentences

Balance at December 31, 2022 $ ( 21,024 )

In the year ended December 28, 2019, the Company fully liquidated its Luxembourg subsidiary which results resides within the Canada reportable segment.The $ 17 loss was recorded as other income on the Consolidated Statement of Comprehensive Loss.

In the year December 26, 2020, there were no amounts reclassified into other comprehensive income.

1 unchanged sentence

interest payments) on floating-rate debt associated with the Company's new Term Credit Agreement.

Refer to Note 9 - Long-Term Debt for further details.

In accordance with ASC 815, derivatives designated and that qualify as cash flow hedges of interest rate risk record the associated gain or loss within other comprehensive income.

For the year ended December 25, 2021, the Company deferred a gain of $ 2,982 , reclassified a loss of $ 385 and a net of tax of $ 850 into other comprehensive income due to hedging activities.

The amounts reclassified out of other comprehensive income were recorded as interest expense.

For the year ended December 25, 2021, the Company deferred a gain of $2,982, reclassified a loss of $385 and a net of tax of $850 into other comprehensive loss due to hedging activities.

The amounts reclassified out of other comprehensive loss were recorded as interest expense.

See Note 15 - Derivatives and Hedging for additional information on the interest rate swaps.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

For the year ended December 31, 2022, the Company deferred a gain of $ 22,771 , reclassified a gain of $ 4,394 and tax of $ 4,631 into other comprehensive loss due to hedging activities.

The amounts reclassified out of other comprehensive loss were recorded as interest expense.

See Note 15 - Derivatives and Hedging for additional information on the interest rate swaps.

STOCK-BASED COMPENSATION

9 unchanged sentences

For all time based options and performance options granted during 2021 the change in fair value was immaterial and as such no additional compensation cost was recognized.

For the performance options granted prior, the modification of the vesting criteria resulted in $ 11,542 of additional compensation expense, $ 8,228 of which was recognized in the year ended December 25, 2021, the remainder of which will be recognized through Q1 2022.

For the performance options granted prior, the modification of the vesting criteria resulted in $11,482 of additional compensation expense, $ 8,228 of which was recognized in 2021 and $ 3,254 was recognized in the year ended December 31, 2022.

63 | December 31, 2022 Form 10-K

At the Closing, (i) each share of unvested restricted Hillman Holdco common stock was cancelled and converted into the right to receive a number of shares of New Hillman restricted stock equal to the Closing Stock Per Restricted Share Amount (as defined in the Merger Agreement) with substantially the same terms and conditions as were applicable to the related share of Hillman Holdco restricted stock immediately prior to the Closing (including with respect to vesting and termination-related provisions), and (ii) each Hillman Holdco restricted stock unit was assumed by New Hillman and converted into a New Hillman restricted stock unit award with substantially the same terms and conditions as were applicable to such Hillman Holdco restricted stock unit immediately prior to the Closing (including with respect to vesting and termination-related provisions).

8 unchanged sentences

The time-based stock option awards generally vest evenly over four years from the grant date and performance-based options vest based on specified targets such as Company performance and Company stock price hurdles.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

A summary of the stock option activity under the 2014 Equity Inventive Plan for the year ended December 31, 2022 is presented below (share amounts in thousands):

3 unchanged sentences

Remaining Contractual Term

Outstanding at December 26, 2020 12,749 $ 7.66 8.0 years

Granted 2,348

Outstanding at December 25, 2021

13,476 8.15 7.14 years

Exercised ( 182 )

12 unchanged sentences

The total intrinsic value of share options exercised during the years ended 2022, 2021, and 2020 was $ 893 , $ 1,594 , and $ 2,193 , respectively.

Restricted Stock

Restricted Stock Awards

The Company granted restricted stock at the grant date fair value of the underlying common stock securities.

1 unchanged sentence

The associated expense is recognized over the service period.

