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EX-31.1 - CERTIFICATION OF CEO PURSUANT TO RULE 13A-14(A) OR 15D-14(A) - HILLMAN COMPANIES INCdex311.htm
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EX-10.1 - SEPARATION AGREEMENT - HILLMAN COMPANIES INCdex101.htm
EX-32.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 906 - HILLMAN COMPANIES INCdex321.htm
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO RULE 13A-14(A) OR 15D-14(A) - HILLMAN COMPANIES INCdex312.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

Commission file number 1-13293

 

 

The Hillman Companies, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   23-2874736

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

10590 Hamilton Avenue

Cincinnati, Ohio

  45231
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (513) 851-4900

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Class

 

Name of Each Exchange on Which Registered

11.6% Junior Subordinated Debentures   None
Preferred Securities Guaranty   None

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ¨    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

On November 15, 2010, 5,000 shares of the Registrant’s common stock were issued and outstanding and 4,217,724 Trust Preferred Securities were issued and outstanding by the Hillman Group Capital Trust. The Trust Preferred Securities trade on the NYSE Amex under symbol HLM.Pr.

 

 

 


Table of Contents

 

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

INDEX

 

PART I. FINANCIAL INFORMATION    PAGE(S)
Item 1.    Condensed Consolidated Financial Statements (Unaudited)   
   Condensed Consolidated Balance Sheets    3-4
   Condensed Consolidated Statements of Operations    5-6
   Condensed Consolidated Statements of Cash Flows      7  
   Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)      8  
   Notes to Condensed Consolidated Financial Statements    9-33
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    34-50
Item 3.    Quantitative and Qualitative Disclosures about Market Risk    51  
Item 4.    Controls and Procedures    51-52

PART II. OTHER INFORMATION

  
Item 1.    Legal Proceedings    53  
Item 1A.    Risk Factors    53  
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    53  
Item 3.    Defaults upon Senior Securities    53  
Item 4.    Reserved    53  
Item 5.    Other Information    53  
Item 6.    Exhibits    54  

SIGNATURES

   55  

 

Page 2 of 55


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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(dollars in thousands)

 

     Successor          Predecessor  
     September 30,
2010
          December 31,
2009
 
ASSETS          

Current assets:

         

Cash and cash equivalents

   $ 14,064           $ 17,164   

Restricted investments

     334             334   

Accounts receivable

     67,537             51,757   

Inventories

     88,757             83,182   

Deferred income taxes

     8,181             8,100   

Other current assets

     2,892             2,657   
                     

Total current assets

     181,765             163,194   

Property and equipment

     52,147             47,565   

Goodwill

     432,269             257,806   

Other intangibles

     361,589             146,640   

Restricted investments

     2,956             2,709   

Deferred income taxes

     434             418   

Deferred financing fees

     14,941             5,690   

Investment in trust common securities

     3,261             3,261   

Other assets

     1,207             1,198   
                     

Total assets

   $ 1,050,569           $ 628,481   
                     
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          

Current liabilities:

         

Accounts payable

   $ 28,027           $ 19,191   

Current portion of senior term loans

     2,900             9,519   

Current portion of capitalized lease and other obligations

     42             349   

Accrued expenses:

         

Salaries and wages

     4,185             7,624   

Pricing allowances

     6,561             5,317   

Income and other taxes

     1,920             1,904   

Interest

     5,797             2,199   

Deferred compensation

     334             334   

Other accrued expenses

     6,703             6,147   
                     

Total current liabilities

     56,469             52,584   

Long term senior term loans

     286,375             148,330   

Long term capitalized lease and other obligations

     141             145   

Long term senior notes

     150,000             —     

Long term unsecured subordinated notes

     —               49,820   

Junior subordinated debentures

     115,943             115,716   

Mandatorily redeemable preferred stock

     —               111,452   

Management purchased preferred options

     —               6,617   

Deferred compensation

     2,956             2,709   

Deferred income taxes

     132,422             50,169   

Accrued dividends on preferred stock

     —               75,580   

Other non-current liabilities

     2,744             18,467   
                     

Total liabilities

     747,050             631,589   
                     

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Page 3 of 55


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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(dollars in thousands)

 

     Successor          Predecessor  
      September 30,
2010
          December 31,
2009
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)          

Common stock with put options:

         

Common stock, $.01 par, 5,000 shares authorized, 200.8 issued and outstanding at September 30, 2010.

     12,397             —     
                     

Class A Common stock, $.01 par, zero authorized and outstanding at September 30, 2010; 23,141 shares authorized, 395.7 issued and outstanding at December 31, 2009.

     —               2,158   
                     

Class B Common stock, $.01 par, zero authorized, issued and outstanding at September 30, 2010; 2,500 shares authorized, 970.6 issued and outstanding at December 31, 2009.

     —               5,293   
                     
 

Commitments and contingencies (Note 6)

         
 

Stockholders’ Equity (Deficit):

         

Preferred Stock:

         

Preferred stock, $.01 par, 5,000 shares authorized, none issued and outstanding at September 30, 2010.

     —               —     

Class A Preferred stock, $.01 par, zero authorized, issued and outstanding at September 30, 2010; $1,000 liquidation value, 238,889 shares authorized, 82,104.8 issued and outstanding at December 31, 2009.

     —               1   

Common Stock:

         

Common stock, $.01 par, 5,000 shares authorized, 4,799.2 issued and outstanding at September 30, 2010.

     —               —     

Class A Common stock, $.01 par, zero authorized, issued and outstanding at September 30, 2010; 23,141 shares authorized, 5,805.3 issued and outstanding at December 31, 2009.

     —               —     

Class C Common stock, $.01 par, zero authorized, issued and outstanding at September 30, 2010; 30,109 shares authorized, 2,787.1 issued and outstanding at December 31, 2009.

     —               —     

Additional paid-in capital

     296,244             10,302   

Accumulated deficit

     (4,349          (19,377

Accumulated other comprehensive loss

     (773          (1,485
                     

Total stockholders’ equity (deficit)

     291,122             (10,559
                     

Total liabilities and stockholders’ equity (deficit)

   $ 1,050,569           $ 628,481   
                     

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Page 4 of 55


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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(dollars in thousands)

 

     Successor          Predecessor  
     Three Months
Ended
September 30,
2010
          Three Months
Ended
September 30,
2009
 
                 (As restated,
see Note 2)
 

Net sales

   $ 122,715           $ 122,673   

Cost of sales (exclusive of depreciation and amortization shown separately below)

     60,050             57,580   
                     

Gross profit

     62,665             65,093   
                     

Operating expenses:

         

Selling, general and administrative expenses

     39,024             41,412   

Non-recurring expense (Note 14)

     385             —     

Depreciation

     4,809             4,398   

Amortization

     4,546             1,768   

Management and transaction fees to related party

     —               250   
                     

Total operating expenses

     48,764             47,828   
                     

Other income, net

     399             151   
                     

Income from operations

     14,300             17,416   

Interest expense, net

     8,571             4,011   

Interest expense on mandatorily redeemable preferred stock and management purchased options

     —               3,149   

Interest expense on junior subordinated debentures

     3,152             3,214   

Investment income on trust common securities

     (95          (95
                     

Income before income taxes

     2,672             7,137   

Income tax provision

     1,222             4,396   
                     

Net income

   $ 1,450           $ 2,741   
                     

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Page 5 of 55


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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(dollars in thousands)

 

     Successor          Predecessor  
     Four Months
ended
September 30,
2010
          Five Months
ended
May 28,
2010
    Nine Months
ended
September 30,
2009
 
                       (As restated,
see Note 2)
 

Net sales

   $ 170,415           $ 185,716      $ 358,699   

Cost of sales (exclusive of depreciation and amortization shown separately below)

     83,072             89,773        176,965   
                             

Gross profit

     87,343             95,943        181,734   
                             

Operating expenses:

           

Selling, general and administrative expenses

     53,323             82,850        121,628   

Non-recurring expense (Note 14)

     10,788             11,342        —     

Depreciation

     6,331             7,283        13,290   

Amortization

     6,061             2,678        5,305   

Management and transaction fees to related party

     —               438        759   
                             

Total operating expenses

     76,503             104,591        140,982   
                             

Other income (expense), net

     263             (114     (316
                             

Income (loss) from operations

     11,103             (8,762     40,436   

Interest expense, net

     12,190             8,327        11,139   

Interest expense on mandatorily redeemable preferred stock and management purchased options

