Table of Contents
SECURITIES AND EXCHANGE COMMISSION
THE SECURITIES EXCHANGE ACT OF 1934
Delaware | 23-2874736 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
10590 Hamilton Avenue Cincinnati, Ohio | 45231 | |
(Address of principal executive offices) | (Zip Code) |
Title of Class | Name of Each Exchange on Which Registered | |
11.6% Junior Subordinated Debentures Preferred Securities Guaranty | None None |
Large accelerated filero | Accelerated filero | Non-accelerated filerþ | Smaller reporting companyo | |||
(Do not check if a smaller reporting company) |
PAGE(S) | ||||||||
PART I. FINANCIAL INFORMATION | ||||||||
Item 1. Condensed Consolidated Financial Statements (Unaudited) | ||||||||
3-4 | ||||||||
5-6 | ||||||||
7 | ||||||||
8 | ||||||||
9-22 | ||||||||
23-41 | ||||||||
42 | ||||||||
42 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
43 | ||||||||
44 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Page 2 of 44
Table of Contents
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 24,549 | $ | 7,133 | ||||
Restricted investments | 133 | 282 | ||||||
Accounts receivable, net | 63,882 | 53,390 | ||||||
Inventories, net | 85,221 | 101,464 | ||||||
Deferred income taxes, net | 7,849 | 8,395 | ||||||
Other current assets | 2,262 | 3,424 | ||||||
Total current assets | 183,896 | 174,088 | ||||||
Property and equipment, net | 47,393 | 51,694 | ||||||
Goodwill | 259,923 | 259,923 | ||||||
Other intangibles, net | 148,247 | 153,553 | ||||||
Restricted investments | 2,736 | 3,972 | ||||||
Deferred income taxes, net | 460 | 485 | ||||||
Deferred financing fees, net | 6,265 | 4,438 | ||||||
Investment in trust common securities | 3,261 | 3,261 | ||||||
Other assets | 969 | 1,380 | ||||||
Total assets | $ | 653,150 | $ | 652,794 | ||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 25,581 | $ | 25,410 | ||||
Current portion of senior term loans | 15,674 | 2,080 | ||||||
Current portion of capitalized lease and other obligations | 348 | 225 | ||||||
Accrued expenses: | ||||||||
Salaries and wages | 5,418 | 5,502 | ||||||
Pricing allowances | 6,513 | 5,290 | ||||||
Income and other taxes | 1,993 | 2,009 | ||||||
Interest | 2,270 | 1,251 | ||||||
Deferred compensation | 133 | 282 | ||||||
Other accrued expenses | 7,335 | 5,512 | ||||||
Total current liabilities | 65,265 | 47,561 | ||||||
Long term senior term loans | 160,175 | 200,769 | ||||||
Long term capitalized lease and other obligations | 200 | 175 | ||||||
Long term unsecured subordinated notes | 49,820 | 49,820 | ||||||
Junior subordinated debentures | 115,814 | 116,110 | ||||||
Mandatorily redeemable preferred stock | 108,653 | 100,146 | ||||||
Management purchased preferred options | 6,607 | 6,016 | ||||||
Deferred compensation | 2,737 | 3,972 | ||||||
Deferred income taxes, net | 58,949 | 50,068 | ||||||
Accrued dividends on preferred stock | 71,178 | 58,708 | ||||||
Other non-current liabilities | 17,475 | 15,131 | ||||||
Total liabilities | 656,873 | 648,476 | ||||||
Page 3 of 44
Table of Contents
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY (CONTINUED) | ||||||||
Common and preferred stock with put options: | ||||||||
Class A Preferred stock, $.01 par, $1,000 liquidation value, 238,889 shares authorized, 88.0 issued and outstanding | 88 | 88 | ||||||
Class A Common stock, $.01 par, 23,141 shares authorized, 412 issued and outstanding | 2,133 | 247 | ||||||
Class B Common stock, $.01 par, 2,500 shares authorized, 1,000 issued and outstanding | 5,178 | 598 | ||||||
Commitments and contingencies (Note 5) | ||||||||
Stockholders’ (deficit) equity: | ||||||||