64 | December 31, 2022 Form 10-K

A summary of the restricted stock activity under the 2014 Equity Incentive Plan for the year ended December 31, 2022 is presented below (share amounts in thousands):

10 unchanged sentences

The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

A summary of the restricted stock unit activity under the 2014 Equity Incentive Plan for the year ended December 31, 2022 is presented below (share amounts in thousands):

3 unchanged sentences

Outstanding at December 25, 2021

Granted 323 $ 10.00

Forfeited or expired ( 111 )

Outstanding at December 31, 2022

Restricted stock compensation expense of $ 661 was recognized in the accompanying Consolidated Statements of Comprehensive Loss for the fiscal year ended December 25, 2021.

Restricted stock compensation expense of $ 357 and $ 661 was recognized in the accompanying Consolidated Statements of Comprehensive Loss for the fiscal year ended December 31, 2022 and December 25, 2021, respectively.

As of December 31, 2022, there was $ 763 of unrecognized compensation expense for unvested common options.

The expense will be recognized as a charge to earnings over a weighted average period of approximately 1.08 years.

2021 Equity Incentive Plan

1 unchanged sentence

Under the 2021 Equity Incentive Plan (the “Plan”), the maximum number of shares of Stock that may be delivered in satisfaction of Awards under the Plan as of the Effective Date is (i) 7,150,814 shares, plus (ii) the number of shares of Stock underlying awards under the 2014 Equity Incentive Plan that on or after the Effective Date expire or become unexercisable, or are forfeited, cancelled or otherwise terminated, in each case, without delivery of shares or cash therefore, and would have become available again for grant under the Prior Plan in accordance with its terms (not to exceed 14,523,510 shares of Stock in the aggregate) (the “Share Pool”).

The following table summarizes the key assumptions used in the valuation model for valuing the Company's stock compensation awards under the 2021 Equity Incentive Plan:

Dividend yield 0 %

Risk free interest rate 1.71 %

Expected volatility 30.00 %

Expected terms 6.25 years

65 | December 31, 2022 Form 10-K

Stock Options

The fair value of stock options is determined at the grant date using the Black-Scholes option pricing model.

A summary of the stock option activity under the 2021 Equity Inventive Plan for the year ended December 31, 2022 is presented below (share amounts in thousands):

Number of Shares Weighted Avg.

Exercise Price per Share

(in whole dollars) Weighted Avg.

Remaining Contractual Term

Outstanding at December 25, 2021

Forfeited or expired ( 30 )

Outstanding at December 31, 2022

751 $ 9.98 9.08 years

Exercisable at December 31, 2022

In fiscal year ended December 31, 2022 and December 25, 2021 no options were exercised.

Stock option compensation expense of $ 543 was recognized in the accompanying Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022.

In December 25, 2021 and December 26, 2020 there was not any stock compensation expense.

As of December 31, 2022, there was $ 1,699 of unrecognized compensation expense for unvested common options.

The expense will be recognized as a charge to earnings over a weighted average period of approximately 3.08 years.

The weighted-average grant-date fair value of share options granted during the years 2022 was $ 3.29 .

Restricted Stock Units

7 unchanged sentences

Granted 1,152

Vested ( 50 )

Forfeited or expired ( 66 )

Outstanding at December 31, 2022

Restricted stock compensation expense of $ 336 was recognized in the accompanying Consolidated Statements of Comprehensive Loss for the fiscal year ended December 25, 2021.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

Restricted stock compensation expense of $ 3,810 and $ 336 was recognized in the accompanying Consolidated Statements of Comprehensive Loss for the fiscal year ended December 31, 2022 and December 25, 2021, respectively.

As of December 31, 2022, there was $ 7,416 of unrecognized compensation expense for unvested common options.

The expense will be recognized as a charge to earnings over a weighted average period of approximately 1.99 years.

2021 Employee Stock Purchase Plan

Our Employee Stock Purchase Plan ("ESPP") became effective on July 14, 2021, in which 1,140,754 shares of common stock were available for issuance under the ESPP.

Under the ESPP, eligible employees are granted options to purchase shares of common stock at 85% of the fair market value at the time of exercise.

