10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 3, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 2022
OR
For the transition period from ______ to ______
Commission file number 001-39609
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| , | ||||||||||||||||||||
| (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 Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
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 ☐
Indicate by check mark whether the registrant has submitted electronically, 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||||||||
☒ (Do not check if a smaller reporting company)
|
Smaller reporting company | |||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On November 2, 2022, 194,476,074 shares of common stock, par value $0.0001 per share, were outstanding.
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
INDEX
| PART I. FINANCIAL INFORMATION | PAGE | |||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
Page 2
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands, except per share amounts)
| September 24, 2022 |
December 25, 2021 |
||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances of $ |
|||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net of accumulated depreciation of $ |
|||||||||||
| Goodwill | |||||||||||
Other intangibles, net of accumulated amortization of $ |
|||||||||||
| Operating lease right of use assets | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Current portion of debt and finance lease liabilities | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Accrued expenses: | |||||||||||
| Salaries and wages | |||||||||||
| Pricing allowances | |||||||||||
| Income and other taxes | |||||||||||
| Interest | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred tax liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | $ | $ | |||||||||
| Commitments and contingencies (Note 7) | |||||||||||
| Stockholders' equity: | |||||||||||
Common stock, $ |
|||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( |
( |
|||||||||
| Accumulated other comprehensive income (loss) | ( |
( |
|||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page 3
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(dollars in thousands, except per share amounts)
| Thirteen Weeks Ended September 24, 2022 |
Thirteen Weeks Ended September 25, 2021 |
Thirty-nine Weeks Ended September 24, 2022 |
Thirty-nine Weeks Ended September 25, 2021 |
||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below) | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||
| Amortization | |||||||||||||||||||||||
| Management fees to related party | |||||||||||||||||||||||
| Other expense (income), net | ( |
( |
|||||||||||||||||||||
| Income (loss) from operations | ( |
( |
|||||||||||||||||||||
| Loss on change in fair value of warrant liability | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Interest expense on junior subordinated debentures | |||||||||||||||||||||||
| (Gain) loss on mark-to-market adjustments | ( |
( |
|||||||||||||||||||||
| Refinancing charges | |||||||||||||||||||||||
| Investment income on trust common securities | ( |
( |
|||||||||||||||||||||
| Income (loss) before income taxes | ( |
( |
( |
( |
|||||||||||||||||||
| Income tax provision (benefit) | ( |
( |
( |
( |
|||||||||||||||||||
| Net income (loss) | $ | ( |
$ | ( |
$ | ( |
$ | ( |
|||||||||||||||
| Basic and diluted income (loss) per share | $ | ( |
$ | ( |
$ | ( |
$ | ( |
|||||||||||||||
| Weighted average basic shares outstanding | |||||||||||||||||||||||
| Net income (loss) from above | $ | ( |
$ | ( |
$ | ( |
$ | ( |
|||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( |
( |
( |
||||||||||||||||||||
| Hedging activity | |||||||||||||||||||||||
| Total other comprehensive income (loss) | ( |
( |
|||||||||||||||||||||
| Comprehensive income (loss) | $ | ( |
$ | ( |
$ | $ | ( |
||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page 4
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
| Thirty-nine Weeks Ended September 24, 2022 |
Thirty-nine Weeks Ended September 25, 2021 |
||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | ( |
$ | ( |
|||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income taxes | ( |
||||||||||
| Deferred financing and original issue discount amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Increase in fair value of warrant liabilities | |||||||||||
| Write off of deferred financing fees, premiums and discounts associated with debt refinancing | ( |
||||||||||
| Change in fair value of contingent consideration | ( |
( |
|||||||||
| Other non-cash interest and change in fair value of interest rate swap | ( |
||||||||||
| Changes in operating items: | |||||||||||
| Accounts receivable, net | ( |
( |
|||||||||
| Inventories, net | ( |
( |
|||||||||
| Other assets | ( |
||||||||||
| Accounts payable | ( |
||||||||||
| Other accrued liabilities | ( |
||||||||||
| Net cash provided by (used for) operating activities | ( |
||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of business, net of cash received | ( |
( |
|||||||||
| Capital expenditures | ( |
( |
|||||||||
| Net cash used for investing activities | ( |
( |
|||||||||
| Cash flows from financing activities: | |||||||||||
| Repayments of senior term loans | ( |
( |
|||||||||
| Borrowings on senior term loans | |||||||||||
| Proceeds from recapitalization of Landcadia, net of transaction costs | |||||||||||
| Proceeds from sale of common stock in PIPE, net of issuance costs | |||||||||||
| Repayments of senior notes | ( |
||||||||||
| Repayment of Junior Subordinated Debentures | ( |
||||||||||
| Financing fees | ( |
||||||||||
