Hillman Solutions Corp. 10-K

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Report of Management on Internal Control Over Financial Reporting 33 Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP 34 Report of Independent Registered Public Accounting Firm - KPMG LLP 36 Consolidated Financial Statements: Consolidated Balance Sheets 37 Consolidated Statements of Comprehensive Loss 38 Consolidated Statements of Cash Flows 39 Consolidated Statements of Stockholders' Equity 40 Notes to Consolidated Financial Statements 41 Financial Statement Schedule: Valuation Accounts 76 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 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 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 Hillman Solutions Corp. and its consolidated subsidiaries that could have a material effect on the consolidated financial statements. Our management, with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, the end of our fiscal year. Management based its assessment on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed under the direction of management. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation. 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 Hillman Solutions Corp. /s/ DOUGLAS J. CAHILL /s/ ROBERT O. KRAFT Douglas J. Cahill Robert O. Kraft President and Chief Executive Officer Chief Financial Officer Dated: February 27, 2023 Dated: February 27, 2023 33 | December 31, 2022 Form 10-K REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 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. The 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits 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 consolidated financial statements are free of material misstatement, whether due to error or fraud. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP 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. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 31, 2022 December 25, 2021 ASSETS Current assets: Cash and cash equivalents $ 31,081 $ 14,605 Accounts receivable, net of allowances of $ 2,405 ($ 2,891 - 2021) 86,985 107,212 Inventories, net 489,326 533,530 Other current assets 24,227 12,962 Total current assets 631,619 668,309 Property and equipment, net of accumulated depreciation of $ 333,452 ($ 284,069 - 2021) 190,258 174,312 Goodwill 823,812 825,371 Other intangibles, net of accumulated amortization of $ 414,275 ($ 352,695 - 2021) 734,460 794,700 Operating lease right of use assets 66,955 82,269 Deferred tax asset — 1,323 Other assets 23,586 16,638 Total assets $ 2,470,690 $ 2,562,922 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 131,751 $ 186,126 Current portion of debt and finance lease obligations 10,570 11,404 Current portion of operating lease liabilities 12,285 13,088 Accrued expenses: Salaries and wages 15,709 8,606 Pricing allowances 9,246 10,672 Income and other taxes 5,300 4,829 Interest 697 1,519 Other accrued expenses 29,854 41,052 Total current liabilities 215,412 277,296 Long-term debt 884,636 906,531 Deferred tax liabilities 140,091 137,764 Operating lease liabilities 61,356 74,476 Other non-current liabilities 12,456 16,760 Total liabilities 1,313,951 1,412,827 Commitments and Contingencies (Note 18) — — Stockholders' equity: Common stock, $ 0.0001 par, 500,000,000 shares authorized, 194,548,411 issued and outstanding at December 31, 2022 and 194,083,625 issued and 193,995,320 outstanding at December 25, 2021 20 20 Additional paid-in capital 1,404,360 1,387,410 Accumulated deficit ( 226,617 ) ( 210,181 ) Accumulated other comprehensive loss ( 21,024 ) ( 27,154 ) Total stockholders' equity 1,156,739 1,150,095 Total liabilities and stockholders' equity $ 2,470,690 $ 2,562,922 The Notes to Consolidated Financial Statements are an integral part of these statements. 37 | December 31, 2022 Form 10-K HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (dollars in thousands) 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, warehouse, and general and administrative expenses 480,993 437,875 398,472 Depreciation 57,815 59,400 67,423 Amortization 62,195 61,329 59,492 Management fees to related party — 270 577 Other income, net ( 1,119 ) ( 2,778 ) ( 5,250 ) Income from operations 39,893 10,314 65,766 Gain on change in fair value of warrant liability — ( 14,734 ) — Interest expense, net 54,560 61,237 86,774 Interest expense on junior subordinated debentures — 7,775 12,707 Investment income on trust common securities — ( 233 ) ( 378 ) Loss (income) on mark-to-market adjustment of interest rate swap — ( 1,685 ) 601 Refinancing costs — 8,070 — Loss before income taxes ( 14,667 ) ( 50,116 ) ( 33,938 ) Income tax expense (benefit) 1,769 ( 11,784 ) ( 9,439 ) Net loss $ ( 16,436 ) $ ( 38,332 ) $ ( 24,499 ) Basic and diluted loss per share $ ( 0.08 ) $ ( 0.28 ) $ ( 0.27 ) Weighted average basic and diluted shares outstanding 194,249 134,699 89,891 Net loss from above $ ( 16,436 ) $ ( 38,332 ) $ ( 24,499 ) Other comprehensive income (loss): Foreign currency translation adjustments ( 7,615 ) ( 283 ) 2,652 Hedging activity 13,745 2,517 — Total other comprehensive income 6,130 2,234 2,652 Comprehensive loss $ ( 10,306 ) $ ( 36,098 ) $ ( 21,847 ) The Notes to Consolidated Financial Statements are an integral part of these statements. 38 | December 31, 2022 Form 10-K HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020 Cash flows from operating activities: Net loss $ ( 16,436 ) $ ( 38,332 ) $ ( 24,499 ) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 120,010 120,730 126,915 Loss (gain) on dispositions of property and equipment ( 26 ) 221 161 Impairment of long lived assets — — 210 Deferred income taxes ( 873 ) ( 21,846 ) ( 9,462 ) Deferred financing and original issue discount amortization 3,582 4,336 3,722 Loss on debt restructuring, net of third party fees paid — ( 8,372 ) — Stock-based compensation expense 13,524 15,255 5,125 Change in fair value of warrant liabilities — ( 14,734 ) — Change in fair value of contingent consideration ( 1,128 ) ( 1,806 ) ( 3,515 ) Other non-cash interest and change in value of interest rate swap — ( 1,685 ) 601 Changes in operating items: Accounts receivable 19,889 15,148 ( 32,417 ) Inventories 38,813 ( 137,849 ) ( 67,147 ) Other assets 566 3,064 ( 10,743 ) Accounts payable ( 53,760 ) ( 20,253 ) 76,031 Other accrued liabilities ( 5,150 ) ( 24,131 ) 27,098 Net cash provided by (used for) by operating activities 119,011 ( 110,254 ) 92,080 Cash flows from investing activities: Acquisitions of businesses, net of cash acquired ( 2,500 ) ( 38,902 ) ( 800 ) Capital expenditures ( 69,589 ) ( 51,552 ) ( 45,274 ) Other investing activities ( 733 ) — — Net cash (used for) investing activities ( 72,822 ) ( 90,454 ) ( 46,074 ) Cash flows from financing activities: Borrowings on senior term loans, net of discount — 883,872 — Repayments of senior term loans ( 10,638 ) ( 1,072,042 ) ( 10,608 ) Borrowings of revolving credit loans 244,000 322,000 99,000 Repayments of revolving credit loans ( 265,000 ) ( 301,000 ) ( 140,000 ) Repayments of senior notes — ( 330,000 ) — Financing fees — ( 20,988 ) — Proceeds from recapitalization of Landcadia, net of transaction costs — 455,161 — Proceeds from sale of common stock in PIPE, net of issuance costs — 363,301 — Repayment of junior subordinated debentures — ( 108,707 ) — Principal payments under finance lease obligations ( 1,470 ) ( 938 ) ( 836 ) Proceeds from exercise of stock options 2,609 2,670 7,340 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 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 Cash and cash equivalents at end of period $ 31,081 $ 14,605 $ 21,520 The Notes to Consolidated Financial Statements are an integral part of these statements. 39 | December 31, 2022 Form 10-K HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands) Common Stock Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders' Equity Balance at December 28, 2019 89,550 $ 9 $ 553,350 $ ( 147,350 ) $ ( 32,040 ) $ 373,969 Net Loss — — — ( 24,499 ) — ( 24,499 ) 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 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 option activity, stock awards and employee stock purchase plan 553 — 16,190 — — 16,190 Hedging activity — — — — 13,745 13,745 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. 40 | December 31, 2022 Form 10-K 1. BASIS OF PRESENTATION 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 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"). 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. On July 14, 2021, privately held HMAN Group Holdings Inc. ("Old Hillman"), and Landcadia Holdings III, Inc. (“Landcadia” and after the Business Combination described herein, “New Hillman”), a special purpose acquisition company ("SPAC") consummated the previously announced business combination (the “Closing”) pursuant to the terms of the Agreement and Plan of Merger, dated as of January 24, 2021 (as amended on March 12, 2021, the "Merger Agreement”) by and among Landcadia, Helios Sun Merger Sub, a wholly-owned subsidiary of Landcadia (“Merger Sub”), HMAN Group Holdings Inc., a Delaware corporation (“Hillman Holdco”) and CCMP Sellers’ Representative, LLC, a Delaware Limited Liability Company in its capacity as the Stockholder Representative thereunder (the “Stockholder Representative”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Hillman Holdco with Hillman Holdco surviving the merger as a wholly owned subsidiary of New Hillman, which was renamed “Hillman Solutions Corp.” (the “Merger” and together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). Unless the context indicates otherwise, the discussion of the Company and its financial condition and results of operations is with respect to New Hillman following the closing date and Old Hillman prior to the closing date. See Note 3 - Merger Agreement for more information. In connection with the closing of the Business Combination on July 14, 2021, Landcadia changed its name from “Landcadia Holdings III, Inc." to “Hillman Solutions Corp.” and the Company’s common stock and warrants began trading on The Nasdaq Stock Market under the trading symbols “HLMN” and “HLMNW”, respectively. 