##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K/A
 AMENDMENT NO. 1
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
 Commission file number 1-13293
 The Hillman Companies, Inc.
  Delaware
    
    23-2874736(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)10590 Hamilton AvenueCincinnati, Ohio
    
    45231(Address of principal executive offices)
    
    (Zip Code)
 (513) 851-4900
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Class
    
    Name of Each Exchange on Which Registered11.6% Junior Subordinated Debentures
    
    NonePreferred Securities Guaranty
    
    None
 Securities registered pursuant to Section 12(g) of the Act:
  o þ
  o þ
 þ




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##### 



Explanatory Note:
  2




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##### 



PART I
 Item 1  Business .
 General
  http://www.hillmangroup.com
 Background
     3




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##### 



Industry Overview
   The Hillman Group
  4




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##### 



Products and Suppliers
  Fasteners
  5




---



##### 



Keys and Key Accessories
      Engraving
   Letters, Numbers and Signs (LNS)
  6




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##### 



Markets and Customers
      Sales and Marketing
    7




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##### 



Competition
     Risk Factors
  The Company operates in a highly competitive industry, which may have a material adverse effect on
its business, financial condition and results of operations.
  The Companys business, financial condition and results of operations may be materially adversely
affected by seasonality and general economic conditions affecting its sales.
  The Companys profitability may be materially adversely affected as a result of consolidation in
the retail trade industry.
 8




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##### 



The Companys success is highly dependent on information and technology systems.
   The inability to make timely and cost effective acquisitions may adversely affect the Companys
business.
  Insurance Arrangements
  Employees
  Backlog
  9




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##### 



Where You Can Find More Information
 th http://www.sec.gov publicinfo@sec.gov
  10




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##### 



Item 2  Properties.
  ApproximateLocation
    
    Square Footage
    
    DescriptionCincinnati, Ohio
    
    
    240,000
    
    
    Office, DistributionForest Park, Ohio
    
    
    260,000
    
    
    DistributionTempe, Arizona
    
    
    161,000
    
    
    Mfg., DistributionTempe, Arizona
    
    
    47,000
    
    
    OfficeShafter, California
    
    
    84,000
    
    
    DistributionLewisville, Texas
    
    
    72,000
    
    
    DistributionWilsonville, Oregon
    
    
    29,000
    
    
    DistributionCharlotte, North Carolina
    
    
    40,000
    
    
    DistributionGreen Island, New York
    
    
    56,000
    
    
    DistributionLaCrosse, Wisconsin
    
    
    48,000
    
    
    DistributionRiviera Beach, Florida
    
    
    37,000
    
    
    DistributionGoodlettsville, Tennessee
    
    
    72,000
    
    
    Mfg., DistributionMississauga, Ontario
    
    
    11,000
    
    
    Distribution
  Item 3  Legal Proceedings.
  Item 4  Submission of Matters to a Vote of Security Holders.
  11




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##### 



Part II
 Item 5  Market for Registrants Common Shares and Related Stockholder Matters .
 Stock Exchange Listing
  2004
    
    High
    
    LowFirst Quarter
    
    $
    27.50
    
    
    $
    26.15Second Quarter
    
    
    27.55
    
    
    
    26.50Third Quarter
    
    
    27.70
    
    
    
    26.80Fourth Quarter
    
    
    29.45
    
    
    
    27.40
 2003
    
    High
    
    LowFirst Quarter
    
    $
    25.85
    
    
    $
    25.00Second Quarter
    
    
    27.00
    
    
    
    25.14Third Quarter
    
    
    26.95
    
    
    
    26.00Fourth Quarter
    
    
    27.04
    
    
    
    26.20
  Distributions
    Issuer Purchases of Equity Securities
  12




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##### 



Item 6  Selected Financial Data .
   Successor
    
    
    PredecessorNine Months
    
    
    Three Months
    
    
    
    
    
    
    
    
    
    Three Months
    
    ThreeEnded
    
    
    Ended
    
    Year Ended
    
    Year Ended
    
    Ended
    
    Months Ended12/31/04 As
    
    
    03/31/04
    
    12/31/03
    
    12/31/02
    
    12/31/01
    
    12/31/01($ in 000s)
    
    Restated
    
    
    As Restated
    
    As Restated
    
    As Restated (3)
    
    As Reported
    
    As RestatedIncome Statement Data:Net sales
    
    $
    273,374
    
    
    
    $
    78,190
    
    
    $
    317,671
    
    
    $
    286,599
    
    
    $
    60,040
    
    
    $
    61,538Gross profit
    
    
    150,402
    
    
    
    
    42,807
    
    
    
    174,316
    
    
    
    160,503
    
    
    
    34,442
    
    
    
    35,249Non-recurring expense (2)
    
    
    
    
    
    
    
    30,707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    779
    
    
    
    
    (20,366
    )
    
    
    (5,709
    )
    
    
    5,243
    
    
    
    (2,909
    )
    
    
    (2,128
    )Balance Sheet Data at December 31:Total assets
    
    $
    628,899
    
    
    
    
    N/A
    
    
    $
    354,253
    
    
    $
    375,653
    
    
    $
    339,961
    
    
    $
    352,960Long-term debt and capitalized
lease obligations (1)
    
    
    264,101
    
    
    
    
    N/A
    
    
    
    150,338
    
    
    
    147,175
    
    
    
    128,739
    
    
    
    130,836
 Pre-predecessor(4)Nine Months
    
    Nine Months
    
    Year
    
    YearEnded
    
    Ended
    
    Ended
    
    Ended9/30/01
    
    9/30/01
    
    12/31/00
    
    12/31/00($ in 000s)
    
    As Reported
    
    As Restated
    
    As Reported
    
    As RestatedIncome Statement Data:Continuing OperationsNet sales
    
    $
    341,307
    
    
    $
    340,426
    
    
    $
    462,839
    
    
    $
    463,428Gross profit
    
    
    143,564
    
    
    
    142,986
    
    
    
    184,660
    
    
    
    184,979Gain on contribution of subsidiaries (5)
    
    
    
    
    
    
    
    
    
    
    49,115
    
    
    
    49,115Income (loss) before discontinued operations (5)
    
    
    (1,327
    )
    
    
    (1,097
    )
    
    
    27,290
    
    
    
    28,435Income (loss) from discontinued operations (5)
    
    
    
    
    
    
    
    
    
    
    (2,610
    )
    
    
    (2,610
    )Net income (loss)
    
    $
    (1,327
    )
    
    $
    (1,097
    )
    
    $
    24,680
    
    
    $
    25,825Balance Sheet Data at December 31:Total assets
    
    
    N/A
    
    
    
    N/A
    
    
    $
    320,960
    
    
    $
    326,108Long-term debt and capitalized lease obligations (1)
    
    
    N/A
    
    
    
    N/A
    
    
    $
    102,790
    
    
    $
    102,790
 13




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##### 



(1)
    
    Includes current portion of long-term debt and capitalized lease obligations(2)
    
    Non-recurring expenses incurred in connection with the CHS Merger including $24,353 for
stock options granted at an exercise price below fair market value, $4,035 in investment
banking and legal fees, $1,922 in management bonuses and $397 in payroll taxes. See the
Notes to the Consolidated Financial Statements for further details.(3)
    
    Total assets and long-term debt and capitalized lease obligations as reported as of
December 31, 2002 were $363,194 and $146,716, respectively(4)
    
    Financial data for the nine months ended September 30, 2001 and the year ended December
31, 2000 include the operating results of the SunSource Technology Services business, the
assets of which were sold pursuant to an Asset Purchase Agreement on September 28, 2001.(5)
    
    This information is not included in the current Consolidated Statements of Operations
for the three years ended December 31, 2004, however, it was included in prior years when
applicable. 14




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##### 



Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations .
  General
   Restatement of Financial Statements
   Merger Transaction
     15




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##### 



Financing Arrangements
     Acquisitions and Divestitures
   16




---



##### 



17




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##### 



Results of Operations
 Sales and Profitability for each of the Three Years Ended December 31
 (dollars in thousands)2004 (a)
    
    
    2003
    
    
    2002% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total(As Restated)
    
    
    (As Restated)
    
    
    (As Restated)Net sales
    
    $
    351,564
    
    
    
    100.0
    %
    
    $
    317,671
    
    
    
    100.0
    %
    
    $
    286,599
    
    
    
    100.0
    %Cost of sales (exclusive of
depreciation and amortization
shown below)
    
    
    158,355
    
    
    
    45.0
    %
    
    
    143,355
    
    
    
    45.1
    %
    
    
    126,096
    
    
    
    44.0
    %Gross profit
    
    
    193,209
    
    
    
    55.0
    %
    
    
    174,316
    
    
    
    54.9
    %
    
    
    160,503
    
    
    
    56.0
    %Operating expenses:Selling
    
    
    67,796
    
    
    
    19.3
    %
    
    
    57,939
    
    
    
    18.2
    %
    
    
    54,872
    
    
    
    19.1
    %Warehouse & delivery
    
    
    44,245
    
    
    
    12.6
    %
    
    
    40,590
    
    
    
    12.8
    %
    
    
    33,048
    
    
    
    11.5
    %General & Administrative
    
    
    18,221
    
    
    
    5.2
    %
    
    
    22,229
    
    
    
    7.0
    %
    
    
    23,740
    
    
    
    8.3
    %Stock compensation expense
    
    
    272
    
    
    
    0.1
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total SG&A
    
    
    130,534
    
    
    
    37.1
    %
    
    
    120,758
    
    
    
    38.0
    %
    
    
    111,660
    
    
    
    39.0
    %Non-recurring expense (b)
    
    
    30,707
    
    
    
    8.7
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Depreciation
    
    
    15,187
    
    
    
    4.3
    %
    
    
    14,399
    
    
    
    4.5
    %
    
    
    12,004
    
    
    
    4.2
    %Amortization
    
    
    5,748
    
    
    
    1.6
    %
    
    
    1,437
    
    
    
    0.5
    %
    
    
    1,485
    
    
    
    0.5
    %Management fees
    
    
    1,329
    
    
    
    0.4
    %
    
    
    1,800
    
    
    
    0.6
    %
    
    
    1,800
    
    
    
    0.6
    %Total operating expenses
    
    
    183,505
    
    
    
    52.2
    %
    
    
    138,394
    
    
    
    43.6
    %
    
    
    126,949
    
    
    
    44.3
    %Gain on termination of defined
benefit pension plan (c)
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    1,231
    
    
    
    0.4
    %Other income (expense)
    
    
    277
    
    
    
    0.1
    %
    
    
    681
    
    
    
    0.2
    %
    
    
    320
    
    
    
    0.1
    %Income from operations
    
    
    9,981
    
    
    
    2.8
    %
    
    
    36,603
    
    
    
    11.5
    %
    
    
    35,105
    
    
    
    12.2
    %Interest expense
    
    
    17,539
    
    
    
    5.0
    %
    
    
    15,405
    
    
    
    4.8
    %
    
    
    12,982
    
    
    
    4.5
    %Interest expense on mandatorily
redeemable preferred stock &
management purchased preferred
options
    
    
    5,458
    
    
    
    1.6
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Interest expense on junior
subordinated notes
    
    
    12,609
    
    
    
    3.6
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Investment income on trust
common securities
    
    
    (378
    )
    
    
    -0.1
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Distributions on guaranteed
preferred beneficial interests
    
    
    
    
    
    
    0.0
    %
    
    
    12,231
    
    
    
    3.9
    %
    
    
    12,231
    
    
    
    4.3
    %Write-down of note receivable
    
    
    
    
    
    
    0.0
    %
    
    
    11,258
    
    
    
    3.5
    %
    
    
    
    
    
    
    0.0
    %Income (loss) before taxes
    
    
    (25,247
    )
    
