# Hillman Solutions Corp. (HLMN) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Hillman Solutions Corp.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1822492/000182249222000036/hlmn-20211225.htm
Accession: 0001822492-22-000036
Filing date: 2022-03-16
Report date: 2021-12-25
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/HLMN/
All MD&A years: /company/HLMN/mda/
Next year: /company/HLMN/mda/fy2022/ (FY 2022)

Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion provides information which our management believes is relevant to an assessment and understanding of our operations and financial condition. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements and schedules thereto appearing elsewhere herein. In addition, see “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information”, as well as “Risk Factors” in Item 1A of this Annual Report.

General

Hillman is one of the largest providers of hardware-related products and related merchandising services to retail markets in North America. Our principal business is operated through our wholly-owned subsidiary, The Hillman Group, Inc. and its wholly-owned subsidiaries (collectively, “Hillman Group”), had net sales of approximately $1,426.0 million in 2021. Hillman Group sells its products to hardware stores, home centers, mass merchants, pet supply stores, and other retail outlets principally in the United States, Canada, Mexico, Latin America, and the Caribbean. Product lines include thousands of small parts such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; builder's hardware; personal protective equipment, such as gloves and eye-wear; and identification items, such as tags and letters, numbers, and signs. We support product sales with services that include design and installation of merchandising systems, maintenance of appropriate in-store inventory levels, and break-fix for our robotics kiosks.

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”). Unless the context indicates otherwise, the discussion of the Company and it's 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 1 - Basis of Presentation of the Notes to Consolidated Financial Statements for additional information.

In connection with the Closing, 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, 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, (2) refinance outstanding revolving credit loans, and (3) redeem in full senior notes due July 15, 2022 (the “6.375% Senior Notes”). Additionally, we fully redeemed the 11.6% Junior Subordinated

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Debentures. In connection with the refinancing we incurred a loss of $8.1 million and paid $38.7 million in financing fees, of which $21.0 million was recorded as a financing activity. See Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information.

On April 16, 2021, the Company completed the acquisition of Oz Post International, LLC ("OZCO"), a leading manufacturer of superior quality hardware that offers structural fasteners and connectors used for decks, fences and other outdoor structures, for a total purchase price of $38.9 million. The Company entered into an amendment ("OZCO Amendment") to the term loan credit agreement dated May 31, 2018 (the "2018 Term Loan"), which provided $35.0 million of incremental term loan funds to be used to finance the acquisition. Refer to Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information.

On November 22, 2021, the Company provided notice to the holders of its outstanding warrants (the “Warrants”) to purchase shares of the Company’s common stock, par value $0.0001 per share, that all such Warrants will be redeemed in accordance with the terms of such Warrants and the Warrant Agreement (the “Redemption”). As of December 25, 2021, the Company exercised and redeemed all of its warrants. The Company issued 6.4 million shares of common stock in connection with the Redemption. Refer to Note 8 - Warrants of the Notes to Consolidated Financial Statements for additional information.

Current Economic Conditions

Our business is impacted by general economic conditions in the North American and international markets, particularly the U.S. and Canadian retail markets including hardware stores, home centers, mass merchants, and other retailers.

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, and has since spread to a number of other countries, including the United States and Canada. In March 2020, the World Health Organization characterized COVID-19 as a pandemic. In 2020, the pandemic had a significant impact on our business, driving high demand for personal protective equipment, including face masks, disposable gloves, sanitizing wipes, and disinfecting sprays. During 2020, at the request of our customers, we began to sell certain categories of protective and cleaning equipment that are not a part of our core product offerings, including wipes, sprays, masks and bulk boxes of disposable gloves. High demand and limited supply of these products available for retail sale drove prices and cost up in 2020. In 2021, demand for certain protective product categories softened. As vaccines were rolled out, supply returned to a more normal level. In the third quarter of 2021, we evaluated our customers' needs and the market conditions and ultimately decided to exit certain protective product categories. In connection with the exit of these product lines, we recorded an inventory valuation charge of $32.0 million including the write off of inventory along with costs for donation and disposal of the remaining inventory on hand.

It is possible that the COVID-19 pandemic could further impact our business, the operations of our suppliers and vendors, and the operations of our customers, especially in light of the emergence of new variants which would cause a recurrence of high levels of infection and hospitalization. If we need to close any of our facilities or a critical number of our employees become too ill to work, our distribution network could be materially adversely affected in a rapid manner. Similarly, if our customers experience adverse business consequences due to COVID-19, demand for our products could also be materially adversely affected in a rapid manner. The Company continues to experience customer demand both during the year ended December 25, 2021 and during the subsequent period. Our teams continue to monitor demand disruption and there can be no assurance as to the level of demand that will prevail through the remainder of fiscal 2022. A large portion of our customers continue to operate and sell our products, with some customers reducing operations or restricting some access to portions of the retail space. The magnitude of the financial impact on our quarterly and annual results is dependent on the duration of the COVID-19 pandemic and how quickly the U.S. and Canada economies resume normal operations.

An extended period of global supply chain, workforce availability, and economic disruption could materially affect the Company's business, the results of operations, financial condition, access to sources of liquidity, and the carrying value of goodwill and intangible assets. While a triggering event did not occur during the year ended December 25, 2021, a prolonged COVID-19 pandemic could negatively impact net sales growth, change key assumptions and other global and regional macroeconomic factors that could result in future impairment charges for goodwill, indefinite-lived intangible assets and definite lived intangible assets. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, results of operations, financial condition, or liquidity will ultimately be impacted.

We are exposed to the risk of unfavorable changes in foreign currency exchange rates for the U.S. dollar versus local currency of our suppliers located primarily in China and Taiwan. We purchase a significant variety of our products for resale from multiple vendors located in China and Taiwan. The purchase price of these products is routinely negotiated in U.S. dollar amounts rather than the local currency of the vendors and our suppliers' profit margins decrease when the U.S. dollar declines in value relative to the local currency. This puts pressure on our suppliers to increase prices to us. The U.S. dollar increased in

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value relative to the CNY by approximately by 1.7% in 2019, decreased by 6.5% in 2020, and decreased by 2.6% in 2021. The U.S. dollar decreased in value relative to the Taiwan dollar by approximately 0.2% in 2019, decreased by 7.9% in 2020, and decreased by 1.4% in 2021.

In addition, the negotiated purchase price of our products may be dependent upon market fluctuations in the cost of raw materials such as steel, zinc, and nickel used by our vendors in their manufacturing processes. The final purchase cost of our products may also be dependent upon inflation or deflation in the local economies of vendors in China and Taiwan that could impact the cost of labor used in the manufacturing of our products. We identify the directional impact of changes in our product cost, but the quantification of each of these variable impacts cannot be measured as to the individual impact on our product cost with a sufficient level of precision.