     —               5,488        9,098   

Interest expense on junior subordinated debentures

     4,203             5,254        9,668   

Investment income on trust common securities

     (126          (158     (284
                             

(Loss) income before income taxes

     (5,164          (27,673     10,815   

Income tax (benefit) provision

     (815          (2,465     9,558   
                             

Net (loss) income

   $ (4,349        $ (25,208   $ 1,257   
                             

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Page 6 of 55


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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands)

 

     Successor          Predecessor  
     Four Months
Ended
September 30,
2010
          Five Months
Ended
May 28,
2010
    Nine Months
Ended
September 30,
2009
 
                       (As restated,
see Note 2)
 

Cash flows from operating activities:

           

Net (loss) income

   $ (4,349        $ (25,208   $ 1,257   

Adjustments to reconcile net (loss) income to net cash provided by (used for) operating activities:

           

Depreciation and amortization

     12,392             9,961        18,595   

Dispositions of property and equipment

     60             74        176   

Deferred income tax provision (benefit)

     (1,482          (1,921     8,086   

Deferred financing and original issue discount amortization

     781             515        798   

Interest on mandatorily redeemable preferred stock and management purchased options

     —               5,488        9,098   

Stock-based compensation expense

     —               19,053        7,088   

Changes in operating items:

           

Accounts receivable

     1,036             (16,816     (10,492

Inventories

     (8,534          2,959        16,243   

Other assets

     (411          124        1,573   

Accounts payable

     7,006             1,830        171   

Interest payable on junior subordinated debentures

     —               —          —     

Other accrued liabilities

     (1,910          4,352        3,965   

Other items, net

     (1,985          (894     (243
                             

Net cash provided by (used for) operating activities

     2,604             (483     56,315   
                             

Cash flows from investing activities:

           

Payments for Quick Tag and Laser Key licenses

     (12,750          —          —     

Capital expenditures

     (4,680          (5,411     (9,126
                             

Net cash used for investing activities

     (17,430          (5,411     (9,126
                             

Cash flows from financing activities:

           

Borrowings of senior term loans

     290,000             —          —     

Repayments of senior term loans

     (149,031          (9,544     (27,000

Borrowings of revolving credit loans

     600             —          —     

Repayments of revolving credit loans

     (600          —          —     

Principal payments under capitalized lease obligations

     (31          (459     (320

Repayments of unsecured subordinated notes

     (49,820          —          —     

Borrowings of senior notes

     150,000             —          —     

Financing fees, net

     (15,729          —          (2,921

Purchase predecessor equity securities

     (506,407          —          —     

Proceeds from sale of successor equity securities

     308,641             —          —     

Borrowings under other credit obligations

     —               —          468   
                             

Net cash provided by (used for) financing activities

     27,623             (10,003     (29,773
                             

Net increase (decrease) in cash and cash equivalents

     12,797             (15,897     17,416   

Cash and cash equivalents at beginning of period

     1,267             17,164        7,133   
                             

Cash and cash equivalents at end of period

   $ 14,064           $ 1,267      $ 24,549   
                             

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Unaudited)

(dollars in thousands)

 

    Predecessor     Successor     Additional
Paid-in
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income (Loss)
    Comprehensive
Income (Loss)
    Total
Stockholders’
Equity
 
    Common Stock     Class A
Preferred Stock
    Common
Stock
           
    Class A     Class C                

Balance at December 31, 2009—Predecessor

  $ —        $ —        $ 1      $ —        $ 10,302      $ (19,377   $ (1,485     $ (10,559

Net loss

    —          —          —          —          —          (25,208     —        $ (25,208     (25,208

Class A Common Stock FMV adjustment (2)

    —          —          —          —          (5,650     —          —          —          (5,650

Dividends to shareholders

    —          —          —          —          (7,583     —          —          —          (7,583

Change in cumulative foreign translation adjustment (1)

    —          —          —          —          —          —          17        17        17   

Change in derivative security value (1)

    —          —          —          —          —          —          1,161        1,161        1,161   
                       

Comprehensive loss

                $ (24,030  
                                                                       

Balance at May 28, 2010—Predecessor

    —          —          1        —          (2,931     (44,585     (307       (47,822

Close Predecessor’s stockholders’ deficit at merger date

    —          —          (1     —          2,931        44,585        307          47,822   

Issuance of 5,000 shares of common stock

    —          —          —          —          308,641        —          —            308,641   

Transfer of 200.8 shares of common stock to mezzanine

    —          —          —          —          (12,397     —          —            (12,397
                                                                       

Balance at May 28, 2010—Successor

    —          —          —          —          296,244        —          —            296,244   

Net loss

    —          —          —          —          —          (4,349     —        $ (4,349     (4,349

Change in cumulative foreign translation adjustment (1)

    —          —          —          —          —          —          15        15        15   

Change in derivative security value (1)

                (788     (788     (788
                       

Comprehensive loss

                $ (5,122  
                                                                       

Balance at September 30, 2010—Successor

  $ —        $ —        $ —        $ —        $ 296,244      $ (4,349   $ (773     $ 291,122   
                                                                 

 

(1) The cumulative foreign translation adjustment and change in derivative security value are net of taxes and represent the only items of other comprehensive income (loss).
(2) Management of the Predecessor Company controlled 395.7 shares of Class A common stock which contained a put feature that allowed redemption at the holder’s option. These shares were classified as temporary equity and were adjusted to fair value. See Note 10, Common and Preferred Stock, for further details.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

1. Basis of Presentation:

The accompanying financial statements include the condensed consolidated accounts of The Hillman Companies, Inc. (“Hillman Companies”) and its wholly-owned subsidiaries (collectively “Hillman” or the “Company”). All significant intercompany balances and transactions have been eliminated.

On May 28, 2010, Hillman Companies was acquired by an affiliate of Oak Hill Capital Partners (“OHCP”) and certain members of Hillman’s management and Board of Directors. Pursuant to the terms and conditions of an Agreement and Plan of Merger dated as of April 21, 2010, the Company was merged with an affiliate of OHCP with the Company surviving the merger (the “Merger Transaction”). As a result of the Merger Transaction, Hillman Companies is a wholly-owned subsidiary of OHCP HM Acquisition Corp. (“Holdco”). The total consideration paid in the Merger Transaction was $832,682 which includes $11,500 for the Quick Tag license and related patents, the repayment of outstanding debt and the net value of the Company’s outstanding junior subordinated debentures ($105,443 liquidation value at the time of the merger). The merger consideration is subject to certain post-closing working capital and other adjustments.

Prior to the Merger Transaction, affiliates of Code Hennessy & Simmons LLC (“CHS”) owned 49.3% of the Company’s outstanding common stock and 54.6% of the Company’s voting common stock, Ontario Teacher’s Pension Plan (“OTPP”) owned 28.0% of the Company’s outstanding common stock and 31.0% of the Company’s voting common stock and HarbourVest Partners VI (“HarbourVest”) owned 8.7% of the Company’s outstanding common stock and 9.7% of the Company’s voting common stock. Certain current and former members of management owned 13.7% of the Company’s outstanding common stock and 4.4% of the Company’s voting common stock. Other investors owned 0.3% of the Company’s common stock and 0.3% of the Company’s voting common stock.

The Company’s condensed consolidated balance sheet as of May 28, 2010 and its related statements of operations, cash flows and changes in stockholders’ equity for the periods presented prior to May 28, 2010 are referenced herein as the predecessor financial statements (the “Predecessor” or “Predecessor Financial Statements”). The Company’s condensed consolidated balance sheet as of September 30, 2010 and its related statements of operations, cash flows and changes in stockholders’ equity for the periods presented subsequent to the Merger Transaction are referenced herein as the successor financial statements (the “Successor” or “Successor Financial Statements”). The Predecessor Financial Statements do not reflect certain transaction amounts that were incurred at the close of the Merger Transaction. Such transaction amounts include the write-off of $5,010 in deferred financing fees associated with the Predecessor debt obligations.

