10-K405: Annual report [Sections 13 and 15(d), S-K Item 405]

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

COMMISSION FILE NUMBER 1-13293

THE HILLMAN COMPANIES, INC. (FORMERLY SUNSOURCE INC.)
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 23-2874736
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

10590 HAMILTON AVENUE
CINCINNATI, OHIO 45231
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(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
Preferred Share Purchase Rights

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 NO X
---- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X

On March 20, 2002 there were 7,138,665 Common Shares issued and outstanding by
the Registrant and 4,217,724 Trust Preferred Securities issued and outstanding
by the Hillman Group Capital Trust (formerly SunSource Capital Trust). The Trust
Preferred Securities trade on the American Stock Exchange.


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ITEM I - BUSINESS.

GENERAL

SunSource Inc., a Delaware corporation ("SunSource") converted from partnership
to corporate form on September 30, 1997. On March 18, 2002, SunSource, as a
result of the acquisition of a majority of SunSource common stock by Allied
Capital Corporation in September 2001 as discussed below, changed its name to
The Hillman Companies, Inc. ("Hillman" or the "Company") which reflects its
predominant business as one of the largest providers of merchandising services
and hardware-related products to retail markets in North America. In connection
with the SunSource name change, SunSource Capital Trust, which has 4.2 million
Trust Preferred Securities outstanding and trading on the American Stock
Exchange, changed its name to the Hillman Group Capital Trust. The Trust
Preferred Securities trade under the ticker symbol HLM.Pr (formerly SDP.Pr). The
Company has moved its principal executive offices from Philadelphia,
Pennsylvania, to Cincinnati, Ohio.

The Company's principal business is operated through its wholly owned
subsidiary, The Hillman Group, Inc. (the "Hillman Group") which had sales of
$249 million in 2001. The Hillman Group sells to hardware stores, home centers,
mass merchants, pet suppliers, and other retail outlets principally in the U.S.,
Canada, Mexico and South America. Their product lines include thousands of small
parts such as fasteners and related hardware items; keys, key duplication
systems and accessories; and identification items, such as, tags and letters,
numbers, and signs. Services offered include design and installation of
merchandising systems and maintenance of appropriate in-store inventory levels.

On September 26, 2001, SunSource Inc. was acquired by Allied Capital Corporation
("Allied Capital") pursuant to the terms and conditions of an Agreement and Plan
of Merger dated as of June 18, 2001, by and among Allied Capital, Allied Capital
Lock Acquisition Corporation and SunSource (the "Merger Transaction"). Certain
members of management and other stockholders continue as stockholders of the
Company after the merger. The total transaction value was $74.0 million or
$10.375 per SunSource common share, consisting of the cash purchase price paid
for the outstanding common stock of the Company aggregating approximately $71.5
million and management and other stockholders' common shares valued at
approximately $2.5 million. SunSource was the surviving entity in the merger
and organized as an independently managed, privately held portfolio company of
Allied Capital.

In connection with the Merger Transaction, on September 28, 2001, the Company
completed the sale of substantially all of the assets of its SunSource
Technology Services business (the "STS Business") to STS Operating, Inc. ("STS
OP"), an entity formed by certain officers and managers of the STS Business,
Allied Capital and Easton Hunt Capital Partners, L.P. for the purpose of
acquiring the STS Business. STS OP purchased the assets of the STS Business
including the rights to the name SunSource from SunSource Technology Services,
LLC, an indirect wholly owned subsidiary of SunSource, pursuant to an Asset
Purchase Agreement, dated September 28, 2001, by and between SunSource
Technology Services, LLC and STS OP. The purchase price aggregated approximately
$25.5 million in cash and preferred stock of STS OP, subject to post-closing
adjustments, plus the assumption of certain liabilities. The equity investment
in STS OP will continue to be held by the Hillman Group. STS OP is a leading
provider of systems and parts and engineering services for hydraulic, pneumatic,
electronic and related systems to major industrial companies throughout the U.S.
and Canada.


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On May 16, 2001, the Board of Directors approved a plan of legal reorganization
whereby (i) SunSource Technology Services, Inc. ("STS") was formed as a single
member limited liability company and a wholly owned subsidiary of the Hillman
Group and (ii) Axxess Technologies, Inc. was merged with and into the Hillman
Group, collectively, the "2001 Legal Reorganization".