We are also exposed to risk of unfavorable changes in Canadian dollar exchange rate versus the U.S. dollar. Our sales in Canada are denominated in Canadian dollars while a majority of the products are sourced in U.S. dollars. A weakening of the Canadian dollar versus the U.S. dollar results in lower sales in terms of U.S. dollars while the cost of sales remains unchanged. We have a practice of hedging some of our Canadian subsidiary's purchases denominated in U.S. dollars. The U.S. dollar decreased in value relative to the Canadian dollar by approximately 4.1% in 2019, decreased by 1.9% in 2020, and decreased by 0.2% in 2021. We may take pricing action, when warranted, in an attempt to offset a portion of product cost increases. The ability of our operating divisions to institute price increases and seek price concessions, as appropriate, is dependent on competitive market conditions.

We import large quantities of products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions. The U.S. tariffs on steel and aluminum and other imported goods has increased our product costs and required us to increase prices on the affected products.

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Product Revenues

The following is revenue based on products for our significant product categories and operating segments:

[[GREPCENT_TABLE]]
[["","Hardware and Protective Solutions","","Robotics and Digital Solutions","","Canada","","Total Revenue"],["Year Ended December 25, 2021"],["Fastening and hardware","$","740,088","","","$","\u2014","","","$","149,165","","","$","889,253"],["Personal protective","284,886","","","\u2014","","","397","","","285,283"],["Keys and key accessories","\u2014","","","190,697","","","1,826","","","192,523"],["Engraving","\u2014","","","58,555","","","77","","","58,632"],["Resharp","\u2014","","","276","","","\u2014","","","276"],["Consolidated","$","1,024,974","","","$","249,528","","","$","151,465","","","$","1,425,967"],["Year Ended December 26, 2020"],["Fastening and hardware","$","706,865","","","$","\u2014","","","$","131,493","","","$","838,358"],["Personal protective","317,527","","","\u2014","","","239","","","317,766"],["Keys and key accessories","\u2014","","","157,828","","","2,878","","","160,706"],["Engraving","\u2014","","","51,423","","","6","","","51,429"],["Resharp","\u2014","","","36","","","\u2014","","","36"],["Consolidated","$","1,024,392","","","$","209,287","","","$","134,616","","","$","1,368,295"],["Year Ended December 28, 2019"],["Fastening and hardware","$","607,247","","","$","\u2014","","","$","121,242","","","$","728,489"],["Personal protective","245,769","","","\u2014","","","\u2014","","","245,769"],["Keys and key accessories","\u2014","","","185,451","","","4,009","","","189,460"],["Engraving","\u2014","","","50,613","","","9","","","50,622"],["Resharp","\u2014","","","22","","","\u2014","","","22"],["Consolidated","$","853,016","","","$","236,086","","","$","125,260","","","$","1,214,362"]]
[[/GREPCENT_TABLE]]

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Results of Operations

The following table shows the results of operations for the years ended December 25, 2021 and December 26, 2020.

[[GREPCENT_TABLE]]
[["","Year Ended December 25, 2021","","Year Ended December 26, 2020"],["(dollars in thousands)","Amount","","% of Net Sales","","Amount","","% of Net Sales"],["Net sales","$","1,425,967","","","100.0","%","","$","1,368,295","","","100.0","%"],["Cost of sales (exclusive of depreciation and amortization shown separately below)","859,557","","","60.3","%","","781,815","","","57.1","%"],["Selling, general and administrative expenses","437,875","","","30.7","%","","398,472","","","29.1","%"],["Depreciation","59,400","","","4.2","%","","67,423","","","4.9","%"],["Amortization","61,329","","","4.3","%","","59,492","","","4.3","%"],["Management fees to related party","270","","","\u2014","%","","577","","","\u2014","%"],["Other income, net","(2,778)","","","(0.2)","%","","(5,250)","","","(0.4)","%"],["Income from operations","10,314","","","0.7","%","","65,766","","","4.8","%"],["Interest expense, net","68,779","","","4.8","%","","99,103","","","7.2","%"],["Refinancing charges","8,070","","","0.6","%","","\u2014","","","\u2014","%"],["Gain on change in fair value of warrant liability","(14,734)","","","(1.0)","%","","\u2014","","","\u2014","%"],["Mark-to-market adjustment of interest rate swap","(1,685)","","","(0.1)","%","","601","","","\u2014","%"],["Loss before income taxes","(50,116)","","","(3.5)","%","","(33,938)","","","(2.5)","%"],["Income tax benefit","(11,784)","","","(0.8)","%","","(9,439)","","","(0.7)","%"],["Net loss","$","(38,332)","","","(2.7)","%","","$","(24,499)","","","(1.8)","%"],["Adjusted EBITDA (1)","$","207,418","","","14.5","%","","$","221,215","","","16.2","%"]]
[[/GREPCENT_TABLE]]

(1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income to Adjusted EBITDA.

Year Ended December 25, 2021 vs December 26, 2020

Net Sales

Net sales for the year ended December 25, 2021 were $1,426.0 million compared to net sales of $1,368.3 million for the year ended December 26, 2020, an increase of approximately $57.7 million. Fastening and hardware sales increased $33.2 million driven by strong retail demand and price increases in the second half of 2021 in response to inflationary pressures in the market related to the cost of products, inbound and outbound transportation costs, and personnel costs. Key and engraving sales increased $40.0 million and sales in Canada increased by $16.8 million primarily due to improved retail foot traffic and access to key and engraving machines as compared to 2020 due to COVID-19. These increases were partially offset by sales of personal protective equipment, which decreased by $32.6 million due to lower demand for COVID-19 protective and cleaning materials in 2021.

Cost of Sales

Our Cost of Sales ("COS") is exclusive of depreciation and amortization expense. COS was $859.6 million, or 60.3% of net sales, for the year ended December 25, 2021, an increase of $77.7 million compared to $781.8 million, or 57.1% of net sales, for the year ended December 26, 2020. Cost of sales as a percentage of net sales was 320 bps higher than the prior year primarily due to an inventory valuation adjustment in our Hardware and Protective Solutions segment of $32.0 million related to strategic review of our COVID-19 related product offerings. In the third quarter of 2021, we evaluated our customers' needs and the market conditions and ultimately decided to exit certain protective product categories related to COVID-19, including cleaning wipes, disinfecting sprays, face masks, and certain disposable gloves. The remaining increase was primarily due to inflation in commodities and transportation.

