EX-99.3
Published on March 10, 2008
EXHIBIT 99.3
INTRODUCTION TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 28, 2007, The Hillman Group, Inc. (the Hillman Group), a subsidiary of The Hillman
Companies, Inc. (the Company or Hillman), entered into a Stock Purchase Agreement (the
Agreement) by and among All Points Industries, Inc. (All Points), Gabrielle Mann, Gregory Mann
and the Hillman Group, whereby the Hillman Group acquired all of the equity interest of All Points.
The following unaudited pro forma condensed combined balance sheet as of September 30, 2007,
combines the historical condensed consolidated balance sheet of the Company as of September 30,
2007 as filed with the Securities and Exchange Commission (SEC) on Form 10-Q, with the historical
condensed balance sheet of All Points as of September 30, 2007, giving effect to the acquisition as
if it had occurred on September 30, 2007. The unaudited pro forma condensed combined statements of
operations for the year ended December 31, 2006 and the nine months ended September 30, 2007
combines the historical condensed consolidated statement of operations of the Company for the year
ended December 31, 2006, as filed with the SEC in its annual report on Form 10-K, and for the nine
months ended September 30, 2007, as filed with the SEC in its quarterly report on Form 10-Q, with
the condensed historical statement of operations of All Points for the year ended December 31,
2006, and the nine months ended September 30, 2007, giving effect to the acquisition as though it
had occurred at the beginning of the periods presented, using the purchase method of accounting and
applying the assumptions and adjustments described in the accompanying notes to the unaudited pro
forma condensed combined financial statements.
The acquisition has been accounted for under the purchase method of accounting in accordance with
Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. Under the
purchase method of accounting, the total estimated purchase price, calculated as described in Note
2 to these unaudited pro forma condensed combined financial statements, is allocated to the net
tangible and intangible assets of All Points acquired in connection with the acquisition, based on
their estimated fair values. Management has made a preliminary allocation of the estimated purchase
price to the tangible and intangible assets acquired and liabilities assumed based on various
preliminary estimates. The allocation of the estimated purchase price is preliminary pending
finalization of various estimates and valuation analyses.
The unaudited pro forma condensed combined financial statements have been prepared by management
for illustrative purposes only and are not necessarily indicative of the financial position or
results of operations in future periods or the results that actually would have been realized had
Hillman and All Points been a combined company during the specified periods. The pro forma
adjustments are based on the preliminary information available at the time of the preparation of
this document. The unaudited pro forma condensed combined financial statements, including the notes
thereto, are qualified in their entirety by reference to, and should be read in conjunction with,
the historical consolidated financial statements of the Company included in its annual report on
Form 10-K for the year ended December 31, 2006, and in its quarterly report on Form 10-Q for the
nine months ended September 30, 2007. In addition, the unaudited pro forma condensed combined
financial statements, including the notes thereto, are based on the historical financial statements
of All Points for the year ended December 31, 2006 and for the nine months
ended September 30, 2007, which are included in Exhibits 99.1 and 99.2, respectively, to this
current report on Form 8-K/A.
Pro forma adjustments are necessary to reflect the initial purchase price and purchase accounting
adjustments based on preliminary estimates of the fair values of the All Points net assets
acquired. The unaudited pro forma condensed combined financial statements do not reflect any
operating efficiencies and cost savings that may be realized with respect to the combined
companies.