In December 2000, the Board of Directors approved a plan to liquidate the
Company's investment in SunSource Integrated Services de Mexico, SA de CV, the
"Mexican Business Segment". This segment has been accounted for as a
discontinued operation and, accordingly, its results of operations were
segregated from the results of the Company's ongoing businesses including
restatement of prior periods presented. The liquidation process was
substantially completed as of June 30, 2001. On August 3, 2001, STS distributed
its common stock investment in the Mexican Business Segment to the Hillman Group
to segregate the STS Business from the remaining business interests of
SunSource.

On April 13, 2000, the Company sold substantially all of the assets of its
Harding Glass, Inc. ("Harding") subsidiary to VVP America for a cash purchase
price of $30.6 million plus the assumption by the buyer of certain liabilities
aggregating $12.7 million, subject to certain post-closing adjustments. Proceeds
from the sale of Harding were used to repay the Company's outstanding debt.
Harding sales aggregated $28.0 million from January 1, 2000 through April 12,
2000, and $118.3 million for the year ended December 31, 1999.

A plan to dispose of the Company's Harding Glass business was approved by the
Board of Directors in December 1999. From December 1999 through the date of
sale, Harding was accounted for as a discontinued operation and, accordingly,
its results of operations were segregated from results of the Company's ongoing
businesses including restatement of prior periods presented.

On April 7, 2000, the Company acquired Axxess Technologies, Inc. ("Axxess" or
"Axxess Technologies") of Tempe, Arizona through a stock merger transaction.
Axxess is a manufacturer and distributor of key duplication and identification
systems. The transaction was structured as a purchase of 100% of the stock of
the privately held company and repayment of outstanding Axxess debt in exchange
for $87 million in cash and $23 million in subordinated notes. Axxess
Technologies' sales aggregated $19.4 million for the three months ended March
31, 2000, and $82.1 million for the year ended December 31, 1999. The results of
operations for Axxess are included in the results of the Hillman Group from the
date of acquisition. On June 1, 2001, Axxess Technologies merged with and into
the Hillman Group in conjunction with the 2001 Legal Reorganization noted above
with the Hillman Group being the surviving entity in the merger.

On March 2, 2000, the Company contributed its Kar Products operations to a newly
formed partnership affiliated with Glencoe Capital L.L.C. ("Glencoe"). Glencoe
contributed cash equity to the new partnership in exchange for a 51% controlling
interest with the remaining minority interest retained by SunSource. The Company
received $105 million in cash proceeds from the transaction through repayment of
assumed debt by the new partnership, GC-Sun Holdings, L.P. ("G-C"). On October
4, 2000, G-C acquired all of the outstanding stock of Brampton Fastener Co.
Limited (d/b/a Brafasco). On January 4, 2002, G-C provided the Company notice
that it intends to exercise its call right to purchase the Company's partnership
interest as a result of the Merger Transaction with Allied Capital. Hillman is
expected to continue to have an investment in Kar Products upon settlement of
G-C's call right. Kar Products distributes maintenance, repair and operating
("MRO") parts and supplies and offers customized inventory management services
to commercial and


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industrial customers of all sizes in the U.S. and Canada.


INDUSTRY OVERVIEW

Hillman operates in multiple channels of the retail marketplace such as hardware
stores, national and regional home centers and mass merchants. These retail
channels are currently experiencing significant changes driven by the widespread
availability of management information systems. With better information,
manufacturers, distributors and customers are all able to track their expenses,
investments and returns on investments more accurately. The retail industry is
driven by the following trends which are organized around customer requirements
and value-added services:

(i) Customers are increasing their reliance on value-added distributors as
their contacts with the manufacturers diminish or cease altogether.

(ii) Customers are outsourcing non-core functions to high quality service
providers.

(iii) The retail marketplace is in the process of consolidation.

The Hillman Group focuses on delivering merchandising systems, point-of-sale
displays, product support and sales installation services through its nationwide
field sales and service force to the retail sector.

To survive and prosper in this evolving retail channel, Hillman believes that
the critical requirements for success among existing competitors will be market
knowledge, merchandising skills, breadth of inventory and value-added services
including superior support and fulfillment capabilities.

THE HILLMAN GROUP

Refer to Item 7 - "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 21, Segment Information to Consolidated
Financial Statements for segment financial data for the three years ended
December 31, 2001.

