What changed in this filing

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Item 1A. Risk Factors

2024-02-22 compared with 2023-02-27 · 47 added, 47 removed, 218 unchanged (30% of the section changed)

13 unchanged sentences

Adverse trends in any of the foregoing factors could reduce our sales, adversely impact the mix of our sales, or increase our costs, which could have a material adverse effect on our business, financial condition and results of operations.

8 | December 31, 2022 Form 10-K

Large customer concentration and the inability to penetrate new channels of distribution could adversely affect our business.

11 unchanged sentences

There are, nevertheless, numerous uncertainties inherent in successfully developing and commercializing innovative new products on a continuing basis, and new product launches may not provide expected growth results.

9 | December 30, 2023 Form 10-K

Acquisitions have formed a significant part of our growth strategy in the past and may continue to do so.

7 unchanged sentences

However, our ability to do so will depend on a number of factors, including our ability to obtain financing that we may need to complete a proposed acquisition opportunity which may be unavailable or available on terms that are not advantageous to us.

If financing is unavailable, we may be forced to forego otherwise attractive acquisition opportunities which may have a negative effect on our ability to grow.

If financing is unavailable or on unfavorable terms, we may be forced to forego otherwise attractive acquisition opportunities which may have a negative effect on our ability to grow.

Risks Related to our Operations:

Our results of operations could be negatively impacted by inflation or deflation in supply chain costs, including raw materials, sourcing, transportation and energy.

Many of our products are manufactured of metals, including but not limited to steel, aluminum, zinc, and copper.

Many of our products are manufactured out of metals, including but not limited to steel, aluminum, zinc, and copper.

Additionally, we use other commodity-based materials in the manufacture of Letters, Numbers, and Signs (“LNS”) that are resin-based and subject to fluctuations in the price of oil.

3 unchanged sentences

If we are unable to mitigate any cost increases from the foregoing factors through various customer pricing actions and cost reduction initiatives, our financial condition may be adversely affected.

Conversely, in the event that there is deflation, we may experience pressure from our customers to reduce prices.

Conversely, in the event that there is deflation, we may experience, and in fact have experienced, pressure from our customers to reduce prices.

There can be no assurance that we would be able to reduce our cost base (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact our results of operations and cash flows.

9 | December 31, 2022 Form 10-K

Our business is subject to risks associated with sourcing product from overseas.

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and other countries.

These issues could delay importation of products, increase our transit costs, or require us to locate alternative ports or warehousing providers to avoid disruption to customers.

These issues could delay importation of products, increase our transit costs, or require us to

10 | December 30, 2023 Form 10-K

locate alternative ports or warehousing providers to avoid disruption to customers.

These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on our business and financial condition.

1 unchanged sentence

This may adversely affect our results of operations, financial position, and cash flows.

Additionally, in recent years, tensions between mainland China and Taiwan have further escalated.

Conflict between China and Taiwan could disrupt our supply chain, including limiting access to key ports, disrupting the operations of our suppliers, or resulting in potential international sanctions, all of which could adversely affect our results of operations or increase our costs.

We are subject to inventory management risks:

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In addition, we may have to write down such inventory if we are unable to sell it for its recorded value.

In fact, In the fourth quarter of 2023, we recorded inventory revaluation charges of $5.0 million in connection with exiting certain retail locations and markets for a product line.

By contrast, if we underestimate demand and purchase insufficient quantities of a product, and/or do not maintain enough inventory of a product, we may not be able to fulfill customer orders on a timely basis which could result in fines, the loss of sales and ultimately loss of customers for those products as they turn to our competitors.

4 unchanged sentences

In recent years, our lead times extended due to disruptions in the global supply chain.

We saw particularly high increased lead times for ocean freight from Asia, and we had to increase our inventory levels to maintain our high fill rates with our customers, which has increased our inventory costs and reduced our profitability.

There are no assurances that lead times will continue to improve in the near term or at all, and our working capital and financial condition may be adversely affected.

During 2021 and 2022, we saw increased lead times for ocean freight from Asia, and we had to increase our inventory levels to maintain our high fill rates with our customers, which has increased our inventory costs and reduced our profitability.

Our lead times and inventory levels normalized in 2023.

However, there are no assurances that lead times will not increase in the future, and in such event our working capital and financial condition may be adversely affected.

If we fail to adequately manage our product purchasing or customer credit policies, our working capital and financial condition may be adversely affected.