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 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. In the current year, 2022, the Company had its first 53 week fiscal year. Nature of Operations: The Company is comprised of three separate operating business segments: (1) Hardware and Protective Solutions, (2) Robotics and Digital Solutions, and (3) Canada. Hillman provides and, on a limited basis, produces products such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; personal protective equipment such as gloves and eye-wear; builder's hardware; and identification items, such as tags and letters, numbers, and signs, to retail outlets, primarily hardware stores, home centers and mass merchants, pet supply stores, grocery stores, and drug stores. The Canada segment also produces fasteners, stampings, fittings, and processes threaded parts for automotive suppliers, industrial Original Equipment Manufacturers (“OEMs”), and industrial distributors. 41 | December 31, 2022 Form 10-K 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents: Cash and cash equivalents consist of commercial paper, U.S. Treasury obligations, and other liquid securities purchased with initial maturities less than 90 days and are stated at cost which approximates fair value. The Company has foreign bank balances of approximately $ 23,876 and $ 8,219 at December 31, 2022 and December 25, 2021, respectively. The Company maintains cash and cash equivalent balances with financial institutions that exceed federally insured limits. The Company has not experienced any losses related to these balances. Management believes it's credit risk is minimal. Restricted Investments: The Company's restricted investments are trading securities carried at fair market value which represent assets held in a Rabbi Trust to fund deferred compensation liabilities owed to the Company's employees. The current portion of the investments is included in other current assets and the long term portion in other assets on the accompanying Consolidated Balance Sheets. See Note 11 - Deferred Compensation Plan for additional information. Accounts Receivable and Allowance for Doubtful Accounts: The Company establishes the allowance for doubtful accounts by considering historical losses, adjusted to take into account current market conditions. The estimates for calculating the aggregate reserve are based on the financial condition of the customers, the length of time receivables are past due, historical collection experience, current economic trends, and reasonably supported forecasts. Increases to the allowance for doubtful accounts result in a corresponding expense. The Company writes off individual accounts receivable when collection becomes improbable. The allowance for doubtful accounts was $ 2,405 and $ 2,891 as of December 31, 2022 and December 25, 2021, respectively. In the years ended December 31, 2022 and December 25, 2021, the Company entered into agreements to sell, on an ongoing basis and without recourse, certain trade accounts receivable. The buyer is responsible for servicing the receivables. The sale of the receivables is accounted for in accordance with Financial Accounting Standards Board (“FASB”) ASC 860, Transfers and Servicing. 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 $ 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: 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. Property and Equipment: Property and equipment are carried at cost and include expenditures for new facilities and major renewals. For financial accounting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets, generally 3 to 15 years. Assets acquired under finance leases are depreciated over the terms of the related leases. Maintenance and repairs are charged to expense as incurred. The Company capitalizes certain costs that are directly associated with the development of internally developed software, representing the historical cost of these assets. 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 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: Estimated Useful Life (Years) 2022 2021 Leasehold improvements life of lease 17,445 11,773 Machinery and equipment 3 - 10 416,512 366,198 Computer equipment and software 3 - 5 68,410 64,648 Furniture and fixtures 6 - 8 7,888 5,390 Construction in process 13,455 10,372 Property and equipment, gross 523,710 458,381 Less: Accumulated depreciation 333,452 284,069 Property and equipment, net $ 190,258 $ 174,312 Goodwill: The Company has adopted ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. 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 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 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. Goodwill amounts by reportable segment are summarized as follows: Goodwill at Goodwill at December 25, 2021 Acquisitions (2) Disposals Other (1) December 31, 2022 Hardware and Protective Solutions $ 574,698 $ ( 158 ) $ — $ 204 $ 574,744 Robotics and Digital Solutions 220,936 — — — 220,936 Canada 29,737 — — ( 1,605 ) 28,132 Total $ 825,371 $ ( 158 ) $ — $ ( 1,401 ) $ 823,812 (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 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 Useful Life (Years) December 31, 2022 December 25, 2021 Customer relationships 13 - 20 $ 963,622 $ 965,054 Trademarks - indefinite Indefinite 85,275 85,591 Trademarks - other 7 - 15 31,387 29,000 Technology and patents 5 - 12 68,451 67,750 Intangible assets, gross 1,148,735 1,147,395 Less: Accumulated amortization 414,275 352,695 Intangible assets, net $ 734,460 $ 794,700 Estimated annual amortization expense for intangible assets subject to amortization at December 31, 2022 for the next five fiscal years is as follows: Fiscal Year Ended Amortization Expense 2023 $ 62,244 2024 62,225 2025 61,469 2026 57,065 2027 54,317 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 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. Long-Lived Assets: 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. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. 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 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. Income Taxes: Deferred income taxes are computed using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Valuation allowances are provided for tax benefits where management estimates it is more likely than not that certain tax benefits will not be realized. Adjustments to valuation allowances are recorded for changes in utilization of the tax-related item. 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. If a tax position does not meet the more likely than not recognition threshold, the Company does not recognize the benefit of that position in its Consolidated Financial Statements. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to be recognized in the Consolidated Financial Statements. Interest and penalties related to income taxes are included in (benefit) provision for income taxes. Contingent Consideration: Contingent consideration relates to the potential payment for an acquisition that is contingent upon the achievement of the acquired business meeting certain product development milestones and/or certain financial performance milestones. The Company records contingent consideration at fair value at the date of acquisition based on the consideration expected to be transferred. The estimated fair value of the contingent consideration was determined using a Monte Carlo analysis examining the frequency and mean value of the resulting payments. The resulting value captures the risk associated with the form of the payout structure. The risk neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk. The assumptions utilized in the calculation based on financial performance milestones include projected revenue and/or EBITDA amounts, volatility and discount rates. For potential payments related to product development milestones, we estimated the fair value based on the probability of achievement of such milestones. The assumptions utilized in the calculation of the acquisition date fair value include probability of success and the discount rates. Contingent consideration involves certain assumptions requiring significant judgment and actual results may differ from assumed and estimated amounts. Risk Insurance Reserves: The Company self-insures our general liability including products liability, automotive liability, and workers' compensation losses up to $500 per occurrence. Our policy is to estimate reserves based upon a number of factors, including known claims, estimated incurred but not reported claims, and third-party actuarial analysis. The third-party actuarial analysis is based on historical information along with certain assumptions about future events. These reserves are classified as other current and other long-term liabilities within the balance sheets. The Company self-insures our group health claims up to an annual stop loss limit of $ 300 per participant. Historical group insurance loss experience forms the basis for the recognition of group health insurance reserves. Retirement Benefits: Certain employees of the Company are covered under a profit-sharing and retirement savings plan. The plan provides for a matching contribution for eligible employees of 50 % of each dollar contributed by the employee up to 6 % of the employee's compensation. In addition, the plan provides an annual contribution in amounts authorized by the Board of Directors, subject to the terms and conditions of the plan. Hillman Canada sponsors a Deferred Profit Sharing Plan (“DPSP”) and a Group Registered Retirement Savings Plan (“RRSP”) for all qualified, full-time employees, with at least three months of continuous service. DPSP is an employer-sponsored profit sharing plan registered as a trust with the Canada Revenue Agency (“CRA”). Employees do not contribute to the DPSP. There is no minimum required contribution; however, DPSPs are subject to maximum contribution limits set by the CRA. The DPSP is offered in conjunction with a RRSP. All eligible employees may contribute an additional voluntary amount of up to eight percent of the employee's gross earnings. Hillman Canada is required to match 100 % of all employee contributions up to 2 % of the employee's compensation into the DPSP account. The assets of the RRSP are held separately from those of Hillman Canada in independently administered funds. 