    
    -7.2
    %
    
    
    (2,291
    )
    
    
    -0.7
    %
    
    
    9,892
    
    
    
    3.5
    %
 
 (a)
    
    For the purpose of comparing the Companys results of operations for each of the three
years ended December 31, 2004, the results of the Predecessor Operations for the three months
ended March 31, 2004 have been combined with the results of the Successor Operations for the
nine months ended December 31, 2004.(b)
    
    Represents one-time charges for stock options, management bonuses, investment banking, and
legal fees incurred in connection with the March 31, 2004 Merger Transaction.(c)
    
    Represents income as a result of the final settlement of the Companys defined benefit plans
in 2002. 18




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##### 



Years Ended December 31, 2004 and 2003
        19




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##### 



Years Ended December 31, 2003 and 2002
    20




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##### 



21




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##### 



Liquidity and Capital Resources
     Amount(dollars in thousands)
    
    (as restated)Increase in cash and cash equivalents
    
    $
    28,450Increase in accounts receivable, net
    
    
    4,219Decrease in inventories, net
    
    
    (2
    )Decrease in other current assets
    
    
    (2,950
    )Decrease in deferred taxes
    
    
    (823
    )Increase in accounts payable
    
    
    (6,708
    )Decrease in current portion of senior term loan
    
    
    7,093Increase in accrued interest
    
    
    (2,105
    )Decrease in other accrued liabilities
    
    
    2,735Other items, net
    
    
    (1,035
    )Net increase in working capital for the year
ended December 31, 2004
    
    $
    28,874
  Payments Due (as restated)Total
    
    
    Less Than One Year
    
    
    1 to 3 Years
    
    
    3 to 5 Years
    
    
    More Than Five YearsContractual ObligationsJunior Subordinated Debentures (1)
    
    $
    117,690
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    117,690Long Term Senior Term Loans
    
    
    215,869
    
    
    $
    2,175
    
    
    $
    4,350
    
    
    $
    4,350
    
    
    
    204,994Long Term Unsecured Subordinated
Notes
    
    
    48,090
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,090Operating Leases
    
    
    31,670
    
    
    
    6,793
    
    
    
    8,021
    
    
    
    5,017
    
    
    
    11,839Mandatorily Redeemable Preferred
Stock
    
    
    62,232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,232Management Purchased Preferred
Options
    
    
    3,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,577Deferred Compensation Obligations
    
    
    4,223
    
    
    
    75
    
    
    
    150
    
    
    
    150
    
    
    
    3,848Capital Lease Obligations
    
    
    142
    
    
    
    43
    
    
    
    82
    
    
    
    17
    
    
    
    Other Long Term Obligations
    
    
    5,547
    
    
    
    1,485
    
    
    
    950
    
    
    
    793
    
    
    
    2,319Total Contractual Cash Obligations
    
    $
    489,040
    
    
    $
    10,571
    
    
    $
    13,553
    
    
    $
    10,327
    
    
    $
    454,589
 
 (1)
    
    The junior subordinated debentures liquidation value is approximately $108,707.   22




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##### 



Inflation
  Related Party Transactions
  23




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##### 



Critical Accounting Policies and Estimates
   Revenue Recognition :
   24




---



##### 



Accounts Receivable and Allowance for Doubtful Accounts
  Inventory Realization
  Property and Equipment
  Depreciation
  Goodwill and Other Intangible Assets
  Long-Lived Assets
  Investments:
  25




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##### 



Income Taxes
  Self-insurance Reserves
    Retirement Benefits
  Shipping and Handling :
  Research and Development
  Stock Based Compensation
  26




---



##### 



Fair Value of Financial Instruments :
  Translation of Foreign Currencies :
  Comprehensive Income (Loss) :
  Successor
    
    
    Predecessor
    
    
    Predecessor
    
    
    PredecessorNine months
    
    
    Three months
    
    
    Year
    
    
    Yearended
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    2003
    
    
    2002(As restated)
    
    (As restated)
    
    (As restated)
    
    (As restated)Net income (loss)
    
    $
    779
    
    
    $
    (20,366
    )
    
    $
    (5,709
    )
    
    $
    5,243Unrealized gains on investments, net
    
    
    34
    
    
    
    16
    
    
    
    19
    
    
    
    39Change in derivative security value, net
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustment, net
    
    
    (110
    )
    
    
    10
    
    
    
    (135
    )
    
    
    5Comprehensive income (loss)
    
    $
    685
    
    
    $
    (20,340
    )
    
    $
    (5,825
    )
    
    $
    5,287
 Use of Estimates in the Preparation of Financial Statements:
   Recent Accounting Pronouncements
   27




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##### 



Forward Looking Statements
    Item 7A  Quantitative and Qualitative Disclosures About Market Risk.
   28




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##### 



Item 8  Financial Statements and Supplementary Data .
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
 Page(s)Reports of Independent Registered Public Accounting Firm
    
    
    30-31Consolidated Financial Statements:Consolidated Balance Sheets
    
    
    32-33Consolidated Statements of Operations
    
    
    34Consolidated Statements of Cash Flows
    
    
    35Consolidated Statements of Changes in Stockholders Equity
    
    
    36Notes to Consolidated Financial Statements
    
    
    37-67Financial Statement Schedule:Valuation Accounts
    
    
    68
 29




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##### 



Report of Independent Registered Public Accounting Firm
 To The
Board of Directors and Stockholders of  The Hillman Companies, Inc.
    
 30




---



##### 



Report of Independent Registered Public Accounting Firm
 To The
Board of Directors and Stockholders of  The Hillman Companies, Inc.
    
 31




---



##### 



THE HILLMAN COMPANIES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 Successor
    

    

    
    PredecessorDecember 31,
    

    

    
    December 31,2004
    

    

    
    2003(as restated,
    

    

    
    (as restated,see Note 2)
    

    

    
    see Note 2)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,613
    

    

    
    $
    1,163Restricted investments
    
    
    75
    

    

    
    
    1,145Accounts receivable, net
    
    
    37,370
    

    

    
    
    33,151Inventories, net
    
    
    65,835
    

    

    
    
    65,837Deferred income taxes, net
    
    
    6,712
    

    

    
    
    7,535Other current assets
    
    
    2,820
    

    

    
    
    5,770Total current assets
    
    
    142,425
    

    

    
    
    114,601Property and equipment, net
    
    
    61,111
    

    

    
    
    64,846Goodwill
    
    
    242,267
    

    

    
    
    141,375Other intangibles, net
    
    
    167,842
    

    

    
    
    9,631Deferred income taxes, net
    
    
    
    

    

    
    
    10,954Restricted investments
    
    
    4,148
    

    

    
    
    5,932Deferred financing fees, net
    
    
    6,786
    

    

    
    
    5,638Investments
    
    
    432
    

    

    
    
    349Investment in trust common securities
    
    
    3,261
    

    

    
    
    Other assets
    
    
    627
    

    

    
    
    927Total assets
    
    $
    628,899
    

    

    
    $
    354,253LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    21,172
    

    

    
    $
    14,464Current portion of senior term loans
    
    
    2,175
    

    

    
    
    9,268Current portion of capitalized lease obligations
    
    
    43
    

    

    
    
    54Accrued expenses:Salaries and wages
    
    
    4,299
    

    

    
    
    4,875Pricing allowances
    
    
    9,681
    

    

    
    
    8,242Income and other taxes
    
    
    1,520
    

    

    
    
    1,337Interest
    
    
    3,362
    

    

    
    
    1,257Deferred compensation
    
    
    75
    

    

    
    
    1,145Other accrued expenses
    
    
    12,407
    

    

    
    
    15,142Total current liabilities
    
    
    54,734
    

    

    
    
    55,784Long term senior term loans
    
    
    213,694
    

    

    
    
    51,290Bank revolving credit
    
    
    
    

    

    
    
    45,524Long term capitalized lease obligations
    
    
    99
    

    

    
    
    140Long term unsecured subordinated notes
    
    
    48,090
    

    

    
    
    Long term unsecured subordinated notes to related party
    
    
    
    

    

    
    
    44,062Junior subordinated debentures
    
    
    117,690
    

    

    
    
    Mandatorily redeemable preferred stock (Note 14)
    
    
    62,232
    

    

    
    
    Management purchased preferred options
    
    
    3,577
    

    

    
    
    Deferred compensation
    
    
    4,148
    

    

    
    
    5,932Deferred income taxes, net
    
    
    33,221
    

    

    
    
    Other non-current liabilities
    
    
    9,770
    

    

    
    
    2,617Total liabilities
    
    
    547,255
    

    

    
    
    205,349
 32




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 Successor
    
    

    
    PredecessorDecember 31,
    
    
    
    December 31,2004
    
    
    
    2003(as restated,
    
    
    
    (as restated,see Note 2)
    
    
    
    see Note 2)LIABILITIES AND STOCKHOLDERS EQUITY (CONTINUED)Common stock with put options:Class A Common stock, $.01 par, 23,141 shares authorized,
407.6 issued and outstanding at December 31, 2004
    
    
    407
    
    
    
    
    Class B Common stock, $.01 par, 2,500 shares authorized,
1,000 issued and outstanding at December 31, 2004
    
    
    1,000
    
    
    
    
    Guaranteed preferred beneficial interests in the
Companys junior subordinated debentures
    
    
    
    
    
    
    
    102,364Commitments and contingenciesStockholders equity:Preferred Stock:Preferred stock, $.01 par, 1,000,000 shares authorized,
none outstanding at December 31, 2003
    
    
    
    
    
    
    
    Class A Preferred stock, $.01 par, 238,889 shares authorized,
82,104.8 issued and outstanding at December 31, 2004
    
    
    1
    
    
    
    
    Common Stock:Common stock, $.01 par, 20,000,000 shares authorized,
7,118,484 issued and outstanding at December 31, 2003
    
    
    
    
    
    
    
    71Class A Common stock, $.01 par, 23,141 shares authorized,
5,805.3 issued and outstanding at December 31, 2004
    
    
    
    
    
    
    
    Class C Common stock, $.01 par, 30,109 shares authorized,
2,787.1 issued and outstanding at December 31, 2004
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    80,330
    
    
    
    
    52,231Accumulated deficit
    
    
    
    
    
    
    
    (5,709
    )Accumulated other comprehensive loss
    
    
    (94
    )
    
    
    
    (53
    )Total stockholders equity
    
    
    80,237
    
    
    
    
    46,540Total liabilities and stockholders equity
    
    $
    628,899
    
    
    
    $
    354,253
  33




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (dollars in thousands)
 Successor
    
    
    
    PredecessorNine months
    
    
    
    Three months
    
    
    Year
    
    
    Yearended
    
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002(as restated,
    
    
    
    (as restated,
    
    
    (as restated,
    
    
    (as restated,see Note 2)
    
    
    
    see Note 2)
    
    
    see Note 2)
    
    
    see Note 2)Net sales
    
    $
    273,374
    
    
    
    $
    78,190
    
    
    $
    317,671
    
    
    
    286,599Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    122,972
    
    
    
    
    35,383
    
    
    
    143,355
    
    
    
    126,096Gross profit
    
    
    150,402
    
    
    
    
    42,807
    
    
    
    174,316
    
    
    
    160,503Operating expenses:Selling, general and administrative expenses
    
    
    99,266
    
    
    
    
    30,996
    
    
    
    120,758
    
    
    
    111,660Non-recurring expense (Note 17)
    
    
    
    
    
    
    
    30,707
    
    
    
    
    
    
    
    Stock compensation expense
    
    
    272
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    11,388
    
    
    
    
    3,799
    
    
    
    14,399
    
    
    
    12,004Amortization
    
    
    5,427
    
    
    
