What changed in this filing

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Item 1A. Risk Factors

2025-02-20 compared with 2024-02-22 · 32 added, 39 removed, 226 unchanged (24% of the section changed)

5 unchanged sentences

Risks Relating to Our Products and Demand for our Products:

8 | December 28, 2024 Form 10-K

Our sales are dependent upon the health and stability of the general economy.

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(See Note 17 - Concentration of Credit Risks of the Notes to Consolidated Financial Statements for additional information).

I f a large customer experiences a material decline in its business, that could have a negative impact on our ability to collect outstanding accounts receivable or continue future sales and business with that customer, which could have a material adverse effect on our financial condition, results of operations, and ability to generate future sales and cash flow from that customer.

This occurred on October 14, 2024, when True Value Company, LLC and certain of its affiliates (collectively, "True Value"), filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code that impaired the collectability of our accounts receivable and resulted in us recording a charge of $8.6 million in 2024.

To compete successfully, we must develop and commercialize a continuing stream of innovative new products that create consumer demand.

Our long-term success in the current competitive environment depends on our ability to develop and commercialize a continuing stream of innovative new products, including those in our new mass merchant fastener program, which create and maintain consumer demand.

Our long-term success in the current competitive environment depends on our ability to develop and commercialize a continuing stream of innovative new products which create and maintain consumer demand.

We also face the risk that our competitors will introduce innovative new products that compete with our products.

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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.

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Additionally, we may not achieve the anticipated benefits from any acquisition.

9 | December 28, 2024 Form 10-K

Unfavorable changes in the current economic environment may make it difficult to acquire businesses in order to further our growth strategy.

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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.

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

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

We import a majority of our products and rely on foreign sources, primarily China and Taiwan, to meet our supply demands at prices that support our current operating margins.

Substantially all of our import operations are subject to customs requirements, tariffs, and quotas set by governments through mutual agreements or unilateral actions.

tariffs on steel, aluminum, and other imported goods have materially increased the costs of many of our foreign sourced products, and any escalation in the tariffs will increase the impact.

tariffs on steel, aluminum, and other imported goods have materially increased the costs of many of our foreign sourced products, and any escalation in the tariffs will increase the impact, including without limitation recent tariffs against goods imported from China, Mexico, and Canada enacted on February 1, 2025 by the Trump Administration and any retaliatory tariffs issued in response thereto.

In order to sustain current operating margins while the tariffs are in effect, we must be able to increase prices with our customers and find alternative, similarly priced sources that are not subject to the tariffs.

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However, it is not always possible to replace a vendor on short notice without disruption in our operations, which may require more costly expedited transportation expense and replacement of a major vendor is often at higher prices.

Our ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, high demand for ocean freight, labor disputes, severe weather, or increased homeland security requirements in the U.S.

Our ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, high demand for ocean freight, labor disputes, hostilities or terrorism against ocean vessels or changes in shipping routes to avoid the same, severe weather, or increased homeland security requirements in the U.S.

and other countries.

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 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 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.

Further, COVID-19 outbreaks could cause temporary closures or labor shortages at our facilities, the facilities of our suppliers, or other disruptions throughout our supply chain.

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.

10 | December 28, 2024 Form 10-K

We are subject to inventory management risks:

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

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.

During 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.

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• inadequate intellectual property protection in foreign countries;

• the imposition of duties and tariffs and other trade barriers;

• the imposition of duties and tariffs and other trade barriers, including without limitation recent tariffs against goods imported from China, Mexico, and Canada enacted on February 1, 2025 by the Trump Administration and any retaliatory tariffs issued in response thereto;

• trade-protection measures, import or export licensing requirements such as Export Administration Regulations promulgated by the U.S.

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• violations of the United States Foreign Corrupt Practices Act;

11 | December 30, 2023 Form 10-K

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

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Risks Related to our Workforce:

11 | December 28, 2024 Form 10-K

Successful sales and marketing efforts depend on our ability to recruit and retain qualified employees.

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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.

In 2023, the Cybersecurity Incident related costs net of an expected insurance receivable totaled $1.0 million.

In the fourth quarter of 2024, we received proceeds from our insurance claim that exceeded the amount recorded as a receivable by $0.6 million.

These proceeds represented the cost associated with lost revenue and incremental expenses incurred.

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

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

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.

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, including a conversion to a new enterprise resource planning system currently scheduled to occur in over the next several years.

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.

As part of our business, we collect, process, and retain personal, sensitive and confidential personal information about our customers, employees, and suppliers.

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.

Despite the security measures we have in place, our facilities and

12 | December 28, 2024 Form 10-K

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.

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As a result, our practices may not have complied in the past or may not comply now or in the future with all such laws, regulations, requirements and obligations.

Our failure to take any steps perceived by the a regulatory body as appropriate to protect certain information may result in claims under various data privacy and security laws, which could severely impact our business.

Our failure to take any steps perceived by the regulatory body as appropriate to protect certain information may result in claims under various data privacy and security laws, which could severely impact our business.

Risks Related to Intellectual Property:

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Intellectual property litigation is costly.

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.

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.

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

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If we fail to obtain a required license or are unable to design around another company’s patent, we may be unable to make use of some of the affected products, which would reduce our revenue.

13 | December 28, 2024 Form 10-K

The defense costs and settlements for patent infringement lawsuits are not covered by insurance.

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If we are not successful in our defenses or are not successful in obtaining dismissals of any such lawsuit, legal fees or settlement costs could have a material adverse effect on our results of operations and financial position.

Recent changes in United States patent laws may limit our ability to obtain, defend, and/or enforce our patents.

The United States has recently enacted and implemented wide ranging patent reform legislation.

The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations.

In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.

Depending on actions by the United States Congress, the United States federal courts, and the United States Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future.

Similarly, changes in patent law and regulations in other countries or jurisdictions, changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future.

Risks Relating to Our Indebtedness:

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On December 28, 2024, our total indebtedness was $718.6 million, of which, $645.5 million is indebtedness issued under the term loan facility, and $11.1 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.

The Company also has an asset-based revolving credit facility with aggregate commitments of up to $375.0 million, an outstanding balance of $62.0 million, and aggregate availability of $188.7 million as of December 28, 2024, subject to customary asset-backed loan borrowing base and availability provisions.

Our substantial indebtedness could have important consequences.

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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

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.

The senior secured credit facilities permit additional borrowing of up to $188.7 million as of December 28, 2024, 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.

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

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.

As of December 28, 2024, the ABL Revolver had an outstanding balance of $62.0 million and had outstanding letters of credit of $41.6 million, with $188.7 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.

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

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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).

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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 2.9% in 2023, increased by 8.3% in 2022 and decreased by 2.6% in 2021.

dollar increased in value relative to the CNY by 2.8% in 2024, increased by 2.9% in 2023 and increased by 8.3% in 2022.

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

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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.

15 | December 28, 2024 Form 10-K

We have $828.6 million of goodwill and $84.9 million of indefinite-lived trademarks recorded on our accompanying Consolidated Balance Sheets at December 28, 2024.

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 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.

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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

16 | December 30, 2023 Form 10-K

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 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.

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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