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 . 45 | December 31, 2022 Form 10-K Revenue Recognition: Revenue is recognized when control of goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company offers a variety of sales incentives to its customers primarily in the form of discounts and rebates. Discounts are recognized in the Consolidated Financial Statements at the date of the related sale. Rebates are based on the revenue to date and the contractual rebate percentage to be paid. A portion of the cost of the rebate is allocated to each underlying sales transaction. 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. The reserve is adjusted quarterly based on actual experience. Discounts and allowances are included in the determination of net sales. The following table disaggregates our revenue by product category: Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue Year Ended December 31, 2022 Fastening and Hardware $ 834,493 $ — $ 155,066 $ 989,559 Personal Protective 242,320 — 1,161 243,481 Keys and Key Accessories — 193,633 3,344 196,977 Engraving and Resharp — 56,264 47 56,311 Consolidated $ 1,076,813 $ 249,897 $ 159,618 $ 1,486,328 Year Ended December 25, 2021 Fastening and Hardware $ 740,088 $ — $ 149,165 $ 889,253 Personal Protective 284,886 — 397 285,283 Keys and Key Accessories — 190,697 1,826 192,523 Engraving and Resharp — 58,831 77 58,908 Consolidated $ 1,024,974 $ 249,528 $ 151,465 $ 1,425,967 Year Ended December 26, 2020 Fastening and Hardware $ 706,865 $ — $ 131,493 $ 838,358 Personal Protective 317,527 — 239 317,766 Keys and Key Accessories — 157,828 2,878 160,706 Engraving and Resharp — 51,459 6 51,465 Consolidated $ 1,024,392 $ 209,287 $ 134,616 $ 1,368,295 46 | December 31, 2022 Form 10-K The following table disaggregates our revenue by geographic location: Hardware and Protective Solutions Robotics and Digital Solutions Canada Total Revenue Year Ended December 31, 2022 United States $ 1,055,145 $ 245,634 $ — $ 1,300,779 Canada 7,765 4,263 159,618 171,646 Mexico 13,903 — — 13,903 Consolidated $ 1,076,813 $ 249,897 $ 159,618 $ 1,486,328 Year Ended December 25, 2021 United States $ 1,004,803 $ 246,494 $ — $ 1,251,297 Canada 7,326 3,034 151,465 161,825 Mexico 12,845 — — 12,845 Consolidated $ 1,024,974 $ 249,528 $ 151,465 $ 1,425,967 Year Ended December 26, 2020 United States $ 1,007,135 $ 207,283 $ — $ 1,214,418 Canada 7,789 2,004 134,616 144,409 Mexico 9,468 — — 9,468 Consolidated $ 1,024,392 $ 209,287 $ 134,616 $ 1,368,295 Our revenue by geography is allocated based on the location of our sales operations. Our Hardware and Protective Solutions segment contains sales of Big Time personal protective equipment into Canada. Our Robotics and Digital Solutions segment contains sales of MinuteKey Canada. Hardware and Protective Solutions revenues consist primarily of the delivery of fasteners, anchors, specialty fastening products, and personal protective equipment such as gloves and eye-wear as well as in-store merchandising services for the related product category. Robotics and Digital Solutions revenues consist primarily of sales of keys and identification tags through self-service key duplication and engraving kiosks. It also includes our associate-assisted key duplication systems and key accessories. Canada revenues consist primarily of the delivery to Canadian customers of fasteners and related hardware items, threaded rod, keys, key duplicating systems, accessories, personal protective equipment, and identification items as well as in-store merchandising services for the related product category. The Company’s performance obligations under its arrangements with customers are providing products, in-store merchandising services, and access to key duplicating and engraving equipment. Generally, the price of the merchandising services and the access to the key duplicating and engraving equipment is included in the price of the related products. Control of products is transferred at the point in time when the customer accepts the goods, which occurs upon delivery of the products. Judgment is required in determining the time at which to recognize revenue for the in-store services and the access to key duplicating and engraving equipment. Revenue is recognized for in-store service and access to key duplicating and engraving equipment as the related products are delivered, which approximates a time-based recognition pattern. Therefore, the entire amount of consideration related to the sale of products, in-store merchandising services, and access to key duplicating and engraving equipment is recognized upon the delivery of the products. The costs to obtain a contract are insignificant, and generally contract terms do not extend beyond one year. Therefore, these costs are expensed as incurred. 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. 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, 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, 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 Effective July 14, 2021, in connection with the Merger, the Company established the 2021 Equity Incentive Plan. Under the 2021 Equity Incentive Plan, the Company may grant options, stock appreciation rights, restricted stock, and other stock-based awards. Hillman reflects the options granted in accordance with Accounting Standards Codification 718, Compensation - Stock Compensation ("ASC 718"). The Company uses a Black-Scholes option pricing model to determine the fair value of stock options on the dates of grant. The Black-Scholes pricing model requires various assumptions, including expected term, which is based on our historical experience and expected volatility which is estimated based on the average historical volatility of similar entities with publicly traded shares. The Company also makes assumptions regarding the risk-free interest rate and the expected dividend yield. The risk-free interest rate is based on the U.S. Treasury interest rate whose term is consistent with the expected term of the share-based award. The dividend yield on our common stock is assumed to be zero since we do not pay dividends 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. These assumptions may differ significantly between grant dates because of changes in the actual results of these inputs that occur over time. HMAN Group Holdings Inc. 2014 Equity Incentive Plan Prior to the Merger, the Company had a stock-based employee compensation plan pursuant to which the Company granted options, stock appreciation rights, restricted stock, and other stock-based awards. Hillman reflects the options granted in its stand-alone Consolidated Financial Statements in accordance with Accounting Standards Codification 718, Compensation — Stock Compensation (“ASC 718”). The Company used a Black-Scholes option pricing model to determine the fair value of stock options on the dates of grant. The Black-Scholes pricing model requires various assumptions, including expected term, which is based on our historical experience and expected volatility which is estimated based on the average historical volatility of similar entities. The Company also made assumptions regarding the risk-free interest rate and the expected dividend yield. The risk-free interest rate is based on the U.S. Treasury interest rate whose term is consistent with the expected term of the share-based award. 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, 48 | December 31, 2022 Form 10-K 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. The Company applied assumptions in the determination of the fair value of the common stock underlying the stock-based awards granted. With the assistance of an independent third-party specialist, management assessed the value of the Company’s common stock based on a combination of the income approach and guideline public company method. Factors that were considered in connection with estimating these grant date fair values are as follows: • 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 non-discretionary, objective means; • The lack of marketability of the Company’s common stock; • The likelihood of achieving a liquidity event, such as an initial public offering or business combination, given prevailing market conditions; • Industry outlook; and • General economic outlook, including economic growth, inflation and unemployment, interest rate environment and global economic trends Determination of the fair value of our common stock also involved the application of multiple valuation methodologies and approaches, with varying weighting applied to each methodology as of the grant date. Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding the Company’s expected future revenue, expenses, and future cash flows; discount rates; market multiples; the selection of comparable companies; and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact the valuations and may have a material impact on the valuation of our common stock. Prior to the Merger, the Company revalued the common stock annually, unless changes in facts or circumstances indicate the need for a mid-year revaluation. The valuation of the Company’s common stock was historically performed at the end of our fiscal year. 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 selling, warehouse, general and administrative expenses. The plans are more fully described in Note 13 - Stock-Based Compensation. Fair Value of Financial Instruments: The Company uses the accounting guidance that applies to all assets and liabilities that are being measured and reported on a fair value basis. 