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Expenses

Selling, general, and administrative ("SG&A") expenses were $437.9 million in the year ended December 25, 2021, an increase of $39.4 million compared to $398.5 million in the year ended December 26, 2020. The following changes in underlying trends impacted the change in SG&A expenses:

•Selling expense was $161.1 million in the year ended December 25, 2021, an increase of $11.5 million compared to $149.6 million for the year ended December 26, 2020. The increase in selling expense was primarily due to variable selling expenses, variable compensation, and travel and entertainment expense in the year ended December 25, 2021.

•Warehouse and delivery expenses were $172.9 million for the year ended December 25, 2021, an increase of $13.9 million compared to warehouse and delivery expenses of $159.0 million for the year ended December 26, 2020. The additional expense was primarily driven by higher sales volume and inflation in labor and shipping costs.

•General and administrative (“G&A”) expenses were $103.9 million in the year ended December 25, 2021, an increase of $14.1 million compared to $89.8 million in the year ended December 26, 2020. In the year ended December 25, 2021 we incurred increased stock based compensation of $10.1 million in connection with modification of awards associated with the Merger (see Note 13 - Stock Based Compensation of the Notes to Consolidated Financial Statements for additional information). We also incurred an additional $6.2 million of legal and consulting expense associated with the merger with Landcadia along with increased legal fees associated with our litigation with KeyMe (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information). These increases were partially offset by decreased variable compensation.

Depreciation expense of $59.4 million in the year ended December 25, 2021, was lower than the $67.4 million in the year ended December 26, 2020. The decrease was due to certain assets becoming fully depreciated.

Amortization expense of $61.3 million in the year ended December 25, 2021, was comparable to $59.5 million in the year ended December 26, 2020. The increase was primarily due to the acquisition of Ozco in the current year.

Other income of $2.8 million for the year ended December 25, 2021 decreased $2.5 million compared to $5.3 million in the year ended December 26, 2020. In the year ended December 25, 2021 other income consisted primarily of a $1.8 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob, (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information). We also recorded exchange rate gains of $0.9 million in the year ended December 25, 2021. In the year ended December 26, 2020, other income consisted primarily of a $3.5 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob. Additionally we received $1.8 million in cash from the Canadian government as part of the Canada Emergency Wage Subsidy program for relief during the second quarter shutdown in Canada during the COVID-19 pandemic. These gains were partially offset by exchange rate losses of $0.7 million.

Interest expense, net, of $68.8 million for the year ended December 25, 2021 decreased $30.3 million, compared to $99.1 million for the year ended December 26, 2020. This decrease was primarily due to the refinancing activities in the third quarter of 2021 leading to lower outstanding debt balances in the year ended December 25, 2021 (see Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information).

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Results of Operations

The following table shows the results of operations for the years ended December 26, 2020 and December 28, 2019.

[[GREPCENT_TABLE]]
[["","Year Ended December 26, 2020","","Year Ended December 28, 2019"],["(dollars in thousands)","Amount","","% of Total","","Amount","","% of Total"],["Net sales","$","1,368,295","","","100.0","%","","$","1,214,362","","","100.0","%"],["Cost of sales (exclusive of depreciation and amortization shown separately below)","781,815","","","57.1","%","","693,881","","","57.1","%"],["Selling, general and administrative expenses","398,472","","","29.1","%","","382,131","","","31.5","%"],["Depreciation","67,423","","","4.9","%","","65,658","","","5.4","%"],["Amortization","59,492","","","4.3","%","","58,910","","","4.9","%"],["Management fees to related party","577","","","\u2014","%","","562","","","\u2014","%"],["Other (income) expense, net","(5,250)","","","(0.4)","%","","5,525","","","0.5","%"],["Income from operations","65,766","","","4.8","%","","7,695","","","0.6","%"],["Interest expense, net","99,103","","","7.2","%","","113,843","","","9.4","%"],["Mark-to-market adjustment of interest rate swap","601","","","\u2014","%","","2,608","","","0.2","%"],["Loss before income taxes","(33,938)","","","(2.5)","%","","(108,756)","","","(9.0)","%"],["Income tax benefit","(9,439)","","","(0.7)","%","","(23,277)","","","(1.9)","%"],["Net loss","$","(24,499)","","","(1.8)","%","","$","(85,479)","","","(7.0)","%"],["Adjusted EBITDA (1)","$","221,215","","","16.2","%","","$","178,658","","","14.7","%"]]
[[/GREPCENT_TABLE]]

(1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income to Adjusted EBITDA.

Year Ended December 26, 2020 vs Year Ended December 28, 2019

Net Sales

Net sales for the year ended December 26, 2020 were $1,368.3 million, compared to net sales of $1,214.4 million for the year ended December 28, 2019. Sales of personal protective equipment increased by $71.8 million due to high demand for gloves and face masks. Fastening and hardware sales increased $99.6 million driven by strong sales with big box retailers and traditional hardware stores. Finally, sales in Canada increased by $9.4 million primarily due to strong retail demand for our products partially offset by in store shopping restrictions during the second quarter which lead to lower demand during that period. These increases were offset by a decrease of $27.6 million in key sales in the United States. Key sales were negatively impacted by restricted access to key duplicating kiosks and retail key duplication services as a result of COVID-19. As the economy began to reopen, our service team worked closely with our customers to restore access to key machines.

Cost of Sales

Our COS is exclusive of depreciation and amortization expense. Our cost of sales was $781.8 million, or 57.1% of net sales, for the year ended December 26, 2020, an increase of $87.9 million compared to $693.9 million, or 57.1% of net sales, for the year ended December 28, 2019. Cost of goods sold as a percentage of net sales was consistent with the prior year primarily as a result of the following offsetting factors:

•Sourcing savings initiatives that we achieved in 2020, and

•2020 included a higher mix of construction fastener products and personal protective equipment.

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Expenses

Selling, general, and administrative ("SG&A") expenses were $398.5 million in the year ended December 26, 2020 an increase of $16.3 million compared to $382.1 million in the year ended December 28, 2019. The following changes in underlying trends impacted the change in SG&A expenses:

•Selling expense was $149.6 million in the year ended December 26, 2020, a decrease of $7.2 million compared to $156.8 million for the year ended December 28, 2019. The decrease in selling expense was primarily due to lower marketing and travel and entertainment expense in the year ended December 26, 2020. Additionally, we had lower compensation cost as a result of the restructuring in our U.S. operations that began in the fourth quarter of 2019.

•Warehouse and delivery expenses were $159.0 million for the year ended December 26, 2020, an increase of $16.7 million compared to warehouse and delivery expenses of $142.3 million for the year ended December 28, 2019. The additional expense was primarily due to higher variable compensation and freight expenses related to increased sales. The remaining increase was due to increased labor driven by premium pay offered to warehouse workers during the COVID-19 outbreak along with additional supplies and personal protective equipment for our facilities.