Preferred Stock: | ||||||||
Class A Preferred stock, $.01 par, $1,000 liquidation value, 238,889 shares authorized, 82,104.8 issued and outstanding | 1 | 1 | ||||||
Common Stock: | ||||||||
Class A Common stock, $.01 par, 23,141 shares authorized, 5,805.3 issued and outstanding | — | — | ||||||
Class C Common stock, $.01 par, 30,109 shares authorized, 2,787.1 issued and outstanding | — | — | ||||||
Additional paid-in capital | 14,852 | 29,209 | ||||||
Accumulated deficit | (24,349 | ) | (24,240 | ) | ||||
Accumulated other comprehensive loss | (1,626 | ) | (1,585 | ) | ||||
Total stockholders’ (deficit) equity | (11,122 | ) | 3,385 | |||||
Total liabilities and stockholders’ (deficit) equity | $ | 653,150 | $ | 652,794 | ||||
Page 4 of 44
Table of Contents
FOR THE THREE MONTHS ENDED
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Net sales | $ | 122,673 | $ | 132,588 | ||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 57,580 | 67,935 | ||||||
Gross profit | 65,093 | 64,653 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative expenses | 41,412 | 41,525 | ||||||
Depreciation | 4,398 | 4,295 | ||||||
Amortization | 1,768 | 1,768 | ||||||
Management and transaction fees to related party | 250 | 255 | ||||||
Total operating expenses | 47,828 | 47,843 | ||||||
Other income (expense), net | 151 | (560 | ) | |||||
Income from operations | 17,416 | 16,250 | ||||||
Interest expense, net | 4,011 | 5,271 | ||||||
Interest expense on mandatorily redeemable preferred stock and management purchased options | 3,149 | 2,824 | ||||||
Interest expense on junior subordinated debentures | 3,214 | 3,152 | ||||||
Investment income on trust common securities | (95 | ) | (95 | ) | ||||
Income before income taxes | 7,137 | 5,098 | ||||||
Income tax provision | 4,847 | 3,777 | ||||||
Net income | $ | 2,290 | $ | 1,321 | ||||
Page 5 of 44
Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Net sales | $ | 358,699 | $ | 368,454 | ||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 176,965 | 185,698 | ||||||
Gross profit | 181,734 | 182,756 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative expenses | 121,628 | 123,066 | ||||||
Depreciation | 13,290 | 13,275 | ||||||
Amortization | 5,305 | 5,305 | ||||||
Management and transaction fees to related party | 759 | 773 | ||||||
Total operating expenses | 140,982 | 142,419 | ||||||
Other expense, net | (316 | ) | (783 | ) | ||||
Income from operations | 40,436 | 39,554 | ||||||
Interest expense, net | 11,139 | 16,032 | ||||||
Interest expense on mandatorily redeemable preferred stock and management purchased options | 9,098 | 8,188 | ||||||
Interest expense on junior subordinated debentures | 9,668 | 9,457 | ||||||
Investment income on trust common securities | (284 | ) | (284 | ) | ||||
Income before income taxes | 10,815 | 6,161 | ||||||
Income tax provision | 10,924 | 6,508 | ||||||
Net loss | $ | (109 | ) | $ | (347 | ) | ||
Page 6 of 44
Table of Contents
September 30, | September 30, | |||||||
2009 | 2008 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (109 | ) | $ | (347 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 18,595 | 18,580 | ||||||
Dispositions of property and equipment | 176 | 66 | ||||||
Deferred income tax provision | 9,452 | 5,515 | ||||||
Deferred financing and original issue discount amortization | 798 | 967 | ||||||
Interest on mandatorily redeemable preferred stock and management purchased options | 9,098 | 8,188 | ||||||
Changes in operating items: | ||||||||
Increase in accounts receivable, net | (10,492 | ) | (24,454 | ) | ||||