The Company is organized as a single business segment which is the Hillman
Group. With annualized sales of approximately $249 million, the Hillman Group
believes that it is the leading provider of fasteners and related small hardware
items; keys, key duplication systems and related accessories; and identification
items, such as, tags and letters, numbers and signs ("LNS") to retail outlets in
North America. Retail outlets served by Hillman are hardware stores, home
centers, mass merchants, pet suppliers, grocery stores and drug stores. Through
its field sales and service organization, Hillman complements its extensive
product selection with value-added services for the retailer.

Sales and service representatives regularly visit retail outlets to review stock
levels, reorder items in need of replacement, and interact with the storeowners
to offer new product and merchandising ideas. Thousands of items can thus be
actively managed with the retailer experiencing a substantial reduction in
paperwork and labor costs. Service representatives also assist in organizing the
products in a consumer-friendly manner. Hillman complements its broad range of
products with value-added merchandising services such as displays, product
identification stickers, retail price stickers, store rack and drawer systems,
assistance in rack positioning and store layout and inventory and restocking
services. Periodically, Hillman introduces new products and package designs with
color-coding for ease of shopping by consumers and also modifies rack designs to


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improve the attractiveness of individual store displays. In effect, Hillman
functions as a merchandising manager for retailers, supporting these services
with high order fill rates and rapid delivery from its eight distribution
centers across the United States. Orders are normally shipped within 48 hours
with a 96% order fill rate.

Hillman also manufactures and markets a value-added mix of high-tech and
conventional products in two core product categories: key duplication systems
and identification systems. The patent-protected Axxess Precision Key
Duplication System(TM) has proven to be a profitable revenue source within Big
Box retailers (defined as mass merchants, home centers and large-format
grocery/drug centers). This system has been placed in over 12,000 retail
locations to date.

In addition, Hillman offers a commercialized, innovative, consumer-operated
vending system, Quick-Tag(TM), which provides custom engraved specialty items,
such as pet identification tags, luggage tags and other engraved identification
tags. Axxess initially targeted the pet identification market with its Quick-Tag
system, and has facilitated the process of obtaining a pet tag by providing pet
owners with a quick and highly convenient means to custom engrave tags while
shopping at large format retail stores such as Wal-Mart and PETsMART. Axxess has
developed other high impact applications for its Quick-Tag(TM) interactive
engraving technology, including luggage tags, key chains and military-style
identification tags. To date, more than 2,800 Quick-Tag(TM) machines have been
placed in retail locations which are being supported by Hillman's sales and
service representatives.

PRODUCTS AND SUPPLIERS. Hillman buys its products from approximately 1,000
vendors, the largest of which accounted for 13% of the Group's annual purchases
and the top five of which accounted for 33% of its purchases. About half of its
purchases are from overseas suppliers, with the balance from domestic
manufacturers and master distributors. Hillman's fastener product line includes
both standard and specialty nuts, bolts, washers, screws and anchors. The line
also includes brass, plastic, stainless steel, and other miscellaneous
fasteners. The depth of the line, over 39,000 products, is believed to be the
largest among suppliers servicing the hardware retail segment. Fasteners
generated just over 51% of total sales in 2001. Non-fastener products feature
picture hanging items and accessories, keys and accessories, LNS, rope and chain
accessories, and an extensive list of specialty items. To assure quality from
its vendors, Hillman conducts periodic on-site evaluations, random sampling of
products and communicates results to vendors. Hillman also tracks the
performance of its vendors based on delivery time and accuracy of shipments.

Hillman provides a competitive line of metal key products for major retailers
and the automotive sector. In 2001, keys and accessories represented 24.4% of
total revenue. It manufactures two metal key duplication systems that are
niche-marketed to retail outlets, primarily mass merchants and home centers and
a code cutting system for use in automotive dealerships and in vehicle fleet
environments.

The Axxess Precision Key Duplication System(TM) creates high quality duplicate
keys with the precision of a locksmith while minimizing the technical skill
required by operators. The system was developed in response to retailers needs
for reducing the miscut rate on keys. Axxess keys provide retailers with nearly
ten times more gross profit per square foot than the average of all products
sold in grocery and mass merchant channels. Hillman also markets a conventional
key cutting system. Key styles marketed include standard brass keys, Color
Plus(TM) keys, rubber head


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keys, and high security vehicle anti-theft key blanks. The conventional system
is marketed to retailers who do not experience high employee turnover and
therefore do not have the same labor constraints as mass merchants, home centers
or grocery and drug retailers.