| Borrowings on revolving credit loans | |||||||||||
| Repayments of revolving credit loans | ( |
( |
|||||||||
| Principal payments under finance lease obligations | ( |
( |
|||||||||
| Proceeds from exercise of stock options | |||||||||||
| Cash payments related to hedging activities | ( |
|
|||||||||
| Other financing activities | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash | ( |
||||||||||
| Net increase (decrease) in cash and cash equivalents | ( |
||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid on junior subordinated debentures, net | $ | $ | |||||||||
| Interest paid | |||||||||||
| Income taxes paid | |||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page 5
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(dollars in thousands)
| Common Stock | ||||||||||||||||||||||||||||||||||||||
| Shares (in thousands) | Amount | Additional Paid-in-capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | |||||||||||||||||||||||||||||||||
| Thirty-nine weeks ended September 24, 2022 | ||||||||||||||||||||||||||||||||||||||
| Balance at December 25, 2021 | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( |
— | ( |
||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Hedging activity | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at March 26, 2022 | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Hedging activity | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||
| Balance at June 25, 2022 | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( |
— | ( |
||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Hedging Activity | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||
| Balance at September 24, 2022 | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||
| Thirty-nine weeks ended September 25, 2021 | ||||||||||||||||||||||||||||||||||||||
| Balance at December 26, 2020 | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( |
— | ( |
||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at March 27, 2021 | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( |
— | ( |
||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | — | — | — | |||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Balance at June 26, 2021 | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( |
— | ( |
||||||||||||||||||||||||||||||||
| Stock option activity, stock awards and employee stock purchase plan | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Vesting of restricted shares | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Recapitalization of Landcadia, net of issuance costs and fair value of assets and liabilities acquired | — | — | ||||||||||||||||||||||||||||||||||||
| Shares issued to PIPE, net of issuance costs | — | — | ||||||||||||||||||||||||||||||||||||
| Hedging activity | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Change in cumulative foreign currency translation adjustment | — | — | — | — | ( |
( |
||||||||||||||||||||||||||||||||
| Balance at September 25, 2021 | $ | $ | $ | ( |
$ | ( |
$ | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Page 6
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Basis of Presentation:
The accompanying condensed financial statements include the consolidated accounts of the Hillman Solutions Corp. and its wholly-owned subsidiaries (collectively “Hillman” or the “Company”). The accompanying unaudited financial statements include the condensed consolidated accounts of the Company for the thirteen and thirty-nine weeks ended September 24, 2022. Unless the context requires otherwise, references to "Hillman," "we," "us," "our," or "our Company" refer to Hillman Solutions Corp. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements present information in accordance with accounting principles generally accepted in the United States 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 U.S. generally accepted accounting principles for complete financial statements. Operating results for the thirteen and thirty-nine weeks ended September 24, 2022 do not necessarily indicate the results that may be expected for the full year. For further information, refer to the Consolidated Financial Statements for the year ended December 25, 2021 and notes thereto included in the Form 10-K filed on March 16, 2022 with the Securities and Exchange Commission (“SEC”).
On July 14, 2021, privately held HMAN Group Holdings Inc. ("Old Hillman"), and Landcadia Holdings III, Inc. (“Landcadia” and after the business combination described herein, “New Hillman”), a special purpose acquisition company ("SPAC"), consummated the previously announced business combination (the “Closing”) pursuant to the terms of the Agreement and Plan of Merger, dated as of January 24, 2021 (as amended on March 12, 2021, the "Merger Agreement”) by and among Landcadia, Helios Sun Merger Sub, a wholly-owned subsidiary of Landcadia (“Merger Sub”), HMAN Group Holdings Inc., a Delaware corporation (“Hillman Holdco”) and CCMP Sellers’ Representative, LLC, a Delaware Limited Liability Company in its capacity as the Stockholder Representative thereunder (the “Stockholder Representative”). Pursuant to the terms of the Merger Agreement, Merger Sub merged with and into Hillman Holdco with Hillman Holdco surviving the merger as a wholly owned subsidiary of New Hillman, which was renamed “Hillman Solutions Corp.” (the “Merger” and together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). Unless the context indicates otherwise, the discussion of the Company and its financial condition and results of operations is with respect to New Hillman following the closing date and Old Hillman prior to the closing date. See Note 3 - Merger Agreement for more information.