    
    321
    
    
    
    1,437
    
    
    
    1,485Management fee to related party
    
    
    805
    
    
    
    
    524
    
    
    
    1,800
    
    
    
    1,800Total operating expenses
    
    
    117,158
    
    
    
    
    66,347
    
    
    
    138,394
    
    
    
    126,949Gain on termination of defined benefit
pension plan (Note 16)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,231Other income (expense), net
    
    
    417
    
    
    
    
    (140
    )
    
    
    681
    
    
    
    320Income (loss) from operations
    
    
    33,661
    
    
    
    
    (23,680
    )
    
    
    36,603
    
    
    
    35,105Interest expense, net
    
    
    13,698
    
    
    
    
    3,841
    
    
    
    15,405
    
    
    
    12,982Interest expense on mandatorily redeemable
preferred stock and management purchased
preferred options
    
    
    5,458
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense on junior subordinated notes
    
    
    9,457
    
    
    
    
    3,152
    
    
    
    
    
    
    
    Investment income on trust common securities
    
    
    (284
    )
    
    
    
    (94
    )Distributions on guaranteed preferred
beneficial interests
    
    
    
    
    
    
    
    
    
    
    
    12,231
    
    
    
    12,231Write-down of note receivable (Note 5)
    
    
    
    
    
    
    
    
    
    
    
    11,258
    
    
    
    Income (loss) before income taxes
    
    
    5,332
    
    
    
    
    (30,579
    )
    
    
    (2,291
    )
    
    
    9,892Income tax provision (benefit)
    
    
    4,553
    
    
    
    
    (10,213
    )
    
    
    3,418
    
    
    
    4,649Net income (loss)
    
    $
    779
    
    
    
    $
    (20,366
    )
    
    $
    (5,709
    )
    
    $
    5,243
  34




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 Successor
    
    
    
    PredecessorNine months
    
    
    
    Three months
    
    
    Year
    
    
    Yearended
    
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002(as restated,
    
    
    
    (as restated,
    
    
    (as restated,
    
    
    (as restated,see Note 2)
    
    
    
    see Note 2)
    
    
    see Note 2)
    
    
    see Note 2)Cash flows from operating activities:Net income (loss)
    
    $
    779
    
    
    
    $
    (20,366
    )
    
    $
    (5,709
    )
    
    $
    5,243Adjustments to reconcile net income (loss) to
net cash
provided by operating activities:Depreciation and amortization
    
    
    16,815
    
    
    
    
    4,120
    
    
    
    15,836
    
    
    
    13,489Dispositions of property and equipment
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    1,269Deferred income tax (benefit)
    
    
    4,040
    
    
    
    
    (11,608
    )
    
    
    1,971
    
    
    
    5,405PIK interest on unsecured subordinated notes
    
    
    590
    
    
    
    
    506
    
    
    
    1,954
    
    
    
    1,868Interest on mandatorily redeemable
preferred stock
    
    
    5,458
    
    
    
    
    
    
    
    
    
    
    
    
    Stock option grant
    
    
    
    
    
    
    
    24,353
    
    
    
    
    
    
    
    Write-down of note receivable
    
    
    
    
    
    
    
    
    
    
    
    11,258
    
    
    
    Prepayment penalty
    
    
    (1,097
    )
    
    
    
    
    
    
    
    
    
    
    
    Changes in operating items, net of effects
of
acquisitions:Decrease (increase) in accounts
receivable, net
    
    
    380
    
    
    
    
    (4,599
    )
    
    
    (2,758
    )
    
    
    1,081Decrease (increase) in inventories, net
    
    
    1,123
    
    
    
    
    (1,121
    )
    
    
    (5,404
    )
    
    
    (1,262
    )Decrease (increase) in other assets
    
    
    1,786
    
    
    
    
    1,464
    
    
    
    (1,236
    )
    
    
    2,484Increase (decrease) in accounts payable
    
    
    95
    
    
    
    
    6,613
    
    
    
    (3,494
    )
    
    
    1,911(Decrease) increase in other accrued
liabilities
    
    
    (2,380
    )
    
    
    
    670
    
    
    
    (2,129
    )
    
    
    264Other items, net
    
    
    955
    
    
    
    
    6
    
    
    
    1,925
    
    
    
    (1,114
    )Net cash provided by operating activities
    
    
    28,619
    
    
    
    
    38
    
    
    
    12,214
    
    
    
    30,638Cash flows from investing activities:Proceeds from sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    104Payment for acquired businesses, net of cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,592
    )Capital expenditures
    
    
    (9,404
    )
    
    
    
    (2,586
    )
    
    
    (11,479
    )
    
    
    (23,234
    )Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (231
    )Other, net
    
    
    
    
    
    
    
    (23
    )
    
    
    (143
    )
    
    
    1,062Net cash used for investing activities
    
    
    (9,404
    )
    
    
    
    (2,609
    )
    
    
    (11,602
    )
    
    
    (43,891
    )Cash flows from financing activities:Borrowings of senior term loans
    
    
    217,500
    
    
    
    
    
    
    
    
    
    
    
    
    20,220Repayments of senior term loans
    
    
    (62,189
    )
    
    
    
    
    
    
    
    (9,269
    )
    
    
    (4,518
    )Borrowings of revolving credit loans
    
    
    4,728
    
    
    
    
    2,680
    
    
    
    10,533
    
    
    
    Repayments of revolving credit loans
    
    
    (52,932
    )
    
    
    
    
    
    
    
    
    
    
    
    (1,158
    )Borrowings of unsecured subordinated notes
    
    
    47,500
    
    
    
    
    
    
    
    
    
    
    
    
    Repayments of unsecured subordinated notes
    
    
    (44,569
    )
    
    
    
    
    
    
    
    
    
    
    
    Principal payments under capitalized lease
obligations
    
    
    (38
    )
    
    
    
    (14
    )
    
    
    (55
    )
    
    
    (73
    )Payment on STS preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174
    )Financing fees, net
    
    
    (7,592
    )
    
    
    
    
    
    
    
    (1,447
    )
    
    
    (1,387
    )Purchase of predecessor common stock
    
    
    (239,077
    )
    
    
    
    
    
    
    
    
    
    
    
    Receipt of successor equity proceeds
    
    
    147,980
    
    
    
    
    
    
    
    
    
    
    
    
    Merger transaction expenses
    
    
    (2,171
    )
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used for) financing
activities
    
    
    9,140
    
    
    
    
    2,666
    
    
    
    (238
    )
    
    
    12,910Net increase (decrease) in cash and cash
equivalents
    
    
    28,355
    
    
    
    
    95
    
    
    
    374
    
    
    
    (343
    )Cash and cash equivalents at beginning of period
    
    
    1,258
    
    
    
    
    1,163
    
    
    
    789
    
    
    
    1,132Cash and cash equivalents at end of period
    
    $
    29,613
    
    
    
    $
    1,258
    
    
    $
    1,163
    
    
    $
    789
  35




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(dollars in thousands)
 AccumulatedPredecessor
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Class A
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    

Successor
Common Stock
    
    
    Paid-in
    
    
    Preferred
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersStock
    
    

Class
A
    
    

Class
C
    
    

Capital
    
    

Stock
    
    

Deficit
    
    

Income
    
    

EquityBalance at December 31, 2001 - Predecessor
(as previously reported)
    
    $
    71
    
    
    $
    
    
    
    $
    
    
    
    $
    56,252
    
    
    $
    
    
    
    $
    (2,909
    )
    
    $
    
    
    
    $
    53,414Effect of restatement (see note 2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    781
    
    
    
    19
    
    
    
    800Balance at December 31, 2001 - Predecessor (as restated)
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    56,252
    
    
    
    
    
    
    
    (2,128
    )
    
    
    19
    
    
    
    54,214Net Income (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,243
    
    
    
    
    
    
    
    5,243Purchase and retirement of 20,000 shares of common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (231
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (231
    )Dividends to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,790
    )
    
    
    
    
    
    
    (3,115
    )
    
    
    
    
    
    
    (6,905
    )Net unrealized gains on investments (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Change in cumulative foreign translation adjustment (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Balance at December 31, 2002- Predecessor (as restated)
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    52,231
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    52,365Net Loss (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,709
    )
    
    
    
    
    
    
    (5,709
    )Net unrealized gains on investments (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    19Change in cumulative foreign translation adjustment (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135
    )
    
    
    (135
    )Balance at December 31, 2003- Predecessor (as restated)
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    52,231
    
    
    
    
    
    
    
    (5,709
    )
    
    
    (53
    )
    
    
    46,540Net Loss (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,366
    )
    
    
    
    
    
    
    (20,366
    )Stock option grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,353
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,353Net unrealized gains on investments (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    16Change in cumulative foreign translation adjustment (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    10Balance at
March 31, 2004  Predecessor (as restated)
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    76,584
    
    
    
    
    
    
    
    (26,075
    )
    
    
    (27
    )
    
    
    50,553Close Predecessors stockholders equity at merger date
    
    
    (71
    )
    
    
    
    
    
    
    
    
    
    
    (76,584
    )
    
    
    
    
    
    
    26,075
    
    
    
    27
    
    
    
    (50,553
    )Issuance of 5,805.3 shares of Class A Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,443Issuance of 2,787.1 shares of Class C Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,787
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,787Issuance of 82,104.8 shares of The Hillman Companies,
Inc. Class A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,642
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    78,643Balance at March 31, 2004 - Successor (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86,872
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    86,873Net Income (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    779
    
    
    
    
    
    
    
    779Dividends to shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,542
    )
    
    
    
    
    
    
    (779
    )
    
    
    
    
    
    
    (7,321
    )Net unrealized gains on investments (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    34Change in cumulative foreign translation adjustment (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110
    )
    
    
    (110
    )Change in derivative security value (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    (18
    )Balance at December 31, 2004 - Successor (as restated)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    80,330
    
    
    $
    1
    
    
    $
    
    
    
    $
    (94
    )
    
    $
    80,237
 
 (1)
    
    The net unrealized gains on investment, cumulative foreign translation adjustment and change in
derivative security value are net of taxes and represent the only items of other comprehensive income.SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 36




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 1. Basis of Presentation:
      Accounts receivable
    
    $
    37,750Inventory
    
    
    66,958Property and equipment
    
    
    63,264Goodwill
    
    
    242,267Intangible assets
    
    
    173,269Other assets
    
    
    8,923Total assets acquired
    
    
    592,431Less:Liabilities assumed
    
    
    43,576Deferred taxes, net
    
    
    21,618Junior subordinated debentures
    
    
    117,986Total assumed liabilities
    
    
    183,180Total purchase price
    
    $
    409,251
 37




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 1. Basis of Presentation (continued):
   2004
    
    2003
    
    2002As Restated
    
    As Restated
    
    As RestatedNet sales
    
    $
    351,564
    
    
    $
    317,671
    
    
    $
    303,918Net loss
    
    
    22,277
    
    
    
    16,022
    
    
    
    4,733
  Nature of Operations:
  2. Restatement of Financial Statements:
   38




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
 Successor
    
    
    
    PredecessorNine months
    
    
    
    Three months
    
    
    Year
    
    
    Yearended
    
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002Net income (loss) as originally reported
    
    $
    627
    
    
    
    $
    (19,316
    )
    
    $
    (4,647
    )
    
    $
    6,103Revenue recognition, before tax (1)
    
    
    303
    
    
    
    
    (461
    )
    
    
    (355
    )
    
    
    (111
    )Other matters, before tax:Capitalized interest (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Outstanding checks (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Volume rebates (4)
    
    
    177
    
    
    
    
    51
    
    
    
    
    
    
    
    Trust de-consolidation (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock option grant (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Insurance demutualization (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax effects on the above
    