The Successor Financial Statements reflect the preliminary allocation of the aggregate purchase price of $832,682, including the value of the Company’s junior subordinated debentures, to the assets and liabilities of Hillman based on fair values at the date of the Merger Transaction in accordance with ASC Topic 805, “Business Combinations.” The Company is in the process of obtaining third-party valuations of certain assets acquired in connection with the Merger Transaction, including but not limited to customer relationships, patents, licenses, property and equipment, non-compete agreements and the corresponding impact of deferred income taxes. The Company is also in the process of finalizing its fair value evaluation of inventory. Thus, the allocation of the purchase price is subject to change. Any amounts attributable to such assets are expected to be finalized during 2010.

 

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

1. Basis of Presentation (continued):

 

 

The Company’s financial statements have been presented on the basis of push down accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 805-50-S99 (Prior authoritative literature: Staff Accounting Bulletin No. 54 Application of “Push Down” Basis of Accounting in Financial Statements of Subsidiaries Acquired by Purchase). FASB ASC 805-50-S99 states that the push down basis of accounting should be used in a purchase transaction in which the entity becomes wholly-owned by another entity. Under the push down basis of accounting, certain transactions incurred by the parent company which would otherwise be accounted for in the accounts of the parent are “pushed down” and recorded on the financial statements of the subsidiary. Accordingly, certain items resulting from the OHCP Merger Transaction have been recorded on the financial statements of the Company.

The following tables reconcile the fair value of the acquired assets and assumed liabilities to the total purchase price:

 

     Amount  

Cash paid as merger consideration

   $ 715,736   

Cash paid for Quick Tag license and related patents

     11,500   
        

Fair value of consideration transferred

   $ 727,236   
        

Cash

   $ 1,267   

Accounts Receivable, net

     68,573   

Inventory, net

     79,925   

Other current assets

     11,591   

Property and equipment

     53,607   

Goodwill

     432,269   

Intangible assets

     366,400   

Other non-current assets

     3,748   
        

Total assets acquired

     1,017,380   

Less:

  

Accounts payable

     (21,021

Deferred income taxes

     (134,005

Junior subordinated debentures

     (105,446

Junior subordinated debentures premium

     (7,378

Other liabilities assumed

     (22,294
        

Net assets acquired

   $ 727,236   
        

The following table indicates the pro forma financial statements of the Company for the three and nine months ended September 30, 2009 (including non-recurring charges of $22,130 as discussed in Note 14). The pro forma financial statements give effect to the Merger Transaction as if it had occurred on January 1, 2010 and January 1, 2009, respectively.

 

     Three Months
Ended
Sept. 30, 2010
     Nine Months
Ended
Sept. 30, 2010
     Three Months
Ended
Sept. 30, 2009
     Nine Months
Ended
Sept. 30, 2009
 

Net Sales

     122,715         356,131         122,673         358,699   

Net Income

     1,451         900         3,334         2,494   

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

1. Basis of Presentation (continued):

 

 

The accompanying unaudited condensed consolidated financial statements present information in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. Accordingly, they do not include all information or footnotes required by generally accepted accounting principles for complete financial statements. Management believes the financial statements include all normal recurring accrual adjustments necessary for a fair presentation. Operating results for the four month Successor period ended September 30, 2010 and the five month Predecessor period ended May 28, 2010 do not necessarily indicate the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2009, as amended.

Nature of Operations:

The Company is one of the largest providers of value-added merchandising services and hardware-related products to retail markets in North America through its wholly-owned subsidiary, The Hillman Group, Inc. (“Hillman Group”). A subsidiary of Hillman Group operates in (1) Canada under the name The Hillman Group Canada, Ltd., (2) Mexico under the name SunSource Integrated Services de Mexico SA de CV, and (3) primarily in Florida under the name All Points Industries, Inc. (“All Points”). Hillman Group provides merchandising services and products such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems and accessories; and identification items, such as tags and letters, numbers and signs to retail outlets, primarily hardware stores, home centers and mass merchants.

2. Restatement of Consolidated Financial Statements:

Subsequent to the issuance of the Company’s December 31, 2009 consolidated financial statements, the Company concluded that certain of its accounting practices with respect to the income tax accounting for the Purchased Options and the Preferred Options were not in accordance with generally accepted accounting principles. As more fully described in Note 10, Common and Preferred Stock, certain members of management were issued options to purchase shares of Hillman Companies Class A Preferred Stock and the Hillman Investment Company Class A Preferred Stock. Changes in the fair value of the Purchased Options were recognized as interest expense and changes in the fair value of the Preferred Options were recognized as compensation expense. For income tax reporting purposes, changes in the fair value of the Purchased Options and the Preferred Options were treated as permanent book versus tax timing differences and, therefore, no income tax benefit was recognized. Management has determined that, upon exercise, the difference between the redemption value and strike price of the Purchased Options and Preferred Options is deductible for federal and state income tax. Therefore, there should be a tax benefit reported in each period where compensation and interest expense was recognized for the change in the fair value of the Preferred Options and the Purchased Options. Additionally, a benefit should be recognized for the cumulative difference in the fair value and the strike price of the Purchased Options at the date of the acquisition of Hillman Companies by CHS, OTPP and HarbourVest in 2004.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

2. Restatement of Consolidated Financial Statements (continued):

 

 

As a result of the above, the Company restated its condensed consolidated statements of operations and cash flows for the three month and nine month periods ended September 30, 2009. The following is a summary of the effects of these changes on the Company’s condensed consolidated statements of operations and cash flows for the three month and nine months ended September 30, 2009.

 

Predecessor

   Condensed Consolidated Statement of Operations  

For the three months ended September 30, 2009:

   As Previously
Reported
    Adjustments     As Restated  

Income tax provision

   $ 4,847      $ (451   $ 4,396   

Net income

     2,290        451        2,741   

Predecessor

   Condensed Consolidated Statement of Operations  

For the nine months ended September 30, 2009:

   As Previously
Reported
    Adjustments     As Restated  

Income tax provision

   $ 10,924      $ (1,366   $ 9,558   

Net income (loss)

     (109     1,366        1,257   

Predecessor

   Condensed Consolidated Statement of Cash Flows  

For the nine months ended September 30, 2009:

   As Previously
Reported
    Adjustments     As Restated  

Net income (loss)

   $ (109   $ 1,366      $ 1,257   

Deferred income tax provision

     9,452        (1,366     8,086   

3. Summary of Significant Accounting Policies:

The significant accounting policies should be read in conjunction with the significant accounting policies included in the Form 10-K for the year ended December 31, 2009, as amended. Policies included herein were updated for activity in the interim period.

Use of Estimates in the Preparation of Financial Statements:

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 for the reporting period. Actual results may differ from estimates.

Accounts Receivable and Allowance for Doubtful Accounts:

The Company establishes the allowance for doubtful accounts using the specific identification method and also provides a reserve in the aggregate. The estimates for calculating the aggregate reserve are based on historical collection experience. Increases to the allowance for doubtful accounts result in a corresponding expense. The allowance for doubtful accounts was $562 at September 30, 2010 and $514 at December 31, 2009.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

3. Summary of Significant Accounting Policies (continued):

 

 

Shipping and Handling:

The costs incurred to ship product to customers, including freight and handling expenses, are included in selling, general and administrative (“SG&A”) expenses on the Company’s statements of operations. The Successor shipping and handling costs included in SG&A were $5,227 for the three month period ended September 30, 2010 and $1,999 for the one month period ended June 30, 2010. The Predecessor shipping and handling costs included in SG&A were $7,398 for the five month period ended May 28, 2010. The Predecessor shipping and handling costs included in SG&A were $4,448 and $12,414 for the three and nine month periods ended September 30, 2009, respectively.

4. Recent Accounting Pronouncements:

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurement.” This guidance amends Accounting Standards Codification (“ASC”) Topic 820 to require new disclosures for fair value measurements and provides clarification for existing disclosure requirements. The guidance requires new disclosures about transfers in and out of Levels 1 and 2 and further descriptions for the reasons for the transfers. The guidance also requires more detailed disclosure about the activity within Level 3 fair value measurements. The Company adopted the guidance on January 1, 2010, except for the requirements related to Level 3 disclosures, which will be effective for annual and interim reporting periods beginning after December 15, 2010. This guidance requires expanded disclosures only, and did not and is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.