We are subject to the risks of doing business internationally.

10 | December 31, 2022 Form 10-K

A portion of our revenue is generated outside the United States, primarily from customers located in Canada, Mexico, Latin America, and the Caribbean.

8 unchanged sentences

• violations of the United States Foreign Corrupt Practices Act;

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• the effects of applicable and potentially adverse foreign tax law changes;

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If these systems are damaged, intruded upon, shutdown, or cease to function properly (whether by planned upgrades, force majeure, telecommunications failures, hardware or software break-ins or viruses, other cyber-security incidents, or otherwise), we may suffer disruption in our ability to manage and operate our business.

While we have taken measures designed to protect the security of our information and technology systems, and any information handled by these systems, including personal, sensitive, confidential, and proprietary information, there can be no assurance that the measures which we have adopted to protect against certain events that could

11 | December 31, 2022 Form 10-K

disrupt the operations of our information systems will prevent the occurrence of such a disruption.

In late May 2023, we experienced a ransomware attack relating to certain systems on our network (the “Cybersecurity Incident”).

The Cybersecurity Incident affected certain of our information technology systems, and as part of the containment effort, we suspended affected systems and elected to temporarily suspend additional systems in an abundance of caution.

We reactivated and restored our operational systems over the course of the week following the Cybersecurity Incident.

The Cybersecurity Incident related costs net of an expected insurance receivable totaled $1.0 million.

Any such disruption could have a material adverse effect on our business and results of operations.

In addition, we may have to upgrade our existing information technology systems or choose to incorporate new technology systems from time to time in order for such systems to support our business.

In addition, we plan to upgrade our existing information technology systems or choose to incorporate new technology systems from time to time in order for such systems to support our business.

Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the efficiency of our operations.

Any such reduction in efficiency or disruption could have a material adverse effect on our business and results of operations.

12 | December 30, 2023 Form 10-K

Unauthorized disclosure of personal, sensitive or confidential customer, employee, supplier, or Company information, whether through a breach of our computer systems, or those of our third party vendors and business partners, including cyber-attacks or otherwise, could severely harm our business.

1 unchanged sentence

Despite the security measures we have in place, our facilities and systems, and those of the retailers and other third party distributors with which we do business, may be vulnerable to security breaches, cyber-attacks, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.

In fact, in late May 2023, we experienced a ransomware attack relating to certain systems on our network, as is more fully described on the preceding page, and some confidential personal information of our employees and selected dependents was accessed by the threat actor.

In addition, employees may intentionally or inadvertently cause the unauthorized access to or release of personal, sensitive, or confidential customer, employee, supplier or Company information.

14 unchanged sentences

Our success depends in part on our ability to operate without infringing on or misappropriating the proprietary rights of others, and if we are unable to do so we may be liable for damages.

12 | December 31, 2022 Form 10-K

We cannot be certain that United States or foreign patents or patent applications of other companies do not exist or will not be issued that would prevent us from commercializing our products.

1 unchanged sentence

Intellectual property litigation is costly.

If we do not prevail in litigation, in addition to any damages we might have to pay, we could be required to cease the infringing activity, obtain a license requiring us to make royalty payments, and/or enter into other settlement arrangements that temporarily preclude us from liability.

13 | December 30, 2023 Form 10-K

not prevail in litigation, in addition to any damages we might have to pay, we could be required to cease the infringing activity, obtain a license requiring us to make royalty payments, and/or enter into other settlement arrangements that temporarily preclude us from liability.

It is possible that a required license may not be available to us on commercially acceptable terms, if at all.

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We have a significant amount of indebtedness.

On December 31, 2022, our total indebtedness was $918.8 million, $840.4 million of such indebtedness is indebtedness issued under the term loan facility, $72.0 million of such indebtedness is indebtedness issued under the our asset-based revolving credit facility, and $6.4 million is indebtedness under finance lease and other obligations.

In the third quarter of 2022, the Company amended its asset-based revolving credit agreement with Barclays Bank PLC, as administrative agent, and the lenders and other parties thereto, increasing the aggregate commitments thereunder to $375.0 million and extended the maturity.

On December 30, 2023, our total indebtedness was $760.9 million, of which, $751.9 million is indebtedness issued under the term loan facility, and $9.1 million is indebtedness under finance lease and other obligations.