Decrease in inventories, net | 16,243 | 1,319 | ||||||
Decrease (increase) in other assets | 1,573 | (668 | ) | |||||
Increase in accounts payable | 171 | 3,844 | ||||||
Increase in interest payable on junior subordinated debentures | — | 1,019 | ||||||
Increase in other accrued liabilities | 3,965 | 6,360 | ||||||
Other items, net | 6,845 | 2,158 | ||||||
Net cash provided by operating activities | 56,315 | 22,547 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (9,126 | ) | (10,457 | ) | ||||
Net cash used for investing activities | (9,126 | ) | (10,457 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayments of senior term loans | (27,000 | ) | (16,518 | ) | ||||
Borrowings of revolving credit loans | — | 23,250 | ||||||
Repayments of revolving credit loans | — | (23,250 | ) | |||||
Principal payments under capitalized lease obligations | (320 | ) | (268 | ) | ||||
Financing fees, net | (2,921 | ) | — | |||||
Borrowings under other credit obligations | 468 | — | ||||||
Net cash used for financing activities | (29,773 | ) | (16,786 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 17,416 | (4,696 | ) | |||||
Cash and cash equivalents at beginning of period | 7,133 | 11,919 | ||||||
Cash and cash equivalents at end of period | $ | 24,549 | $ | 7,223 | ||||
Page 7 of 44
Table of Contents
Accumulated | Total | |||||||||||||||||||||||||||
Additional | Class A | Other | Stockholders’ | |||||||||||||||||||||||||
Common Stock | Paid-in | Preferred | Accumulated | Comprehensive | Equity | |||||||||||||||||||||||
Class A | Class C | Capital | Stock | Deficit | Loss | (Deficit) | ||||||||||||||||||||||
Balance at December 31, 2008 | $ | — | $ | — | $ | 29,209 | $ | 1 | $ | (24,240 | ) | $ | (1,585 | ) | $ | 3,385 | ||||||||||||
Net loss | — | — | — | — | (109 | ) | — | (109 | ) | |||||||||||||||||||
Class A Common Stock FMV adjustment (2) | — | — | (1,886 | ) | — | — | — | (1,886 | ) | |||||||||||||||||||
Dividends to shareholders | — | — | (12,471 | ) | — | — | — | (12,471 | ) | |||||||||||||||||||
Change in cumulative foreign translation adjustment (1) | — | — | — | — | — | (179 | ) | (179 | ) | |||||||||||||||||||
Change in derivative security value (1) | — | — | — | — | — | 138 | 138 | |||||||||||||||||||||
Balance at September 30, 2009 | $ | — | $ | — | $ | 14,852 | $ | 1 | $ | (24,349 | ) | $ | (1,626 | ) | $ | (11,122 | ) | |||||||||||
(1) | The cumulative foreign translation adjustment and change in derivative security value, net of taxes, represent the only items of other comprehensive loss. | |
(2) | Company management controls 412 shares of Class A common stock which contain a put feature that allows redemption at the holder’s option. These shares are classified as temporary equity and have been adjusted to fair value in accordance with ASC Topic 480, “Distinguishing Liabilities From Equity.” See Note 10 of condensed consolidated financial statements. |
Page 8 of 44
Table of Contents
Page 9 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 10 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 11 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 12 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Estimated | ||||||||||||
Useful Life | September 30, | December 31, | ||||||||||
(Years) | 2009 | 2008 | ||||||||||
Customer relationships — Hillman | 23 | $ | 126,651 | $ | 126,651 | |||||||
Customer relationships — All Points | 15 | 555 | 555 | |||||||||
Trademarks | Indefinite | 47,394 | 47,394 | |||||||||
Patents | 9 | 7,960 | 7,960 | |||||||||
Non-compete agreements | 4 | 5,742 | 5,742 | |||||||||