No employee may be granted an option under the Plan if, immediately after the option is granted, the employee would own stock possessing five

66 | December 31, 2022 Form 10-K

percent or more of the total combined voting power or value of all classes of stock of the Company.

The first option period began on January 1, 2022 and the first purchase was made in April of 2022.

Compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the vesting period.

As of the December 31, 2022, there was approximately $ 314 of compensation expense related to the ESPP.

EARNINGS PER SHARE

23 unchanged sentences

Net loss per diluted common share $ ( 24,499 ) 89,891 $ ( 0.27 )

Stock options and awards outstanding totaling 3,274,172 , 7,309,703 and 1,886,429 wer e excluded from the computation for the years ended December 28, 2019, December 26, 2020 and December 25, 2021, respectively, as they would have had an antidilutive effect under the treasury stock method.

Warra nts of 10,539,889 were excl uded from the computation for the year ended December 25, 2021 as they would have had an antidilutive effect under the treasury stock method.

Stock options and awards outstanding totaling 5,896 , 1,886 and 7,310 were excluded from the computation for the years ended December 31, 2022, December 25, 2021 and December 26, 2020, respectively, as they would have had an antidilutive effect under the treasury stock method.

Warrants of 10,540 were excluded from the computation for the year ended December 25, 2021 as they would have had an antidilutive effect under the treasury stock method.

DERIVATIVES AND HEDGING

3 unchanged sentences

The Company uses derivative financial instruments to manage its exposures to (1) interest rate fluctuations on its floating rate senior term loan and (2) fluctuations in foreign currency exchange rates.

The Company measures those instruments at fair value

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

and recognizes changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures.

The Company measures those instruments at fair value and recognizes changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures.

67 | December 31, 2022 Form 10-K

The Company does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.

9 unchanged sentences

The 2018 Swap 2 was effectively terminated on July 16, 2021 in connection with the Merger as described in Note 3 - Merger Agreement.

In accordance with ASC 815, the 2018 Swap 2 was not designated as a cash flow hedge and therefore changes in fair value were recorded in other (income) expense on the Company's Statement of Comprehensive Loss.

In accordance with ASC 815, the 2018 Swap 2 was not designated as a cash flow hedge and therefore changes in fair value were recorded in (gain) loss on mark-to-market adjustments on the Company's Statement of Comprehensive Loss.

On July 9, 2021, the Company entered into an interest swap agreement ("2021 Swap 1") for a notional amount of $ 144,000 .

12 unchanged sentences

Within the Company’s consolidated balance sheets, the financing components are carried at amortized cost and the embedded at-market derivatives are carried at fair value.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

68 | December 31, 2022 Form 10-K

The following table summarizes the Company's derivatives financial instruments:

3 unchanged sentences

December 31, 2022

December 25, 2021

Balance Sheet

Location Fair Value Balance Sheet

Location Fair Value

Location Fair Value Fair Value Balance Sheet

Location Fair Value Fair Value

Derivatives designated as hedging instruments:

3 unchanged sentences

Total hedging instruments $ 21,749 $ 3,822 $ — $ ( 2,320 )

Derivatives not designated as hedging instruments:

2018 Swap 1 $ — $ — Other accrued expenses $ ( 709 )

2018 Swap 2 — — Other non-current liabilities ( 3,484 )

Total non-hedging instruments $ — $ — $ ( 4,193 )

During 2022, the Company estimates that an additional $560 will be reclassified as an increase to interest expense/income.

During 2023, the Company estimates that an additional $14,636 will be reclassified as a decrease to interest expense/income.

Additional information with respect to the fair value of derivative instruments is included in Note 16 - Fair Value Measurements.

2 unchanged sentences

The purpose of the Company's foreign currency forward contracts is to manage the Company's exposure to fluctuations in the exchange rate of the Canadian dollar.

The total notional amount of contracts outstanding was C$ 4,464 and C$ 9,652 as of December 25, 2021 and December 26, 2020, respectively.