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. A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. Whenever possible, quoted prices in active markets are used to determine the fair value of the Company's financial instruments. Derivatives and Hedging: 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 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 enters into derivative instrument transactions with financial institutions acting as the counter-party. The Company does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes. The relationships between hedging instruments and hedged items are formally documented, in addition to the risk management objective and strategy for each hedge transaction. 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 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. The Company records all derivative instruments in other assets or other liabilities on the Consolidated Balance Sheets at their fair values. 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 Loss in the period of the change. See Note 15 - Derivatives and Hedging for additional information. Translation of Foreign Currencies: The translation of the Company's Canadian and Mexican local currency based financial statements into U.S. 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 income (loss) in stockholders' equity. Use of Estimates in the Preparation of Financial Statements: The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses for the reporting period. Actual results may differ from these estimates. 3. MERGER AGREEMENT On July 14, 2021, the Merger between HMAN and Landcadia was consummated. 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. The Merger was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, Landcadia is treated as the “acquired” company for financial reporting purposes. This determination was based primarily on Old Hillman having the ability to appoint a majority of the initial Board of the combined entity, Old Hillman's senior management comprising the majority of the senior management of the combined company, and the ongoing operations of Old Hillman comprising the ongoing operations of the combined company. 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 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. A summary of the impact of the reverse recapitalization on the cash, cash equivalents and restricted cash, change in net assets and the change in common shares is included in the tables below. Landcadia cash and cash equivalents (1) $ 479,602 PIPE investment proceeds (2) 375,000 Less cash paid to underwriters and other transaction costs, net of tax (3) ( 36,140 ) Net change in cash and cash equivalents as a result of recapitalization $ 818,462 Prepaid expenses and other current assets (1) 132 Accounts payable and other accrued expenses (1) ( 81 ) Warrant liabilities (1)(4) ( 77,190 ) Change in net assets as a result of recapitalization $ 741,323 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) 91,220,901 Shares issued to SPAC sponsors and public shareholders (6) 58,672,000 Common shares issued to PIPE investors (2) 37,500,000 Common shares outstanding immediately after the business combination 187,392,901 1. These assets and liabilities represent the reported balances as of the Closing Date immediately prior to the Business Combination. The recapitalization of the assets and liabilities from Landcadia's balance sheet was a non-cash financing activity. 2. In connection with the Business Combination, Landcadia entered into subscription agreements with certain investors (the “PIPE Investors”), pursuant to which it issued 37,500,000 shares of common stock at $ 10.00 per share (the “PIPE Shares”) for an aggregate purchase price of $ 375,000 (the “PIPE Financing”), which closed simultaneously with the consummation of the Business Combination. 3. In connection with the Business Combination, the Company incurred $ 36,140 of transaction costs, net of tax, consisting of underwriting, legal and other professional fees which were recorded as accumulated deficit as a reduction of proceeds. 4. The warrants acquired in the Merger include (a) redeemable warrants issued by Landcadia and sold as part of the units in the Landcadia IPO (whether they were purchased in the Landcadia IPO or thereafter in the open market), which were exercisable for an aggregate of 16,666,628 shares of common stock at a purchase price of $ 11.50 per share (the “Public Warrants”) and (b) warrants issued by Landcadia to the Sponsors in a private placement simultaneously with the closing of the Landcadia IPO, which were exercisable for an aggregate of 8,000,000 shares of common stock at a purchase price of $ 11.50 per share (the “Private Placement Warrants”). 5. The Company issued 91,220,901 common shares in exchange for 553,439 Old Hillman common shares resulting in an exchange ratio of 164.83 . 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. 6. 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 . 4. RECENT ACCOUNTING PRONOUNCEMENTS 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 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. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2024. 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 designation. 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. 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. Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. This update is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to 1) the recognition of an acquired contract liability, and 2) payment terms and their effect on subsequent revenue recognized by the acquirer. 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. 5. RELATED PARTY TRANSACTIONS 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. 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 $ 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. ("Ollie's"). 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. 6. ACQUISITIONS Oz Post International, LLC 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 $ 39,834 . 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 throughout North America and its financial results reside in the Company's Hardware and Protective Solutions reportable segment. 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 Inventory 3,435 Other current assets 26 Property and equipment 595 Goodwill 9,093 Customer relationships 23,500 Trade names 2,600 Technology 4,000 Total assets acquired $ 44,590 Less: Liabilities assumed ( 4,756 ) 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. Other Acquisitions 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. 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. 7. INCOME TAXES Loss before income taxes are comprised of the following components for the periods indicated: Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020 United States based operations $ ( 32,817 ) $ ( 56,597 ) $ ( 30,083 ) Non-United States based operations 18,150 6,481 ( 3,855 ) Loss before income taxes $ ( 14,667 ) $ ( 50,116 ) $ ( 33,938 ) 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 December 26, 2020 Current: Federal & State $ 1,838 $ 894 $ 629 Foreign 177 746 ( 49 ) Total current 2,015 1,640 580 Deferred: Federal & State ( 4,648 ) ( 13,651 ) ( 7,625 ) Foreign 4,406 664 ( 1,356 ) Total deferred ( 242 ) ( 12,987 ) ( 8,981 ) Valuation allowance ( 4 ) ( 437 ) ( 1,038 ) 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. 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. federal NOLs were acquired with the MinuteKey purchase in 2018. The MinuteKey NOLs are subject to limitation under IRC §382 from current and prior ownership changes. 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 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. A valuation allowance of $ 210 has been maintained for a portion of these tax credits. 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 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 Non-current Non-current Deferred Tax Asset: Inventory $ 12,786 $ 17,590 Bad debt and other sales related reserves 1,868 2,029 Casualty loss reserve 606 685 Accrued bonus / deferred compensation 6,458 3,778 Deferred social security (CARES Act) — 899 Interest limitation 37,709 30,094 Lease liabilities 19,843 23,008 Deferred revenue - shipping terms 354 320 Transaction costs 1,701 2,218 Deferred financing fees 867 — Federal / foreign net operating loss 16,477 31,217 State net operating loss 3,793 4,123 Tax credit carryforwards 2,274 2,400 All other 1,487 1,233 Gross deferred tax assets 106,223 119,594 Valuation allowance for deferred tax assets ( 1,030 ) ( 1,034 ) Net deferred tax assets $ 105,193 $ 118,560 Deferred Tax Liability: Intangible asset amortization $ 192,989 $ 205,328 Property and equipment 28,647 27,722 Lease assets 18,129 21,446 Derivative security value 5,519 — All other items — 505 Deferred tax liabilities $ 245,284 $ 255,001 Net deferred tax liability $ 140,091 $ 136,441 Realization of the net deferred tax assets is dependent on the reversal of deferred tax liabilities. Although realization is not assured, management estimates it is more likely than not that the net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced. The Company maintains a valuation allowance of $ 51 on U.S. state NOLs due to the Company's inability to utilize the losses prior to expiration. The Company considers the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. The Company has not recorded a deferred tax liability related to the U.S. 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. 