The Company also has an asset-based revolving credit facility with aggregate commitments of up to $375.0 million that does not have an outstanding balance, and aggregate availability of $246.8 million as of December 30, 2023, subject to customary asset-backed loan borrowing base and availability provisions.

Our substantial indebtedness could have important consequences.

1 unchanged sentence

• make it more difficult for us to satisfy obligations to holders of our indebtedness;

• increase our vulnerability to increases in interest rates;

• increase our vulnerability to general adverse economic and industry conditions;

7 unchanged sentences

This could further exacerbate the risks associated with our substantial leverage.

13 | December 31, 2022 Form 10-K

We may be able to incur substantial additional indebtedness in the future.

The terms of our senior secured credit facilities do not fully prohibit us from doing so.

The senior secured credit facilities permit additional borrowing of $197.6 million on the revolving credit facility.

The senior secured credit facilities permit additional borrowing of

14 | December 30, 2023 Form 10-K

up to $246.8 million as of December 30, 2023, subject to customary asset-backed loan borrowing base and availability provisions.

If new debt is added to our current debt levels, the related risks that we now face could intensify.

5 unchanged sentences

The inability to borrow under the ABL Revolver may adversely affect our liquidity, financial position and results of operations.

As of December 31, 2022, the ABL Revolver had an outstanding amount of $72.0 million and outstanding letters of credit of $35.9 million, leaving $197.6 million of available borrowings as a source of liquidity based on the customary asset-backed loan borrowing base and availability provisions.

As of December 30, 2023, the ABL Revolver did not have an outstanding balance and had outstanding letters of credit of $40.9 million, with $246.8 million of available borrowings as a source of liquidity based on the customary asset-backed loan borrowing base and availability provisions.

We are subject to fluctuations in interest rates.

All of our indebtedness incurred under our senior secured credit facilities have variable interest rates.

Increases in borrowing rates will increase our cost of borrowing, which may adversely affect our results of operations and financial condition.

Our term loan and interest rate derivatives generally bear interest at a rate per annum equal to Daily Simple Secured Overnight Financing Rate (SOFR).

We may, and have in the past, enter into interest rate derivatives that hedge risks related to floating for fixed rate interest payments in order to reduce interest rate volatility, however there are no assurances that we will do so, or that we will be able to do so on terms favorable to us.

Further, we may choose not to maintain interest rate swaps with any of our variable rate indebtedness, or may only choose to maintain interest rate swaps with some, but not all, of our variable rate indebtedness.

The failure to meet certain financial covenants required by our credit agreements may materially and adversely affect assets, financial position, and cash flows.

5 unchanged sentences

The current credit market environment and other macro-economic challenges affecting the global economy may adversely impact our ability to borrow sufficient funds or sell assets or equity in order to pay existing debt.

We are subject to fluctuations in interest rates.

All of our indebtedness incurred under our senior secured credit facilities have variable interest rates.

Increases in borrowing rates will increase our cost of borrowing, which may adversely affect our results of operations and financial condition.

Furthermore, regulatory changes, such as the United Kingdom’s Financial Conduct Authority's phase out of the London Interbank Offered Rate (“LIBOR”), may adversely affect our floating rate debt and interest rate derivatives on our term loan.

Volatility and weakness in bank and capital markets may adversely affect credit availability and related financing costs for us.

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In addition, the adoption of new statutes and regulations, the implementation of recently enacted laws or new interpretations or the enforcement of older laws and regulations applicable to the financial markets or the financial services industry could result in a reduction in the amount of available credit or an increase in the cost of credit.

Disruptions in the financial markets can also

14 | December 31, 2022 Form 10-K

adversely affect our lenders, insurers, customers, and other counterparties.

Disruptions in the financial markets can also adversely affect our lenders, insurers, customers, and other counterparties.

Any of these results could cause a material adverse effect to our business, financial condition, and results of operations.

Legal, Regulatory, and Other External Risks:

15 | December 30, 2023 Form 10-K

We are exposed to adverse changes in currency exchange rates.

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dollar declines relative to the CNY or other currencies, we may experience cost increases on such purchases.

dollar increased in value relative to the CNY by 8.3% in 2022, decreased by 2.6% in 2021 and decreased by 6.5% in 2020.

dollar increased in value relative to the CNY by 2.9% in 2023, increased by 8.3% in 2022 and decreased by 2.6% in 2021.

Significant appreciation of the CNY or other currencies in countries where we source our products could adversely impact our profitability.