“Hillman Solutions Corp.,” “HMAN Group Holdings Inc.,” and “The Hillman Companies, Inc.” are holding companies with no other operations, cash flows, material assets or liabilities other than the equity interests in “The Hillman Group, Inc.,” which is the borrower under our credit facility.
2. 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 filed on March 16, 2022 with the SEC.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses for the reporting periods. Actual results may differ from these estimates.
Warrant Liabilities:
The Company accounts for the warrants in accordance with the guidance contained in ASC 815-40 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the warrants
Page 7
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. The warrants were fully redeemed in the year ended December 25, 2021. See Note 10 - Warrants for additional information.
Revenue Recognition:
Revenue is recognized when control of goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.
The Company offers a variety of sales incentives to its customers primarily in the form of discounts and rebates. Discounts are
recognized in the Condensed Consolidated Financial Statements at the date of the related sale. Rebates are based on the revenue to date and the contractual rebate percentage to be paid. A portion of the cost of the rebate is allocated to each underlying sales transaction. Discounts and rebates are included in the determination of net sales.
The Company also establishes reserves for customer returns and allowances. The reserve is established based on historical rates
of returns and allowances. The reserve is adjusted quarterly based on actual experience. Returns and allowances are included
in the determination of net sales.
The following table displays our disaggregated revenue by product category:
| Thirteen weeks ended September 24, 2022 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| Fastening and Hardware | $ | $ | $ | $ | |||||||||||||||||||
| Personal Protective | |||||||||||||||||||||||
| Keys and Key Accessories | |||||||||||||||||||||||
| Engraving and Resharp | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
| Thirteen weeks ended September 25, 2021 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| Fastening and Hardware | $ | $ | $ | $ | |||||||||||||||||||
| Personal Protective | |||||||||||||||||||||||
| Keys and Key Accessories | |||||||||||||||||||||||
| Engraving and Resharp | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
| Thirty-nine weeks ended September 24, 2022 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| Fastening and Hardware | $ | $ | $ | $ | |||||||||||||||||||
| Personal Protective | |||||||||||||||||||||||
| Keys and Key Accessories | |||||||||||||||||||||||
| Engraving and Resharp | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
Page 8
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
| Thirty-nine weeks ended September 25, 2021 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| Fastening and Hardware | $ | $ | $ | $ | |||||||||||||||||||
| Personal Protective | |||||||||||||||||||||||
| Keys and Key Accessories | |||||||||||||||||||||||
| Engraving and Resharp | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
The following table disaggregates our revenue by geographic location:
| Thirteen weeks ended September 24, 2022 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Mexico | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
| Thirteen weeks ended September 25, 2021 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Mexico | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
| Thirty-nine weeks ended September 24, 2022 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Mexico | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
Page 9
HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
| Thirty-nine weeks ended September 25, 2021 | |||||||||||||||||||||||
| Hardware and Protective Solutions | Robotics and Digital Solutions | Canada | Total Revenue | ||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Mexico | |||||||||||||||||||||||
| Consolidated | $ | $ | $ | $ | |||||||||||||||||||
Our revenue by geography is allocated based on the location of our sales operations. Our Hardware and Protective Solutions segment contains sales of Big Time Products personal protective equipment into Canada. Our Robotics and Digital Solutions segment contains sales of MinuteKey Canada.
Hardware and Protective Solutions revenues consist primarily of the delivery of fasteners, anchors, specialty fastening products, and personal protective equipment such as gloves and eye-wear, as well as in-store merchandising services for the related product category.
Robotics and Digital Solutions revenues consist primarily of sales of keys and identification tags through self-service key duplication and engraving kiosks. It also includes our associate-assisted key duplication systems and key accessories.
Canada revenues consist primarily of the delivery to Canadian customers of fasteners and related hardware items, threaded rod, keys, key duplicating systems, accessories, personal protective equipment, and identification items as well as in-store merchandising services for the related product category.