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: Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % Non-U.S. taxes and the impact of non-U.S. losses for which a current tax benefit is not available ( 7.1 ) % ( 1.3 ) % 0.6 % State and local income taxes, net of U.S. federal income tax benefit 2.9 % 2.9 % 5.7 % Change in valuation allowance — % 0.9 % 1.6 % Adjustment for change in tax law 5.4 % — % — % Permanent differences: Acquisition and related transaction costs ( 2.7 ) % ( 2.2 ) % — % 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 % Non-deductible compensation ( 6.4 ) % ( 1.9 ) % ( 1.0 ) % Reconciliation of other adjustments ( 0.6 ) % 0.1 % ( 0.7 ) % Effective income tax rate ( 12.1 ) % 23.5 % 27.8 % The Company's reserve for unrecognized tax benefits remains unchanged for the year ended December 31, 2022. A balance of $ 1,101 of unrecognized tax benefit is shown in the financial statements at December 31, 2022 as a reduction of the deferred tax asset for the Company's NOL carryforward. The following is a summary of the changes for the periods indicated below: Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020 Unrecognized tax benefits - beginning balance $ 1,101 $ 1,101 $ 1,101 Gross increases - tax positions in current period — — — Gross increases - tax positions in prior period — — — Gross decreases - tax positions in prior period — — — Unrecognized tax benefits - ending balance $ 1,101 $ 1,101 $ 1,101 Amount of unrecognized tax benefit that, if recognized would affect the Company's effective tax rate $ 1,101 $ 1,101 $ 1,101 The Company files a consolidated income tax return in the U.S. and numerous consolidated and separate income tax returns in various states and foreign jurisdictions. 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. 8. WARRANTS 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. 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. As of the date of the Merger, the fair market value of the warranty liabilities were recorded as $ 77,190 on the Consolidated Balance Sheets. The Public Warrants were considered part of level 1 of the fair value hierarchy, as those securities are traded on an active public market. At the Closing Date, the Company valued the Private Warrants using Level 3 of the fair value hierarchy. The Private Warrants were valued using a Modified Black Scholes Model, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Warrants are the share price of the Company's common stock, the risk free rate, and the expected volatility of the Company’s common stock. The Public Warrants may only be exercised for a whole number of shares. No fractional warrants were issued upon separation of the units issued in the initial public offering into their component parts of Public Warrants and shares of common stock. The Public Warrants became exercisable on the later of 30 days after the completion of the Business Combination or 12 months from the closing of the Public Offering. On November 22, 2021, the Company announced that it would redeem all of its outstanding warrants (the “Public Warrants”) to purchase shares of the Company’s common stock, par value $ 0.0001 per share (the “Common Stock”), that were issued under the Amended and Restated Warrant Agreement (the “Warrant Agreement”), dated November 13, 2020, by and between the Company and Continental Stock Transfer & Trust Company (“CST”), as warrant agent (the “Warrant Agent”) as part of the units sold in the Company’s initial public offering (the “IPO”) and that remain outstanding at 5:00 p.m. New York City time on December 22, 2021 (the “Redemption Date”) for a redemption price of $ 0.10 per Public Warrant. In addition, the Company would redeem all of its outstanding warrants to purchase Common Stock that were issued under the Warrant Agreement in a private placement simultaneously with the IPO (the “Private Warrants” and, together with the Public Warrants, the “Warrants”) on the same terms as the outstanding Public Warrants. Under the terms of the Warrant Agreement, the Company was entitled to redeem all of the outstanding Public Warrants at a redemption price of $0.10 per Public Warrant if (i) the last sales price (the “Reference Value”) of the Common Stock equals or exceeds $10.00 per share on any twenty trading days within any thirty-day trading period ending on the third trading day prior to the date on which a notice of redemption is given and (ii) if the Reference Value is less than $18.00 per share, the Private Warrants must also concurrently be called for redemption on the same terms as the outstanding Public Warrants. At the direction of the Company, the Warrant Agent delivered a notice of redemption to each of the registered holders of the outstanding Warrants. As the Reference Value was less than $18.00 per share, payment upon exercise of the Warrants was made either (i) in cash, at an exercise price of $ 11.50 per share of Common Stock or (ii) on a “cashless basis” in which the exercising holder received a number of shares of Common Stock determined in accordance with the terms of the Warrant Agreement and based on the Redemption Date and the volume weighted average price (the “Fair Market Value”) of the Common Stock during the 10 trading days immediately following the date on which the notice of redemption was sent to holders of Warrants. The Company provided holders the Fair Market Value no later than one business day after such 10-trading day period ends. In no event did the number of shares of Common Stock issued in connection with an exercise on a cashless basis exceed 0.361 shares of Common Stock per Warrant. If any holder of Warrants would, after taking into account all of such holder’s Warrants exercised at one time, have been entitled to receive a fractional interest in a share of Common Stock, the number of shares the holder was entitled to receive was rounded down to the nearest whole number of shares. Any Warrants that remained unexercised at 5:00 p.m. New York City time on the Redemption Date was then void and no longer exercisable, and the holders of those Warrants were entitled to receive only the redemption price of $0.10 per warrant. As of December 25, 2021, the Company exercised and redeemed all of its warrants generating cash proceeds of $ 8 and cash paid of $ 47 and issuing 6,365 shares of Common Stock. Public and private warrant exercise activity and underlying Common Stock issued or surrendered for the year ended December 25, 2021 is: Public Warrants Private Warrants Total Beginning balance as of July, 14 2021 16,666,628 8,000,000 24,666,628 Shares issued for cash exercises ( 666 ) — ( 666 ) Shares issued for cashless exercises ( 16,199,169 ) ( 8,000,000 ) ( 24,199,169 ) Shares redeemed by the Company ( 466,793 ) — ( 466,793 ) Ending balance as of December 25, 2021 — — — 57 | December 31, 2022 Form 10-K 9. LONG-TERM DEBT The following table summarizes the Company’s debt: December 31, 2022 December 25, 2021 Revolving loans $ 72,000 $ 93,000 Senior Term Loan, due 2028 840,363 851,000 Finance leases & other obligations1 6,406 1,782 $ 918,769 $ 945,782 Unamortized discount on Senior Term Loan ( 5,012 ) ( 5,948 ) 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 $ 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"). 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. See Note 6 - Acquisitions for additional information regarding the OZCO acquisition. The aggregate minimum principal maturities of the long-term debt obligations for each of the five years following December 31, 2022 are as follows: Year Amount 2023 $ 8,902 2024 8,918 2025 8,934 2026 8,951 2027 80,623 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. 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. 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 its interest rate swaps in connection with the refinancing, see Note 15 - Derivatives and Hedging for additional details. Loss (gain) on extinguishment of debt Term Credit Agreement $ 20,243 ABL Revolver 288 6.375% Senior Notes, due 2022 1,083 11.6% Junior Subordinated Debentures ( 13,603 ) Interest rate swaps 59 Total $ 8,070 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. The 2018 Term Loan was payable in fixed installments of approximately $ 2,652 per quarter, with a balloon payment scheduled on the loan's maturity date of May 31, 2025. 6.375% Senior Notes, due 2022 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 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”). The Trust invested the proceeds from the sale of the preferred securities in an equal principal amount of 11.6 % Junior Subordinated Debentures of Hillman due September 30, 2027. The Company paid interest to the Trust on the Junior Subordinated Debentures underlying the TOPrS at the rate of 11.6 % per annum on their face amount of $ 105,443 , or $ 12,231 per annum in the aggregate. The Trust distributed monthly cash payments it received from the Company as interest on the debentures to preferred security holders at an annual rate of 11.6 % on the liquidation amount of $ 25.00 per preferred security. Pursuant to the Indenture that governed the TOPrS, the Trust was able to defer distribution payments to holders of the TOPrS for a period that could not exceed 60 months (the “Deferral Period”). During a Deferral Period, the Company was required to accrue the full amount of all interest payable, and such deferred interest payable became immediately payable by the Company at the end of the Deferral Period. During fiscal year 2020, the Company elected to defer interest payments to the bondholders during April 2020 through July 2020. The additional interest incurred as a result of the deferral was immaterial. Interest paid to the bondholders at the end of the Deferral Period was paid in full. There were no interest deferrals during fiscal 2021 or 2020. In connection with the public offering of TOPrS, the Trust issued $ 3,261 of trust common securities to the Company. The Trust invested the proceeds from the sale of the trust common securities in an equal principal amount of 11.6 % Junior Subordinated Debentures of Hillman due September 30, 2027. The Trust distributed monthly cash payments it received from the Company as interest on the debentures to the Company at an annual rate of 11.6 % on the liquidation amount of the common security. The Trust Preferred Securities were fully redeemed in 2021 in connection with the refinancing discussed above. 10. LEASES Lessee The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both 1) the right to obtain substantially all of the economic benefits from the use of the asset and 2) the right to direct the use of the asset. The Company leases certain distribution center locations, vehicles, forklifts, computer equipment, and its corporate headquarters with expiration dates through 2032. Certain lease arrangements include escalating rent payments and options to extend the lease term. 