In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events.” This ASU amends certain recognition and disclosure requirements concerning subsequent events. This update addresses the interaction of the requirements of the ASC with the SEC’s reporting requirements. The update requires an entity to evaluate subsequent events through the date that the financial statements are issued. The update also provides that a filer is not required to disclose the date through which subsequent events have been evaluated. All the amendments in this update are effective upon issuance of the final update. The adoption of this amendment did not have a material impact on the Company’s consolidated results of operations or financial conditions.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

 

5. Other Intangibles:

The values assigned to intangible assets in connection with the Merger Transaction were determined by management through a preliminary independent appraisal. The intangible asset values may be adjusted by management for any changes determined upon completion of work on the independent appraisal. In connection with the Merger Transaction, the Company acquired the Quick Tag license for consideration amounting to $11,500. Other intangibles, net as of September 30, 2010 and December 31, 2009 consist of the following:

 

     Estimated
Useful Life
(Years)
     Successor           Estimated
Useful Life
(Years)
     Predecessor  
        September 30,
2010
             December 31,
2009
 

Customer relationships

     20       $ 290,000             15-23       $ 127,206   

Trademarks

     Indefinite         48,000             Indefinite         47,394   

Patents

     5-20         15,900             9         7,960   

Quick Tag license

     6         11,500                —     

Laser Key license

     5         1,250                —     

Non compete agreements

     5.5         1,000             4         5,742   
                           

Intangible assets, gross

        367,650                188,302   

Less: Accumulated amortization

        6,061                41,662   
                           

Other intangibles, net

      $ 361,589              $ 146,640   
                           

Intangible assets are amortized over their useful lives. The Predecessor’s amortization expense for amortizable assets was $2,678 for the five months ended May 28, 2010 and was $5,305 for the nine months ended September 30, 2009. The Successor’s amortization expense for amortizable assets for the four months ended September 30, 2010 was $6,061. The combination of the amortization expense for amortizable assets of the Successor and Predecessor for the year ended December 31, 2010 is estimated to be $13,348. For the years ended December 31, 2011, 2012, 2013, 2014, and 2015, the Successor’s amortization expense for amortizable assets is estimated to be $18,433, $18,433, $18,433 $18,433 and $17,773, respectively.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

 

6. Commitments and Contingencies:

The Company self insures its product liability, automotive, workers’ compensation and general liability losses up to $250 per occurrence. Catastrophic coverage has been purchased from third party insurers for occurrences in excess of $250 up to $40,000. The two risk areas involving the most significant accounting estimates are workers’ compensation and automotive liability. Actuarial valuations performed by the Company’s outside risk insurance expert were used by management to form the basis for workers’ compensation and automotive liability loss reserves. The actuary contemplated the Company’s specific loss history, actual claims reported, and industry trends among statistical and other factors to estimate the range of reserves required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for development of these claims, as well as for incurred but not yet reported claims. The Company believes the liability of approximately $1,949 recorded for such risk insurance reserves is adequate as of September 30, 2010, but due to judgments inherent in the reserve estimation process, it is possible the ultimate costs will differ from this estimate.

As of September 30, 2010, the Company has provided certain vendors and insurers letters of credit aggregating $5,496 related to its product purchases and insurance coverage of product liability, workers compensation and general liability.

The Company self-insures its group health claims up to an annual stop loss limit of $200 per participant. Aggregate coverage is maintained for annual group health insurance claims in excess of 125% of expected claims. Historical group insurance loss experience forms the basis for the recognition of group health insurance reserves. Provisions for losses expected under these programs are recorded based on an analysis of historical insurance claim data and certain actuarial assumptions. The Company believes the liability of approximately $1,769 recorded for such group health insurance reserves is adequate as of September 30, 2010, but due to judgments inherent in the reserve estimation process, it is possible the ultimate costs will differ from this estimate.

On May 4, 2010, Hy-Ko Products, Inc. filed a complaint against Hillman Group and Kaba Ilco Corp., a manufacturer of blank replacement keys, in the United States District Court for the Northern District of Ohio Eastern Division, alleging that the defendants engaged in violations of federal and state antitrust laws regarding their business practices relating to automatic key machines and replacement keys. Hy-Ko Products’ May 4, 2010 filing against the Company is based, in part, on the Company’s previously-filed claim against Hy-Ko Products alleging infringement of certain patents of the Company. The plaintiff is seeking unspecified monetary damages which would be trebled under the federal antitrust laws in the United States, interest and attorney’s fees as well as injunctive relief. Because the lawsuit is in a preliminary stage, it is not yet possible to assess the impact that the lawsuit will have on the Company. However, the Company believes that it has meritorious defenses and intends to defend the lawsuit vigorously.

In addition, legal proceedings are pending which are either in the ordinary course of business or incidental to the Company’s business. Those legal proceedings incidental to the business of the Company are generally not covered by insurance or other indemnity. In the opinion of management, the ultimate resolution of the pending litigation matters will not have a material adverse effect on the condensed consolidated financial position, operations or cash flows of the Company.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

 

7. Related Party Transactions:

The Predecessor was obligated to pay management fees to a subsidiary of CHS in the amount of $58 per month. The Predecessor was also obligated to pay transaction fees to a subsidiary of OTPP in the amount of $26 per month, plus out of pocket expenses. The Successor has no management fee charges for the four month period ended September 30, 2010. The Predecessor has recorded aggregate management and transaction fee charges and expenses from CHS and OTPP of $438 for the five month period ended May 28, 2010. The Predecessor also recorded aggregate management and transaction fee charges and expenses from CHS and OTPP of $250 and $759 for the three and nine month periods ended September 30, 2009, respectively.

Gregory Mann and Gabrielle Mann are employed by the All Points subsidiary of Hillman. All Points leases an industrial warehouse and office facility from companies under the control of the Manns’. The Predecessor and Successor have recorded rental expense for the lease of this facility on an arm’s length basis. The Successor recorded rental expense for the lease of this facility in the amount of $28 for the one month period ended June 30, 2010 and $83 for the three month period ended September 30, 2010. The Predecessor recorded rental expense for the lease of this facility in the amount of $138 for the five month period ended May 28, 2010. The Predecessor recorded rental expense for the lease of this facility in the amount of $83 and $248 for the three and nine month periods ended September 30, 2009, respectively.

8. Income Taxes:

The Company’s policy is to estimate income taxes for interim periods based on estimated annual effective tax rates. These are derived, in part, from expected pre-tax income. However, the income tax provisions for the five-month Predecessor period ended May 28, 2010 and the nine month Predecessor period ended September 30, 2009 have been computed on a discrete period basis. The Company’s variability in income between quarters combined with the large permanent book-versus-tax differences and relatively low pre-tax income created the inability to reliably estimate pre-tax income in the predecessor period. Accordingly, the interim tax provisions for the Predecessor periods were calculated by multiplying pre-tax earnings, adjusted for permanent book-versus-tax basis differences, by the statutory income tax rate. In the four month Successor period ended September 30, 2010, including the three month Successor period ended September 30, 2010, the Company applied an estimated annual effective tax rate to interim period pre-tax income (loss) to calculate the income tax provision (benefit) in accordance with the principal method prescribed by the accounting guidance established for computing income taxes in interim periods.

The effective income tax rates were 45.7% and 61.6% for the three-month periods ended September 30, 2010 and 2009, respectively. The differences between the effective income tax rate and the federal statutory rate in the three-month Successor period ended September 30, 2010 was primarily due to an adjustment changing the method of calculating the interim provision computation on Successor period income from the discrete method used in the second quarter to the estimated annual income tax method as described above. The effective income tax rate differed from the federal statutory rate in the three month Predecessor period ended September 30, 2009 primarily due to the effect of nondeductible interest on mandatorily redeemable preferred stock and stock compensation expense. In addition, the effective tax rates in both three month periods were affected by state and foreign income taxes.

The effective income tax rate for the four month Successor period ended September 30, 2010 was 15.8%. The effective income tax rates for the five month Predecessor period ended May 28, 2010 and the nine month period ended September 30, 2009 were 8.9% and 88.4%, respectively. In the five month and nine month Predecessor periods ended May 28, 2010 and September 30, 2009, respectively, the effective income tax rates differed

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

8. Income Taxes (continued):

 

from the federal statutory rate primarily due to the effect of nondeductible interest on mandatorily redeemable preferred stock and stock compensation expense. In the four month Successor period ended September 30, 2010 and the five month Predecessor period ended May 28, 2010 the effective income tax rates were affected by the recording of a valuation reserve in the second quarter of 2010 against certain deferred tax assets. In addition, the effective income tax rates in these two periods were affected by the recording of an increase in the reserve for uncertainty in accounting for income taxes in the second quarter of 2010. Also, the effective tax rates in the Successor and Predecessor periods were affected by state and foreign income taxes.