Intangible assets, gross | 188,302 | 188,302 | ||||||||||
Less: Accumulated amortization | 40,055 | 34,749 | ||||||||||
Other intangibles, net | $ | 148,247 | $ | 153,553 | ||||||||
Page 13 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 14 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 15 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 16 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 17 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 18 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Hillman Investment Company Class A Preferred Stock | $ | 57,344 | $ | 57,344 | ||||
Purchased Options — Hillman Investment Company Class A Preferred Stock | 2,254 | 2,254 | ||||||
Accumulated and unpaid dividends | 49,055 | 40,548 | ||||||
Total mandatorily redeemable preferred stock | $ | 108,653 | $ | 100,146 | ||||
Purchased Options — Hillman Companies, Inc. Class A Preferred Stock | $ | 3,230 | $ | 3,230 | ||||
Accumulated and unpaid dividends | 3,377 | 2,786 | ||||||
Total management purchased preferred options | $ | 6,607 | $ | 6,016 | ||||
Page 19 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Page 20 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Level 1: | Quoted market prices in active markets for identical assets or liabilities. | |
Level 2: | Observable market-based inputs or unobservable inputs that are corroborated by market data. | |
Level 3: | Unobservable servable inputs reflecting the reporting entity’s own assumptions. |
Page 21 of 44
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Fair Value Measurement | ||||||||||||||||
at September 30, 2009 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Trading securities | $ | 2,869 | $ | — | $ | — | $ | 2,869 | ||||||||
Interest rate swap | — | (2,150 | ) | — | (2,150 | ) |
Page 22 of 44
Table of Contents
AND RESULTS OF OPERATIONS
Page 23 of 44
Table of Contents
Page 24 of 44
Table of Contents
Page 25 of 44
Table of Contents
(dollars in thousands) | ||||||||||||||||
2009 | 2008 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Total | Amount | Total | |||||||||||||
Net sales | $ | 122,673 | 100.0 | % | $ | 132,588 | 100.0 | % | ||||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 57,580 | 46.9 | % | 67,935 | 51.2 | % | ||||||||||
Gross profit | 65,093 | 53.1 | % | 64,653 | 48.8 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Selling | 19,328 | 15.8 | % | 20,886 | 15.8 | % | ||||||||||
Warehouse & delivery | 12,481 | 10.2 | % | 14,475 | 10.9 | % | ||||||||||
General & administrative | 6,315 | 5.1 | % | 4,676 | 3.5 | % | ||||||||||
Stock compensation expense | 3,288 | 2.7 | % | 1,488 | 1.1 | % | ||||||||||
Total SG&A | 41,412 | 33.8 | % | 41,525 | 31.3 | % | ||||||||||
Depreciation | 4,398 | 3.6 | % | 4,295 | 3.2 | % | ||||||||||
Amortization | 1,768 | 1.4 | % | 1,768 | 1.3 | % | ||||||||||
Management and transaction fees to related party | 250 | 0.2 | % | 255 | 0.2 | % | ||||||||||
Total operating expenses | 47,828 | 39.0 | % | 47,843 | 36.1 | % | ||||||||||
Other income (expense), net | 151 | 0.1 | % | (560 | ) | -0.4 | % | |||||||||
Income from operations | 17,416 | 14.2 | % | 16,250 | 12.3 | % | ||||||||||
Interest expense, net | 4,011 | 3.3 | % | 5,271 | 4.0 | % | ||||||||||
Interest expense on mandatorily redeemable preferred stock & management purchased options | 3,149 | 2.6 | % | 2,824 | 2.1 | % | ||||||||||
Interest expense on junior subordinated notes | 3,214 | 2.6 | % | 3,152 | 2.4 | % | ||||||||||
Investment income on trust common securities | (95 | ) | -0.1 | % | (95 | ) | -0.1 | % | ||||||||