4 unchanged sentences

If we were required to write down all or part of our goodwill or indefinite-lived trade names, our financial condition and results of operations could be materially adversely affected.

We have $823.8 million of goodwill and $85.3 million of indefinite-lived trademarks and trade names recorded on our accompanying Consolidated Balance Sheets at December 31, 2022.

We are required to periodically determine if our goodwill or indefinite-lived trade names have become impaired, in which case we would write down the impaired portion.

While our fourth quarter 2022 impairment test determined the fair value of the Hardware Solutions and Protective Solutions reporting units exceeded their respective carrying by 4% and 6%, respectively, certain changes in the assumptions used for discount rate, projected revenue growth, and projected earnings growth could result in the fair value of either of these reporting units being less than its carrying value, in which case we would be required to write down goodwill to its fair value (see Management's Discussion & Analysis - Critical Accounting Policies and Estimates - Goodwill for additional information).

We have $825.0 million of goodwill and $85.5 million of indefinite-lived trademarks recorded on our accompanying Consolidated Balance Sheets at December 30, 2023.

We are required to periodically determine if our goodwill or indefinite-lived trademarks have become impaired, in which case we would write down the impaired portion.

While our fourth quarter 2023 impairment test determined the fair value of the Hardware Solutions and Protective Solutions reporting units exceeded their respective carrying by 4% and 6%, respectively, certain changes in the assumptions used for discount rate, projected revenue growth, and projected EBITDA growth could result in the fair value of either of these reporting units being less than its carrying value, in which case we would be required to write down goodwill to its fair value (see Management's Discussion & Analysis - Critical Accounting Policies and Estimates - Goodwill for additional information).

Additionally, a continued decline in our stock price may trigger an evaluation of the recoverability of the recorded goodwill and other long-lived assets.

If we were required to write down all or part of our goodwill or indefinite-lived trade names, our financial condition and net income could be materially adversely affected.

The COVID-19 pandemic could have a material adverse effect on our business, financial condition and results of operations.

Given the ongoing and dynamic nature of the COVID-19 virus and the worldwide response related thereto, it is difficult to predict the full impact of the ongoing COVID-19 pandemic on our business.

Though the COVID-19 pandemic appears to be receding, we could experience future reductions in demand for our products depending on the future course of the pandemic and related actions taken to curb its spread.

The increased demand for imported goods driven by a shift in consumer spending has also stressed the global supply chain from factory production capacity to transportation availability.

The impact of a continued COVID-19 outbreak or sustained measures taken to limit or contain the outbreak could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our suppliers could fail to deliver product in a timely manner as a result of disruption to the global supply chain due to the ongoing COVID-19 pandemic.

If such failures occur, we may be unable to provide products when requested by our customers.

Our business could be substantially disrupted if we were required to, or chose to, replace the products from one or more major suppliers with products or services from another source, especially if the replacement became necessary on short notice.

Any such disruption could increase our costs, decrease our operating efficiencies, and have a material adverse effect on our business, results of operations, and financial condition.

If we were required to record additional write downs of all or part of our goodwill or indefinite-lived trademarks, our financial condition and net income could be materially adversely affected.

We are subject to legal proceedings and legal compliance risks.

15 | December 31, 2022 Form 10-K

We are involved in various legal proceedings, which from time to time may involve lawsuits, state and federal governmental inquiries, audits and investigations, environmental matters, employment, tort, state false claims act, consumer litigation, and intellectual property litigation.

10 unchanged sentences

Although we believe our recorded tax estimates are reasonable, the ultimate outcome from any audit (or related litigation) could be materially different from the amounts reflected in our income tax provisions and accruals.

Future settlements of income tax audits may have a material effect on earnings between the period of initial recognition of tax estimates in the financial statements and the point of ultimate tax audit settlement.

Future settlements of income tax audits may have a material effect on

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earnings between the period of initial recognition of tax estimates in the financial statements and the point of ultimate tax audit settlement.

Additionally, it is possible that future income tax legislation and regulations or interpretations thereof in any jurisdiction to which we are subject to taxation may be enacted and such changes could have a material impact on our worldwide income tax provision beginning with the period during which such changes become effective.

5 unchanged sentences

• lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.

ITEM 1B - UNRESOLVED STAFF COMMENTS.

16 | December 31, 2022 Form 10-K

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

What changed 10-K

Item 1A. Risk Factors