9. Long Term Debt:

On May 28, 2010, Hillman Companies and certain of its subsidiaries closed on a $320,000 senior secured first lien credit facility (the “Senior Facilities”), consisting of a $290,000 term loan and a $30,000 revolving credit facility (“Revolver”). The term loan portion of the Senior Facilities has a six year term and the Revolver has a five year term. The Senior Facilities provide borrowings at interest rates based on a EuroDollar rate plus a margin of 3.75% (the “EuroDollar Margin”), or a base rate (the “Base Rate”) plus a margin of 2.75% (the “Base Rate Margin”). The EuroDollar rate is subject to a minimum floor rate of 1.75% and the Base Rate is subject to a minimum floor of 2.75%.

Concurrently with the acquisition of the Company on May 28, 2010, Hillman Group issued $150,000 aggregate principal amount of its senior notes due June 1, 2018 (the “10.875% Senior Notes”), which are guaranteed by Hillman Companies and its domestic subsidiaries other than the Hillman Group Capital Trust. Hillman Group pays interest on the 10.875% Senior Notes semi-annually on June 1 and December 1 of each year.

The proceeds received from the Senior Facilities and 10.875% Senior Notes together with proceeds obtained from the sale of Successor equity securities were used to repay the senior term loans and unsecured subordinated notes and to purchase the equity securities of the Predecessor in connection with the Merger Transaction.

The Senior Facilities contain financial and operating covenants. These covenants require the Company to maintain certain financial ratios, including an interest coverage ratio and leverage ratios. These debt agreements provide for customary events of default, including, but not limited to, payment defaults, breach of representations or covenants, cross-defaults, bankruptcy events, failure to pay judgments, attachment of its assets, change of control and the issuance of an order of dissolution. Certain of these events of default are subject to notice and cure periods or materiality thresholds. The occurrence of an event of default permits the lenders under the Senior Facilities to accelerate repayment of all amounts due. As of September 30, 2010, the Company had $24,500 available under the Revolver.

10. Common and Preferred Stock:

Common Stock

Prior to the Merger Transaction, Hillman Companies had three classes of Common Stock. Immediately prior to the consummation of the Merger Transaction, the Company had (i) 23,141 authorized shares of Class A Common Stock, 6,201 of which were issued and outstanding, (ii) 2,500 authorized shares of Class B Common Stock, 970.6 of which were issued and outstanding, and (iii) 30,109 authorized shares of Class C Common Stock, 2,787.1 of which issued and outstanding.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

10. Common and Preferred Stock (continued):

 

 

Each share of Class A Common Stock entitled its holder to one vote. Each holder of Class A Common Stock was entitled at any time to convert any or all of such shares into an equal number of shares of Class C Common Stock. Holders of Class B Common Stock had no voting rights. The Class B Common Stock was initially purchased by and issued to certain members of the Company’s management and was subject to vesting over five years in connection with the acquisition of Hillman Companies by affiliates of CHS and OTPP in 2004. Each share of Class C Common Stock entitled its holder to one vote, provided that the aggregate voting power of Class C Common Stock (with respect to the election of directors) could not exceed 30%. Each holder of Class C Common Stock was entitled at any time to convert any or all of the shares into an equal number of shares of Class A Common Stock.

Under the terms of an executive services agreement entered into by certain members of the Company’s management, such members of management had the right to put their shares of Class A Common Stock and Class B Common Stock back to Hillman Companies under certain circumstances.

Upon consummation of the Merger Transaction, each share of Class A Common Stock, Class B Common Stock and Class C Common Stock of Hillman Companies issued and outstanding immediately prior thereto (other than as set forth in the immediately preceding sentence), as well as each outstanding option to purchase any such shares of common stock, was converted into the right to receive, in cash, a portion of the merger consideration in the Merger Transaction. Certain shares held by Company management were contributed by the holders thereof to Holdco in exchange for shares of Holdco.

After consummation of the Merger Transaction, Hillman Companies has one class of Common Stock. All outstanding shares of Hillman Companies common stock are owned by Holdco.

Preferred Stock:

Immediately prior to the Merger Transaction, Hillman Companies had 238,889 authorized shares of its Class A Preferred Stock, 82,104.8 of which were issued and outstanding and 13,450.7 of which were reserved for issuance upon the exercise of options to purchase shares of its Class A Preferred Stock. Holders of Hillman Companies’ Class A Preferred Stock were not entitled to any voting rights and were entitled to preferential dividends that accrued on a daily basis.

In addition, prior to the Merger Transaction, Hillman Investment Company, a subsidiary of Hillman Companies, had 166,667 authorized shares of its Class A Preferred Stock, 57,282.4 of which were issued and outstanding and 9,384.2 of which were reserved for issuance upon the exercise of options to purchase shares of its Class A Preferred Stock. Holders of Hillman Investment Company’s Class A Preferred Stock were not entitled to any voting rights and were entitled to preferential dividends that accrued on a daily basis.

Upon consummation of the Merger Transaction, each share of Hillman Companies’ Class A Preferred Stock issued and outstanding immediately prior thereto, as well as each outstanding option to purchase any such shares of preferred stock, was converted into the right to receive an amount, in cash, equal to the liquidation value thereof plus all accrued and unpaid dividends on such shares as of the effective time of the Merger Transaction. In addition, at closing of the Merger Transaction, Hillman Investment Company redeemed each outstanding share of its Class A Preferred Stock at an amount equal to the liquidation value thereof plus all accrued and unpaid dividends on such shares as of the effective time of the Merger Transaction. Options to purchase shares of Hillman Investment Company’s Class A Preferred Stock were cancelled in exchange for a similar cash payment.

After consummation of the Merger Transaction, neither Hillman Companies nor Hillman Investment Company have issued any shares of preferred stock or any options to purchase any such shares.

 

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(dollars in thousands)

 

 

11. Stock-Based Compensation:

On March 31, 2004, the Predecessor adopted its 2004 Stock Option Plan following Board of Director and shareholder approval. Grants under the 2004 Common Option Plan consisted of non-qualified stock options for the purchase of Class B Common Shares. In addition, immediately prior to the consummation of the Merger Transaction, there were outstanding options to purchase 9,274.08 shares of Hillman Companies’ Class A Preferred Stock and 6,470.36 shares of Hillman Investment Company’s Class A Preferred Stock. In connection with the Merger Transaction, the 2004 Stock Option Plan was terminated, and all options outstanding thereunder were cancelled, and the options to purchase shares of Hillman Companies’ and Hillman Investment Company’s Class A Preferred Stock were cancelled. See Note 10, Common and Preferred Stock, for more information.

Effective May 28, 2010, Holdco established the OHCP HM Acquisition Corp. 2010 Stock Option Plan (the “Option Plan”), pursuant to which Holdco may grant options for up to an aggregate of 34,293.469 shares of its common stock. The Option Plan is administered by a committee of the Holdco board of directors. Such committee determines the terms of each option grant under the Option Plan, except that the exercise price of any granted options may not be lower than the fair market value of one share of common stock of Holdco as of the date of grant. As of September 30, 2010, no options have been granted under the Option Plan.

12. Derivatives and Hedging:

The Company uses derivative financial instruments to manage its exposures to interest rate fluctuations on its floating rate senior debt. The Company measures those instruments at fair value and recognizes changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures.

On August 29, 2008, the Company entered into an Interest Rate Swap Agreement (“2008 Swap”) with a three-year term for a notional amount of $50 million. The 2008 Swap fixed the interest rate at 3.41% plus applicable interest rate margin. The 2008 Swap was terminated on May 24, 2010.

The 2008 Swap was designated as a cash flow hedge, and prior to its termination on May 24, 2010, it was reported on the condensed consolidated balance sheet in other non-current liabilities with a related deferred charge recorded as a component of other comprehensive income in stockholders’ equity. For the period ended May 28, 2010, interest expense in the accompanying Predecessor condensed consolidated income statement includes a $1,579 charge incurred to terminate the 2008 Swap.