Income before income taxes | 7,137 | 5.8 | % | 5,098 | 3.8 | % | ||||||||||
Income tax provision | 4,847 | 4.0 | % | 3,777 | 2.8 | % | ||||||||||
Net income | $ | 2,290 | 1.9 | % | $ | 1,321 | 1.0 | % | ||||||||
Page 26 of 44
Table of Contents
Page 27 of 44
Table of Contents
Page 28 of 44
Table of Contents
Page 29 of 44
Table of Contents
(dollars in thousands) | ||||||||||||||||
2009 | 2008 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Total | Amount | Total | |||||||||||||
Net sales | $ | 358,699 | 100.0 | % | $ | 368,454 | 100.0 | % | ||||||||
Cost of sales (exclusive of depreciation and amortization shown separately below) | 176,965 | 49.3 | % | 185,698 | 50.4 | % | ||||||||||
Gross profit | 181,734 | 50.7 | % | 182,756 | 49.6 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Selling | 59,044 | 16.5 | % | 61,768 | 16.8 | % | ||||||||||
Warehouse & delivery | 36,701 | 10.2 | % | 43,102 | 11.7 | % | ||||||||||
General & administrative | 18,795 | 5.2 | % | 16,151 | 4.4 | % | ||||||||||
Stock compensation expense | 7,088 | 2.0 | % | 2,045 | 0.6 | % | ||||||||||
Total SG&A | 121,628 | 33.9 | % | 123,066 | 33.4 | % | ||||||||||
Depreciation | 13,290 | 3.7 | % | 13,275 | 3.6 | % | ||||||||||
Amortization | 5,305 | 1.5 | % | 5,305 | 1.4 | % | ||||||||||
Management and transaction fees to related party | 759 | 0.2 | % | 773 | 0.2 | % | ||||||||||
Total operating expenses | 140,982 | 39.3 | % | 142,419 | 38.7 | % | ||||||||||
Other expense, net | (316 | ) | -0.1 | % | (783 | ) | -0.2 | % | ||||||||
Income from operations | 40,436 | 11.3 | % | 39,554 | 10.7 | % | ||||||||||
Interest expense, net | 11,139 | 3.1 | % | 16,032 | 4.4 | % | ||||||||||
Interest expense on mandatorily redeemable preferred stock & management purchased options | 9,098 | 2.5 | % | 8,188 | 2.2 | % | ||||||||||
Interest expense on junior subordinated notes | 9,668 | 2.7 | % | 9,457 | 2.6 | % | ||||||||||
Investment income on trust common securities | (284 | ) | -0.1 | % | (284 | ) | -0.1 | % | ||||||||
Income before income taxes | 10,815 | 3.0 | % | 6,161 | 1.7 | % | ||||||||||
Income tax provision | 10,924 | 3.0 | % | 6,508 | 1.8 | % | ||||||||||
Net loss | $ | (109 | ) | 0.0 | % | $ | (347 | ) | -0.1 | % | ||||||
Page 30 of 44
Table of Contents
Page 31 of 44
Table of Contents
Page 32 of 44
Table of Contents
Page 33 of 44
Table of Contents
Page 34 of 44
Table of Contents
Payments Due | ||||||||||||||||||||
Contractual Obligations | Total | Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | More Than 5 Years | |||||||||||||||
Junior Subordinated Debentures (1) | $ | 115,814 | $ | — | $ | — | $ | — | $ | 115,814 | ||||||||||
Long Term Senior Term Loans | 175,849 | 15,674 | 160,175 | — | — | |||||||||||||||
Bank Revolving Credit Facility | — | — | — | — | — | |||||||||||||||
Long Term Unsecured Subordinated Notes | 49,820 | — | 49,820 | — | — | |||||||||||||||
Interest Payments (2) | 36,405 | 14,249 | 22,156 | — | — | |||||||||||||||
Operating Leases | 37,467 | 8,089 | 11,502 | 6,473 | 11,403 | |||||||||||||||
Mandatorily Redeemable Preferred Stock | 108,653 | — | — | �� | — | 108,653 | ||||||||||||||
Management Purchased Options | 6,607 | — | — | — | 6,607 | |||||||||||||||
Accrued Stock Based Compensation on Preferred Options | 13,727 | — | — | — | 13,727 | |||||||||||||||
Deferred Compensation Obligations | 2,870 | 133 | 266 | 266 | 2,205 | |||||||||||||||
Capital Lease Obligations | 571 | 361 | 199 | 11 | — | |||||||||||||||
Purchase Obligations | 1,313 | 350 | 350 | 350 | 263 | |||||||||||||||
Other Long Term Obligations | 2,743 | 1,144 | 806 | 202 | 591 | |||||||||||||||