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)
September 30, 2007
(dollars in thousands)
PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)
September 30, 2007
(dollars in thousands)
All Points | Pro | Pro | ||||||||||||||||||
Historical | Net Assets | Forma | Note | Forma | ||||||||||||||||
Hillman | Acquired | Adjustments | 3 | Combined | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 16,003 | $ | 481 | $ | (10,243 | ) | (a | ) | $ | 6,241 | |||||||||
Restricted investments |
375 | | | 375 | ||||||||||||||||
Accounts receivable, net |
59,683 | 1,017 | | 60,700 | ||||||||||||||||
Inventories, net |
93,103 | 7,372 | | 100,475 | ||||||||||||||||
Deferred income taxes, net |
6,275 | 677 | | 6,952 | ||||||||||||||||
Other current assets |
2,071 | 77 | | 2,148 | ||||||||||||||||
Total current assets |
177,510 | 9,624 | (10,243 | ) | 176,891 | |||||||||||||||
Property and equipment, net |
57,089 | 435 | | 57,524 | ||||||||||||||||
Goodwill |
259,773 | 1,056 | (b | ) | 260,829 | |||||||||||||||
Other intangibles, net |
161,730 | | | 161,730 | ||||||||||||||||
Restricted investments |
5,202 | | | 5,202 | ||||||||||||||||
Deferred financing fees, net |
4,033 | | | 4,033 | ||||||||||||||||
Investment in trust common securities |
3,261 | | | 3,261 | ||||||||||||||||
Other assets |
784 | | | 784 | ||||||||||||||||
Total assets |
$ | 669,382 | $ | 10,059 | $ | (9,187 | ) | $ | 670,254 | |||||||||||
LIABILITIES AND
STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 25,582 | $ | 788 | $ | | $ | 26,370 | ||||||||||||
Current portion of senior term loans |
2,350 | | | 2,350 | ||||||||||||||||
Current portion of capitalized lease |
273 | | | 273 | ||||||||||||||||
obligations
Junior subordinated interest payable |
1,019 | | | 1,019 | ||||||||||||||||
Accrued expenses: |
||||||||||||||||||||
Salaries and wages |
5,200 | | | 5,200 | ||||||||||||||||
Pricing allowances |
7,675 | | | 7,675 | ||||||||||||||||
Income and other taxes |
2,229 | | | 2,229 | ||||||||||||||||
Interest |
2,768 | | | 2,768 | ||||||||||||||||
Deferred compensation |
375 | | | 375 | ||||||||||||||||
Other accrued expenses |
5,478 | 84 | | 5,562 | ||||||||||||||||
Total current liabilities |
52,949 | 872 | | 53,821 | ||||||||||||||||
Long term senior term loans |
229,713 | | | 229,713 | ||||||||||||||||
Bank revolving credit |
| | | | ||||||||||||||||
Long term capitalized lease obligations |
301 | | | 301 | ||||||||||||||||
Long term unsecured subordinated notes |
49,820 | | | 49,820 | ||||||||||||||||
Junior subordinated debentures |
116,604 | | | 116,604 | ||||||||||||||||
Mandatorily redeemable preferred stock |
84,924 | | | 84,924 | ||||||||||||||||
Management purchased preferred options |
5,130 | | | 5,130 | ||||||||||||||||
Deferred compensation |
5,202 | | | 5,202 | ||||||||||||||||
Deferred income taxes, net |
43,489 | | | 43,489 | ||||||||||||||||
Accrued dividends on preferred stock |
40,018 | | | 40,018 | ||||||||||||||||
Other non-current liabilities |
8,842 | | | 8,842 | ||||||||||||||||
Total liabilities |
636,992 | 872 | | 637,864 | ||||||||||||||||
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)
September 30, 2007
(dollars in thousands)
PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)
September 30, 2007
(dollars in thousands)
All Points | Pro | Pro | ||||||||||||||||||
Historical | Net Assets | Forma | Note | Forma | ||||||||||||||||
Hillman | Acquired | Adjustments | 3 | Combined | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS EQUITY (CONT.) |
||||||||||||||||||||
Common and preferred stock with put options: |
||||||||||||||||||||
Class A Preferred stock |
88 | | | 88 | ||||||||||||||||
Class A Common stock |
417 | | | 417 | ||||||||||||||||
Class B Common stock |
1,691 | | | 1,691 | ||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Stockholders equity: |
||||||||||||||||||||
Preferred Stock: |
||||||||||||||||||||
Class A Preferred stock |
1 | | | 1 | ||||||||||||||||
Common Stock: |
||||||||||||||||||||
Class A Common stock |
| | | | ||||||||||||||||
Class C Common stock |
| | | | ||||||||||||||||
Additional paid-in capital |
47,698 | | | 47,698 | ||||||||||||||||
Accumulated deficit |
(17,104 | ) | | | (17,104 | ) | ||||||||||||||