The key cutting system developed for the automotive industry, PC+ Code Cutter,
produces automobile keys using alphanumeric codes based on a vehicle's
identification number. Utilizing a proprietary computer program, the PC+ Code
Cutter identifies and then cuts keys based on the automobile's original key
pattern. The PC+ Code Cutter is distributed through Barnes Distribution, a
distribution company serving vehicular and industrial markets. Since its
introduction in February 1996, more than 5,000 PC+ Code Cutter systems have been
sold and/or leased.

Hillman also markets key accessories in conjunction with its key duplication
systems. Popular accessories include the Key Light(TM), Valet KeyChain(TM), key
identifiers, key coils and key clips. The Key Mates(TM) line of key accessories
includes a broad range of products such as key chains, tags, lights, floats,
holders, whistles, and a host of other miscellaneous items that complement the
use of keys.

Quick-Tag(TM) is a patented, state-of-the-art consumer-operated vending system
that custom engraves specialty products such as pet identification tags,
military-style I.D. tags, holiday ornaments and luggage tags. Using an
interactive touch screen, customers input information such as a pet name and
telephone number, and the system's proprietary technology engraves the tag in
less than two minutes. The Quick-Tag system does not require incremental labor
and generates high levels of customer satisfaction and attractive margins for
the retailer. The Quick-Tag custom engraving systems generate retail profit per
square foot, over seven times the typical retail average.

Letters, numbers and signs which accounted for 10.5% of 2001 revenues include
packaged self-adhesive letters and numbers; mailbox numbers and accessories;
house numbers and letters; contractor safety program signs; and driveway markers
and reflectors. Typical retailers dedicate eight linear feet of retail space for
this product and view it as a significant contributor to their retail offerings.

Hillman purchases a wide variety of materials and components to manufacture the
Axxess Key Duplication and Quick-Tag engraving machines, many of which are
manufactured to its specifications. Management does not believe that it is
overly dependent on any one supplier; the components do not generally require
proprietary technology; and Hillman has identified or used alternate suppliers
for its primary sourcing needs.

MARKETS AND CUSTOMERS. Hillman services approximately 15,000 franchise and
independent ("F&I") retail outlets. These individual dealers are typically
members of the larger cooperatives, such as TruServ, Ace and Do-it-Best. They
sell directly to the cooperative's retail locations and also supply many
fastener items to the cooperative's central warehouses. These central warehouses
distribute to their members that do not have a requirement for Hillman's
in-store service. These arrangements with the cooperatives reduce credit risk
and logistic expense for Hillman and reduce central warehouse inventory and
delivery costs for the cooperatives.

The products sold to the F&I dealers typically account for approximately 7% of
the retailer's revenues and over 25% of a hardware store's traffic. A typical


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hardware store maintains in inventory thousands of different items, many of
which generate small dollar sales but large profits. It is difficult for a
retailer to monitor economically all stock levels and to reorder the products
from multiple vendors. The problem is compounded by the necessity of receiving
small shipments of inventory at different times and having to stock the goods.
However, failure to have these small items consistently available will have an
adverse effect on store traffic, thereby denying the retailer the opportunity to
sell items that generate higher dollar sales.

In addition, Hillman sells its products to national accounts such as Wal*Mart,
Home Depot, Lowes, K*Mart, PETsMART, and PetCo. Hillman's status as a national
supplier of unique, proprietary products to rapidly growing Big Box retailers
allowed it to develop a formidable market position and high barriers to entry
within its product categories. Management believes that the dynamics, which make
its services attractive to hardware retailers, are present with these larger
customers as well.

Hillman serves over 21,000 customers, the top five of which accounted for
approximately 35% of its annualized sales. The single largest customer
represented slightly less than 12% of total revenue. Hillman telemarketing
activity also sells to approximately 5,000 smaller hardware outlets and over
6,000 non-hardware accounts through its telemarketing operation. New business is
also being cultivated internationally in such places as Canada, Mexico, South
and Central America, and the Caribbean.

SALES AND MARKETING. Hillman has always been more responsive to the needs of the
F&I retailers than its competitors because it employs the largest direct sales
organization in the retail home industry. This organization consists of over 210
people, managed by 20 field managers. Each sales representative is responsible
for approximately 50 full service accounts that they call on approximately every
two weeks. Coupled with the efforts of the Marketing Department, the sales force
not only sells products, but can sell merchandising and technological support
capabilities as well. The Marketing Department provides support through the
development of new products; sales collateral, promotional items, merchandising
aids and marketing services such as advertising and trade show management. Its
EDI system is used by a number of its large customers.