•G&A expenses were $89.8 million in the year ended December 26, 2020 an increase of $6.8 million compared to $83.0 million in the year ended December 28, 2019. The increase was primarily due to increased legal fees associated with our ongoing litigation with KeyMe (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information). Additionally, we incurred increased incentive compensation expense in the year ended December 26, 2020.

Depreciation expense was $67.4 million in the year ended December 26, 2020 compared to $65.7 million in the year ended December 28, 2019. The increase was primarily driven by our investment in key duplication machines and merchandising racks.

Amortization expense was $59.5 million in the year ended December 26, 2020 compared to $58.9 million in the year ended December 28, 2019.

Other income was $5.3 million for the year ended December 26, 2020, as compared to a loss of $5.5 million in the year ended December 28, 2019. In the year ended December 26, 2020 other income consisted primarily of a $3.5 million gain on the revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob, (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information). Additionally we received $1.8 million in cash from the Canadian government as part of the Canada Emergency Wage Subsidy program for relief during the second quarter shutdown in Canada during the COVID-19 pandemic. These gains were partially offset by exchange rate losses of $0.7 million. In the year ended December 28, 2019, other expense consisted of an impairment charge of $7.0 million related to the loss on the disposal of our FastKey self-service key duplicating kiosks. This loss was offset by a gain on the sale of machinery and equipment of $0.4 million (see Note 17 - Restructuring of the Notes to Consolidated Financial Statements for additional information), and exchange rate gains of $0.7 million.

Interest expense, net, was $99.1 million for the year ended December 26, 2020, a decrease of $14.7 million, compared to $113.8 million for the year ended December 28, 2019. This decrease was primarily due to lower interest rates combined with lower outstanding debt balances in the year ended December 26, 2020.

Results of Operations – Operating Segments

The following table provides supplemental information of our sales and profitability by operating segment (in thousands):

Hardware and Protective Solutions

[[GREPCENT_TABLE]]
[["","Year Ended December 25, 2021","","Year Ended December 26, 2020","","Year Ended December 28, 2019"],["Hardware and Protective Solutions"],["Segment Revenues","$","1,024,974","","","$","1,024,392","","","$","853,016"],["Segment (Loss) Income from Operations","$","(17,185)","","","$","67,313","","","$","14,204"],["Adjusted EBITDA (1)","$","113,738","","","$","153,765","","","$","101,319"]]
[[/GREPCENT_TABLE]]

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(1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income to Adjusted EBITDA.

Year Ended December 25, 2021 vs December 26, 2020

Net Sales

Hardware and Protective Solutions net sales for the year ended December 25, 2021 increased by $0.6 million from the prior year. Fastening and hardware sales increased $33.2 million driven by strong retail demand and price increases in the second half of 2021 in response to inflationary pressures in the market related to the cost of products, inbound and outbound transportation costs, and personnel costs. This increase was partially offset by sales of personal protective equipment, which decreased by $32.6 million due to lower demand for COVID-19 protective and cleaning equipment in 2021.

(Loss) Income from Operations

(Loss) Income from operations of our Hardware and Protective Solutions operating segment decreased by approximately $84.5 million in the year ended December 25, 2021 to a loss of $17.2 million from income of $67.3 million in the year ended December 26, 2020. On flat sales, we experienced higher cost of sales and selling, general and administrative expenses as outlined below:

•Cost of sales increased by approximately $61.4 million in the year ended December 25, 2021 to $683.7 million as compared to $622.3 million in the year ended December 26, 2020. Cost of sales as a percentage of net sales was 66.7% in the year ended December 25, 2021, an increase of 590 basis points from 60.8% in the year ended December 26, 2020. In the third quarter of 2021, we recorded an inventory valuation adjustment in our Hardware and Protective Solutions segment of $32.0 million primarily related to strategic review of our COVID-19 related product offerings. In the third quarter of 2021, after considering our customers' ongoing needs along with market demand, pricing, and more widespread product availability, we exited the market for certain products related to COVID-19 including cleaning wipes, disinfecting sprays, face masks, and certain disposable gloves. The remaining increase in cost of sales as a percentage of net sales was primarily driven by the inflation in commodities and inbound transportation.

•Warehouse expense increased $12.2 million in the year ended December 25, 2021 compared to the year ended December 26, 2020. The additional expense was primarily driven by inflation in labor and shipping costs.

•G&A expense increased $8.5 million in the year ended December 25, 2021 compared to the year ended December 26, 2020. The additional expense was primarily due to increased legal and consulting expense associated with the merger with Landcadia along with increased stock compensation expense.

Year Ended December 26, 2020 vs December 28, 2019

Net Sales

Net sales for our Hardware and Protective Solutions operating segment increased by $171.4 million in the year ended December 26, 2020 primarily due to:

•Fastening and hardware sales increased $99.6 million due to strong demand from big box retailers and traditional hardware stores along with price increases initiated in the second quarter of 2019 to offset the impact of tariffs.

•Sales of personal protective equipment increased by $71.8 million due to high demand driven by COVID-19.

Income from Operations

Income from operations of our Hardware and Protective Solutions segment increased by approximately $53.1 million in the year ended December 26, 2020 to $67.3 million as compared to $14.2 million in the year ended December 28, 2019. The increased sales noted above were partially offset by increased cost of sales and increased selling, general and administrative expenses as outlined below:

Cost of sales as a percentage of net sales was 60.8% in the year ended December 26, 2020, a decrease of 1.2 % from 62.0% in the year ended December 28, 2019. The decrease in cost of sales as a percentage of net sales was primarily driven by $7.2 million for payments made to customers in the year ended December 28, 2019 associated with the new product line roll outs for construction fastener products and builders hardware combined with sourcing savings. This was partially offset by a higher mix of construction fastener products and personal protective solutions.

29

Operating expenses increased $25.1 million in our Hardware and Protective Solutions segment primarily due to:

•Warehouse expense increased $17.7 million in the year ended December 26, 2020 compared to the year ended December 28, 2019. The additional expense was primarily due to increased labor driven by premium pay offered to warehouse workers during the COVID-19 pandemic along with additional supplies and personal protective equipment for our facilities. The remaining increase was primarily due to higher variable and incentive compensation expense related to increased sales.

•General and administrative (“G&A”) expenses increased $2.9 million in the year ended December 26, 2020. The increase was primarily due to increased incentive compensation in the year ended December 26, 2020.

•Depreciation expense increased $2.3 million in the year ended December 26, 2020 due to our merchandising racks.

