Form: 8-K/A

Current report filing

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)
                                         
            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)
                                         
            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             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             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 Company’s 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 management’s 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.