    
    (196
    )
    
    
    
    168
    
    
    
    145
    
    
    
    (54
    )Other adjustments relating to
income tax matters:Interim tax provisions (8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax rate (9)
    
    
    48
    
    
    
    
    (340
    )
    
    
    6
    
    
    
    149Axxess intangible amortization and
transaction fees (10)
    
    
    (85
    )
    
    
    
    104
    
    
    
    412
    
    
    
    409Severance payments (11)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (438
    )1998 Stock Option exercises (12)
    
    
    (252
    )
    
    
    
    (2,001
    )
    
    
    
    
    
    
    2001 Stock Option exercises (13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Indefinite lived intangibles (14)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Valuation allowance adjustments (15)
    
    
    712
    
    
    
    
    982
    
    
    
    (170
    )
    
    
    (173
    )Uncertain tax position adjustments (16)
    
    
    (395
    )
    
    
    
    406
    
    
    
    (967
    )
    
    
    (379
    )G-C Note (17)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (365
    )State income and franchise tax (18)
    
    
    (88
    )
    
    
    
    41
    
    
    
    117
    
    
    
    (272
    )Provision to return adjustments (19)
    
    
    (72
    )
    
    
    
    
    
    
    
    (161
    )
    
    
    240Other tax corrections (20)
    
    
    
    
    
    
    
    
    
    
    
    (89
    )
    
    
    (111
    )Total adjustments
    
    
    152
    
    
    
    
    (1,050
    )
    
    
    (1,062
    )
    
    
    (860
    )Net income (loss) as restated
    
    $
    779
    
    
    
    $
    (20,366
    )
    
    $
    (5,709
    )
    
    $
    5,243
 
    39




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
      40




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
        41




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
         42




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
        43




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
  Consolidated Statement of OperationsAdjustmentsAsPreviously
    
    Revenue
    
    IncomeReported
    
    Recognition
    
    Taxes
    
    Other (1)
    
    As RestatedFor the nine months ended December 31, 2004:Net sales
    
    $
    272,640
    
    
    $
    557
    
    
    $
    
    
    
    $
    177
    
    
    $
    273,374Cost of sales
    
    
    122,718
    
    
    
    254
    
    
    
    
    
    
    
    
    
    
    
    122,972Gross profit
    
    
    149,922
    
    
    
    303
    
    
    
    
    
    
    
    177
    
    
    
    150,402Selling, general and administrative
    
    
    99,096
    
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    99,266Income from operations
    
    
    33,351
    
    
    
    303
    
    
    
    (170
    )
    
    
    177
    
    
    
    33,661Interest expense on junior
subordinated debentures
    
    
    9,173
    
    
    
    
    
    
    
    
    
    
    
    284
    
    
    
    9,457Investment income on trust
common securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284
    )
    
    
    (284
    )Income before income taxes
    
    
    5,022
    
    
    
    303
    
    
    
    (170
    )
    
    
    177
    
    
    
    5,332Income tax provision
    
    
    4,395
    
    
    
    124
    
    
    
    (38
    )
    
    
    72
    
    
    
    4,553Net income
    
    
    627
    
    
    
    179
    
    
    
    (132
    )
    
    
    105
    
    
    
    779
 Consolidated Statement of OperationsAdjustmentsAsPreviously
    
    Revenue
    
    IncomeReported
    
    Recognition
    
    Taxes
    
    Other (1)
    
    As RestatedFor the three months ended March 31, 2004:Net sales
    
    $
    78,997
    
    
    $
    (858
    )
    
    $
    
    
    
    $
    51
    
    
    $
    78,190Cost of sales
    
    
    35,780
    
    
    
    (397
    )
    
    
    
    
    
    
    
    
    
    
    35,383Gross profit
    
    
    43,217
    
    
    
    (461
    )
    
    
    
    
    
    
    51
    
    
    
    42,807Selling, general and administrative
    
    
    30,999
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    30,996Loss from operations
    
    
    (23,273
    )
    
    
    (461
    )
    
    
    3
    
    
    
    51
    
    
    
    (23,680
    )Interest expense on junior
subordinated debentures
    
    
    3,058
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    3,152Investment income on trust
common securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )
    
    
    (94
    )Loss before income taxes
    
    
    (30,172
    )
    
    
    (461
    )
    
    
    3
    
    
    
    51
    
    
    
    (30,579
    )Income tax benefit
    
    
    (10,856
    )
    
    
    (189
    )
    
    
    811
    
    
    
    21
    
    
    
    (10,213
    )Net loss
    
    
    (19,316
    )
    
    
    (272
    )
    
    
    (808
    )
    
    
    30
    
    
    
    (20,366
    )
 44




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
 Consolidated Statement of OperationsAdjustmentsAs Previously
    
    Revenue
    
    Income
    
    AsReported
    
    Recognition
    
    Taxes
    
    RestatedFor the year ended December 31, 2003:Net sales
    
    $
    318,441
    
    
    $
    (770
    )
    
    $
    
    
    
    $
    317,671Cost of sales
    
    
    143,770
    
    
    
    (415
    )
    
    
    
    
    
    
    143,355Gross profit
    
    
    174,671
    
    
    
    (355
    )
    
    
    
    
    
    
    174,316Selling, general and administrative
    
    
    120,451
    
    
    
    
    
    
    
    307
    
    
    
    120,758Income from operations
    
    
    37,265
    
    
    
    (355
    )
    
    
    (307
    )
    
    
    36,603Loss before income taxes
    
    
    (1,629
    )
    
    
    (355
    )
    
    
    (307
    )
    
    
    (2,291
    )Income tax provision
    
    
    3,018
    
    
    
    (145
    )
    
    
    545
    
    
    
    3,418Net loss
    
    
    (4,647
    )
    
    
    (210
    )
    
    
    (852
    )
    
    
    (5,709
    )
 Consolidated Statement of OperationsAdjustmentsAs Previously
    
    Revenue
    
    Income
    
    Capitalized
    
    AsReported
    
    Recognition
    
    Taxes
    
    Interest
    
    RestatedFor the year ended December 31, 2002:Net sales
    
    $
    286,788
    
    
    $
    (189
    )
    
    $
    
    
    
    $
    
    
    
    $
    286,599Cost of sales
    
    
    126,174
    
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    126,096Gross profit
    
    
    160,614
    
    
    
    (111
    )
    
    
    
    
    
    
    
    
    
    
    160,503Selling, general and administrative
    
    
    111,436
    
    
    
    
    
    
    
    224
    
    
    
    
    
    
    
    111,660Income from operations
    
    
    35,440
    
    
    
    (111
    )
    
    
    (224
    )
    
    
    
    
    
    
    35,105Interest expense, net
    
    
    13,227
    
    
    
    
    
    
    
    
    
    
    
    (245
    )
    
    
    12,982Income before income taxes
    
    
    9,982
    
    
    
    (111
    )
    
    
    (224
    )
    
    
    245
    
    
    
    9,892Income tax provision
    
    
    3,879
    
    
    
    (46
    )
    
    
    716
    
    
    
    100
    
    
    
    4,649Net income
    
    
    6,103
    
    
    
    (65
    )
    
    
    (940
    )
    
    
    145
    
    
    
    5,243
 Consolidated Balance SheetAs
    
    AdjustmentsPreviously
    
    Revenue
    
    Income
    
    
    
    
    
    
    
    
    
    AsReported
    
    Recognition
    
    Taxes
    
    Other (1)
    
    Dividends
    
    RestatedAs of December 31, 2004:Cash and cash equivalents
    
    $
    33,032
    
    
    $
    
    
    
    $
    
    
    
    $
    (3,419
    )
    
    $
    
    
    
    $
    29,613Accounts receivable, net
    
    
    39,903
    
    
    
    (2,533
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,370Inventories, net
    
    
    64,627
    
    
    
    1,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,835Deferred tax assets- current
    
    
    6,520
    
    
    
    613
    
    
    
    (328
    )
    
    
    (93
    )
    
    
    
    
    
    
    6,712Goodwill
    
    
    219,051
    
    
    
    974
    
    
    
    22,499
    
    
    
    (257
    )
    
    
    
    
    
    
    242,267Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    432
    
    
    
    
    
    
    
    432Investment in trust common
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,261
    
    
    
    
    
    
    
    3,261Accounts payable
    
    
    24,367
    
    
    
    
    
    
    
    
    
    
    
    (3,195
    )
    
    
    
    
    
    
    21,172Accrued salaries and wages
    
    
    4,523
    
    
    
    
    
    
    
    
    
    
    
    (224
    )
    
    
    
    
    
    
    4,299Accrued pricing allowances
    
    
    9,909
    
    
    
    
    
    
    
    
    
    
    
    (228
    )
    
    
    
    
    
    
    9,681Accrued income and other taxes
    
    
    2,137
    
    
    
    
    
    
    
    (617
    )
    
    
    
    
    
    
    
    
    
    
    1,520Other accrued expenses
    
    
    11,724
    
    
    
    27
    
    
    
    656
    
    
    
    
    
    
    
    
    
    
    
    12,407Junior subordinated debentures
    
    
    114,429
    
    
    
    
    
    
    
    
    
    
    
    3,261
    
    
    
    
    
    
    
    117,690Deferred tax liabilities-
non current
    
    
    10,730
    
    
    
    56
    
    
    
    22,264
    
    
    
    171
    
    
    
    
    
    
    
    33,221Additional paid-in capital
    
    
    81,452
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,122
    )
    
    
    80,330Accumulated deficit
    
    
    (1,274
    )
    
    
    179
    
    
    
    (132
    )
    
    
    105
    
    
    
    1,122
    
    
    
    Accumulated other comprehensive loss
    
    
    (128
    )
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    (94
    )
 45




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
 Consolidated Balance SheetAs
    
    AdjustmentsPreviously
    
    Revenue
    
    Income
    
    
    
    
    
    
    
    
    
    AsReported
    
    Recognition
    
    Taxes
    
    Other (1)
    
    Dividends(2)
    
    RestatedAs of
December 31, 2003:Cash and cash equivalents
    
    $
    1,528
    
    
    $
    
    
    
    $
    
    
    
    $
    (365
    )
    
    $
    
    
    
    $
    1,163Accounts receivable, net
    
    
    35,383
    
    
    
    (2,232
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,151Inventories, net
    
    
    64,772
    
    
    
    1,065
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,837Deferred tax assets  current
    
    
    5,283
    
    
    
    548
    
    
    
    1,804
    
    
    
    (100
    )
    
    
    
    
    
    
    7,535Deferred tax assets  non current
    
    
    20,498
    
    
    
    (56
    )
    
    
    (9,350
    )
    
    
    (138
    )
    
    
    
    
    
    
    10,954Property and equipment, net
    
    
    64,601
    
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    64,846Goodwill
    
    
    134,725
    
    
    
    903
    
    
    
    5,747
    
    
    
    
    
    
    
    
    
    
    
    141,375Investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    349
    
    
    
    
    
    
    
    349Accounts payable
    
    
    16,836
    
    
    
    
    
    
    
    
    
    
    
    (2,372
    )
    
    
    
    
    
    
    14,464Accrued salaries and wages
    
    
    4,897
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    4,875Accrued income and other taxes
    
    
    1,966
    
    
    
    
    
    
    
    (629
    )
    
    
    
    
    
    
    
    
    
    
    1,337Other accrued expenses
    
    
    14,664
    
    
    
    27
    
    
    
    451
    
    
    
    
    
    
    
    
    
    
    
    15,142Bank revolving credit
    
    
    43,495
    
    
    
    
    
    
    
    
    
    
    
    2,029
    
    
    
    
    
    
    
    45,524Additional paid-in capital
    
    
    52,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79
    )
    