In addition, the national accounts field service organization consists of 245
service people and 20 field managers focusing on "Big Box" retailers, pet super
stores, large national discount chains and grocery stores. This organization
reorders products, details store shelves and sets up in-store promotions.

Management believes that Hillman provides unmatched product support, customer
service and profit opportunities for its retail distribution partners. Hillman
believes that a significant source of its competitive advantage rests in its
ability to provide a greater level of customer service than its competitors.
Hillman products are covered directly by the combined field service
organization, which provides service support through field visits. These field
visits provide Hillman with critical information relating to consumer buying
patterns and retailing trends, and complement their new product development
efforts. Field service representatives also help retail customers to improve the
efficiency and profitability of Hillman's on-site merchandising systems by
consulting with customers in the areas of EDI, product planning, inventory
control, systems interface and store operations.

COMPETITION. The principal competitors for Hillman's F&I business are Midwest
Fasteners, Serv-A-Lite, Elco (a division of Fastenal), and Hyko in the hardware
store marketplace. The first three carry mainly fastener products, while the
latter is the major competitor in letters numbers and signs. Hillman competes
primarily on field service, merchandising, as well as product availability,
price and breadth of product line.



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Management estimates that Hillman sells to approximately 65% of the full service
hardware stores in the F&I marketplace. The hardware outlets that purchase
products but not services from Hillman also purchase products from local and
regional distributors and cooperatives. Competition in this segment is primarily
on the basis of price and availability.

The primary competitors in the national accounts marketplace for fasteners are
Crown-Bolt with an estimated 50% market share, Elco and the Newell Group.
Hillman estimates its share of fasteners in this market to be approximately 20%.
Competition is based primarily on in-store service and price. Other competitors
are local and regional distributors.

The total domestic market for keys is estimated to be 600 million units at the
retail level with annual sales of over $900 million. The key duplication market
can be segmented into three primary retail categories: hardware stores,
locksmiths and Big Box retailers. Hillman believes it maintains the leading
market share of keys in terms of unit and dollar sales. To displace Hillman's
market position, a competitor would have to develop a full range of products
with demonstrably better technology without infringing on patents and buyback
existing inventory from retailers. Management believes that these substantial
competitive barriers help preserve its unique franchise within the key
duplication market segment.

Hyko is the primary competitor in LNS in hardware stores, home centers and mass
merchants. Management estimates that Hillman has the leading market position in
LNS at an approximate 42% market share.

In the engraving market segment, management estimates that the Quick-Tag
engraving system has a 17% market share in the pet tag market. Competitors in
this market are specialty retailers, direct mail order and retailers with
in-store mail order capability. The Quick-Tag system has patent protected
proprietary technology that is a major barrier to entry and preserves this
market segment.

RISK FACTORS

RISKS ASSOCIATED WITH ACQUISITIONS

The Company is not currently a party to any agreement or understanding regarding
a material acquisition but is pursuing discussions with a number of prospective
sellers of businesses.

An element of Hillman's future growth strategy is to pursue selected
acquisitions that either expand or complement its businesses in new or existing
markets. However, there can be no assurance that the Company will be able to
identify or acquire acceptable acquisition candidates on terms favorable to the
Company and in a timely manner to the extent necessary to fulfill Hillman's
growth strategy. Future acquisitions may be financed through the issuance of
Common Stock, which may be dilutive to the Company's stockholders, or through
the incurrence of additional indebtedness. Furthermore, there can be no
assurance that competition for acquisition candidates will not escalate, thereby
increasing the costs of acquisitions. The process of integrating acquired
businesses into the Company's operations may result in unforeseen difficulties
and may require a disproportionate amount of resources and management's
attention, and there can be no assurance that Hillman will be able to
successfully integrate acquired businesses into its operations. The failure to
complete or successfully integrate prospective acquisitions may have an adverse
impact on the Company's growth strategy.



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COMPETITION

The retail industry is highly competitive, with the principal methods of
competition being price, quality of service, quality of products, product
availability, credit terms and the provision of value-added services, such as
merchandising design, in-store service and inventory management. The Company
encounters competition from a large number of regional and national
distributors, some of which have greater financial resources than the Company
and may offer a greater variety of products.