Robotics and Digital Solutions

[[GREPCENT_TABLE]]
[["","Year Ended December 25, 2021","","Year Ended December 26, 2020","","Year Ended December 28, 2019"],["Robotics and Digital Solutions"],["Segment Revenues","$","249,528","","","$","209,287","","","$","236,086"],["Segment Income from Operations","$","23,558","","","$","3,177","","","$","3,385"],["Adjusted EBITDA (1)","$","83,082","","","$","60,265","","","$","70,966"]]
[[/GREPCENT_TABLE]]

(1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income to Adjusted EBITDA.

Year Ended December 25, 2021 vs December 26, 2020

Net Sales

Net sales for our Robotics and Digital Solutions operating segment increased $40.2 million in the year ended December 25, 2021 compared to the net sales for 2020 primarily due to an increase of $32.9 million in key sales. Key and engraving sales were both negatively impacted by low retail foot traffic and limited access to key and engraving machines in 2020 due to COVID-19.

Income from Operations

Income from operations of our Robotics and Digital Solutions operating segment increased by approximately $20.4 million in the year ended December 25, 2021 to $23.6 million from $3.2 million in the year ended December 26, 2020. The increased sales were offset by increased SG&A as outlined below:

•Selling expense increased $6.9 million in the year ended December 25, 2021 compared to the year ended December 26, 2020. The increase was primarily due to higher sales commissions for kiosk sales and increased travel and compensation expense.

•General and administrative expense increased by $5.6 million primarily due to increased legal fees associated with our ongoing litigation with KeyMe, Inc. (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information) along with increased legal and consulting costs associated with the merger with Landcadia.

•Depreciation expense decreased by $5.7 million due to assets becoming fully depreciated.

Year Ended December 26, 2020 vs December 28, 2019

Net Sales

Net sales for our Robotics and Digital Solutions operating segment decreased $26.8 million in the year ended December 26, 2020 as compared to net sales for 2019 primarily due to a decrease of $27.6 million in key sales. Key sales were negatively impacted by reduced retail foot traffic and restricted access to key duplicating kiosks along with retail key duplication services as a result of COVID-19. As the economy started to reopen, our service team worked closely with our customers to restore access to key duplicating kiosks.

30

Income from Operations

Income from operations of our Robotics and Digital Solutions operating segment decreased by approximately $0.2 million for the year ended December 26, 2020 to $3.2 million as compared to $3.4 million in the year ended December 28, 2019. The decrease in net sales was offset by decreased SG&A and other income as outlined below:

•Selling expense decreased $6.7 million in the year ended December 26, 2020 compared to the year ended December 28, 2019. The decrease was primarily due to lower sales commissions for kiosk sales and reduced travel and compensation expense.

•Warehouse expense decreased $1.8 million in the year ended December 26, 2020 compared to the year ended December 28, 2019. The decrease was primarily due to lower freight and shipping expenses driven by lower sales volume.

•General and administrative expense increased by $4.1 million primarily due to increased legal fees associated with our ongoing litigation with KeyMe, Inc. (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

•Other income increased by $10.4 million in the year ended December 26, 2020 compared to the year ended December 28, 2019. Other income was $3.5 million in the year ended December 26, 2020 and was driven by revaluation of the contingent consideration associated with the acquisition of Resharp and Instafob (see Note 16 - Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information). In the year ended December 28, 2019 other expense was comprised primarily of an impairment charge of $7.7 million related to the loss on the disposal of our FastKey self-service key duplicating kiosks and related assets.

Canada

[[GREPCENT_TABLE]]
[["","Year Ended December 25, 2021","","Year Ended December 26, 2020","","Year Ended December 28, 2019"],["Canada"],["Segment Revenues","$","151,465","","","$","134,616","","","$","125,260"],["Segment Income (Loss) from Operations","$","3,941","","","$","(4,724)","","","$","(9,894)"],["Adjusted EBITDA (1)","$","10,598","","","$","7,185","","","$","6,373"]]
[[/GREPCENT_TABLE]]

(1)Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income to Adjusted EBITDA.

Year Ended December 25, 2021 vs December 26, 2020

Net Sales

Net sales in our Canada operating segment increased by $16.8 million in the year ended December 25, 2021 primarily due to strong retail demand for our products. Sales in 2020 were negatively impacted by low retail foot traffic due to COVID-19.

Income (Loss) from Operations

Driven by higher sales, income from operations of our Canada segment increased by $8.7 million in the year ended December 25, 2021 to income of $3.9 million as compared to a loss of $4.7 million in the year ended December 26, 2020. Additionally, we had $0.5 million in restructuring costs in 2021 compared to $4.8 million in 2020, see Note 17 - Restructuring of the Notes to Consolidated Financial Statements for additional details.

Year Ended December 26, 2020 vs December 28, 2019

Net Sales

Net sales in our Canada operating segment increased by $9.4 million in the year ended December 26, 2020 primarily due to strong retail demand for our products partially offset by in store shopping restrictions in the second quarter which lead to lower demand during that period

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Loss from Operations

Income from operations of our Canada segment increased by $5.2 million in the year ended December 26, 2020 to  a loss of $4.7 million as compared to a loss of $9.9 million in the year ended December 28, 2019. The increase in sales combined with lower COS as percentage of sales was partially offset by higher other expense in the year ended December 28, 2019.

•COS as a percentage of net sales decreased 1.5% from 69.1% in the year ended December 28, 2019 to 67.6% in the year ended December 26, 2020 primarily due to $4.3 million of inventory valuation adjustments taken in 2019 in our Canada segment driven by exiting certain lines of business and rationalizing stock keeping units (see Note 17 - Restructuring of the Notes to Consolidated Financial Statements for additional information).

•Other income and expense increased $0.7 million to income of $1.8 million in the current year compared with income of $1.1 million in the year ended December 28, 2019. Other income for the year ended December 26, 2020 consisted primarily of $1.8 million in cash received from the Canadian government as a part of the Canada Emergency Wage Subsidy program for relief during the second quarter shutdown in Canada during the COVID-19 outbreak. This was partially offset by exchange rate losses of $0.6 million. Other income for the year ended December 28, 2019 included a gain on the sale of machinery and equipment of $0.4 million (see Note 17 - Restructuring of the Notes to Consolidated Financial Statements for additional information) and exchange rate gains of $0.7 million.

Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP financial measure and is the primary basis used to measure the operational strength and performance of our businesses as well as to assist in the evaluation of underlying trends in our businesses. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of our businesses and from intangible assets recognized in business combinations. It is also unaffected by our capital and tax structures, as our management excludes these results when evaluating our operating performance. Our management and Board of Directors use this financial measure to evaluate our consolidated operating performance and the operating performance of our operating segments and to allocate resources and capital to our operating segments. Additionally, we believe that Adjusted EBITDA is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies.