ASC 740-10-25 (FIN 48) Liabilities | 2,875 | — | — | — | 2,875 | |||||||||||||||
Total Contractual Cash Obligations (3) | $ | 554,714 | $ | 40,000 | $ | 245,274 | $ | 7,302 | $ | 262,138 | ||||||||||
(1) | The junior subordinated debentures liquidation value is approximately $108,707. | |
(2) | Interest payments for Long Term Senior Term Loans and Long Term Unsecured Subordinated Notes. Interest payments on the variable rate Long Term Senior Term Loans were calculated using actual interest rates as of September 30, 2009 and a LIBOR rate of 0.41% plus applicable margin of between 2.75% and 4.50% thereafter. | |
(3) | All of the contractual obligations noted above are reflected on the Company’s condensed consolidated balance sheet as of September 30, 2009 except for the interest payments and operating leases. In addition to the contractual obligations above, the Company has issued certain equity securities to management shareholders with terms that allow them to be put back to the Company upon termination from employment, death or disability. The terms of the equity securities held by management limit cash distributions for puttable equity securities to an aggregate of $5.0 million per annum. As of September 30, 2009, no equity securities have been put back to the Company by management shareholders. See Note 9, Common and Preferred Stock, to the condensed consolidated financial statements for additional information. |
Page 35 of 44
Table of Contents
September 30, 2009 | December 31, 2008 | |||||||||||||||||||||||
Facility | Outstanding | Interest | Facility | Outstanding | Interest | |||||||||||||||||||
(dollars in 000’s) | Amount | Amount | Rate | Amount | Amount | Rate | ||||||||||||||||||
Term B-1 Loan | $ | 33,117 | 3.16 | % | $ | 202,849 | 3.46 | % | ||||||||||||||||
Term B-2 Loan | 142,732 | 4.91 | % | — | — | |||||||||||||||||||
Total Term Loans | 175,849 | 202,849 | ||||||||||||||||||||||
Revolving credit facility | $ | 20,000 | — | — | $ | 40,000 | — | — | ||||||||||||||||
Capital leases & other obligations | 548 | various | 400 | various | ||||||||||||||||||||
Total secured credit | 176,397 | 203,249 | ||||||||||||||||||||||
Unsecured subordinated notes | 49,820 | 12.50 | % | 49,820 | 10.00 | % | ||||||||||||||||||
Total borrowings | $ | 226,217 | $ | 253,069 | ||||||||||||||||||||
Page 36 of 44
Table of Contents
Ratio | ||||||||
(dollars in 000’s) | Actual | Requirement | ||||||
Fixed Charge Ratio | ||||||||
Adjusted EBITDA (1) | $ | 82,243 | ||||||
Cash interest expense (2) | 14,352 | |||||||
Interest on junior subordinated debentures | 12,442 | |||||||
Capital expenditures, net of disposals | 11,893 | |||||||
Scheduled principal payments | 1,531 | |||||||
Tax payments, net | 1,550 | |||||||
Total fixed charges | $ | 41,768 | ||||||
Fixed charge ratio (must be above requirement) | 1.97 | 1.15 | ||||||
Interest Coverage Ratio | ||||||||
Adjusted EBITDA (1) | $ | 82,243 | ||||||
Cash interest expense (2) | $ | 14,352 | ||||||
Interest coverage ratio (must be above requirement) | 5.73 | 2.50 | ||||||
Leverage Ratio | ||||||||
Senior term loan balance | $ | 175,849 | ||||||
Capital lease and other credit obligations | 548 | |||||||
Subordinated notes | 49,820 | |||||||
Total debt | $ | 226,217 | ||||||
Adjusted EBITDA (1) | $ | 82,243 | ||||||
Leverage ratio (must be below requirement) | 2.75 | 3.25 | ||||||
(1) | Adjusted EBITDA is defined as income from operations ($48,607) plus depreciation ($17,850), amortization ($7,073), non-cash stock compensation expense ($7,524), foreign exchange gains or (losses) ($516) and other non-recurring expenses ($673). | |