The total fair value of the foreign currency forward contracts was $ 14 and $ 12 as of December 25, 2021 and December 26, 2020, respectively, and was reported on the accompanying Consolidated Balance Sheets in other current liabilities.

A decrease in other income of $ 331 and $ 557 was recorded in the Consolidated Statement of Comprehensive Loss for the change in fair value during years ended December 25, 2021 and December 26, 2020, respectively.

The total notional amount of contracts outstanding was C$ 2,692 million and C$ 4,464 as of December 31, 2022 and December 25, 2021, respectively.

The total fair value of the foreign currency forward contracts was $ 12 as of December 31, 2022 and $ 14 as of December 25, 2021, respectively, and was reported on the accompanying Consolidated Balance Sheets in other current liabilities.

An increase in other income of $95 and decrease of $ 331 was recorded in the Consolidated Statements of Comprehensive Loss for the change in fair value during years ended December 31, 2022 and December 25, 2021, respectively.

The Company's foreign currency forward contracts did not qualify for hedge accounting treatment because they did not meet the provisions specified in ASC 815.

Accordingly, the gain or loss on these derivatives was recognized in other (income) expense in the Consolidated Statement of Comprehensive Loss.

Accordingly, the gain or loss on these derivatives was recognized in other (income) expense in the Consolidated Statements of Comprehensive Loss.

The Company does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.

3 unchanged sentences

The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The guidance also establishes a fair value

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories.

2 unchanged sentences

Unobservable inputs reflecting the reporting entity's own assumptions.

69 | December 31, 2022 Form 10-K

The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs.

20 unchanged sentences

As of December 31, 2022 and December 25, 2021, the foreign exchange forward contracts were included in other current liabilities on the accompanying Consolidated Balance Sheets.

The contingent consideration represents future potential earn-out payments related to the Resharp acquisition in fiscal 2019 and the Instafob acquisition in the first quarter of 2020.

The contingent consideration represents future potential earn-out payments related to the Resharp acquisition in fiscal 2019 in which the maximum payout for the contingent consideration is $25.0 million plus 1.8% of net knife-sharpening revenues for five years after the $25.0 million is fully paid and the Instafob acquisition in the first quarter of 2020 where payment is based on 5% of the net sales from 2020 through 2022 plus 1% of net sales from 2023 through 2029.

Refer to Note 6 - Acquisitions for additional details.

4 unchanged sentences

As of December 31, 2022, the total contingent consideration for Resharp was recorded as $ 271 within other accrued expenses and $ 9,729 within other non-current liabilities on the accompanying Consolidated Balance Sheets.

As of December 25, 2021, the total contingent consideration for Instafob was recorded as $ 168 within other accrued expenses and $ 1,179 within other non-current liabilities on the accompanying Consolidated Balance

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

As of December 31, 2022, the total contingent consideration for Instafob was recorded as $ 922 within other accrued expenses and $ 141 within other non-current liabilities on the accompanying Consolidated Balance Sheets.

As of December 25, 2021, the total contingent consideration was recorded as $ 477 within other accrued expenses and $ 11,870 within other non-current liabilities on the accompanying Consolidated Balance Sheets.

This amount was moved to accounts payable as of December 25, 2021.

The Company recorded a $ 890 decrease in the Resharp contingent consideration liability as of December 31, 2022 compared to December 25, 2021.

The Company recorded a $ 628 decrease in the Instafob contingent consideration liability as of December 25, 2021 compared to Instafob's acquisition date of February 19, 2020.

The total decrease of $ 1,806 in value was determined by using a simulation model of the Monte Carlo analysis that included updated projections applicable to the liability as of December 25, 2021 compared to the prior valuation period.

The fair value of the Company's fixed rate senior notes and junior subordinated debentures as of December 25, 2021 and December 26, 2020 were determined by utilizing current trading prices obtained from indicative market data.

As a result, the fair value measurement of the Company's senior term loans is considered to be Level 2.

The Company fully redeemed the 6.375% Senior Notes and Junior Subordinated Debentures in the third quarter of 2021.

See Note 9 - Long-Term Debt for additional details.