32

The following table presents a reconciliation of Net loss, the most directly comparable financial measures under GAAP, to Adjusted EBITDA for the periods presented:

[[GREPCENT_TABLE]]
[["(dollars in thousands)","Year Ended December 25, 2021","","Year EndedDecember 26, 2020","","Year Ended December 28, 2019"],["Net loss","$","(38,332)","","","$","(24,499)","","","$","(85,479)"],["Income tax benefit","(11,784)","","","(9,439)","","","(23,277)"],["Interest expense, net","61,237","","","86,774","","","101,613"],["Interest expense on junior subordinated debentures","7,775","","","12,707","","","12,608"],["Investment income on trust common securities","(233)","","","(378)","","","(378)"],["Depreciation","59,400","","","67,423","","","65,658"],["Amortization","61,329","","","59,492","","","58,910"],["Mark-to-market adjustment on interest rate swaps","(1,685)","","","601","","","2,608"],["EBITDA","$","137,707","","","$","192,681","","","$","132,263"],["Stock compensation expense","15,255","","","5,125","","","2,981"],["Management fees","270","","","577","","","562"],["Facility exits (1)","\u2014","","","3,894","","","\u2014"],["Restructuring (2)","910","","","4,902","","","13,749"],["Litigation expense (3)","12,602","","","7,719","","","1,463"],["Acquisition and integration expense (4)","11,123","","","9,832","","","12,557"],["Change in fair value of contingent consideration","(1,806)","","","(3,515)","","","\u2014"],["Change in fair value of warrant liability (5)","(14,734)","","","\u2014","","","\u2014"],["Buy-back expense (6)","2,000","","","\u2014","","","7,196"],["Asset impairment charges (7)","\u2014","","","\u2014","","","7,887"],["Refinancing costs (8)","8,070","","","\u2014","","","\u2014"],["Inventory revaluation charges(9)","32,026","","","\u2014","","","\u2014"],["Anti-dumping duties(10)","3,995","","","\u2014","","","\u2014"],["Adjusted EBITDA","$","207,418","","","$","221,215","","","$","178,658"]]
[[/GREPCENT_TABLE]]

(1)Facility exits include costs associated with the closure of facilities in Parma, Ohio, San Antonio, Texas, and Dallas, Texas.

(2)Restructuring includes restructuring costs associated with restructuring in our Canada segment announced in 2018, including facility consolidation, stock keeping unit rationalization, severance, sale of property and equipment, and charges relating to exiting certain lines of business. Also included is restructuring in our United Stated business announced in 2019, including severance related to management realignment and the integration of sales and operating functions. See Note 17 - Restructuring of the Notes to the Consolidated Financial Statements for additional information. Finally, includes consulting and other costs associated with streamlining our manufacturing and distribution operations.

(3)Litigation expense includes legal fees associated with our litigation with KeyMe, Inc. and Hy-Ko Products Company LLC (see Note 18 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).

(4)Acquisition and integration expense includes professional fees, non-recurring bonuses, and other costs related to historical acquisitions, including the merger with Landcadia III.

(5)The warrant liabilities are marked to market each period end. (see Note 8 - Warrants of the Notes to Consolidated Financial Statements for additional information).

(6)Infrequent buy backs associated with new business wins.

33

(7)Asset impairment charges includes impairment losses for the disposal of FastKey self-service key duplicating kiosks and related assets.

(8)In connection with the merger,we refinanced our Term Credit Agreement and ABL Revolver. Proceeds from the refinancing were used to redeem in full senior notes due July 15, 2022 (the “6.375% Senior Notes”) and the 11.6% Junior Subordinated Debentures.

(9)In the third quarter of 2021, we recorded an inventory valuation adjustment in our Hardware and Protective Solutions segment of $32.0 million primarily related to strategic review of our COVID-19 related product offerings. We evaluated our customers' needs and the market conditions and ultimately decided to exit the following protective product categories related to COVID-19; cleaning wipes, disinfecting sprays, face masks, and certain disposable gloves (see the Current Economic Conditions section of Management's discussion and analysis for additional information).

(10)Anti-dumping duties assessed related to the nail business for prior year purchases.

34

The following tables presents a reconciliation of segment operating income, the most directly comparable financial measures under GAAP, to segment Adjusted EBITDA for the periods presented (amounts in thousands):

[[GREPCENT_TABLE]]
[["Year Ended December 25, 2021","Hardware and Protective Solutions","","Robotics and Digital Solutions","","Canada","","Consolidated"],["Operating (loss) income","$","(17,185)","","","$","23,558","","","$","3,941","","","$","10,314"],["Depreciation and amortization","69,264","","","45,305","","","6,160","","","120,729"],["Stock compensation expense","13,134","","","2,121","","","\u2014","","","15,255"],["Management fees","232","","","38","","","\u2014","","","270"],["Facility exits","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Restructuring","403","","","10","","","497","","","910"],["Litigation expense","\u2014","","","12,602","","","\u2014","","","12,602"],["Acquisition and integration expense","9,869","","","1,254","","","\u2014","","","11,123"],["Buy-back expense","2,000","","","\u2014","","","\u2014","","","2,000"],["Inventory revaluation charges","32,026","","","\u2014","","","\u2014","","","32,026"],["Anti-dumping duties","3,995","","","\u2014","","","\u2014","","","3,995"],["Change in fair value of contingent consideration","\u2014","","","(1,806)","","","\u2014","","","(1,806)"],["Adjusted EBITDA","$","113,738","","","$","83,082","","","$","10,598","","","$","207,418"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Year Ended December 26, 2020","Hardware and Protective Solutions","","Robotics and Digital Solutions","","Canada","","Consolidated"],["Operating (loss) income","$","67,313","","","$","3,177","","","$","(4,724)","","","$","65,766"],["Depreciation and amortization","69,164","","","50,670","","","7,081","","","126,915"],["Stock compensation expense","4,464","","","661","","","\u2014","","","5,125"],["Management fees","502","","","75","","","\u2014","","","577"],["Facility exits","3,894","","","\u2014","","","\u2014","","","3,894"],["Restructuring","74","","","\u2014","","","4,828","","","4,902"],["Litigation expense","\u2014","","","7,719","","","\u2014","","","7,719"],["Acquisition and integration expense","8,284","","","1,548","","","\u2014","","","9,832"],["Change in fair value of contingent consideration","\u2014","","","(3,515)","","","\u2014","","","(3,515)"],["Corporate and intersegment adjustments","70","","","(70)","","","\u2014","","","\u2014"],["Adjusted EBITDA","$","153,765","","","$","60,265","","","$","7,185","","","$","221,215"]]
[[/GREPCENT_TABLE]]