The Company’s performance obligations under its arrangements with customers are providing products, in-store merchandising services, and access to key duplicating and engraving equipment. Generally, the price of the merchandising services and the access to the key duplicating and engraving equipment is included in the price of the related products. Control of products is transferred at the point in time when the customer accepts the goods, which occurs upon delivery of the products. Judgment is required in determining the time at which to recognize revenue for the in-store services and the access to key duplicating and engraving equipment. Revenue is recognized for in-store service and access to key duplicating and engraving equipment as the related products are delivered, which approximates a time-based recognition pattern. Therefore, the entire amount of consideration related to the sale of products, in-store merchandising services, and access to key duplicating and engraving equipment is recognized upon the delivery of the products.
The costs to obtain a contract are insignificant, and generally contract terms do not extend beyond one year. Therefore, these costs are expensed as incurred. Freight and shipping costs and the cost of our in-store merchandising services teams are recognized in selling, general, and administrative expense when control over products is transferred to the customer.
The Company used the practical expedient regarding the existence of a significant financing component as payments are due in less than one year after delivery of the products.
3. Merger Agreement:
On July 14, 2021, the Merger between Old Hillman and Landcadia was consummated. Pursuant to the Merger Agreement, at the closing date of the Merger, the outstanding shares of Old Hillman common stock were converted into 91,220,901 shares of New Hillman common stock as calculated pursuant to the Merger Agreement.
The Merger was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP ("Generally Accepted Accounting Principles"). Under this method of accounting, Landcadia is treated as the “acquired” company for financial reporting purposes.
This determination was based primarily on Old Hillman having the ability to appoint a majority of the initial Board of Directors of the combined entity, Old Hillman's senior management comprising the majority of the senior management of the combined company, and the ongoing operations of Old Hillman comprising the ongoing operations of the combined company.
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HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Accordingly, for accounting purposes, the Merger was treated as the equivalent of New Hillman issuing shares for the net assets of Landcadia, accompanied by a recapitalization. The net assets of Landcadia were stated at carrying value, with no goodwill or other intangible assets recorded. The historical statements of the combined entity prior to the Merger are presented as those of Old Hillman with the exception of the shares and par value of equity recast to reflect the exchange ratio on the Closing Date, adjusted on a retroactive basis. A summary of the impact of the reverse recapitalization on the cash, cash equivalents and restricted cash, change in net assets and the change in common shares is included in the tables below.
Landcadia cash and cash equivalents (1)
|
$ | |||||||
PIPE investment proceeds (2)
|
||||||||
Less cash paid to underwriters and other transaction costs, net of tax(3)
|
( |
|||||||
| Net change in cash and cash equivalents as a result of recapitalization | $ | |||||||
Prepaid expenses and other current assets (1)
|
||||||||
Accounts payable and other accrued expenses (1)
|
( |
|||||||
Warrant liabilities (1)(4)
|
( |
|||||||
| Change in net assets as a result of recapitalization | $ | |||||||
The change in number of shares outstanding as a result of the reverse recapitalization is summarized as follows:
Common shares issued to New Hillman Shareholders (5)
|
||||||||
Shares issued to SPAC sponsors and public shareholders (6)
|
||||||||
Common shares issued to PIPE investors (2)
|
||||||||
| Common Shares outstanding immediately after the Business Combination | ||||||||
1.These assets and liabilities represent the reported balances as of the Closing Date immediately prior to the Business
Combination. The recapitalization of the assets and liabilities from Landcadia's balance sheet was a non-cash financing
activity.
2.In connection with the Business Combination, Landcadia entered into subscription agreements with certain investors (the “PIPE Investors”), pursuant to which it issued 37,500,000 shares of common stock at $10.00 per share (the “PIPE Shares”) for an aggregate purchase price of $375,000 (the “PIPE Financing”), which closed simultaneously with the consummation of the Business Combination.
3.In connection with the Business Combination, the Company incurred $36,140 of transaction costs, net of tax, consisting of underwriting, legal and other professional fees which were recorded as accumulated deficit as a reduction of proceeds.
4.The warrants acquired in the Merger include (a) redeemable warrants issued by Landcadia and sold as part of the units in the Landcadia IPO (whether they were purchased in the Landcadia IPO or thereafter in the open market), which are exercisable for an aggregate of 16,666,628 shares of common stock at a purchase price of $11.50 per share (the “Public Warrants”) and (b) warrants issued by Landcadia to the sponsors in a private placement simultaneously with the closing of the Landcadia IPO, which are exercisable for an aggregate of 8,000,000 shares of common stock at a purchase price of $11.50 per share (the “Private Placement Warrants”).