Accumulated other comprehensive loss |
(401 | ) | | | (401 | ) | ||||||||||||||
Total stockholders equity |
30,194 | | | 30,194 | ||||||||||||||||
Total liabilities and stockholders equity |
$ | 669,382 | $ | 872 | $ | | $ | 670,254 | ||||||||||||
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(dollars in thousands)
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(dollars in thousands)
Pro | Pro | |||||||||||||||||||
Historical | Historical | Forma | Note | Forma | ||||||||||||||||
Hillman | All Points | Adjustments | 3 | Combined | ||||||||||||||||
Net sales |
$ | 340,944 | $ | 19,675 | $ | | $ | 360,619 | ||||||||||||
Cost of sales (exclusive of depreciation and
amortization shown separately below) |
163,993 | 13,752 | | 177,745 | ||||||||||||||||
Gross profit |
176,951 | 5,923 | | 182,874 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
123,187 | 3,537 | 182 | (c | ) | 126,906 | ||||||||||||||
Depreciation |
13,444 | 137 | | 13,581 | ||||||||||||||||
Amortization |
5,514 | | | 5,514 | ||||||||||||||||
Management and transaction fees
to related party |
769 | | | 769 | ||||||||||||||||
Total operating expenses |
142,914 | 3,674 | 182 | 146,770 | ||||||||||||||||
Other income, net |
771 | 15 | | 786 | ||||||||||||||||
Income from operations |
34,808 | 2,264 | (182 | ) | 36,890 | |||||||||||||||
Interest expense, net |
19,326 | (11 | ) | 654 | (d | ) | 19,969 | |||||||||||||
Interest expense on mandatorily redeemable
preferred stock and management purchased
options |
7,316 | | | 7,316 | ||||||||||||||||
Interest expense on jr. subordinated debentures |
9,457 | | | 9,457 | ||||||||||||||||
Investment income on trust common securities |
(284 | ) | | | (284 | ) | ||||||||||||||
(Loss) income before income taxes |
(1,007 | ) | 2,275 | (836 | ) | 432 | ||||||||||||||
Income tax provision |
4,569 | | 555 | (e | ) | 5,124 | ||||||||||||||
Net (loss) income |
$ | (5,576 | ) | $ | 2,275 | $ | (1,391 | ) | $ | (4,692 | ) | |||||||||
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Unaudited)
FOR THE YEAR ENDED DECEMBER 31, 2006
(dollars in thousands)
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Unaudited)
FOR THE YEAR ENDED DECEMBER 31, 2006
(dollars in thousands)
Pro | Pro | |||||||||||||||||||
Historical | Historical | Forma | Note | Forma | ||||||||||||||||
Hillman | All Points | Adjustments | 3 | Combined | ||||||||||||||||
Net sales |
$ | 423,901 | $ | 34,436 | $ | | $ | 458,337 | ||||||||||||
Cost of sales (exclusive of depreciation and
amortization shown separately below) |
203,451 | 23,001 | | 226,452 | ||||||||||||||||
Gross profit |
220,450 | 11,435 | | 231,885 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Selling, general and administrative expenses |
153,547 | 7,006 | (1,152 | ) | (c | ) | 159,401 | |||||||||||||
Depreciation |
17,132 | 229 | | 17,361 | ||||||||||||||||
Amortization |
7,748 | | | 7,748 | ||||||||||||||||
Extinguishment of debt |
726 | | | 726 | ||||||||||||||||
Management and transaction fees
to related party |
1,019 | | | 1,019 | ||||||||||||||||
Total operating expenses |
180,172 | 7,235 | (1,152 | ) | 186,255 | |||||||||||||||
Other income, net |
1,042 | 126 | | 1,168 | ||||||||||||||||
Income from operations |
41,320 | 4,326 | 1,152 | 46,798 | ||||||||||||||||
Interest expense, net |
25,799 | (58 | ) | 845 | (d | ) | 26,586 | |||||||||||||
Interest expense on mandatorily redeemable
preferred stock and management purchased
options |
8,894 | | | 8,894 | ||||||||||||||||
Interest expense on jr. subordinated debentures |
12,609 | | | 12,609 | ||||||||||||||||
Investment income on trust common securities |
(378 | ) | | | (378 | ) | ||||||||||||||
(Loss) income before income taxes |
(5,604 | ) | 4,384 | 307 | (913 | ) | ||||||||||||||
Income tax provision |
2,044 | | 1,811 | (e | ) | 3,855 | ||||||||||||||
Net (loss) income |
$ | (7,648 | ) | $ | 4,384 | $ | (1,504 | ) | $ | (4,768 | ) | |||||||||
SEE ACCOMPANYING NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
1. Basis of Presentation:
The unaudited pro forma condensed combined balance sheet gives effect to the acquisition, which was
accounted for under the purchase method of accounting, as if it had been consummated on September
30, 2007.