December 25, 2021 December 26, 2020

Amount Estimated

Fair Value Carrying

Amount Estimated

6.375 % Senior Notes $ — $ — $ 328,333 $ 327,525

Junior Subordinated Debentures — — 123,295 128,022

The Company recorded a $ 238 decrease in the Instafob contingent consideration liability as of December 31, 2022 compared to December 25, 2021.

The total decrease of $ 1,128 in value was determined by using a simulation model of the Monte Carlo analysis that included updated projections applicable to the liability as of December 31, 2022 compared to the prior valuation period and was recorded within other income in the Consolidated Statements of Comprehensive Loss.

70 | December 31, 2022 Form 10-K

Cash, restricted investments, accounts receivable, short-term borrowings and accounts payable are reflected in the Consolidated Financial Statements at book value, which approximates fair value, due to the short-term nature of these instruments.

The carrying amount of the long-term debt under the revolving credit facility approximates the fair value at December 31, 2022 and December 25, 2021, as the interest rate is variable and approximates current market rates.

The Company also believes the carrying amount of the long-term debt under the senior term loan approximates the fair value at December 25, 2021 and December 26, 2020 because, while subject to a minimum LIBOR floor rate, the interest rate approximates current market rates of debt with similar terms and comparable credit risk.

The Company also believes the carrying amount of the long-term debt under the senior term loan approximates the fair value at December 31, 2022 and December 25, 2021 because, while subject to a minimum LIBOR or SOFR floor rate, the interest rate approximates current market rates of debt with similar terms and comparable credit risk.

Additional information with respect to the derivative instruments is included in Note 15 - Derivatives and Hedging.

Additional information with respect to the Company's fixed rate senior notes and junior subordinated debentures is included in Note 9 - Long-Term Debt.

RESTRUCTURING

6 unchanged sentences

Charges incurred in part of the Canada Restructuring Plan included:

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

December 25, 2021 Year Ended

December 26, 2020 Year Ended

December 26, 2020

6 unchanged sentences

Severance 466 707

Exit of certain lines of business (2)

Inventory valuation adjustments — — 535

Gain on disposal of assets — — ( 458 )

Other expense — — 488

Total $ 497 $ 4,830

2 unchanged sentences

The inventory valuation adjustments were included in cost of sales on the Consolidated Statement of Comprehensive Loss.

(2) As part of the restructuring, the Company is exiting a manufacturing business line.

Related charges included adjustments to write inventory down to net realizable value, asset impairment charges, and employee severance, which were included in cost of sales, other income and expense, and SG&A on the Consolidated Statement of Comprehensive Loss, respectively.

The following represents the roll forward of restructuring reserves for the year ended December 31, 2022:

7 unchanged sentences

Balance as of December 31, 2022 $ 157

During the year ended December 25, 2021, the Company paid approximately $ 436 in severance and related expense related to the Canada Restructuring Plan.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

During the year ended December 31, 2022, the Company paid approximately $ 182 in severance related to the Canada Restructuring Plan.

United States Restructuring Plan

71 | December 31, 2022 Form 10-K

During fiscal 2019, the Company implemented a plan to restructure the management and operations within the United States to achieve synergies and cost savings associated with the recent acquisitions described in Note 6 - Acquisitions.

3 unchanged sentences

Charges incurred in part of the United States Restructuring Plan included:

December 25, 2021 Year Ended

December 26, 2020

December 25, 2021 Year Ended December 26, 2020

Management realignment & integration

Severance $ 111 $ 886

Inventory valuation adjustments — —

Facility closures

9 unchanged sentences

Balance as of December 25, 2021 $ —

Restructuring charges 111

Cash paid ( 936 )

Balance as of December 25, 2021 $ —

During the year ended December 25, 2021, the Company paid approximately $ 936 in severance and related expense related to the United States Restructuring Plan.

During the year ended December 31, 2022, the Company did not have severance or related expense related to the United States Restructuring Plan.