5.The Company issued 91,220,901 common shares in exchange for 553,439 Old Hillman common shares resulting in an exchange ratio of 164.83 . This exchange ratio was applied to Old Hillman's common shares which further impacted common stock held at par value and additional paid in capital, as well as the calculation of weighted average shares outstanding and loss per common share.
4. Recent Accounting Pronouncements:
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which
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HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.
In January 2021, FASB issued ASU 2021-01, Reference Rate Reform, to expand the scope of ASU 2020-04 by allowing an entity to apply the optional expedients, by stating that a change to the interest rate used for margining, discounting or contract price alignment for a derivative is not considered to be a change to the critical terms of the hedging relationship that requires designation. The entity may apply the contract modification relief provided in ASU 2020-04 and continue to account for the derivative in the same manner that existed prior to the changes resulting from reference rate reform or the discounting transition. The Company is currently evaluating its contracts and the optional expedients provided by the new standard.
On October 28, 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers, which amends Accounting Standards Codification ("ASC") 805 to require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. This update is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to 1) the recognition of an acquired contract liability, and 2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment is effective on fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact provided by the new standard.
On March 28, 2022, the FASB issued ASU 2022-01, which clarifies the guidance in ASC Topic 815, Derivatives and Hedging on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12 which established the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the "portfolio layer'' method. Under current guidance, the last-of-layer method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets without having to consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and non-prepayable financial assets. The amendment is effective for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact provided by the new standard.
5. Acquisitions:
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HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
The following table reconciles the fair value of the acquired assets and assumed liabilities to the total purchase price of OZCO.
| Accounts receivable | $ | ||||
| Inventory | |||||
| Other current assets | |||||
| Property and equipment | |||||
| Goodwill | |||||
| Customer relationships | |||||
| Trade names | |||||
| Technology | |||||
| Total assets acquired | |||||
| Less: | |||||
| Liabilities assumed | ( |
||||
| Total purchase price | $ | ||||
Pro forma financial information has not been presented for OZCO as their associated financial results are insignificant to the financial results of the Company on a standalone basis.
On March 7, 2022, the Company completed its acquisition of the Irvine, California-based Monkey Hook, LLC ("Monkey Hook") for a total purchase price of $2,800 , which includes $300 in holdback that remains payable to the seller. Monkey Hook products are designed to hang artwork on drywall where no stud is present. Monkey Hook sells its products throughout North America and its financial results reside in the Company's Hardware and Protective Solutions reportable segment. The total purchase price is preliminary as the Company is in the process of finalizing certain working capital adjustments.
6. Goodwill and Other Intangible Assets:
Goodwill amounts by reportable segment are summarized as follows:
| Goodwill at |
Acquisitions (1)
|
Dispositions |
Other (2)
|
Goodwill at | |||||||||||||||||||||||||
| December 25, 2021 | September 24, 2022 | ||||||||||||||||||||||||||||
| Hardware and Protective Solutions | $ | $ | ( |
$ | $ | $ | |||||||||||||||||||||||
| Robotics and Digital Solutions | |||||||||||||||||||||||||||||
| Canada | ( |
||||||||||||||||||||||||||||
| Total | $ | $ | ( |
$ | $ | ( |
$ | ||||||||||||||||||||||
(1)The amount relates to the Ozco acquisition, see Note 5 - Acquisitions for additional information.
(2)The "Other" change to goodwill relates to adjustments resulting from fluctuations in foreign currency exchange rates for the Canada and Mexico reporting units.
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HILLMAN SOLUTIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Other intangibles, net, as of September 24, 2022 and December 25, 2021 consist of the following:
| Estimated Useful Life (Years) |
September 24, 2022 | December 25, 2021 | |||||||||||||||||||||
| Customer relationships | - | $ | $ | ||||||||||||||||||||
| Trademarks - Indefinite | Indefinite | ||||||||||||||||||||||
| Trademarks - Other | - | ||||||||||||||||||||||
| Technology and patents | - | ||||||||||||||||||||||
| Intangible assets, gross | |||||||||||||||||||||||