    
    52,231Accumulated deficit (3)
    
    
    (4,647
    )
    
    
    201
    
    
    
    (1,621
    )
    
    
    279
    
    
    
    79
    
    
    
    (5,709
    )Accumulated other comprehensive loss (4)
    
    
    (130
    )
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    (53
    )
 
 (1)
    
    Other adjustments include the cash overdraft, gross up of the junior subordinated
debentures, the volume rebate, insurance demutualization and capitalized interest. See
discussion above for details.(2)
    
    Reflects adjustments to dividends for the year ended December 31, 2002 which are reflected in
the proper period in the consolidated statement of changes in stockholders equity.(3)
    
    Reflects cumulative effect of the revenue recognition, income tax restatements and other
adjustments of $411, ($769) and $279, respectively, as of December 31, 2002.(4)
    
    Reflects the cumulative effect of other adjustments of $58 as of December 31, 2002. Consolidated Statement of Cash FlowsAs Previously
    
    
    AsReported
    
    
    RestatedFor the nine months ended
December 31, 2004:Net cash provided by operating activities
    
    $
    6,028
    
    
    $
    28,619Net cash used for investing activities
    
    
    (9,404
    )
    
    
    (9,404
    )Net cash provided by financing activities
    
    
    33,493
    
    
    
    9,140Net increase in cash and equivalents
    
    
    30,117
    
    
    
    28,355Cash and cash equivalents at beginning of period
    
    
    2,915
    
    
    
    1,258Cash and cash equivalents at end of period
    
    $
    33,032
    
    
    $
    29,613
 46




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 2. Restatement of Financial Statements (continued):
 Consolidated Statement of Cash FlowsAs Previously
    
    
    AsReported
    
    
    RestatedFor the three months ended
March 31, 2004:Net cash (used for) provided by operating activities
    
    $
    (699
    )
    
    $
    38Net cash used for investing activities
    
    
    (2,609
    )
    
    
    (2,609
    )Net cash provided by financing activities
    
    
    4,695
    
    
    
    2,666Net increase in cash and equivalents
    
    
    1,387
    
    
    
    95Cash and cash equivalents at beginning of period
    
    
    1,528
    
    
    
    1,163Cash and cash equivalents at end of period
    
    $
    2,915
    
    
    $
    1,258
 Consolidated Statement of Cash FlowsAs Previously
    
    
    AsReported
    
    
    RestatedFor the year ended
December 31, 2003:Net cash provided by operating activities
    
    $
    12,170
    
    
    $
    12,214Net cash used for investing activities
    
    
    (11,602
    )
    
    
    (11,602
    )Net cash used for financing activities
    
    
    (1,808
    )
    
    
    (238
    )Net (decrease) increase in cash and equivalents
    
    
    (1,240
    )
    
    
    374Cash and cash equivalents at beginning of period
    
    
    2,768
    
    
    
    789Cash and cash equivalents at end of period
    
    $
    1,528
    
    
    $
    1,163
 Consolidated Statement of Cash FlowsAs Previously
    
    
    AsReported
    
    
    RestatedFor the year ended
December 31, 2002:Net cash provided by operating activities
    
    $
    29,807
    
    
    $
    30,638Net cash used for investing activities
    
    
    (43,646
    )
    
    
    (43,891
    )Net cash provided by financing activities
    
    
    14,548
    
    
    
    12,910Net increase (decrease) in cash and equivalents
    
    
    709
    
    
    
    (343
    )Cash and cash equivalents at beginning of period
    
    
    2,059
    
    
    
    1,132Cash and cash equivalents at end of period
    
    $
    2,768
    
    
    $
    789
 47




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 3. Summary of Significant Accounting Policies:
 Cash Equivalents :
  Restricted Investments :
  Investments:
  Accounts Receivable and Allowance for Doubtful Accounts
  Inventories :
  Property and Equipment :
  Depreciation :
  48




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 3. Summary of Significant Accounting Policies (continued):
 Goodwill and Other Intangible Assets :
  Long-Lived Assets :
  Income Taxes :
  Retirement Benefits :
  Revenue Recognition :
    Shipping and Handling :
  49




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 3. Summary of Significant Accounting Policies (continued):
  Research and Development :
  Stock Based Compensation
  Fair Value of Financial Instruments :
 
 Translation of Foreign Currencies :
  Comprehensive Income (Loss):
  Successor
    
    
    Predecessor
    
    
    Predecessor
    
    
    PredecessorNine months
    
    
    Three months
    
    
    Year
    
    
    Yearended
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    2003
    
    
    2002As Restated
    
    
    As Restated
    
    
    As Restated
    
    
    As RestatedNet income (loss)
    
    $
    779
    
    
    $
    (20,366
    )
    
    $
    (5,709
    )
    
    $
    5,243Unrealized gains on
investments, net
    
    
    34
    
    
    
    16
    
    
    
    19
    
    
    
    39Change in derivative
security value, net
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    Foreign currency
translation adjustment,
net
    
    
    (110
    )
    
    
    10
    
    
    
    (135
    )
    
    
    5Comprehensive income (loss)
    
    $
    685
    
    
    $
    (20,340
    )
    
    $
    (5,825
    )
    
    $
    5,287
 50




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 3. Summary of Significant Accounting Policies (continued):
 Use of Estimates in the Preparation of Financial Statements:
  Reclassifications:
  4. Recent Accounting Pronouncements:
   5. Acquisitions and Divestitures:
   51




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 5. Acquisitions and Divestitures (continued):
 Accounts Receivable
    
    $
    3,658Inventory
    
    
    7,323Property and equipment
    
    
    2,490Other Assets
    
    
    3,523Goodwill
    
    
    5,976Total assets acquired
    
    
    22,970Less assumed liabilities
    
    
    7,752Total purchase price
    
    $
    15,218
    Severence
    
    
    
    
    
    
    
    
    
    
    Fixed& Related
    
    
    Facility
    
    
    Inventory
    
    
    Asset
    
    
    CustomerCosts
    
    
    Lease
    
    
    Adjustments
    
    
    Disposal
    
    
    Conversions
    
    
    TotalAs of December 31, 2002
    
    $
    495
    
    
    $
    900
    
    
    $
    500
    
    
    $
    1,500
    
    
    $
    
    
    
    $
    3,395Additions (Reductions)
    
    
    256
    
    
    
    1,230
    
    
    
    832
    
    
    
    (429
    )
    
    
    1,581
    
    
    
    3,470Payments
    
    
    (217
    )
    
    
    
    
    
    
    (952
    )
    
    
    (1,071
    )
    
    
    (399
    )
    
    
    (2,639
    )As of December 31, 2003
    
    
    534
    
    
    
    2,130
    
    
    
    380
    
    
    
    
    
    
    
    1,182
    
    
    
    4,226Additions (Reductions)
    
    
    (22
    )
    
    
    93
    
    
    
    (35
    )
    
    
    
    
    
    
    (36
    )
    
    
    Payments
    
    
    (512
    )
    
    
    (602
    )
    
    
    (345
    )
    
    
    
    
    
    
    (1,042
    )
    
    
    (2,501
    )As of December 31, 2004
    
    $
    
    
    
    $
    1,621
    
    
    $
    
    
    
    $
    
    
    
    $
    104
    
    
    $
    1,725
  52




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 5. Acquisitions and Divestitures (continued):
    6. Related Party Transactions
    53




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 7. Income Taxes
  Successor
    
    
    
    PredecessorNine Months
    
    
    
    Three Months
    
    
    Year
    
    
    Yearended
    
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002As Restated
    
    
    
    As Restated
    
    
    As Restated
    
    
    As RestatedCurrent:Federal & State
    
    $
    50
    
    
    
    $
    1,427
    
    
    $
    78
    
    
    $
    482Foreign
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total current
    
    
    50
    
    
    
    
    1,427
    
    
    
    78
    
    
    
    482Deferred:Federal & State
    
    
    4,503
    
    
    
    
    (13,389
    )
    
    
    (600
    )
    
    
    4,167Foreign
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    
    4,503
    
    
    
    
    (13,389
    )
    
    
    (600
    )
    
    
    4,167Valuation allowance
    
    
    
    
    
    
    
    1,749
    
    
    
    3,940
    
    
    
    Provision (benefit)
for income taxes
    
    $
    4,553
    
    
    
    $
    (10,213
    )
    
    $
    3,418
    
    
    $
    4,649
      54




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 7. Income Taxes (continued):
   Successor
    
    
    
    PredecessorAs of December 31, 2004
    
    
    
    As of December 31, 2003Current
    
    
    Non-current
    
    
    
    Current
    
    
    Non-currentAs Restated
    
    
    As Restated
    
    
    
    As Restated
    
    
    As RestatedDeferred Tax Asset:Inventory
    
    $
    3,937
    
    
    $
    
    
    
    
    $
    4,863
    
    
    $
    Acquisition related/severance reserve
    
    
    1,532
    
    
    
    
    
    
    
    
    2,042
    
    
    
    Bad debt reserve
    
    
    804
    
    
    
    
    
    
    
    
    767
    
    
    
    Casualty loss reserve
    
    
    526
    
    
    
    689
    
    
    
    
    450
    
    
    
    609Deferred compensation
    
    
    30
    
    
    
    1,638
    
    
    
    
    451
    
    
    
    2,337Medical insurance reserve
    
    
    450
    
    
    
    
    
    
    
    
    552
    
    
    
    Revenue recognition  shipping terms
    
    
    561
    
    
    
    
    
    
    
    
    526
    
    
    
    Federal net operating loss
    
    
    
    
    
    
    30,293
    
    
    
    
    
    
    
    
    18,536State net operating loss
    
    
    
    
    
    
    4,228
    
    
    
    
    
    
    
    
    2,779Original issue discount amortization
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    
    Transaction costs
    
    
    
    
    
    
    2,206
    
    
    
    
    
    
    
    
    742Federal capital loss carryforwards
    
    
    
    
    
    
    12,636
    
    
    
    
    
    
    
    
    12,848All other items
    
    
    1,147
    
    
    
    524
    
    
    
    
    945
    
    
    
    817Gross deferred tax assets
    
    
    8,987
    
    
    
    52,664
    
    
    
    
    10,596
    
    
    
    38,668Valuation allowance for
deferred tax assets
    
    
    (2,275
    )
    
    
    (13,329
    )
    
    
    
    (3,061
    )
    
    
    (11,171
    )Net deferred tax assets
    
    $
    6,712
    
    
    $
    39,335
    
    
    
    $
    7,535
    
    
    $
    27,497Deferred Tax Liability:Intangible asset amortization
    
    $
    
    
    
    $
    66,583
    
    
    
    $
    
    
    
    $
    5,660Property and equipment
    
    
    
    
    
    
    5,803
    
    
    
    
    
    
    
    
    6,139Original issue discount amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,506All other items
    
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
    238Gross deferred tax liabilities
    
    $
    
    
    
    $
    72,556
    
    
    
    $
    
    
    
    $
    16,543
   55




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 7. Income Taxes (continued):
   Successor
    
    
    
    PredecessorNine Months
    
    
    
    Three Months
    
    
    Year
    
    
    Yearended
    
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002As Restated
    
    
    
    As Restated
    
    
    As Restated
    
    
    As RestatedStatutory federal income tax rate
    
    
    35.0
    %
    
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Impact of foreign losses for which a
current tax benefit is not available
    
    
    0.0
    %
    
    
    
    -0.4
    %
    
    
    -5.3
    %
    
    
    1.8
    %State and local income taxes, net of
U.S. federal income tax benefit
    
    
    9.8
    %
    
    
    
    4.9
    %
    
    
    4.1
    %
    
    
    5.2
    %Adjustment of reserve for uncertain tax
positions and other items
    
    
    0.7
    %
    
    
    