COMMITMENTS AND CONTINGENCIES

7 unchanged sentences

As of December 31, 2022, the Company has provided certain vendors and insurers letters of credit aggregating $ 35,890 related to our product purchases and insurance coverage of product liability, workers' compensation, and general liability.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

The Company self-insures our group health claims up to an annual stop loss limit of $ 300 per participant.

3 unchanged sentences

The Company imports large quantities of fastener products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions.

The Company could be subject to the assessment of additional duties and interest if it or its suppliers fail to comply with customs regulations or similar laws.

The Company could be

72 | December 31, 2022 Form 10-K

subject to the assessment of additional duties and interest if it or its suppliers fail to comply with customs regulations or similar laws.

Department of Commerce (the "Department”) has received requests from petitioners to conduct administrative reviews of compliance with anti-dumping duty and countervailing duty laws for certain nails products sourced from Asian countries.

1 unchanged sentence

The Company accrues for the duty expense once it is determined to be probable and the amount can be reasonably estimated.

Hy-Ko Litigation

On June 1, 2021, Hy-Ko Products Company LLC ("Hy-Ko"), a manufacturer of key duplication machines, filed a complaint for, among other things, patent infringement against Hillman Group in the United States District Court for the Eastern District of Texas (Marshall Division).

The case was assigned Civil Action No.

2:21-cv-0197.

Hy-Ko's complaint alleged that Hillman's KeyKrafter and PKOR key duplication machines infringed certain patents, and sought damages and injunctive relief against Hillman Group.

On October 7, 2022, following a jury trial commencing October 3, 2022, the jury rendered a verdict finding that Hillman infringed two Hy-Ko patents, but also found that there was no willfulness in the infringement.

The jury awarded Hy-Ko a one-time lump sum royalty payment of $16.0 million.

Following the verdict, on December 28, 2022, Hillman and Hy-Ko entered into a confidential settlement agreement that finally resolved all claims in the litigation (including those related to the jury verdict) and on January 4, 2023, the Court granted the parties’ joint stipulation dismissing all claims in the litigation with prejudice.

The terms of the settlement agreement include an $18.5 million payment from Hillman to Hy-Ko (in lieu of the $16.0 million jury verdict) and protection from any potential future patent infringement claims between the parties relating to key duplication or key identification through 2032.

KeyMe Litigation

On June 3, 2019, The Hillman Group, Inc.

6 unchanged sentences

On June 14, 2021, Hillman Group and KeyMe entered into a Settlement Agreement which globally resolved all pending legal disputes, including the Texas and Delaware district court actions discussed above.

On June 1, 2021, Hy-Ko Products Company LLC ("Hy-Ko"), a manufacturer of key duplication machines, filed a complaint for patent infringement against Hillman Group in the United States District Court for the Eastern District of Texas (Marshall Division).

The case was assigned Civil Action No.

2:21-cv-0197.

Hy-Ko's complaint alleges that Hillman's KeyKrafter and PKOR key duplication machines infringe U.S.

9,656,332, 9,682,432, 9,687,920, and 10,421,113, which are assigned to Hy-Ko, and seeks damages and injunctive relief against Hillman Group.

Hy-Ko's complaint additionally contains allegations of unfair competition under the Federal Lanham Act and conversion/receipt of stolen property, as well as a cause of action for "replevin" for return of stolen property.

On August 2, 2021, Hy-Ko filed an Amended Complaint which did not deviate substantially from the initial Complaint.

Hillman Group responded on August 16, 2021, by filing a Motion to Dismiss the conversion and replevin claims because they are barred by the statute of limitations.

In its Motion to Dismiss, Hillman Group also requested that the Court strike numerous paragraphs of Hy-Ko's Amended Complaint that, on their face, have nothing to do with Hy-Ko's patent infringement, unfair competition, or conversion and replevin claims.

Hillman Group also requested that the Court order Hy-Ko to provide a more definite statement regarding its unfair competition claim.

Briefing on Hillman's Motion to Dismiss was completed on September 14, 2021.

On January 14, 2022, the Court denied Hillman’s motion.