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: Year Ended December 31, 2022 Year Ended December 25, 2021 Operating lease cost $ 19,670 $ 20,860 Short term lease costs 6,960 4,827 Variable lease costs 2,028 1,496 Finance lease cost: Amortization of right of use assets 1,563 914 Interest on lease liabilities 122 123 Rent expense is recognized on a straight-line basis over the expected lease term. 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 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: December 31, 2022 December 25, 2021 Operating Leases Finance Leases Operating Leases Finance Leases Weighted average remaining lease term 6.13 2.65 6.60 2.60 Weighted average discount rate 7.22 % 2.99 % 7.88 % 5.59 % Supplemental balance sheet information related to the Company's finance leases as of December 31, 2022 and December 25, 2021: December 31, 2022 December 25, 2021 Finance lease assets, net, included in property plant and equipment $ 4,540 $ 1,768 Current portion of long-term debt 1,862 767 Long-term debt, less current portion 2,767 1,015 Total principal payable on finance leases $ 4,629 $ 1,782 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 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflow from operating leases $ 19,377 $ 19,767 Operating cash outflow from finance leases 119 127 Financing cash outflow from finance leases 1,470 938 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 as of December 31, 2022: Operating Leases Finance Leases Less than one year $ 16,947 $ 1,977 1 to 2 years 14,784 1,646 2 to 3 years 14,218 1,048 3 to 4 years 13,549 112 4 to 5 years 11,549 13 After 5 years 18,885 — Total future minimum rental commitments 89,932 4,796 Less - amounts representing interest ( 16,291 ) ( 167 ) Present value of lease liabilities $ 73,641 $ 4,629 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 Lessor The Company has certain arrangements for key duplication equipment under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material. 11. DEFERRED COMPENSATION PLAN The Company maintains a deferred compensation plan for key employees (the “Nonqualified Deferred Compensation Plan” or “NQDC”) which allows the participants to defer up to 25 % of salary and commissions and up to 100 % of bonuses to be paid during the year and invest these deferred amounts into certain Company directed mutual fund investments, subject to the election of the participants. The Company is permitted to make a 25 % matching contribution on deferred amounts up to $ 10 , subject to a five year vesting schedule. 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. The current portion of the restricted investments was $ 17 and $ 138 as of December 31, 2022 and December 25, 2021, respectively, and is included in other current assets on the accompanying Consolidated Balance Sheets. The assets held in the NQDC are classified as an investment in trading securities, accordingly, the investments are marked-to-market, see Note 16 - Fair Value Measurements for additional detail. During the years ended December 31, 2022, December 25, 2021, and December 26, 2020, distributions from the deferred compensation plan aggregated $ 228 , $ 633 , and $ 527 , respectively. 12. EQUITY AND ACCUMULATED OTHER COMPREHENSIVE LOSS Common Stock 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 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 ) Other comprehensive income before reclassifications 2,652 Amounts reclassified from other comprehensive income¹ — Net current period other comprehensive loss 2,652 Balance at December 26, 2020 ( 29,388 ) Other comprehensive income before reclassifications 1,849 Amounts reclassified from other comprehensive income² 385 Net current period other comprehensive income 2,234 Balance at December 25, 2021 ( 27,154 ) Other comprehensive loss before reclassifications 10,524 Amounts reclassified from other comprehensive income 3 ( 4,394 ) Net current period other comprehensive income 6,130 Balance at December 31, 2022 $ ( 21,024 ) 1. In the year December 26, 2020, there were no amounts reclassified into other comprehensive income. 2. During the year ended December 25, 2021, the Company obtained and amended its interest rate swap agreements to hedge against effective cash flows (i.e. interest payments) on floating-rate debt associated with the Company's new Term Credit Agreement. 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 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. 3. 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. 13. STOCK-BASED COMPENSATION HMAN Group Holdings Inc. 2014 Equity Incentive Plan Following the Merger and in connection with the business combination described in Note 3 - Merger Agreement, Landcadia Holdings III, Inc. (“Landcadia”) became the direct parent company of HMAN and was renamed Hillman Solutions Corp. (“New Hillman”). Shares of Class A common stock of New Hillman (“New Hillman Shares”) are publicly traded on The Nasdaq Capital Market. Consequently, the outstanding stock options issued under the 2014 Equity Incentive Plan (the “Prior Plan”) prior to the Merger were converted and modified to purchase New Hillman Shares. At the Closing, each outstanding option to acquire common stock of Hillman Holdco (a “Hillman Holdco Option”), whether vested or unvested, was assumed by New Hillman and converted into an option to purchase common stock of New Hillman (“New Hillman Option”) with substantially the same terms and conditions (including expiration date and exercise provisions) as applicable to the Hillman Holdco Option immediately prior to the Closing, except both the number of shares and the exercise price were modified using the conversion ratio at closing. Each New Hillman Option is generally subject to the same vesting conditions as the Hillman Holdco Option from which it was converted, except that the performance-based vesting conditions of any Hillman Holdco Option granted prior to 2021 were adjusted such that the performance-based portion of the associated New Hillman Option will vest upon certain pre-established stock price hurdles. 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 $11,482 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). Upon closing, the 2014 Equity Incentive Plan may grant options, stock appreciation rights, restricted stock, and other stock-based awards for up to an aggregate of 14,523,510 shares of its common stock. The following table summarizes the key assumptions used in the valuation model for valuing the Company's stock compensation awards under the 2014 Equity Incentive Plan: Dividend yield 0 % Risk free interest rate 0.40 % - 1.81 % Expected volatility 31.50 % Expected terms 6.25 years Stock Options The fair value of stock options is determined at the grant date using the Black-Scholes option pricing model. 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. 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): Number of Shares Weighted Avg. Exercise Price per Share (in whole dollars) Weighted Avg. Remaining Contractual Term Outstanding at December 25, 2021 13,476 8.15 7.14 years Granted — Exercised ( 182 ) Forfeited or expired ( 757 ) Outstanding at December 31, 2022 12,537 8.14 6.23 years Exercisable at December 31, 2022 7,119 8.07 6.13 years In fiscal year ended December 31, 2022, 182 options were exercised. In fiscal year ended December 25, 2021, 435 options were exercised. In fiscal year ended December 26, 2020, 7,333 options were exercised. Stock option compensation expense of $ 8,144 , $ 13,634 , and $ 3,960 was recognized in the accompanying Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively. As of December 31, 2022, there was $ 5,515 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 1.19 years. The weighted-average grant-date fair value of share options granted during the years 2021 and 2020 was $ 3.23 , and $ 2.55 , respectively. 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 Awards The Company granted restricted stock at the grant date fair value of the underlying common stock securities. The restrictions lapse in one quarter increments on each of the three anniversaries of the award date, and one quarter on the completion of the relocation of the recipient to the Cincinnati area or earlier in the event of a change in control. 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): Number of Shares Weighted Avg. Grant Date Fair Value (in whole dollars) Unvested at December 25, 2021 89 $ 7.09 Awarded — Vested ( 89 ) Forfeited or expired — Unvested at December 31, 2022 — $ — Restricted stock compensation expense of $ 346 , $ 624 , and $ 1,165 was recognized in the accompanying Consolidated Statements of Comprehensive Loss for the fiscal years ended December 31, 2022, December 25, 2021, and December 26, 2020, respectively. Restricted Stock Units The Restricted Stock Units ("RSUs") granted to employees for service generally vest after three years, subject to continued employment. The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date. 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): Number of Shares Weighted Avg. Grant Date Fair Value (in whole dollars) Outstanding at December 25, 2021 323 $ 10.00 Granted — Vested — Forfeited or expired ( 111 ) Outstanding at December 31, 2022 212 $ 10.00 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 Effective July 14, 2021, the Company established the 2021 Equity Incentive Plan. 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. 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. 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 — $ — — Granted 781 Exercised — 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 The RSUs granted to employees for service generally vest after three years, subject to continued employment. The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date or the date of the annual meeting following the grant date, whichever is earlier. A summary of the restricted stock unit activity under the 2021 Equity Incentive Plan for the year ended December 31, 2022 is presented below (share amounts in thousands): Number of Shares Weighted Avg. Grant Date Fair Value (in whole dollars) Outstanding at December 25, 2021 73 $ 11.75 Granted 1,152 Vested ( 50 ) Forfeited or expired ( 66 ) Outstanding at December 31, 2022 1,109 $ 9.85 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. 