Hillman Solutions Corp. Annual report pursuant to Section 13 and 15(d)

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

The components of the Company’s income tax provision for the three years ended December 31, 2012 were as follows:


	Successor									Predecessor
	Year ended December 31, 2012			Year ended December 31, 2011			Seven Months ended December 31, 2010			Five Months ended May 28, 2010
Current:
Federal & State	$	206		$	217		$	96		$	83
Foreign		344			317			108			73

Total current		550			534			204			156


Deferred:
Federal & State		(5,000	)		(5,119	)		(4,348	)		(2,063	)
Foreign		(746	)		(271	)		38			91

Total deferred		(5,746	)		(5,390	)		(4,310	)		(1,972	)


Valuation allowance		28			177			981			(649	)


Provision (benefit) for income taxes	$	(5,168	)	$	(4,679	)	$	(3,125	)	$	(2,465	)

The table below reflects the significant components of the Company’s net deferred tax assets and liabilities at December 31, 2012 and 2011:


	As of December 31, 2012						As of December 31, 2011
	Current			Non-current			Current			Non-current
Deferred Tax Asset:
Inventory	$	5,994		$	—		$	6,429		$	—
Bad debt reserve		1,116			—			1,243			—
Casualty loss reserve		708			308			419			492
Accrued bonus / deferred compensation		1,546			1,592			889			1,377
Litigation settlement accrual		—			—			629			—
Derivative security value		740			—			—			—
Medical insurance reserve		508			—			190			—
Deferred lease incentive		—			422			—			454
Original issue discount amortization		—			536			—			509
Transaction costs		—			3,348			—			3,498
Federal / foreign net operating loss		—			23,164			—			23,233
State net operating loss		—			2,963			—			3,047
Unrecognized tax benefit		—			(3,002	)		—			(4,440	)
Federal capital loss carry forwards		—			374			—			588
Tax credit carry forwards		—			2,618			—			2,559
All other items		578			835			852			639

Gross deferred tax assets		11,190			33,158			10,651			31,956
Valuation allowance for deferred tax assets		(726	)		(2,374	)		(743	)		(2,236	)

Net deferred tax assets	$	10,464		$	30,784		$	9,908		$	29,720

Deferred Tax Liability:
Intangible asset amortization	$	—		$	135,946		$	—		$	141,169
Property and equipment		—			12,504			—			12,439
All other items		—			283			—			—

Deferred tax liabilities	$	—		$	148,733		$	—		$	153,608

Net deferred tax liability				$	107,485					$	113,980

Long term net deferred tax liability				$	117,949					$	123,888
Current net deferred tax asset					10,464						9,908
Long term net deferred tax asset					—						—

Net deferred tax liability				$	107,485					$	113,980

Below is a reconciliation of statutory income tax rates to the effective income tax rates for the periods indicated:


	Successor									Successor
	Year ended December 31, 2012			Year ended December 31, 2011			Seven Months ended December 31, 2010			Five Months ended May 28, 2010
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%		35.0	%
Non-U.S. taxes and the impact of non-U.S. losses for which a current tax benefit is not available		-6.1	%		-0.9	%		-0.4	%		-0.1	%
State and local income taxes, net of U.S. federal income tax benefit		1.9	%		2.5	%		3.2	%		0.9	%
Adjustment of reserve for change in valuation allowance and other items		1.2	%		-1.2	%		-9.2	%		2.3	%
Adjustment for change in tax law		-0.4	%		-2.6	%		0.0	%		0.3	%
Adjustment of unrecognized tax benefits		11.6	%		0.0	%		0.0	%		-5.6	%
Permanent differences:
Interest expense on mandatorily redeemable preferred stock		0.0	%		0.0	%		0.0	%		-6.2	%
Stock based compensation expense		0.0	%		0.0	%		0.0	%		-17.5	%
Meals and entertainment expense		-1.1	%		-0.9	%		-0.6	%		-0.2	%
Other permanent differences		-0.9	%		0.0	%		0.0	%		0.0	%
Other adjustments		0.5	%		0.5	%		0.0	%		0.0	%

Effective income tax rate		41.7	%		32.4	%		28.0	%		8.9	%

A summary of the changes for the last three years follows:


	2012			2011		2010
Unrecognized tax benefits - January 1	$	4,440		$	4,433	$	2,879

Gross increases - tax positions in current period		—			7		1,557
Gross increases - tax positions in prior period		—			—		—
Gross decreases - tax positions in prior period		(1,438	)		—		(3	)


Unrecognized tax benefits - December 31	$	3,002		$	4,440	$	4,433


Amount of unrecognized tax benefit that, if recognized would affect the company’s effective tax rate	$	3,002		$	4,440	$	4,433