Hillman filed an answer with counterclaims (for declaratory judgment and for breach of a prior settlement agreement) on February 1, 2022 and Hy-Ko responded to that pleading on February 22, 2022.

The Court held a claim construction hearing on February 17, 2022.

The Court has not yet issued a final claim construction order.

Discovery in the matter is ongoing, and the discovery deadline is July 6, 2022.

Trial has been set for October 3, 2022.

Management and legal counsel for Hillman Group are still investigating this recent suit but are initially of the opinion that Hy-Ko's claims are without merit and Hillman Group intends to vigorously defend the claims.

Hillman Group is unable to estimate the possible loss or range of loss at this early stage in the case.

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

In addition to the matters described above, we are involved in litigation arising in the normal course of business.

In management’s opinion, any such litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

STATEMENT OF CASH FLOWS

Supplemental disclosures of cash flows information are presented below:

December 25, 2021 Year Ended

Year Ended December 31, 2022 Year Ended

December 25, 2021 Year Ended

4 unchanged sentences

Income taxes, net of refunds 2,993 2,500 ( 301 )

The Company fully repaid the junior subordinated debentures in connection with the Merger in 2021.

See Note 9 - Long-Term Debt for additional details.

73 | December 31, 2022 Form 10-K

CONCENTRATION OF CREDIT RISKS

1 unchanged sentence

The Company places its cash and cash equivalents with high credit quality financial institutions.

Concentrations of credit risk with respect to sales and trade receivables are limited due to the large number of customers comprising the Company's customer base and their dispersion across geographic areas.

Concentrations of credit risk with respect to sales and trade receivables are limited due to the large number of customers, with the exception of the two below customers, comprising the Company's customer base and their dispersion across geographic areas.

The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral.

3 unchanged sentences

In each of the years ended December 31, 2022, December 25, 2021, and December 26, 2020, the Company derived over 10% of its total revenues from two separate customers which operated in each of the operating segments.

The following table presents revenue from each customer as percentage of total revenue for each of the years ended:

The following table presents revenue from each customer as a percentage of total revenue for each of the years ended:

Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020

9 unchanged sentences

The Robotics and Digital Solutions segment consists of key duplication and engraving kiosks that can be operated directly by the consumer.

The kiosks operate in retail and other high-traffic locations offering customized licensed and unlicensed products

HILLMAN SOLUTIONS CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

targeted to consumers in the respective locations.

The kiosks operate in retail and other high-traffic locations offering customized licensed and unlicensed products targeted to consumers in the respective locations.

It also includes our associate-assisted key duplication systems and key accessories.

3 unchanged sentences

The Company uses profit or loss from operations to evaluate the performance of its segments, and does not include segment assets or non-operating income/expense items for management reporting purposes.

Profit or loss from operations is defined as income from operations before interest and tax expenses.

Profit or loss

74 | December 31, 2022 Form 10-K

from operations is defined as income from operations before interest and tax expenses.

Segment revenue excludes sales between segments, which is consistent with the segment revenue information provided to the Company's Chief Operating Decision Maker ("CODM").

The table below presents revenues and income (loss) from operations for the reportable segments for the years ended December 31, 2022, December 25, 2021, and December 26, 2020.

December 25, 2021 Year Ended

Year Ended December 31, 2022

December 25, 2021 Year Ended December 26, 2020

3 unchanged sentences

Total revenues $ 1,486,328 $ 1,425,967 $ 1,368,295

Segment Income (Loss) from Operations

Segment Income from Operations

Hardware and Protective Solutions $ 20,884 $ ( 17,185 ) $ 67,313

2 unchanged sentences

Total segment income from operations $ 39,893 $ 10,314 $ 65,766

75 | December 31, 2022 Form 10-K

Financial Statement Schedule:

7 unchanged sentences

Deductions due to:

Others ( 874 )

Ending Balance - December 26, 2020 2,395

7 unchanged sentences

Ending Balance - December 31, 2022 $ 2,405

76 | December 31, 2022 Form 10-K

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data