SEASONALITY AND ECONOMIC CONDITIONS

Hillman has in the past experienced seasonal fluctuations in sales and operating
results from quarter to quarter. Typically, the first calendar quarter is the
weakest due to the effect of weather on home projects and the construction
industry.

Changes in general economic conditions could also have a material adverse effect
on the Company's business, results of operations and financial condition.


DEPENDENCE ON INFORMATION SYSTEMS

The Company believes that its proprietary computer software programs are an
integral part of its business and growth strategies. Hillman depends on its
information systems generally to process orders, to manage inventory and
accounts receivable collections, to purchase, sell and ship products efficiently
and on a timely basis, to maintain cost-effective operations and to provide
superior service to its customers. There can be no assurance that the
precautions which the Company has taken against certain events that could
disrupt the operations of its information systems will prevent the occurrence of
such a disruption. Any such disruption could have a material adverse effect on
the Company's business and results of operations.



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INSURANCE ARRANGEMENTS

Under the Company's current insurance programs, commercial umbrella coverage is
obtained for catastrophic exposure and aggregate losses in excess of expected
claims. Since October 1991, the Company has retained the exposure on certain
expected losses related to worker's compensation, general liability and
automobile. The Company also retains the exposure on expected losses related to
health benefits of certain employees. The Company believes that its present
insurance is adequate for its businesses. See Note 17, Commitments and
Contingencies, of Notes to Consolidated Financial Statements of the Company as
of and for the three years ended December 31, 2001.

EMPLOYEES

As of December 31, 2001, the Company's total operations employed approximately
1,460 employees, of which approximately 620 were sales personnel, approximately
635 were employed as warehouse, manufacturing and delivery personnel, and
approximately 205 were administrative positions. In the opinion of management,
employee relations are good.

BACKLOG

The Company's sales backlog from ongoing operations was $1.6 million as of
December 31, 2001, and $1.3 million as of December 31, 2000.

WHERE YOU CAN FIND MORE INFORMATION

The Company files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy any reports, statements, or other
information filed by the Company at the Commission's public reference rooms at
450 5th Street, N.W., Washington, D.C. 20549. Please call the Commission at
1-202-942-8090 for more information on the public reference rooms. The
Commission also maintains an Internet site at http://www.sec.gov that contains
reports, proxy and information statements, and other information regarding
issuers, like Hillman, that file electronically with the Commission. Copies may
also be obtained, after paying a duplicating fee, by electronic request to
publicinfo@sec.gov or by written request to Public Reference Section,
Washington, D.C. 20549-0102.

You can inspect reports, proxy statements, and other information about the
Company at the offices of The American Stock Exchange, 86 Trinity Place, New
York, NY 10006.



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ITEM 2 - PROPERTIES.

The Hillman Group currently has approximately seventeen (17) leased warehouse
and stocking facilities located throughout the United States and Canada. The
Company's principal properties are as follows:

LOCATION DESCRIPTION
-------- -----------
Cincinnati, Ohio 358,000 sq.ft.
Tempe, Arizona 208,000 sq.ft.

In the opinion of management, the Company's existing facilities are in good
condition.

ITEM 3 - LEGAL PROCEEDINGS.

Litigation originally instituted on February 27, 1996 is pending in the Court of
Common Pleas of Montgomery County, Pennsylvania in which Dorman Products of
America, Ltd. ("Dorman"), and its parent, R&B, Inc. ("R&B"), allege that
misrepresentations of certain facts were made by the Company, upon which R&B
allegedly based its offer to purchase the assets of the Company's Dorman
Products division. In the opinion of management, the ultimate resolution of this
matter will not have a material adverse effect on the consolidated financial
position, operations or cash flows of the Company.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The Company did not submit any matters to a vote of stockholders during the
quarter ended December 31, 2001.



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PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON SHARES AND
RELATED STOCKHOLDER MATTERS.

STOCK EXCHANGE LISTING

Effective June 19, 2001, the Company transferred listing of its Common Stock and
Trust Preferred Securities from the New York Stock Exchange to the American
Stock exchange utilizing its same ticker symbols SDP and SDP.PR, respectively.
As a result of the Merger Transaction, the common stock is no longer publicly
traded. In connection with the SunSource name change on March 18, 2002, the
Trust Preferred Securities trade under the ticker symbol HLM.Pr (formerly
SDP.Pr).

The following table sets forth the high and low closing sale prices on the New
York Stock Exchange and the American Stock Exchange composite tapes for the
Trust Preferred Securities.