The unaudited pro forma condensed combined consolidated statements of operations for the year ended
December 31, 2006 have been prepared to reflect the acquisition as if it occurred on January 1,
2006. The unaudited pro forma condensed combined consolidated statements of operations for the nine
months ended September 30, 2007 have been prepared to reflect the acquisition as if it occurred on
January 1, 2007.
2. Acquisition and Purchase Price Allocation:
On December 28, 2007, the Companys Hillman Group, Inc. subsidiary purchased the stock assets of
All Points Industries, Inc. (All Points), a Pompano, Florida based distributor of metal shapes,
threaded rod and metal sheet to the retail hardware and home improvement industry. The aggregate
purchase price, including transaction costs of $335, was $10,243 paid in cash at closing. The
accompanying condensed combined balance sheet at September 30, 2007 reflects the allocation of the
aggregate purchase price in accordance with SFAS No. 141, Business Combinations. The following
table reconciles the fair value of the acquired assets and assumed liabilities to the total
purchase price:
Cash |
$ | 481 | ||||||
Accounts receivable, net |
1,017 | |||||||
Inventory, net |
7,372 | |||||||
Other current assets |
77 | |||||||
Deferred tax assets |
677 | |||||||
Property and equipment |
435 | |||||||
Goodwill |
1,056 | |||||||
Total assets acquired |
11,115 | |||||||
Less: |
||||||||
Liabilities assumed |
872 | |||||||
Total purchase price |
$ | 10,243 | ||||||
In accordance with SFAS No. 142, we will not amortize the goodwill, but will evaluate it for
impairment on an annual basis or whenever events or circumstances occur, which indicate that
goodwill might be impaired.
A final determination of fair values may differ materially from the preliminary estimates and will
include managements final valuation of the fair values of assets acquired and liabilities assumed.
This final valuation will be based on the actual net tangible assets of All Points that exist as of
the completion date of the acquisition. The final valuation may change the allocation of purchase
price, which could affect the fair value assigned to the assets and liabilities and could result in
a change to the unaudited pro forma condensed combined financial statements.
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(dollars in thousands)
3. Pro Forma Adjustments:
The following is a summary of pro forma adjustments reflected in the unaudited pro forma condensed
combined consolidated financial statements based on preliminary estimates, which may change as
additional information is obtained.
Pro Forma Balance Sheet Adjustments
(a) | Represents cash paid for acquisition, including direct acquisition costs of $335. | |
(b) | Represents estimated fair value of goodwill acquired of $1,056. |
Pro Forma Income Statements Adjustments
(c) | To normalize the compensation expense of the two principal owners of All Points based on the terms of their Employment Agreement with Hillman. | |
(d) | To record interest expense of $845 and $654 for the year ended December 31, 2006 and the nine-month period ended September 30, 2007, respectively, related to the cost of additional borrowing on the $10,243 purchase price. | |
(e) | To record the income tax provision associated with All Points operating results and the pro forma adjustments. All Points had elected S corporation status under the Internal Revenue Code and consequently all U.S. taxes were borne directly by the shareholders. The pro forma adjustment provides taxes on the All Points historical earnings and the pro forma adjustments impacting income at a statutory tax rate of 38.6 percent, which is the expected tax rate applicable to these earnings subsequent to acquisition. |