On June 24, 2010, the Company entered into a forward Interest Rate Swap Agreement (“2010 Swap”) with a two-year term for a notional amount of $115,000. The effective date of the 2010 Swap is May 31, 2011 and its termination date is May 31, 2013. The 2010 Swap fixes the interest rate at 2.47% plus the applicable interest rate margin.

The 2010 Swap was designated as an effective cash flow hedge, and the fair value at September 30, 2010 was $(788), net of $495 in taxes. The 2010 Swap was reported on the condensed consolidated balance sheet in other non-current liabilities with a related charge recorded as a component of other comprehensive income in shareholders’ equity.

 

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THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

 

13. Fair Value Measurements:

On January 1, 2008, the Company adopted the guidance that applies to all assets and liabilities that are being measured and reported on a fair value basis. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions.

The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability’s level is based on the lowest level of input that is significant to the fair value measurement.

The following tables set forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis during the periods ended September 30, 2010 and December 31, 2009, by level, within the fair value hierarchy:

 

     As of September 30, 2010  
     Level 1      Level 2     Level 3      Total  

Trading securities

   $ 3,290       $ —        $ —         $ 3,290   

Interest rate swap

     —           (1,283     —           (1,283
     As of December 31, 2009  
     Level 1      Level 2     Level 3      Total  

Trading securities

   $ 3,043       $ —        $ —         $ 3,043   

Interest rate swap

     —           (1,894     —           (1,894

Trading securities are valued using quoted prices on an active exchange. Trading securities represent assets held in a Rabbi Trust to fund deferred compensation liabilities and are included as restricted investments on the accompanying condensed consolidated balance sheets.

For the five months ended May 28, 2010, the unrealized gains on these securities of $16 were recorded by the Predecessor as other income. For the four months ended September 30, 2010, the unrealized gains on these securities of $159 were recorded by the Successor as other income. In each period, an offsetting entry, for the same amount, adjusting the deferred compensation liability and compensation expense within SG&A was also recorded.

For the nine months ended September 30, 2009, the unrealized gains on these securities of $132 were recorded by the Predecessor as other income. An offsetting entry, for the same amount, increasing the deferred compensation liability and compensation expense within SG&A was also recorded.

 

Page 20 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

13. Fair Value Measurements (continued):

 

 

The Company utilizes interest rate swap contracts to manage its targeted mix of fixed and floating rate debt, and these swaps are valued using observable benchmark rates at commonly quoted intervals for the full term of the swaps. The 2010 Swap was included in other non-current liabilities as of September 30, 2010 on the accompanying condensed consolidated balance sheet. Prior to its termination on May 24, 2010, the 2008 Swap was included in other non-current liabilities on the accompanying condensed consolidated balance sheet.

14. Non-Recurring Expenses:

For the nine months ended September 30, 2010, the Company incurred $22,130 of non-recurring, one-time charges related to the Merger Transaction. The Predecessor incurred $11,342 of the non-recurring expense total primarily for investment banking, legal and other advisory fees related to the sale of the Company. The remaining $10,788 of non-recurring expense was incurred by the Successor for legal, consulting, accounting and other advisory services incurred in connection with the acquisition of the Company.

15. Subsequent Events:

The Company’s management has evaluated potential subsequent events for recording and disclosure in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2010. There are no items requiring disclosure.

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information:

The 10.875% Senior Notes were issued by The Hillman Group, Inc. and are fully and unconditionally guaranteed on a joint and several basis by the Company and certain of Company’s wholly owned subsidiaries. The non-guarantor information presented represents our Canadian and Mexican subsidiaries.

The following financial information presents condensed consolidating statements of operations, balance sheets, and cash flows for The Hillman Group, Inc., all guarantor subsidiaries, all non-guarantor subsidiaries and the eliminations necessary to provide the consolidated results for The Hillman Companies, Inc. and subsidiaries. For purposes of this presentation, we have accounted for investments in our subsidiaries using the equity method of accounting. The principal consolidating adjustments eliminate investment in subsidiary and intercompany balances and transactions.

 

Page 21 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued):

 

 

Condensed Consolidating Statements of Operations (Unaudited)

For the three months ended September 30, 2010

(Amounts in thousands)

 

    Successor  
    Guarantors
The Hillman
Companies, Inc.
    Issuer
The Hillman
Group, Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Consol-
idating
Adjust-
ments
    Consolidated  

Net sales

  $ -          $ 113,927      $ 5,286      $ 3,502      $ -          $ 122,715   

Cost of sales

    -            53,925        4,147        1,945        33        60,050   
                                               

Gross profit

    -            60,002        1,139        1,557        (33     62,665   
                                               

Operating expenses:

           

Selling, general and administrative expenses

    205        36,029        871        1,919        -            39,024   

Non-recurring expense

    -            385        -            -            -            385   

Depreciation

    -            4,775        21        13        -            4,809   

Amortization

    4,546        -            -            -            -            4,546   

Intercompany administrative (income) expense

    -            (60     -            60        -            -       

Management and transaction fees to related party

    -            -            -            -            -            -       
                                               

Total operating expenses

    4,751        41,129        892        1,992        -            48,764   
                                               

Other (expense) income, net

    205        (41     (2     237        -            399   

Income from operations

    (4,546     18,832        245        (198     (33     14,300   

Intercompany interest (income) expense

    (3,058     3,058        -            -            -            -       

Interest expense, net

    (106     8,678        -            (1     -            8,571   

Interest on mandatorily redeemable preferred
stock and management purchased options

    -            -            -            -            -            -       

Interest expense on junior subordinated debentures

    3,152        -            -            -            -            3,152   

Investment income on trust common securities

    (95     -            -            -            -            (95
                                               

(Loss) Income before equity in subsidiaries’ income (loss)

    (4,439     7,096        245        (197     (33     2,672   

Equity in subsidiaries’ income (loss)

    7,131        35        -            -            (7,166     -       
                                               

Income (loss) before income taxes

    2,692        7,131        245        (197     (7,199     2,672   

Income tax provision (benefit)

    1,209        -            73        (60     -            1,222   
                                               

Net income (loss)

  $ 1,483      $ 7,131      $ 172      $ (137   $ (7,199   $ 1,450   
                                               

Other Comprehensive income (loss):

           

Foreign currency translation adjustments

    -            -            -            17        -            17   

Change in derivative security value

    -            (788     -            -            -            (788
                                               

Total comprehensive income (loss)

  $ 1,483      $ 6,343      $ 172      $ (120   $ (7,199   $ 679   
                                               

 

Page 22 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued):

 

 

Condensed Consolidating Statements of Operations (Unaudited)

For the three months ended September 30, 2009

(Amounts in thousands)

 

     Predecessor  
     Guarantors
The Hillman
Companies, Inc.
    Issuer
The Hillman
Group, Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Consol-
idating
Adjust-
ments
    Consolidated  
                                   (As Restated)  

Net sales

   $ -          $ 115,829      $ 4,173      $ 2,671      $ -          $ 122,673   

Cost of sales

     -            53,264        3,041        1,256        19        57,580   
                                                

Gross profit

     -            62,565        1,132        1,415        (19     65,093   
                                                

Operating expenses:

            

Selling, general and administrative expenses

     3,499        36,076        913        924        -            41,412   

Non-recurring expense

     -            -            -            -            -            -       

Depreciation

     -            4,339        22        37        -            4,398   

Amortization

     1,759        -            9        -            -            1,768   

Intercompany administrative (income) expense

     -            (60     -            60        -            -       

Management and transaction fees to related party

     250        -            -            -            -            250   
                                                

Total operating expenses

     5,508        40,355        944        1,021        -            47,828   
                                                

Other (expense) income, net

     211        (176     5        111        -            151   

Income from operations

     (5,297     22,034        193        505        (19     17,416   

Intercompany interest (income) expense

     (3,058     3,058        -            -            -            -       

Interest expense, net

     (90     4,102        (1     -            -            4,011   

Interest on mandatorily redeemable preferred
stock and management purchased options