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 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. 14. EARNINGS PER SHARE Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share include the dilutive effect of stock options, restricted stock awards, and warrants. The following is a reconciliation of the basic and diluted Earnings Per Share ("EPS") computations for both the numerator and denominator (in thousands, except per share data): Year Ended December 31, 2022 Earnings (Numerator) Shares (Denominator) Per Share Amount Net loss $ ( 16,436 ) 194,249 $ ( 0.08 ) Dilutive effect of stock options and awards — — — Dilutive effect of warrants — — — Net loss per diluted common share $ ( 16,436 ) 194,249 $ ( 0.08 ) Year Ended December 25, 2021 Earnings (Numerator) Shares (Denominator) Per Share Amount Net loss $ ( 38,332 ) 134,699 $ ( 0.28 ) Dilutive effect of stock options and awards — — — Dilutive effect of warrants — — — Net loss per diluted common share $ ( 38,332 ) 134,699 $ ( 0.28 ) Year Ended December 26, 2020 Earnings (Numerator) Shares (Denominator) Per Share Amount Net loss $ ( 24,499 ) 89,891 $ ( 0.27 ) Dilutive effect of stock options and awards — — — Dilutive effect of warrants — — — Net loss per diluted common share $ ( 24,499 ) 89,891 $ ( 0.27 ) 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. 15. DERIVATIVES AND HEDGING FASB ASC 815, Derivatives and Hedging ("ASC 815"), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments, (2) how the entity accounts for derivative instruments and related hedged items, and (3) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company's objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments. 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 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. Interest Rate Swap Agreements On January 8, 2018, the Company entered into a new forward Interest Rate Swap Agreement ("2018 Swap 1") with three year terms for $ 90,000 notional amount. The forward start date of the 2018 Swap was September 30, 2018 and the termination date is June 30, 2021. The 2018 Swap 1 has a fixed interest rate of 2.3 % plus the applicable interest rate margin of 4.0 % for an effective rate of 6.3 %. The 2018 Swap 1 was terminated on June 30, 2021. In accordance with ASC 815, the 2018 Swap 1 was not designated as a cash flow hedge and therefore changes in fair value were recorded in other (income) expense on the Company's Statements of Comprehensive Loss. On November 8, 2018, the Company entered into another new forward Interest Rate Swap Agreement ("2018 Swap 2") for $ 60,000 notional amount. The forward start date of the 2018 Swap 2 was November 30, 2018 and the termination date is November 30, 2022. The 2018 Swap 2 has a pay fixed interest rate of 3.1 % plus the applicable interest rate margin of 4.0 % for an effective rate of 7.1 %. 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 (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 . The forward start date of the 2021 Swap 1 was July 30, 2021 and the termination date is July 31, 2024. The 2021 Swap 1 has a determined pay fixed interest rate of 0.75 %. In accordance with ASC 815, the Company determined the 2021 Swap 1 constituted an effective cash flow hedge and therefore changes in fair value are recorded within other comprehensive income within the Company's Statement of Comprehensive Loss and the deferred gains or losses are reclassified out of other comprehensive income into interest expense in the same period during which the hedged transactions affect earnings. On July 9, 2021, the Company entered into an interest swap agreement ("2021 Swap 2") for a notional amount of $ 216,000 . The forward start date of the 2021 Swap 2 was July 30, 2021 and the termination date is July 31, 2024. The 2021 Swap 2 has a determined pay fixed interest rate of 0.76 %. In accordance with ASC 815, the Company determined the 2021 Swap 2 constituted an effective cash flow hedge and therefore changes in fair value are recorded within other comprehensive income within the Company's Statement of Comprehensive Loss and the deferred gains or losses are reclassified out of other comprehensive income into interest expense in the same period during which the hedged transactions affect earnings. On July 16, 2021, the Company modified its original 2018 Swap 2 derivative instrument ("2021 Swap 3") for a notional amount of $ 60,000 . The forward start date of the 2021 Swap 3 was July 30, 2021 and the termination date is November 30, 2022. The 2021 Swap 3 has a determined pay fixed interest rate of 3.63%. In accordance with ASC 815, the Company determined the 2021 Swap 3 constituted an effective cash flow hedge and therefore changes in fair value are recorded within accumulated other comprehensive loss within the Company's Consolidated Balance Sheets and the deferred gains or losses are reclassified out of other comprehensive income into interest expense in the same period during which the hedged transactions affect earnings. Due to an other-than-insignificant financing element from the modification, the swap entered into during 2021 is considered a hybrid instrument, with a financing component treated as a debt instrument with an embedded at-market derivative. 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. 68 | December 31, 2022 Form 10-K The following table summarizes the Company's derivatives financial instruments: Asset Derivatives Liability Derivatives As of December 31, 2022 As of December 25, 2021 As of December 31, 2022 As of December 25, 2021 Balance Sheet Location Fair Value Fair Value Balance Sheet Location Fair Value Fair Value Derivatives designated as hedging instruments: 2021 Swap 1 Other non-current assets $ 8,705 $ 1,513 Other accrued expenses $ — $ ( 170 ) 2021 Swap 2 Other non-current assets 13,044 2,250 Other accrued expenses — ( 270 ) 2021 Swap 3 Other current assets — 59 Other accrued expenses/other non-current liabilities — ( 1,880 ) Total hedging instruments $ 21,749 $ 3,822 $ — $ ( 2,320 ) During 2023, the Company estimates that an additional $14,636 will be reclassified as a decrease to interest expense/income. Additional information with respect to the fair value of derivative instruments is included in Note 16 - Fair Value Measurements. Foreign Currency Forward Contracts During fiscal 2022, 2021 and 2020 the Company entered into multiple foreign currency forward contracts. The purpose of the Company's foreign currency forward contracts is to manage the Company's exposure to fluctuations in the exchange rate of the Canadian dollar. The total notional amount of contracts outstanding was C$ 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 Statements of Comprehensive Loss. The Company does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes. Additional information with respect to the fair value of derivative instruments is included in Note 16 - Fair Value Measurements. 16. FAIR VALUE MEASUREMENTS The Company uses the accounting guidance that applies to all assets and liabilities that are being measured and reported on a fair value basis. 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 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. Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3: 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. An asset or liability's level is based on the lowest level of input that is significant to the fair value measurement. The following tables set forth the Company's financial assets and liabilities that were measured at fair value on a recurring basis during the period, by level, within the fair value hierarchy: As of December 31, 2022 Level 1 Level 2 Level 3 Total Trading securities $ 1,155 $ — $ — $ 1,155 Interest rate swaps — 21,749 — 21,749 Foreign exchange forward contracts — 12 — 12 Contingent consideration payable — — 11,063 11,063 As of December 25, 2021 Level 1 Level 2 Level 3 Total Trading securities $ 1,686 $ — $ — $ 1,686 Interest rate swaps — 1,502 — 1,502 Foreign exchange forward contracts — 14 — 14 Contingent consideration payable — — 12,347 12,347 Trading securities are valued using quoted prices on an active exchange. Trading securities represent assets held in a Rabbi Trust to fund deferred compensation liabilities and are included as restricted investments on the accompanying Consolidated Balance Sheets. The Company utilizes interest rate swap contracts to manage our targeted mix of fixed and floating rate debt, and these contracts are valued using observable benchmark rates at commonly quoted intervals for the full term of the swap contracts. As of December 31, 2022 and December 25, 2021, the Company's interest rate swaps were recorded on the accompanying Consolidated Balance Sheets in accordance with ASC 815. The Company utilizes foreign exchange forward contracts to manage our exposure to currency fluctuations in the Canadian dollar versus the U.S. dollar. The forward contracts were valued using observable benchmark rates at commonly quoted intervals during the term of the forward contract. 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 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. The estimated fair value of the contingent earn-out was determined using a Monte Carlo analysis examining the frequency and mean value of the resulting earn-out payments. The resulting value captures the risk associated with the form of the payout structure. The risk neutral method is applied, resulting in a value that captures the risk associated with the form of the payout structure and the projection risk. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability's estimated value. 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 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. 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 $ 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 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. 