    -4.6
    %
    
    
    -4.0
    %
    
    
    4.6
    %Permanent differences for interest expense
on mandatorily redeemable preferred stock
    
    
    35.8
    %
    
    
    
    
    
    
    
    
    
    
    
    Other permanent differences
    
    
    4.1
    %
    
    
    
    4.2
    %
    
    
    -7.0
    %
    
    
    0.4
    %Effect of change in valuation allowances
    
    
    0.0
    %
    
    
    
    -5.7
    %
    
    
    -172.0
    %
    
    
    0.0
    %Effective income tax rate
    
    
    85.4
    %
    
    
    
    33.4
    %
    
    
    -149.2
    %
    
    
    47.0
    %
 8. Property and Equipment, net:
  EstimatedUseful Life
    
    
    Successor
    
    
    
    Predecessor(Years)
    
    
    2004
    
    
    
    2003Land
    
    
    
    
    
    $
    131
    
    
    
    $
    131Buildings
    
    
    27
    
    
    
    781
    
    
    
    
    884Leasehold improvements
    
    
    3-10
    
    
    
    2,095
    
    
    
    
    4,029Machinery and equipment
    
    
    3-10
    
    
    
    66,823
    
    
    
    
    75,104Furniture and fixtures
    
    
    3-5
    
    
    
    1,080
    
    
    
    
    1,511Construction in process
    
    
    
    
    
    
    445
    
    
    
    
    Property and equipment, gross
    
    
    
    
    
    
    71,355
    
    
    
    
    81,659Less: Accumulated depreciation
    
    
    
    
    
    
    10,244
    
    
    
    
    16,813Property and equipment, net
    
    
    
    
    
    $
    61,111
    
    
    
    $
    64,846
 56




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 9. Other Intangibles, net:
   Successor
    
    PredecessorEstimated
    
    
    
    
    
    Estimated2004
    
    
    Useful Life
    
    2003
    
    
    Useful LifeAmount
    
    
    (Years)
    
    Amount
    
    
    (Years)Customer Relationships
    
    $
    114,897
    
    
    23
    
    $
    
    
    
    Trademarks
    
    
    44,670
    
    
    Indefinite
    
    
    6,500
    
    
    25Patents
    
    
    7,960
    
    
    9
    
    
    6,700
    
    
    8Proprietary Software
    
    
    
    
    
    
    
    
    1,000
    
    
    8Non Compete Agreements
    
    
    5,742
    
    
    4
    
    
    1,250
    
    
    4-5Intangible assets, gross
    
    
    173,269
    
    
    
    
    
    15,450Less: Accumulated amortization
    
    
    5,427
    
    
    
    
    
    5,819Other Intangibles, net
    
    $
    167,842
    
    
    
    
    $
    9,631
  10. Long-Term Debt:
   57




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 10. Long-Term Debt (continued):
    Successor
    
    
    
    Predecessor2004
    
    
    
    2003Revolving Credit Agreement
    
    $
    
    
    
    
    $
    45,524Term Loan A
    
    
    
    
    
    
    
    24,003Term Loan B
    
    
    215,869
    
    
    
    
    36,555Subordinated Debt Issuance
    
    
    48,090
    
    
    
    
    44,062Capital Leases
    
    
    142
    
    
    
    
    194264,101
    
    
    
    
    150,338Less: amounts due in one year
    
    
    2,218
    
    
    
    
    9,322Long-term debt
    
    $
    261,883
    
    
    
    $
    141,016
  2005
    
    $
    2,2182006
    
    
    2,2192007
    
    
    2,2132008
    
    
    2,1922009
    
    
    2,1752010 and thereafter
    
    
    253,084
   58




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 11. Leases:
  Capital
    
    
    
    OperatingLeases
    
    
    
    Leases2005
    
    $
    53
    
    
    
    $
    6,7932006
    
    
    50
    
    
    
    
    4,9342007
    
    
    41
    
    
    
    
    3,0872008
    
    
    18
    
    
    
    
    2,6902009
    
    
    0
    
    
    
    
    2,327Later years
    
    
    0
    
    
    
    
    11,839Total minimum lease payments
    
    
    162
    
    
    
    $
    31,670Less amounts representing interest
    
    
    (20
    )Present value of net minimum lease payments
(including $43 currently payable)
    
    $
    142
  12. Deferred Compensation Plans:
    13. Guaranteed Preferred Beneficial Interest in the Companys Junior Subordinated Debentures:
  59




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 13. Guaranteed Preferred Beneficial Interest in the Companys Junior Subordinated Debentures (continued):
    Non-current assets  junior
subordinated debentures  preferred
    
    $
    114,429Non-current assets  junior
subordinated debentures  common
    
    
    3,261Total assets
    
    $
    117,690Non-current liabilities  trust
preferred securities
    
    $
    114,429Stockholders equity  trust common
securities
    
    
    3,261Total liabilities and
stockholders equity
    
    $
    117,690
    60




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 13. Guaranteed Preferred Beneficial Interest in the Companys Junior Subordinated Debentures (continued):
  14. Common and Preferred Stock:
 Common Stock issued in connection with the Merger Transaction:
      Preferred Stock issued in connection with the Merger Transaction:
  61




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 14. Common and Preferred Stock (continued):
    15. Stock Based Compensation:
 Stock Options:
   62




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 15. Stock Based Compensation (continued):
       63




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 16. Retirement Benefits:
    Successor
    
    
    Predecessor
    
    
    Predecessor
    
    
    PredecessorNine months
    
    
    Three months
    
    
    Year
    
    
    Yearended
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2004
    
    
    2003
    
    
    2002Defined contribution plans
    
    $
    1,759
    
    
    $
    406
    
    
    $
    827
    
    
    $
    1,905Defined benefit plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,231
    )Total
    
    $
    1,759
    
    
    $
    406
    
    
    $
    827
    
    
    $
    674
 17. NonRecurring Expense:
  64




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 18. Derivatives and Hedging:
    19. Commitments and Contingencies:
     65




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 20. Statements of Cash Flows:
  Successor
    
    
    
    PredecessorNine Months
    
    
    
    Three Months
    
    
    Year
    
    
    Yearended
    
    
    
    ended
    
    
    ended
    
    
    endedDecember 31,
    
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002Cash paid (refunded) during the period for :Interest on junior subordinated
debentures
    
    $
    9,457
    
    
    
    $
    3,152
    
    
    $
    
    
    
    $
    Distributions on guaranteed
preferred beneficial interests
    
    $
    
    
    
    
    $
    
    
    
    $
    12,231
    
    
    $
    12,231Interest
    
    $
    8,992
    
    
    
    $
    4,038
    
    
    $
    12,318
    
    
    $
    10,065Income taxes
    
    $
    22
    
    
    
    $
    48
    
    
    $
    338
    
    
    $
    (179
    )Cash investing activities:Fair value of assets acquired,
including goodwill
    
    $
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    21,592Non-cash operating activities:Stock option grant
    
    $
    
    
    
    
    $
    24,353
    
    
    $
    
    
    
    $
    Non-cash investing activities:Exchange of G-C interest for
subordinated G-C note (Note 5)
    
    $
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10,000Non-cash financing activities:Dividends on preferred stock (Note 14)
    
    $
    7,321
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 21. Quarterly Data (unaudited):
  2004
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    FirstNet sales (as previously reported)
    
    $
    82,541
    
    
    $
    97,463
    
    
    $
    92,636
    
    
    $
    78,997Net sales (as restated)
    
    
    83,022
    
    
    
    97,032
    
    
    
    93,320
    
    
    
    78,190Gross profit (as previously
reported)
    
    
    45,387
    
    
    
    53,505
    
    
    
    51,030
    
    
    
    43,217Gross profit (as restated)
    
    
    45,661
    
    
    
    53,288
    
    
    
    51,453
    
    
    
    42,807Net (loss)income (as previously
reported)
    
    
    (1,274
    )
    
    
    1,690
    
    
    
    211
    
    
    
    (19,316
    )Net income(loss) (as restated)
    
    
    3,077
    
    
    
    (1,172
    )
    
    
    (1,126
    )
    
    
    (20,366
    )
 2003
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    FirstNet sales (as previously reported)
    
    $
    78,134
    
    
    $
    86,055
    
    
    $
    84,263
    
    
    $
    69,989Net sales (as restated)
    
    
    78,260
    
    
    
    86,553
    
    
    
    84,087
    
    
    
    68,771Gross profit (as previously
reported)
    
    
    43,136
    
    
    
    47,237
    
    
    
    45,973
    
    
    
    38,325Gross profit (as restated)
    
    
    43,218
    
    
    
    47,507
    
    
    
    45,885
    
    
    
    37,706Net (loss)income (as previously
reported)
    
    
    (2,100
    )
    
    
    1,720
    
    
    
    1,578
    
    
    
    (5,845
    )Net (loss)income (as restated)
    
    
    (311
    )
    
    
    1,078
    
    
    
    1,259
    
    
    
    (7,735
    )
 66




---



##### 



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
 22. Concentration of Credit Risks:
   23. Segment Information:
  Successor
        
    
    PredecessorNine Months
    
    
    
    Three Months
    
    
    Year
    
    
    YearEnded
    
    
    
    Ended
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    
    March 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    
    2004
    
    
    2003
    
    
    2002(As restated)
    
    
    
    (As restated)
    
    
    (As restated)
    
    
    (As restated)Net salesUnited States
    
    $
    266,909
    
    
    
    $
    76,713
    
    
    $
    311,626
    
    
    $
    281,553Canada
    
    
    2,296
    
    
    
    
    314
    
    
    
    1,491
    
    
    
    1,217Mexico
    
    
    895
    
    
    
    
    116
    
    
    
    973
    
    
    
    725Other
    
    
    3,274
    
    
    
    
    1,047
    
    
    
    3,581
    
    
    
    3,104Consolidated net sales
    
    $
    273,374
    
    
    
    $
    78,190
    
    
    $
    317,671
    
    
    $
    286,599Plant & equipment:United States
    
    $
    61,055
    
    
    
    $
    63,372
    
    
    $
    64,795
    
    
    $
    68,546Canada
    
    
    56
    
    
    
    
    45
    
    
    
    51
    
    
    
    50Mexico
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated plant & equipment
    
    $
    61,111
    
    
    
    $
    63,417
    
    
    $
    64,846
    
    
    $
    68,596
 67




---



##### 



Financial Statement Schedule:
 Schedule II  VALUATION ACCOUNTS
  Deducted From Assets in Balance SheetAllowance forAllowance for
    
    
    Obsolete/Doubtful
    
    
    ExcessAccounts
    
    
    InventoryBalance, December 31, 2001 - Predecessor
    
    $
    537
    
    
    $
    3,927Additions charged to cost and expense
    
    
    277
    
    
    
    654Additions for DIY Acquisition
    
    
    100
    
    
    
    1,419Deductions due to:Others
    
    
    359
    (A)
    
    
    1,625
    (A)Ending Balance  December 31, 2002 - Predecessor
    
    
    555
    
    
    
    4,375Additions charged to cost and expense
    
    
    63
    
    
    
    697Deductions due to:Others
    
    
    94
    (A)
    
    
    1,883
    (A)Balance, December 31, 2003 - Predecessor
    
    
    524
    
    
    
    3,189Additions charged to cost and expense
    
    
    31
    
    
    
    500Deductions due to:Others
    
    
    31
    (A)
    
    
    215
    (A)Ending Balance  March 31, 2004 - Predecessor
    
    
    524
    
    
    
    3,474Additions charged to cost and expense
    
    
    198
    
    
    
    397Deductions due to:Others
    
    
    196
    (A)
    