     3,149        -            -            -            -            3,149   

Interest expense on junior subordinated debentures

     3,214        -            -            -            -            3,214   

Investment income on trust common securities

     (95     -            -            -            -            (95
                                                

(Loss) income before equity in subsidiaries’ income (loss)

     (8,417     14,874        194        505        (19     7,137   

Equity in subsidiaries’ income (loss)

     15,448        574        —          -            (16,022     -       
                                                

Income (loss) before income taxes

     7,031        15,448        194        505        (16,041     7,137   

Income tax provision (benefit)

     4,271        -            78        47        -            4,396   
                                                

Net income (loss)

   $ 2,760      $ 15,448      $ 116      $ 458      $ (16,041   $ 2,741   
                                                

Other comprehensive income (loss):

            

Foreign currency translation adjustments

     -            -            -            (83     -            (83

Change in derivative security value

     -            (67     -            -            -            (67
                                                

Total comprehensive income (loss)

   $ 2,760      $ 15,381      $ 116      $ 375      $ (16,041   $ 2,591   
                                                

 

Page 23 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued):

 

 

Condensed Consolidating Statements of Operations (Unaudited)

For the four months ended September 30, 2010

(Amounts in thousands)

 

     Successor  
     Guarantors
The Hillman
Companies, Inc.
    Issuer
The Hillman
Group, Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Consol-
idating
Adjust-
ments
    Consolidated  

Net sales

   $ -          $ 158,470      $ 7,376      $ 4,569      $ -          $ 170,415   

Cost of sales

     -            75,023        5,605        2,415        29        83,072   
                                                

Gross profit

     -            83,447        1,771        2,154        (29     87,343   
                                                

Operating expenses:

            

Selling, general and administrative expenses

     159        49,667        1,215        2,282        -            53,323   

Non-recurring expense

     -            10,788        -            -            -            10,788   

Depreciation

     -            6,285        28        18        -            6,331   

Amortization

     6,061        -            -            -            -            6,061   

Intercompany administrative (income) expense

     -            (80     -            80        -            -       

Management and transaction fees to related party

     -            -            -            -            -            -       
                                                

Total operating expenses

     6,220        66,660        1,243        2,380        -            76,503   
                                                

Other (expense) income, net

     159        (51     (2     157        -            263   

Income from operations

     (6,061     16,736        526        (69     (29     11,103   

Intercompany interest (income) expense

     (4,077     4,078        -            -            (1     -       

Interest expense, net

     (142     12,332        -            (1     1        12,190   

Interest on mandatorily redeemable preferred
stock and management purchased options

     -            -            -            -            -            -       

Interest expense on junior subordinated debentures

     4,203        -            -            -            -            4,203   

Investment income on trust common securities

     (126     -            -            -            -            (126
                                                

(Loss) income before equity in subsidiaries’ income (loss)

     (5,919     326        526        (68     (29     (5,164

Equity in subsidiaries’ income (loss)

     621        295        -            -            (916     -       
                                                

Income (loss) before income taxes

     (5,298     621        526        (68     (945     (5,164

Income tax provision (benefit)

     (978     -            184        (21     -            (815
                                                

Net income (loss)

   $ (4,320   $ 621      $ 342      $ (47   $ (945   $ (4,349
                                                

Other comprehensive income (loss):

            

Foreign currency translation adjustments

     -            -            -            15        -            15   

Change in derivative security value

     -            (788     -            -            -            (788
                                                

Total comprehensive income (loss)

   $ (4,320   $ (167   $ 342      $ (32   $ (945   $ (5,122
                                                

 

Page 24 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued):

 

 

Condensed Consolidating Statements of Operations (Unaudited)

For the five months ended May 28, 2010

(Amounts in thousands)

 

     Predecessor  
     Guarantors
The Hillman
Companies, Inc.
    Issuer
The Hillman
Group, Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
     Consol-
idating
Adjust-
ments
    Consolidated  

Net sales

   $ -          $ 175,470      $ 6,244      $ 4,002       $ -          $ 185,716   

Cost of sales

     -            83,169        4,679        1,925         -            89,773   
                                                 

Gross profit

     -            92,301        1,565        2,077         -            95,943   
                                                 

Operating expenses:

             

Selling, general and administrative expenses

     19,069        60,784        1,396        1,601         -            82,850   

Non-recurring expense

     -            11,342        -            -             -            11,342   

Depreciation

     -            7,192        32        59         -            7,283   

Amortization

     2,663        -            15        -             -            2,678   

Intercompany administrative (income) expense

     -            (100     -            100         -            -       

Management and transaction fees to related party

     438        -            -            -             -            438   
                                                 

Total operating expenses

     22,170        79,218        1,443        1,760         -            104,591   
                                                 

Other (expense) income, net

     16        11        (217     76         -            (114

Income from operations

     (22,154     13,094        (95     393         -            (8,762

Intercompany interest (income) expense

     (5,097     5,096        -            -             1        -       

Interest expense, net

     (154     8,480        -            2         (1     8,327   

Interest on mandatorily redeemable preferred
stock and management purchased options

     5,488        -            -            -             -            5,488   

Interest expense on junior subordinated debentures

     5,254        -            -            -             -            5,254   

Investment income on trust common securities

     (158     -            -            -             -            (158
                                                 

(Loss)income before equity in subsidiaries’ income (loss)

     (27,487     (482     (95     391         -            (27,673

Equity in subsidiaries’ income (loss)

     (398     84        -            -             314        -       
                                                 

Income (loss) before income taxes

     (27,885     (398     (95     391         314        (27,673

Income tax provision (benefit)

     (2,677     -            48        164         -            (2,465
                                                 

Net income (loss)

   $ (25,208   $ (398   $ (143   $ 227       $ 314      $ (25,208
                                                 

Other comprehensive income (loss):

             

Foreign currency translation adjustments

     -            -            -            17         -            17   

Change in derivative security value

     -            1,161        -            -             -            1,161   
                                                 

Total comprehensive income (loss)

   $ (25,208   $ 763      $ (143   $ 244       $ 314      $ (24,030
                                                 

 

Page 25 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued):

 

 

Condensed Consolidating Statements of Operations (Unaudited)

For the nine months ended September 30, 2009

(Amounts in thousands)

 

     Predecessor  
     Guarantors
The Hillman
Companies, Inc.
    Issuer
The Hillman
Group, Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Consol-
idating
Adjust-
ments
    Consolidated  
                                   (As Restated)  

Net sales

   $ -          $ 338,732      $ 12,967      $ 7,000      $ -          $ 358,699   

Cost of sales

     -            163,364        9,631        3,862        108        176,965   
                                                

Gross profit

     -            175,368        3,336        3,138        (108     181,734   
                                                

Operating expenses:

            

Selling, general and administrative expenses

     7,220        109,028        2,679        2,701        -            121,628   

Non-recurring expense

     -            -            -            -            -            -       

Depreciation

     -            13,117        67        106        -            13,290   

Amortization

     5,277        -            28        -            -            5,305   

Intercompany administrative (income) expense

     -            (180     -            179        1        -       

Management and transaction fees to related party

     759        -            -            -            -            759   
                                                

Total operating expenses

     13,256        121,965        2,774        2,986        1        140,982   
                                                

Other (expense) income, net

     132        (733     (7     291        1        (316

Income from operations

     (13,124     52,670        555        443        (108     40,436   

Intercompany interest (income) expense

     (9,174     9,174        -            -            -            -       

Interest expense, net

     (269     11,413        (5     -            -            11,139   

Interest on mandatorily redeemable preferred
stock and management purchased options

     9,098        -            -            -            -            9,098   

Interest expense on junior subordinated debentures

     9,668        -            -            -            -            9,668   

Investment income on trust common securities

     (284     -            -            -            -            (284
                                                

(Loss)income before equity in subsidiaries’ income (loss)

     (22,163     32,083        560        443        (108     10,815   

Equity in subsidiaries’ income (loss)

     32,672        589        -            -            (33,261     -       
                                                

Income (loss) before income taxes

     10,509        32,672        560        443        (33,369     10,815   

Income tax provision

     9,144        -            221        193        -            9,558   
                                                

Net income (loss)

   $ 1,365      $ 32,672      $ 339      $ 250      $ (33,369   $ 1,257   
                                                

Other comprehensive income (loss):

            