35

[[GREPCENT_TABLE]]
[["Year Ended December 28, 2019","Hardware and Protective Solutions","","Robotics and Digital Solutions","","Canada","","Consolidated"],["Operating (loss) income","$","14,204","","","$","3,385","","","$","(9,894)","","","$","7,695"],["Depreciation and amortization","65,369","","","52,924","","","6,275","","","124,568"],["Stock compensation expense","2,436","","","545","","","\u2014","","","2,981"],["Management fees","562","","","\u2014","","","\u2014","","","562"],["Restructuring","3,163","","","708","","","9,878","","","13,749"],["Litigation expense","\u2014","","","1,463","","","\u2014","","","1,463"],["Acquisition and integration expense","8,837","","","3,720","","","","","12,557"],["Buy-back expense","7,196","","","\u2014","","","\u2014","","","7,196"],["Asset impairment charges","\u2014","","","7,773","","","114","","","7,887"],["Corporate and intersegment adjustments","(448)","","","448","","","\u2014","","","\u2014"],["Adjusted EBITDA","$","101,319","","","$","70,966","","","$","6,373","","","$","178,658"]]
[[/GREPCENT_TABLE]]

Income Taxes

Year Ended December 25, 2021 vs December 26, 2020

In the year ended December 25, 2021, we recorded an income tax benefit of $11.8 million on a pre-tax loss of $50.1 million. The effective income tax rate was 23.5% for the year ended December 25, 2021. In the year ended December 26, 2020, we recorded income tax benefit of $9.4 million on a pre-tax loss of $33.9 million. The effective income tax rate was 27.8% for the year ended December 26, 2020.

In 2021, the Company's effective tax rate differed from the federal statutory tax rate primarily due to the decrease in the fair value of the warrant liability. In addition, the rate differed for 2021 due to state income taxes and certain non-deductible expenses. In 2020, the Company's effective tax rate differed from the federal statutory tax rate primarily due to state and foreign income taxes.

Year Ended December 26, 2020 vs December 28, 2019

In the year ended December 26, 2020, we recorded an income tax benefit of $9.4 million on a pre-tax loss of $33.9 million. The effective income tax rate was 27.8% for the year ended December 26, 2020. In the year ended December 28, 2019, we recorded income tax benefit of $23.3 million on a pre-tax loss of $108.8 million. The effective income tax rate was 21.4% for the year ended December 28, 2019.

On March 27, 2020, the CARES Act was signed into law by the President of the United States.  The CARES Act included, among other things, corporate income tax relief in the form of accelerated alternative minimum tax ("AMT") refunds, allowed employers to defer certain payroll tax payments throughout 2020, and provided favorable corporate interest deductions for the 2019 and 2020 periods. During 2020, the Company received an accelerated AMT income tax refund of $1.1 million and was able to defer $7.1 million of payroll taxes. The CARES Act interest modification provisions allowed for increased interest deductions.

In 2020, the Company's effective tax rate differed from the federal statutory tax rate primarily due to state and foreign income taxes. In 2019, the Company's effective tax rate differed from the federal statutory tax rate primarily due to state and foreign income taxes. The Company recorded $1.0 million in income tax expense attributable to state NOLs that are expected to expire prior to their utilization.

36

Liquidity and Capital Resources

Cash Flows

The statements of cash flows reflect the changes in cash and cash equivalents for the years ended December 25, 2021, December 26, 2020, and December 28, 2019 by classifying transactions into three major categories: operating, investing, and financing activities.

Operating Activities

Net cash used by operating activities for the year ended December 25, 2021 was approximately $110.3 million. Operating cash flows for the year ended December 25, 2021 were unfavorably impacted by increased inventory driven by inflation and higher on hand amounts to maintain service levels with extended lead times, and payments made for long term incentive programs and other variable compensation. Net cash provided by operating activities for the year ended December 26, 2020 was approximately $92.1 million and was favorably impacted by the reduced net loss. Net cash provided by operating activities for the year ended December 28, 2019 was approximately $52.4 million and was unfavorably impacted by the lower net income, partially offset by improvements in working capital.

Investing Activities

Net cash used for investing activities was $90.5 million, $46.1 million, and $53.5 million for the years ended December 25, 2021, December 26, 2020 and December 28, 2019, respectively. In the year ended December 25, 2021, we acquired Oz Post International, LLC ("OZCO") for approximately $38.9 million, (see Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information). In the year ending December 26, 2020 we acquired Instafob for approximately $0.8 million. In the year ended December 28, 2019 we acquired Resharp and West Coast Washers for approximately $6.1 million. Finally, cash was used in all periods to invest in our investment in new key duplicating kiosks and machines and merchandising racks. In 2019, we also received $10.4 million in cash proceeds from the sale of a building and machinery in Canada and a building in Georgia.

Financing Activities

Net cash provided by financing activities was $193.3 million for the year ended December 25, 2021. We received cash of $455.2 million on the recapitalization of Landcadia, net of transaction costs and $363.3 million from the issuance of common stock to certain investors (the “PIPE Investors”).

In connection with the Merger, we refinanced all of our outstanding debt. On July 14, 2021 we entered into a new 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). Concurrently with the Term Credit Agreement, we also entered into an amendment to their existing asset-based revolving credit agreement (the “ABL Amendment”) and extended the maturity and conformed certain provisions to the Term Credit Agreement. The proceeds 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, (2) refinance outstanding revolving credit loans, and (3) redeem in full senior notes due July 15, 2022 (the “6.375% Senior Notes”), issued by the Borrower and as a result the 6.375% Senior Notes are redeemed, satisfied and discharged and no longer in effect. Additionally, we fully redeemed the 11.6% Junior Subordinated Debentures. In connection with the refinancing we incurred a loss of $8.1 million and paid $38.7 million in financing fees, of which $21.0 million was recorded as a financing activity. See Note 9 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information.

In the second quarter of 2021, we entered into an amendment ("OZCO Amendment") to the term loan credit agreement dated May 31, 2018, which provided $35.0 million of incremental term loan funds to be used to finance the acquisition, (see Note 6 - Acquisitions of the Notes to Consolidated Financial Statements for additional information).

In the year ended December 25, 2021 we used $8.0 million to make regularly scheduled payments under our old Term Credit agreement. Our revolver draws, net of repayments, provided cash of $21.0 million in the year ended December 25, 2021. Finally, in the year ended December 25, 2021 the Company received $2.7 million on the exercise of stock options.

Net cash used for financing activities was $45.1 million for the year ended December 26, 2020. The borrowings on revolving credit loans provided $99.0 million. The Company used $140.0 million of cash for the repayment of revolving credit loans and $10.6 million for principal payments on the senior term loans. In the year ended December 26, 2020 the Company received $7.3 million on the exercise of stock options.

37

Net cash used for financing activities was $7.1 million for the year ended December 28, 2019. The borrowings on revolving credit loans provided $43.5 million. The Company used $38.7 of cash for the repayment of revolving credit loans and $10.6 million for principal payments on the senior term loans. On November 15, 2019, we amended the ABL Revolver agreement which provided an additional $100.0 million of revolving credit, bringing the total available to $250.0 million. In connection with the amendment we paid $1.4 million in fees.

Liquidity

We believe that projected cash flows from operations and ABL Revolver availability will be sufficient to fund working capital and capital expenditure needs for the next 12 months. As of December 25, 2021, the ABL Revolver had an outstanding amount of $93.0 million and outstanding letters of credit of $32.9 million leaving $124.1 million of available borrowings as a source of liquidity. Our material cash requirements for known contractual obligations include capital expenditures, debt, and lease obligations, each of which are discussed in more detail earlier in this section and in the footnotes to the consolidated financial statements. We believe projected cash flows from operations and ABL Revolver availability will be sufficient to meet our liquidity and capital needs for these items in the short-term and also in the long-term beyond the next 12 months. We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current distribution needs and are fulfilled by our suppliers within the short term.

Our working capital (current assets minus current liabilities) position of $391.0 million as of December 25, 2021 represents an increase of $149.2 million from the December 26, 2020 level of $241.8 million. The COVID-19 pandemic has not, as of the date of this report, had a materially negative impact on the Company's liquidity position. We expect to generate sufficient operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets, although there can be no assurance of our ability to do so. However, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets, which, depending on future developments, could impact our capital resources and liquidity in the future.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

Related Party Transactions

The information required by this Item is set forth in the section entitled Related Party Transactions in the 2022 Proxy Statement and is hereby incorporated by reference into this Form 10-K.

Critical Accounting Policies and Estimates

Our accounting policies are more fully described in Note 2 - Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements. As disclosed in that note, the preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Future events cannot be predicted with certainty and, therefore, actual results could differ from those estimates. The following section describes our critical accounting policies.

Revenue Recognition:

Revenue is recognized when control of goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

We offer 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 rebate are included in the determination of net sales.

We also establish reserves 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.

38

Our 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.

We 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.

See Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for information on disaggregated revenue by product category.

Inventory Realization:

Inventories consisting predominantly of finished goods are valued at the lower of cost or net realizable value, cost being determined principally on the standard cost method. The 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. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our excess and obsolete inventory reserve. However, if our estimates regarding excess and obsolete inventory are inaccurate, we may be exposed to losses or gains that could be material. A 5% difference in actual excess and obsolete inventory reserved for at December 25, 2021, would have affected net earnings by approximately $2.0 million in fiscal 2021.

Goodwill:

We have 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, we determine that the fair value of a reporting unit is less than the carrying value, then we 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.

Our annual impairment assessment is performed for the reporting units as of October 1. In 2021, 2020, and 2019, with the assistance of an independent third-party specialist, management assessed the value of our 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 revenue growth. The results of the quantitative assessments in 2021, 2020, and 2019 indicated that the fair value of each reporting unit was in excess of its carrying value.

In our annual review of goodwill for impairment in the fourth quarter of 2021, the fair value of each reporting unit was substantially in excess of its carrying value, with the exception of our Protective Solutions reporting unit, which exceeded its carrying value by approximately 5%, and our Fastening and Hardware Solutions reporting unit, which exceeded its carrying value by approximately 23%. Significant assumptions used in the determination of the estimated fair values of the reporting units are the net sales and earnings growth rates and the discount rate. The net sales and earnings growth rates are dependent on overall market growth rates, the competitive environment, inflation and our ability to pass price increase along to our customers, relative currency exchange rates, and business activities that impact market share. As a result, the growth rate could be adversely impacted by a sustained deceleration in category growth, devaluation of the U.S. Dollar against other currencies or an increased competitive environment. The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted in the future by adverse changes in the macroeconomic environment and volatility in the equity and debt markets.

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While management can and has implemented strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of the Protective Solutions reporting unit’s goodwill. As of December 25, 2021, the carrying value of the Protective Solutions reporting unit’s goodwill was $128.8 million and Fastening and Hardware’s goodwill was $424.1 million.

Intangible Assets:

We evaluate our 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, excess earnings, and lost profits discounted cash flow model. Assumptions critical to our fair value estimates under the discounted cash flow model include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date. No impairment charges related to indefinite-lived intangible assets were recorded in 2021, 2020, or 2019 as a result of the quantitative annual impairment test.

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 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. For additional information, see Note 7 - Income Taxes, of the Notes to Consolidated Financial Statements.

In accordance with guidance regarding the accounting for uncertainty in income taxes, we recognize 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, we do not recognize the benefit of that position in our 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 financial statements.

Interest and penalties related to income taxes are included in (benefit) provision for income taxes.

Business Combinations:

As we enter into business combinations, we perform acquisition accounting requirements including the following:

•Identifying the acquirer

•Determining the acquisition date

•Recognizing and measuring the identifiable assets acquired and the liabilities assumed, and

•Recognizing and measuring goodwill or a gain from a bargain purchase

We complete valuation procedures and record the resulting fair value of the acquired assets and assumed liabilities based upon the valuation of the business enterprise and the tangible and intangible assets acquired. Enterprise value allocation methodology requires management to make assumptions and apply judgment to estimate the fair value of assets acquired and liabilities assumed. If estimates or assumptions used to complete the enterprise valuation and estimates of the fair value of the acquired assets and assumed liabilities significantly differed from assumptions made, the resulting difference could materially affect the fair value of net assets.

The calculation of the fair value of the tangible assets, including property, plant and equipment, utilizes the cost approach, which computes the cost to replace the asset, less accrued depreciation resulting from physical deterioration, functional obsolescence and external obsolescence. The calculation of the fair value of the identified intangible assets are determined using cash flow models following the income approach or a discounted market-based methodology approach. Significant inputs include estimated revenue growth rates, gross margins, operating expenses, and estimated attrition, royalty and discount rates. Goodwill is recorded as the difference in the fair value of the acquired assets and assumed liabilities and the purchase price. Each period, we estimate the fair value of liabilities for contingent consideration by applying 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

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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. Any changes in fair value are recorded as other income (expense) in the Consolidated Statement of Comprehensive Income or Loss.

Recent Accounting Pronouncements:

Recently issued accounting standards are described in Note 4 - Recent Accounting Pronouncements of the Notes to Consolidated Financial Statements.