    
    313
    (A)Ending Balance  December 31, 2004 - Successor
    
    $
    526
    
    
    $
    3,558
   68




---



##### 



Item 9  Changes in and Disagreements on Accounting and Financial Disclosure.
  Item 9A  Controls and Procedures
 Disclosure Controls and Procedures
     69




---



##### 




    
    Deferred income tax balances related to purchase business combinations were not
appropriately determined to ensure that deferred income tax liabilities and allocated
goodwill were fairly stated in accordance with GAAP;
    
    Quarterly income tax provisions were not appropriately determined utilizing an estimate
of the annual effective tax rate;
    
    The annual income tax provision was calculated using an inappropriate estimate of
federal and state statutory tax rates;
    
    Deferred tax balances were not accurate;
    
    The income tax provision did not appropriately reflect the tax effect of stock option
exercises in accordance with GAAP;
    
    Valuation allowances for state tax operating loss carryforwards were overstated based on
loss carryforward periods and estimates of future state taxable income;
    
    Changes in valuation allowances and reserves for uncertain tax positions established in
purchase business combinations were incorrectly charged to income tax expense instead of
goodwill;
    
    State income and franchise tax provisions and the related tax payable accounts were
incorrectly calculated;
    
    Certain book versus tax basis differences were based on estimates which were not updated
on a timely basis and certain temporary differences were incorrectly treated as permanent
items; and
    
    State franchise taxes were incorrectly included as a component of income tax expense
instead of operating expenses.
    70




---



##### 




    
    Investment in trust common securities;
    
    Capitalized interest on construction of Cincinnati distribution facility;
    
    Accrued pricing allowances; and,
    
    Insurance demutualization.
  Plan for Remediation of Material Weaknesses
  
    
    Increase our training and resources in the income tax accounting area;
    
    Expand review procedures and controls related to unique and specialized transactions;
    
    Increase review procedures and controls related to income tax accounting;
    
    Increase review procedures and controls related to sales and marketing initiatives as well as sales
contracts and agreements; and
    
    Review the disclosure committee process and increase the
frequency of such meetings from quarterly to monthly.
  Changes in Internal Control over Financial Reporting
  Item 9B  Other Information
  71




---



##### 



PART III
 Item 10  Directors and Executive Officers of the Registrant.
  Directors
 Principal Occupation; Five-YearName and Age
    
    Employment; Other DirectorshipsPeter M. Gotsch (41)
    
    Chairman of The Hillman Companies, Inc. since
March 31, 2004. Mr. Gotsch has been a member
of Code Hennessy & Simmons LLC since 1997 and
employed by its affiliates since 1989. Mr.
Gotsch presently serves on the Board of
Beacon Roofing Supply, Inc.Maurice P. Andrien, Jr. (64)
    
    From September 2001 to March 2004 Mr. Andrien
was Chairman of The Hillman Companies, Inc.,
Cincinnati, Ohio. From April 1999 to
November 2001 Mr. Andrien was President and
Chief Executive Officer of SunSource Inc.
From June 1998 to April 1999, Mr. Andrien was
President and Chief Operating Officer of
Unican Security Systems, Ltd., Montreal,
Quebec, Canada.Max W. Hillman (59)
    
    President and Chief Executive Officer of The
Hillman Companies, Inc., Chief Executive
Officer of The Hillman Group, Inc.,
Cincinnati, Ohio. From April 2000 to
November 2001, Mr. Hillman was Co-Chief
Executive Officer of The Hillman Group, Inc.
From 1999 to April 2000, Mr. Hillman held the
position of Chief Executive Officer of The
Hillman Group, Inc. From 1991 to 1999, Mr.
Hillman was a Group Vice President for
SunSource Inc.Andrew W. Code (47)
    
    Mr. Code has been a general partner of CHS
Management Limited Partnership (CHS
Management) and a general partner of Code Hennessy & Simmons Limited Partnership
(CHS) since August 1988. Mr. Code is on the
Board of SCP Pool Company.Mark A. Dolfato (33)
    
    Mr. Dolfato joined Code Hennessy & Simmons
LLC as an Associate in 2000 and has been a
Vice President since 2003.
 72




---



##### 



Principal Occupation; Five-YearName and Age
    
    Employment; Other DirectorshipsLarry Wilton (58)
    
    Mr. Wilton is the retired CEO of Compass Home Inc., a
position he held from 2004 to 2005. From 1998 to 2002
Mr. Wilton was CEO of Philips Lamps NAFTA. From 1996
to 1998 Mr. Wilton was Executive Vice President of
Philips Lighting United States and Canada. From 1999
to 2002 Mr. Wilton served on the Philips NV Lamps
Board of Directors.Shael J. Dolman (34)
    
    Mr. Dolman is a Portfolio Manager at the private
equity arm of OTPP. Mr. Dolman joined OTPP in 1997
after working in Commercial and Corporate Banking at
a Canadian chartered bank. Mr. Dolman received his
Bachelor of Arts from University of Western Ontario
and his MBA from McGill University. He is a director
of ALH Holding, Inc and Worldspan LP.
  73




---



##### 



Committees
    Code of Ethics
 
 74




---



##### 



Executive Officers
 Position with the Company;Name and Age
    
    Five-year Employment HistoryMax W. Hillman (59)
    
    President and Chief Executive Officer of The
Hillman Companies, Inc., Chief Executive Officer
of The Hillman Group, Inc., Cincinnati, Ohio. See
page 72 for five-year employment history. Mr.
Hillman is the brother of Richard P. Hillman.Richard P. Hillman (57)
    
    President of The Hillman Group, Inc., Cincinnati,
Ohio. Mr. Hillman has held such position since
1991. Mr. Hillman is the brother of Max W.
Hillman.James P. Waters (44)
    
    Chief Financial Officer and Secretary of The
Hillman Companies, Inc., Cincinnati, Ohio and Vice
President, Chief Financial Officer and Secretary
of The Hillman Group, Inc., Cincinnati, Ohio.
From September 1999 to November 2001, Mr. Waters
was Vice President and Chief Financial Officer of
The Hillman Group, Inc. From November 1997 to
September 1999, Mr. Waters was Vice President of
Finance for Curtis Industries, Inc., Mayfield
Heights, Ohio.George L. Heredia (47)
    
    Senior Vice President of Engraving for The Hillman
Group, Inc., Tempe, Arizona. Mr. Heredia has held
various executive positions since April 2000.
Prior to April 2000, Mr. Heredia has held the
positions of Senior Vice President of Marketing
and Senior Vice President of Operations for Axxess
Technologies, Inc.Terry R. Rowe (51)
    
    Senior Vice President of National Account Sales
for The Hillman Group, Inc., Cincinnati, Ohio.
Mr. Rowe has held such position with The Hillman
Group since 1992.
  75




---



##### 



Item 11  Executive Compensation
 Compensation of Executive Officers
  Long-Term CompensationOther
    
    
    Restricted
    
    
    SecuritiesAnnual
    
    
    Stock
    
    
    Underlying
    
    
    LTIP
    
    
    All OtherName and
    
    Annual Compensation
    
    
    Compen-
    
    
    Awards
    
    
    Options
    
    
    Payouts
    
    
    Compen-Principal Position
    
    Year
    
    
    Salary(1)
    
    
    Bonus(2)
    
    
    sation
    
    
    $
    
    
    #
    
    
    $
    
    
    sationMax W. Hillman
    
    
    2004
    
    
    
    397,500
    
    
    
    345,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353,353
    (4)President and CEO
    
    
    2003
    
    
    
    363,270
    
    
    
    162,164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,407
    (9)The Hillman Companies, Inc.
    
    
    2002
    
    
    
    362,500
    
    
    
    293,794
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,200
    (9)Richard P. Hillman
    
    
    2004
    
    
    
    260,885
    
    
    
    115,865
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,414
    (5)President
    
    
    2003
    
    
    
    244,813
    
    
    
    50,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,082
    (9)The Hillman Group, Inc.
    
    
    2002
    
    
    
    234,423
    
    
    
    105,990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,735
    (9)George L. Heredia
    
    
    2004
    
    
    
    220,846
    
    
    
    72,668
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,905
    (6)Senior VP of Engraving
    
    
    2003
    
    
    
    193,192
    
    
    
    235,724
    (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,899
    (9)The Hillman Group, Inc.
    
    
    2002
    
    
    
    193,992
    
    
    
    152,968
    (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,644
    (9)Terry R. Rowe
    
    
    2004
    
    
    
    202,846
    
    
    
    57,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,895
    (7)Senior VP National Accounts
    
    
    2003
    
    
    
    189,000
    
    
    
    54,858
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,654
    (9)The Hillman Group, Inc.
    
    
    2002
    
    
    
    182,000
    
    
    
    64,715
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,226
    (9)James P. Waters
    
    
    2004
    
    
    
    185,954
    
    
    
    73,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,145
    (8)CFO and Secretary
    
    
    2003
    
    
    
    170,838
    
    
    
    35,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,427
    (9)The Hillman Companies, Inc.
    
    
    2002
    
    
    
    163,269
    
    
    
    55,845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,419
    (9)
 
 (1)
    
    Represents base salary plus other types of miscellaneous compensation.(2)
    
    Represents earned bonus for services rendered in each year.(3)
    
    Includes special performance and retention bonuses of $186,000 and $85,000 earned
in 2003 and 2002, respectively, related to the acquisition of Axxess Technologies, Inc.(4)
    
    Represents a discretionary management bonus paid in connection with the CHS
acquisition of $345,159, 401(k) employer matching contributions of $5,694 and deferred
compensation matching contributions of $2,500.(5)
    
    Represents a discretionary management bonus paid in connection with the CHS
acquisition of $113,000, 401(k) employer matching contributions of $6,884 and deferred
compensation matching contributions of $2,500.(6)
    
    Represents a discretionary management bonus paid in connection with the CHS
acquisition of $48,550, 401(k) employer matching contributions of $6,856 and deferred
compensation matching contributions of $2,500.(7)
    
    Represents a discretionary management bonus paid in connection with the CHS
acquisition of $49,308 and a 401(k) employer matching contributions of $6,587.(8)
    
    Represents a discretionary management bonus paid in connection with the CHS
acquisition of $49,308, 401(k) employer matching contributions of $6,337 and deferred
compensation matching contributions of $2,500.(9)
    
    Represents employer matching contributions in the Companys 401(k) and deferred
compensation plans. 76




---



##### 



Option Grants in the Last Year
  Number of
    
    
    Percent ofSecurities
    
    
    Total OptionsUnderlying
    
    
    Granted to
    
    
    Exercise or
    
    
    
    
    
    
    GrantOptions
    
    
    Employees in
    
    
    Base Price
    
    
    Expiration
    
    
    DateName
    
    Granted
    
    
    Fiscal Year
    
    
    ($/Sh)
    
    
    Date
    
    
    ValueMax W. HillmanCommon Stock (1)
    
    
    267,463
    
    
    
    24.6
    %
    
    $
    6.39
    
    
    
    3/31/2004
    
    
    $
    7,809,920Class A Preferred (2)
    
    
    3,244
    
    
    
    33.9
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    949,499Class A Preferred  Subsidiary (3)
    
    
    2,263
    
    
    
    33.9
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    629,114Richard P. HillmanCommon Stock (1)
    
    
    66,866
    
    
    
    6.2
    %
    
    $
    6.39
    
    
    
    3/31/2004
    
    
    $
    1,952,487Class A Preferred (2)
    
    
    1,388
    
    
    
    14.5
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    406,280Class A Preferred  Subsidiary (3)
    
    
    968
    
    
    
    14.5
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    269,187George L. HerediaCommon Stock (1)
    
    
    44,577
    
    
    
    4.1
    %
    
    $
    6.39
    
    
    