Foreign currency translation adjustments

     -            -            -            (179     -            (179

Change in derivative security value

     -            138        -            -            -            138   
                                                

Total comprehensive income (loss)

   $ 1,365      $ 32,810      $ 339      $ 71      $ (33,369   $ 1,216   
                                                

 

Page 26 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued):

 

 

Condensed Consolidating Balance Sheet (Unaudited)

As of September 30, 2010

(Amounts in thousands)

 

     Successor  
     Guarantors
The Hillman
Companies, Inc.
    Issuer
The Hillman
Group, Inc.
     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Consol-
idating
Adjust-
ments
    Consolidated  
ASSETS              

Current assets

             

Cash and cash equivalents

   $ 1      $ 12,499       $ 772      $ 792      $ -          $ 14,064   

Restricted investments

     334        -             -            -            -            334   

Accounts receivable

     -            66,217         5,237        (3,917     -            67,537   

Inventories

     -            81,180         4,804        3,081        (308     88,757   

Deferred income taxes

     7,338        -             595        248        -            8,181   

Other current assets

     -            2,341         73        478        -            2,892   
                                                 

Total current assets

     7,673        162,237         11,481        682        (308     181,765   

Intercompany notes receivable

     105,446        -             -            -            (105,446     -       

Intercompany interest receivable

     9,174        -             -            -            (9,174     -       

Investments in subsidiaries

     (619,850     7,732         -            -            612,118        -       

Property and equipment

     -            51,705         248        194        -            52,147   

Goodwill

     431,666        -             292        32        279        432,269   

Other intangibles

     361,023        -             566        -            -            361,589   

Restricted investments

     2,956        -             -            -            -            2,956   

Deferred income taxes

     22,446        495         (259     434        (22,682     434   

Deferred financing fees

     -            14,941         -            -            -            14,941   

Investment in trust common securities

     3,261        -             -            -            -            3,261   

Other assets

     -            1,028         25        154        -            1,207   
                                                 

Total assets

   $ 323,795      $ 238,138       $ 12,353      $ 1,496      $ 474,787      $ 1,050,569   
                                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY              

Current liabilities

             

Accounts payable

   $ -          $ 26,989       $ 761      $ 277      $ -          $ 28,027   

Current portion of senior term loans

     -            2,900         -            -            -            2,900   

Current portion of capitalized lease and
other obligations

     -            42         -            -            -            42   

Accrued expenses:

             

Salaries and wages

     -            3,935         105        145        -            4,185   

Pricing allowances

     -            6,110         -            451        -            6,561   

Income and other taxes

     (172     1,653         118        321        -            1,920   

Interest

     -            5,797         -            -            -            5,797   

Deferred compensation

     334        -             -            -            -            334   

Other accrued expenses

     -            6,127         261        315        -            6,703   
                                                 

Total current liabilities

     162        53,553         1,245        1,509        -            56,469   

Intercompany debt payable

     -            105,446         -            -            (105,446     -       

Intercompany interest payable

     -            9,174         -            -            (9,174     -       

Long term senior term loans

     -            286,375         -            -            -            286,375   

Long term portion of capitalized lease and
other obligations

     -            141         -            -            -            141   

Long term senior notes

     -            150,000         -            -            -            150,000   

 

Page 27 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued):

 

 

Condensed Consolidating Balance Sheet (Unaudited)

As of September 30, 2010

(Amounts in thousands)

 

     Successor  
     Guarantors
The Hillman
Companies, Inc.
    Issuer
The Hillman
Group, Inc.
    Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Consol-
idating
Adjust-
ments
    Consolidated  
LIABILITIES AND STOCKHOLDERS’ EQUITY(CONTINUED)             

Junior subordinated debentures

     115,943        -            -            -            -            115,943   

Mandatorily redeemable preferred stock

     -            -            -            -            -            -       

Management purchased preferred options

     -            -            -            -            -            -       

Deferred compensation

     2,956        -            -            -            -            2,956   

Deferred income taxes, net

     155,120        -            (16     -            (22,682     132,422   

Accrued dividends on preferred stock

     -            -            -            -            -            -       

Other non-current liabilities

     -            2,744        -            -            -            2,744   
                                                

Total liabilities

     274,181        607,433        1,229        1,509        (137,302     747,050   
                                                

Common stock with put options:

            

Common stock, $.01 par, 5,000 shares authorized, 200.8
issued and outstanding at September 30, 2010.

     12,397        -            -            -            -            12,397   

Class A Common stock, $.01 par, zero authorized, issued and
outstanding at September 30, 2010; 23,141 shares authorized,
395.7 issued and outstanding at December 31, 2009.

     -            -            -            -            -            -       

Class B Common stock, $.01 par, zero authorized, issued and
outstanding at September 30, 2010; 2,500 shares authorized,
970.6 issued and outstanding at December 31, 2009.

     -            -            -            -            -            -       

Commitments and Contingencies

            

Stockholders’ Equity:

            

Preferred Stock:

            

Preferred stock, $.01 par, 5,000 shares authorized, none
issued and outstanding at September 30, 2010.

     -            -            -            -            -            -       

Class A Preferred stock, $.01 par, zero authorized, issued and outstanding at September 30, 2010; $1,000 liquidation
value, 238,889 shares authorized, 82,104.8 issued and
outstanding at December 31, 2009.

     -            -            -            -            -            -       

Common Stock:

            

Common stock, $.01 par, 5,000 shares authorized,
4,799.2 issued and outstanding at September 30, 2010.

     -            -            -            -            -            -       

Class A Common stock, $.01 par, zero authorized, issued and
outstanding at September 30, 2010; 23,141 shares authorized,
5,805.3 issued and outstanding at December 31, 2009.

     -            -            50        -            (50     -       

Class C Common stock, $.01 par, zero authorized, issued and
outstanding at September 30, 2010; 30,109 shares authorized,
2,787.1 issued and outstanding at December 31, 2009.

     -            -            -            -            -            -       

Additional paid-in capital

     134,526        (152,682     10,732        373        303,295        296,244   

Accumulated deficit

     (97,309     (215,825     342        80        308,363        (4,349

Accumulated other comprehensive loss

     -            (788     -            (466     481        (773
                                                

Total stockholders’ equity

     37,217        (369,295     11,124        (13     612,089        291,122   
                                                

Total liabilities and stockholders’ equity

   $ 323,795      $ 238,138      $ 12,353      $ 1,496      $ 474,787      $ 1,050,569   
                                                

 

Page 28 of 55


Table of Contents

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

 

16. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information (continued):

 

 

Condensed Consolidating Balance Sheet (Unaudited)

As of December 31, 2009

(Amounts in thousands)

 

     Predecessor  
     Guarantors
The Hillman
Companies, Inc.
    Issuer
The Hillman
Group, Inc.
     Guarantor
Subsidiaries
    Non-
Guarantor
Subsidiaries
    Consol-
idating
Adjust-
ments
    Consolidated  
ASSETS              

Current assets

             

Cash and cash equivalents

   $ 1      $ 16,282       $ 518      $ 363      $ -          $ 17,164   

Restricted investments

     334        -             -            -            -            334   

Accounts receivable

     -            51,078         4,409        (3,730     -            51,757   

Inventories

     -            75,364         5,204        2,904        (290     83,182   

Deferred income taxes

     7,215        -             653        232        -            8,100   

Other current assets

     -            2,417         78        162        -            2,657   
                                                 

Total current assets

     7,550        145,141         10,862        (69     (290     163,194   

Intercompany notes receivable

     105,446        -             -            -            (105,446     -       

Intercompany interest receivable

     -            -             -            -            -            -       

Investments in subsidiaries

     (464,499     10,212         -            -            454,287        -       

Property and equipment

     -            47,109         238        218        -            47,565   

Goodwill

     255,717        1,797         292        -            -            257,806   

Other intangibles

     146,059        -             581        -            -            146,640   

Restricted investments

     2,709        -             -            -            -            2,709   

Deferred income taxes

     19,792        733         (82     419        (20,444     418   

Deferred financing fees

     2,249        3,441         -            -            -            5,690   

Investment in trust common securities

     3,261        -             -            -            -            3,261   

Other assets

     -            1,142         25        31        -            1,198   
                                                 

Total assets

   $ 78,284      $ 209,575       $ 11,916      $ 599      $ 328,107      $ 628,481   
                                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY