Hillman Solutions Corp.HLMN

Hillman Solutions Corp. Income Taxes Disclosure

10-KFiled Feb 17, 20266 min read
Income (loss) before income taxes are comprised of the following components for the periods indicated:
Year Ended December 27, 2025Year Ended
December 28, 2024		Year Ended
December 30, 2023
United States based operations$50,933 $18,066 $(17,902)
Non-United States based operations5,663 8,486 10,520 
Income (loss) before income taxes$56,596 $26,552 $(7,382)
Below are the components of the Company's income tax expense for the periods indicated:
Year Ended December 27, 2025Year Ended
December 28, 2024		Year Ended
December 30, 2023
Current:
Federal$2,152 $5,686 $1,704 
State4,236 3,507 3,009 
Foreign1,906 3,206 2,642 
Total current8,294 12,399 7,355 
Deferred:
Federal9,168 (188)(2,666)
State(395)(1,737)(2,393)
Foreign(776)(1,177)(38)
Total deferred7,997 (3,102)(5,097)
Valuation allowance— — (51)
Income tax expense$16,291 $9,297 $2,207 

The Company has U.S. federal net operating loss (“NOL”) carryforwards totaling $3,340 as of December 27, 2025 that are available to offset future taxable income. All of the remaining U.S. federal NOLs were acquired with the MinuteKey purchase in 2018. The MinuteKey NOLs are subject to limitation under IRC §382 from current and prior ownership changes. Management anticipates utilizing all remaining U.S. federal NOLs evenly through 2032 in accordance with the IRC §382 limitation.
The Company has state NOL carryforwards with an aggregate tax benefit of $1,398 which expire from 2026 to 2040.
The table below reflects the significant components of the Company's net deferred tax assets and liabilities at December 27, 2025 and December 28, 2024:
 December 27, 2025December 28, 2024
 Non-currentNon-current
Deferred Tax Asset:
Inventory$25,013 $22,852 
Accrued bonus / deferred compensation12,416 11,849 
Interest limitation8,003 20,266 
Lease liabilities 25,295 24,735 
All other7,545 13,450 
Gross deferred tax assets78,272 93,152 
Valuation allowance for deferred tax assets(61)(292)
Net deferred tax assets$78,211 $92,860 
Deferred Tax Liability:
Intangible asset amortization$154,827 $165,976 
Property and equipment29,195 27,696 
Lease assets 23,613 22,981 
All other items2,446 818 
Deferred tax liabilities$210,081 $217,471 
Net deferred tax liability$131,870 $124,611 

Realization of the net deferred tax assets is dependent on the reversal of deferred tax liabilities. Although realization is not assured, management estimates it is more likely than not that the net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced.
The Company no longer asserts permanent reinvestment of foreign subsidiary earnings and now expects to distribute certain foreign earnings as needed. Undistributed earnings of our foreign subsidiaries are subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply. As of December 27, 2025, the Company recorded a deferred tax liability of $125 on the undistributed earnings of its Canadian subsidiary.
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows:
Year Ended December 27, 2025
AmountPercent
US Federal Statutory Tax Rate$11,884 21.0 %
State and Local Income Taxes (Net of Federal Effect) (1)
2,952 5.2 %
Foreign Tax Effects139 0.3 %
Effect of Cross-Border Tax Laws(84)(0.2)%
Tax Credits
Research & Development Credits(766)(1.4)%
Other(15)— %
Nontaxable or Nondeductible Items
Non-deductible executive compensation1,213 2.1 %
Other769 1.4 %
Other Adjustments199 0.4 %
Effective income tax rate$16,291 28.8 %
(1)    State taxes in California, Florida, Georgia, Oregon, Pennsylvania and Texas made up the majority (greater than 50%) of the tax effect in this category.
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows:
Year Ended December 28, 2024Year Ended
December 30, 2023
Statutory federal income tax rate21.0 %21.0 %
Non-U.S. taxes2.0 %(12.5)%
State and local income taxes, net of U.S. federal income tax benefit3.9 %0.2 %
Acquisition and related transaction costs— %(3.8)%
Meals & entertainment0.9 %(2.7)%
Withholding taxes2.1 %(20.1)%
Impact of foreign currency— %3.3 %
Reconciliation of tax provision to return(3.3)%(1.4)%
Non-deductible compensation8.3 %(13.3)%
Reconciliation of other adjustments0.1 %(0.6)%
Effective income tax rate35.0 %(29.9)%
Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 27, 2025 is as follows:

Year Ended December 27, 2025
Federal$2,400 
State and local
California1,403 
Other2,960 
Foreign
Canada3,412 
Mexico1,360 
Income taxes, net of amounts refunded$11,535 

The amount of cash income taxes paid, net of amounts refunded, during the years ended December 28, 2024 and December 30, 2023 was $9,622 and $5,356, respectively.
The Company has recently become a cash taxpayer for U.S. Federal income tax purposes due to the utilization of NOL carryforwards and general business credit carryforwards. Previously, unrecognized tax benefits were recorded as reductions to the associated deferred tax assets, which were offset by valuation allowances. Because the Company is now a Federal cash taxpayer and no longer has sufficient NOLs or credit carryforwards to offset potential disallowances, the Company reclassified the portion of its unrecognized tax benefits that had been previously netted against deferred tax assets. These amounts were transferred to a liability on the Consolidated Balance Sheets. The Company's reserve for unrecognized tax benefits increased for the year ended December 27, 2025 due to the reclassification and an increase in accrued interest and penalties. A balance of $1,690 of unrecognized tax benefit is shown in the financial statements at December 27, 2025 as a liability.
The following is a summary of the changes for the periods indicated below:
 Year Ended December 27, 2025Year Ended
December 28, 2024		Year Ended
December 30, 2023
Unrecognized tax benefits - beginning balance$1,101 $1,101 $1,101 
Gross increases - tax positions in current period— — — 
Reclassification from valuation allowance338 — — 
Gross increases - tax positions in prior period251 — — 
Gross decreases - tax positions in prior period— — — 
Unrecognized tax benefits - ending balance$1,690 $1,101 $1,101 
Amount of unrecognized tax benefit that, if recognized would affect the Company's effective tax rate$1,690 $1,101 $1,101 
The Company files a consolidated income tax return in the U.S. and numerous consolidated and separate income tax returns in various states and foreign jurisdictions. There are no significant audits for the period ended December 27, 2025. In general, our income tax returns for the years from 2011 through the current year remain open to examination by federal and state taxing authorities. In addition, our tax years of 2015 through current year remain open and subject to examination by tax authorities in certain foreign jurisdictions in which we have operations.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The legislation included several provisions that impact the timing and magnitude of certain tax deductions, including, among others, making 100% bonus depreciation permanent, allowing for the expensing of domestic research costs, and modifying the business interest expense limitation calculation. These changes were incorporated into our income tax provision for the year ended December 27, 2025. W

Historical Timeline

Fiscal YearFiled
2025Feb 17, 2026Showing above
2024Feb 20, 2025
2023Feb 22, 2024
2022Feb 27, 2023
2021Mar 16, 2022
2020Mar 12, 2021

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

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