17. RESTRUCTURING Canadian Restructuring Plan During fiscal 2018, the Company initiated plans to restructure the operations of the Canada segment. The restructuring seeks to streamline operations in the greater Toronto area by consolidating facilities, exiting certain lines of business, and rationalizing Stock Keeping Units (“SKUs”). The intended result of the Canada restructuring will be a more streamlined and scalable operation focused on delivering optimal service and a broad offering of products across the Company's core categories. Plans were finalized during the fourth quarter of 2018. The Company completed restructuring related activities in our Canada segment in 2021. Charges incurred in part of the Canada Restructuring Plan included: Year Ended December 25, 2021 Year Ended December 26, 2020 Facility consolidation (1) Inventory valuation adjustments $ — $ 596 Labor expense — 682 Consulting and legal fees 26 192 Other expense 5 1,118 Rent and related charges — 1,535 Severance 466 707 Total $ 497 $ 4,830 (1) Facility consolidation includes inventory valuation adjustments associated with SKU rationalization, labor expense related to organizing inventory and equipment in preparation for the facility consolidation, consulting and legal fees related to the project, and other expenses. The labor, consulting, and legal expenses were included in selling, general and administrative expense ("SG&A") on the Consolidated Statement of Comprehensive Loss. The inventory valuation adjustments were included in cost of sales on the Consolidated Statement of Comprehensive Loss. The following represents the roll forward of restructuring reserves for the year ended December 31, 2022: Severance and related expense Balance as of December 26, 2020 $ 309 Restructuring charges 466 Cash paid ( 436 ) Balance as of December 25, 2021 $ 339 Restructuring charges — Cash paid ( 182 ) Balance as of December 31, 2022 $ 157 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. This restructuring includes management realignment, integration of sales and operating functions, and strategic review of the Company's product offerings. This plan was finalized during the fourth quarter of fiscal year 2019. The Company incurred additional charges in fiscal 2021 related to the consolidation of two of our distribution centers. Charges incurred in part of the United States Restructuring Plan included: Year Ended December 25, 2021 Year Ended December 26, 2020 Management realignment & integration Severance $ 111 $ 886 Facility closures Severance — 903 Inventory valuation adjustments — 1,568 Other 319 1,422 Total $ 430 $ 4,779 The following represents a roll forward of the restructuring reserves for the year ended December 31, 2022: Severance and related expense Balance as of December 26, 2020 $ 825 Restructuring charges 111 Cash paid (936) Balance as of December 25, 2021 $ — During the year ended December 31, 2022, the Company did not have severance or related expense related to the United States Restructuring Plan. 18. COMMITMENTS AND CONTINGENCIES The Company self-insures our general liability including products liability, automotive liability, and workers' compensation losses up to $500 per occurrence. Catastrophic coverage has been purchased from third party insurers for occurrences in excess of $ 250 up to $ 60,000 . The two risk areas involving the most significant accounting estimates are workers' compensation and automotive liability. Actuarial valuations performed by the Company's third-party risk insurance expert were used by the Company's management to form the basis for workers' compensation and automotive liability loss reserves. The actuary contemplated the Company's specific loss history, actual claims reported, and industry trends among statistical and other factors to estimate the range of reserves required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for development of these claims, as well as for incurred but not yet reported claims. The Company believes that the liability of approximately $ 2,323 recorded for such risk insurance reserves is adequate as of December 31, 2022. 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. The Company self-insures our group health claims up to an annual stop loss limit of $ 300 per participant. Historical group insurance loss experience forms the basis for the recognition of group health insurance reserves. Provisions for losses expected under these programs are recorded based on an analysis of historical insurance claim data and certain actuarial assumptions. The Company believes that the liability of approximately $ 2,573 recorded for such group health insurance reserves is adequate as of December 31, 2022. 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 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. The U.S. 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. The Company sourced products under review from vendors in China and Taiwan during the periods selected for review. 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. ("Hillman Group") filed a complaint for patent infringement against KeyMe, LLC ("KeyMe"), a provider of self-service key duplication kiosks, in the United States District Court for the Eastern District of Texas (Marshall Division) (the "Texas Court"). On August 16, 2019, KeyMe filed a complaint for patent infringement against Hillman Group in the United States District Court for the District of Delaware. On March 2, 2020, Hillman Group filed a second complaint for patent infringement against KeyMe in the same Texas Court. On October 23, 2020, the Texas Court granted KeyMe’s motion to consolidate the two Texas cases and granted Hillman Group’s motion to add another patent. On April 12, 2021, a jury in the Texas case returned a verdict that KeyMe did not infringe any of the asserted patents and several of the asserted claims were invalid. Final judgment was entered on April 13, 2021. 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. 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. 19. STATEMENT OF CASH FLOWS Supplemental disclosures of cash flows information are presented below: Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020 Cash paid during the period for: Interest on junior subordinated debentures $ — $ 7,542 $ 12,329 Interest 55,829 64,522 81,024 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 20. CONCENTRATION OF CREDIT RISKS Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade receivables. 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, 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. For the year ended December 31, 2022, the largest two customers accounted for 45.7 % of total revenues and 40.2 % of the year-end accounts receivable balance. For the year ended December 25, 2021, the largest two customers accounted for 47.6 % of total revenues and 47.0 % of the year-end accounts receivable balance. No other customer accounted for more than 10% of the Company's accounts receivables in 2022, 2021, nor 2020. 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 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 Lowe's 21.7 % 20.6 % 22.5 % Home Depot 24.0 % 27.0 % 26.5 % 21. SEGMENT REPORTING AND GEOGRAPHIC INFORMATION The Company's segment reporting structure uses the Company's management reporting structure as the foundation for how the Company manages its business. The Company periodically evaluates its segment reporting structure in accordance with ASC 350-20-55 and has concluded that it has three reportable segments as of December 31, 2022. The segments are as follows: • Hardware and Protective Solutions • Robotics and Digital Solutions • Canada The Hardware and Protective Solutions segment distributes fasteners and related hardware items, threaded rod, personal protective equipment, and letters, numbers, and signs to hardware stores, home centers, mass merchants, and other retail outlets primarily in the United States and Mexico. 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 targeted to consumers in the respective locations. It also includes our associate-assisted key duplication systems and key accessories. The Robotics and Digital Solutions segment also includes Resharp, our robotic knife sharpening business, and Instafob, which specializes in RFID ("Radio Frequency Identification") key duplication technology. The Canada segment distributes fasteners and related hardware items, threaded rod, keys, key duplicating systems, accessories, personal protective equipment, and identification items, such as tags and letters, numbers, and signs to hardware stores, home centers, mass merchants, industrial distributors, automotive aftermarket distributors, and other retail outlets and industrial Original Equipment Manufacturers (“OEMs”) in Canada. The Canada segment also produces fasteners, stampings, fittings, and processes threaded parts for automotive suppliers and industrial OEMs. 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 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. Year Ended December 31, 2022 Year Ended December 25, 2021 Year Ended December 26, 2020 Revenues Hardware and Protective Solutions $ 1,076,813 $ 1,024,974 $ 1,024,392 Robotics and Digital Solutions 249,897 249,528 209,287 Canada 159,618 151,465 134,616 Total revenues $ 1,486,328 $ 1,425,967 $ 1,368,295 Segment Income from Operations Hardware and Protective Solutions $ 20,884 $ ( 17,185 ) $ 67,313 Robotics and Digital Solutions 3,616 23,558 3,177 Canada 15,393 3,941 ( 4,724 ) Total segment income from operations $ 39,893 $ 10,314 $ 65,766 75 | December 31, 2022 Form 10-K Financial Statement Schedule: Schedule II - VALUATION ACCOUNTS (dollars in thousands) Deducted From Assets in Balance Sheet Allowance for Doubtful Accounts Ending Balance - December 28, 2019 $ 1,891 Additions charged to cost and expense 1,378 Deductions due to: Others ( 874 ) Ending Balance - December 26, 2020 2,395 Additions charged to cost and expense 522 Deductions due to: Others ( 26 ) Ending Balance - December 25, 2021 2,891 Additions charged to cost and expense 973 Deductions due to: Others ( 1,459 ) 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. None. .