(2) | Includes cash interest expense on senior term loans, capitalized lease obligations and subordinated notes. |
Page 37 of 44
Table of Contents
Page 38 of 44
Table of Contents
September 30, | December 31, | |||||||
(dollars in 000’s, except per share amounts) | 2009 | 2008 | ||||||
Trailing twelve fiscal months EBITDA (1) | $ | 83,272 | $ | 77,391 | ||||
Valuation Multiple (2) | 8.0 | 8.0 | ||||||
Hillman Enterprise Value | 666,176 | 619,128 | ||||||
Less: | ||||||||
Senior term loans | 175,849 | 202,849 | ||||||
Bank revolving credit | — | — | ||||||
Unsecured subordinated notes | 49,820 | 49,820 | ||||||
Junior subordinated debentures redemption value, net (3) | 105,446 | 105,446 | ||||||
Total Debt | 331,115 | 358,115 | ||||||
Plus: | ||||||||
Cash | 24,549 | 7,133 | ||||||
Less: | ||||||||
Accrued Hillman Investment Company Class A Preferred (4) | 114,509 | 105,038 | ||||||
Accrued Hillman Class A Preferred (4) | 168,839 | 154,297 | ||||||
283,348 | 259,335 | |||||||
Common Equity Value | 76,262 | 8,811 | ||||||
Liquidity & Minority Discount on Common Only (5) | 22,879 | 2,643 | ||||||
Discounted Common Equity Value | 53,383 | 6,168 | ||||||
Fully-diluted Common Shares outstanding | 10,309 | 10,309 | ||||||
Fully-diluted Discounted Common Value Per Common Share | $ | 5,178 | $ | 598 | ||||
(1) | - | EBITDA is calculated for the most recent four fiscal quarters as follows: |
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Income from operations | $ | 48,607 | $ | 47,725 | ||||
Depreciation and amortization | 24,923 | 24,908 | ||||||
Management fees | 1,029 | 1,043 | ||||||
Stock compensation expense | 7,524 | 2,481 | ||||||
Exchange rate loss, net | 516 | 980 | ||||||
Restructuring charges | 658 | — | ||||||
Other adjustments | 15 | 254 | ||||||
EBITDA | $ | 83,272 | $ | 77,391 | ||||
(2) | - | The Company periodically reviews the valuation multiple used and notes that it is consistent with comparable multiples used for distribution companies. |
(3) | - | The value of the junior subordinated debentures is the redemption value of $25 per share. |
(4) | - | Redemption value of all preferred shares and options thereon, less any applicable strike price. |
(5) | - | Under the terms of the ESA agreement with management shareholders, the redemption of shares is subject to a discount given the lack of a public market for the shares. A 30% discount has applied to the equity value to adjust for the lack of an active market for the shares. |
Page 39 of 44
Table of Contents
Page 40 of 44
Table of Contents
Page 41 of 44
Table of Contents
Page 42 of 44
Table of Contents
Item 1. | – Legal Proceedings. |
Item 1A. | – Risk Factors. |
Item 2. | – Unregistered Sales of Equity Securities and Use of Proceeds. |
Item 3. | – Defaults Upon Senior Securities. |
Item 4. | – Submission of Matters to a Vote of Security Holders. |
Item 5. | – Other Information. |
Item 6. | – Exhibits. |
10.1 * | Amended and Restated Credit Agreement dated as of August 7, 2009. | |
10.2 * | Amended Subordinated Loan Agreement dated as of August 7, 2009. | |
31.1 * | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. | |
31.2 * | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. | |
32.1 * | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 * | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith. |
Page 43 of 44
Table of Contents
/s/ James P. Waters | /s/ Harold J. Wilder | |||||
Vice President — Finance | Controller | |||||
(Chief Financial Officer) | (Chief Accounting Officer) |
Page 44 of 44