    3/31/2004
    
    
    $
    1,301,648Class A Preferred (2)
    
    
    715
    
    
    
    7.5
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    209,390Class A Preferred  Subsidiary (3)
    
    
    497
    
    
    
    7.5
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    138,138Terry R. RoweCommon Stock (1)
    
    
    44,577
    
    
    
    4.1
    %
    
    $
    6.39
    
    
    
    3/31/2004
    
    
    $
    1,301,648Class A Preferred (2)
    
    
    682
    
    
    
    7.1
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    199,730Class A Preferred  Subsidiary (3)
    
    
    476
    
    
    
    7.1
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    132,328James P. WatersCommon Stock (1)
    
    
    44,577
    
    
    
    4.1
    %
    
    $
    6.39
    
    
    
    3/31/2004
    
    
    $
    1,301,648Class A Preferred (2)
    
    
    648
    
    
    
    6.8
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    189,748Class A Preferred  Subsidiary (3)
    
    
    452
    
    
    
    6.8
    %
    
    $
    1,000.00
    
    
    
    3/31/2014
    
    
    $
    125,712
 
 (1)
    
    Common stock options granted on March 30, 2004 under the SunSource Inc. 2001 Stock
Incentive Plan. The options were issued with an exercise price below the fair market
value on the grant date of $29.20 per share. The SunSource Inc. 2001 Stock Incentive
Plan was terminated on March 31, 2004 in connection with the CHS acquisition.(2)
    
    Options to purchase The Companys Class A Preferred Stock were granted on March
31, 2004 in connection with the CHS acquisition under the terms of an Executive
Securities Agreement between the Company and the shareholder. The grant date value is
based on an third party appraisal as of March 31, 2004.(3)
    
    Options to purchase The Hillman Investment Company Class A Preferred Stock were
granted on March 31, 2004 in connection with the CHS acquisition under the terms of an
Executive Securities Agreement between the Company and the shareholder. The grant date
value is based on a third party appraisal as of March 31, 2004. 77




---



##### 



Aggregated Option Exercises in Last Year and Year-End Option Values
  Number of SecuritiesNumber of
    
    
    
    
    
    
    Underlying Unexercised
    
    
    Value of UnexercisedSecurities
    
    
    
    
    
    
    Options at
    
    
    In the Money OptionsUnderlying
    
    
    
    
    
    
    Fiscal Year End (#)
    
    
    at Fiscal Year End($)Options
    
    
    Value
    
    
    Exercisable/
    
    
    Exercisable/Name
    
    Exercised
    
    
    Realized (1)
    
    
    Unexercisable
    
    
    Unexercisable (3)Max W. HillmanCommon Stock (2)
    
    
    334,963
    
    
    $
    7,796,519
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    Class A Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,244
    
    
    $
    
    
    
    
    288,680Class A Preferred  Subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,263
    
    
    $
    
    
    
    
    192,355Richard P. HillmanCommon Stock (2)
    
    
    86,866
    
    
    $
    2,024,213
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    Class A Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,388
    
    
    $
    
    
    
    
    123,523Class A Preferred  Subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    968
    
    
    $
    
    
    
    
    82,306George L. HerediaCommon Stock (2)
    
    
    51,218
    
    
    $
    1,177,093
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    Class A Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    715
    
    
    $
    
    
    
    
    63,662Class A Preferred  Subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    497
    
    
    $
    
    
    
    
    42,237Terry R. RoweCommon Stock (2)
    
    
    53,577
    
    
    $
    1,241,601
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    Class A Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    682
    
    
    $
    
    
    
    
    60,725Class A Preferred  Subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476
    
    
    $
    
    
    
    
    40,460James P. WatersCommon Stock (2)
    
    
    53,577
    
    
    $
    1,241,601
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    Class A Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    648
    
    
    $
    
    
    
    
    57,690Class A Preferred  Subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    452
    
    
    $
    
    
    
    
    38,437
 
 (1)
    
    Represents the market value, as of the exercise date, of the options when the same
were cashed out, less the aggregate option exercise price.(2)
    
    In connection with the CHS Merger Transaction, options issued under the 1998
SunSource Equity Compensation Plan and the SunSource Inc. 2001 Stock Incentive Plan were
cancelled and converted into rights to receive a pro rata share of the merger
consideration or an option to purchase shares of the Companys Class A Preferred Stock
and The Hillman Investment Company Class A Preferred Stock. The 1998 SunSource Equity
Compensation Plan and the SunSource Inc. 2001 Stock Incentive Plan were then terminated.(3)
    
    There is no public market for the securities underlying the Companys Class A
Preferred and The Hillman Investment Company Inc. Class A Preferred Options. The value
of the Preferred Options is based on dividends accrued on the underlying Preferred
Stock. 78




---



##### 



Employment Contracts, Termination of Employment and Change-in-Control Arrangements
  Compensation of the President and Chief Executive Officer of the Company
  Compensation of the President of The Hillman Group, Inc.
  Compensation of the Chief Financial Officer of the Company
  79




---



##### 



80




---



##### 



Item 12  Security Ownership of Certain Beneficial Owners and Management.
  Class A PreferredName
    
    Class A Common Stock (1)
    
    
    Class B Common Stock (2)
    
    
    Class C Common Stock (3)
    
    
    Total Common Stock (4)
    
    
    Stock(5)5% Owners
    
    Shares
    
    
    Percent
    
    
    Shares
    
    
    Percent
    
    
    Shares
    
    
    Percent
    
    
    Shares
    
    
    Percent
    
    
    Shares
    
    
    PercentCode Hennessy &
Simmons IV LP10 South Wacker Dr.
Suite 3175
Chicago, IL 60606
    
    
    4,904.9
    
    
    
    78.95
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,904.9
    
    
    
    49.05
    %
    
    
    46,869.4
    
    
    
    49.05
    %Ontario Teachers
Pension Plan5650 Yonge St.
North York, Ontario
M2M 4H5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,787.1
    
    
    
    100.00
    %
    
    
    2,787.1
    
    
    
    27.87
    %
    
    
    26,632.3
    
    
    
    27.87
    %HarbourVest Partners
VI  Direct Fund,
L.P.One Financial Center
44th Floor
Boston, MA 02111
    
    
    871.0
    
    
    
    14.02
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    871.0
    
    
    
    8.71
    %
    
    
    8,322.6
    
    
    
    8.71
    %Directors and
Executive OfficersMax W. Hillman
    
    
    166.4
    
    
    
    2.68
    %
    
    
    343.4
    
    
    
    34.34
    %
    
    
    
    
    
    
    
    
    
    
    509.8
    
    
    
    5.10
    %
    
    
    4,565.9
    
    
    
    4.78
    %(6)Richard P. Hillman
    
    
    54.6
    
    
    
    .88
    %
    
    
    144.6
    
    
    
    14.46
    %
    
    
    
    
    
    
    
    
    
    
    199.2
    
    
    
    1.99
    %
    
    
    1,953.7
    
    
    
    2.04
    %(7)George L. Heredia
    
    
    23.3
    
    
    
    .38
    %
    
    
    73.9
    
    
    
    7.39
    %
    
    
    
    
    
    
    
    
    
    
    97.2
    
    
    
    .97
    %
    
    
    1,007.8
    
    
    
    1.05
    %(8)Terry R. Rowe
    
    
    23.9
    
    
    
    .38
    %
    
    
    70.6
    
    
    
    7.07
    %
    
    
    
    
    
    
    
    
    
    
    94.5
    
    
    
    .95
    %
    
    
    960.4
    
    
    
    1.01
    %(9)James P. Waters
    
    
    23.9
    
    
    
    .38
    %
    
    
    67.3
    
    
    
    6.73
    %
    
    
    
    
    
    
    
    
    
    
    91.2
    
    
    
    .91
    %
    
    
    912.4
    
    
    
    .95
    %(10)All Directors and
Executive Officers
as a Group
    
    
    407.6
    
    
    
    6.56
    %
    
    
    1,000.0
    
    
    
    100.00
    %
    
    
    
    
    
    
    
    
    
    
    1,407.6
    
    
    
    14.08
    %
    
    
    13,450.7
    
    
    
    14.08
    %
 
 (1)
    
    Each holder of Class A Common Stock is entitled at any time to convert any or all of
the shares into an equal number of shares of Class C Common Stock.(2)
    
    Class B Common Stock has no voting rights.(3)
    
    Each holder of Class C Common Stock is entitled at any time to convert any or all
of the shares into an equal number of shares of Class A Common Stock. Each share of
Class C Common Stock is entitled to one vote provided that the aggregate voting power of
Class C Common Stock (with respect to the election of directors) never exceeds 30%.(4)
    
    Total of all classes of Common Stock(5)
    
    Class A Preferred shares do not have voting rights.(6)
    
    Includes options to purchase 3,243.7 shares of Class A Preferred stock(7)
    
    Includes options to purchase 1,387.9 shares of Class A Preferred stock.(8)
    
    Includes options to purchase 716.0 shares of Class A Preferred stock.(9)
    
    Includes options to purchase 682.3 shares of Class A Preferred stock.(10)
    
    Includes options to purchase 648.2 shares of Class A Preferred stock. 
 81




---



##### 



Item 13  Certain Relationships and Related Transactions.
    Item 14  Principal Accounting Fees and Services.
   Year Ended
    
    
    Year EndedDecember 31, 2004
    
    
    December 31, 2003Audit Fees
    
    $
    164,645
    
    
    $
    145,000Audit Related Fees
    
    
    211,080
    
    
    
    Tax Fees
    
    
    33,150
    
    
    
    84,296All Other Fees
    
    
    
    
    
    
    Total Fees:
    
    $
    408,875
    
    
    $
    229,296
 Audit Fees
  82




---



##### 



Audit Related Fees
  Tax Fees
  All Other Fees
   83




---



##### 



PART IV
 Item 15  Exhibits and Financial Statement Schedules.
 (a) Documents Filed as a Part of the Report:
 1.
    
    Financial Statements.The information concerning financial statements called for by Item 15 of Form 10-K is set
forth in Part II, Item 8 of this annual report on Form 10-K.2.
    
    Financial Statement Schedules.The information concerning financial statement schedules called for by Item 15 of Form 10-K
is set forth in Part II, Item 8 of this annual report on Form 10-K.3.
    
    Reports on 8-K.A Current Report on Form 8-K was filed on April 14, 2004 reporting an other event under Item
7 of Form 8-K.A Current Report on Form 8-K was filed on February 17, 2004 reporting an other event under
Item 5 of Form 8-K.4.
    
    Exhibits, Including Those Incorporated by Reference.The following is a list of exhibits filed as part of this annual report on Form 10-K. Where
so indicated by footnote, exhibits which were previously filed are incorporated by reference.
For exhibits incorporated by reference, the location of the exhibit in the previous filing
is indicated in parentheses.
 2.1
    
    Unit Repurchase Agreement by and among The Hillman Companies, Inc., SunSub
Holdings LLC and GC-Sun Holdings, L.P. dated April 13, 2002. (6)(Exhibit 10.2)2.2
    
    Asset Purchase Agreement between Fastenal Company and The Hillman Group, Inc.
dated October 3, 2002. (7)(Exhibit 10.3)2.3
    
    Agreement and Plan of Merger dated as of June 18, 2001 by and among Allied
Capital Corporation, Allied Capital Lock Acquisition Corporation and SunSource Inc.
(4)(Exhibit 2.1)2.4
    
    Asset Purchase Agreement dated September 28, 2001, by and between SunSource
Technology Services, LLC, and STS Operating, Inc. (5) (Exhibit 2.1)2.5
    
    Agreement and Plan of Merger dated as of February 14, 2004 by and among the
Company, HCI Acquisition Corp. and the Common Stockholders of the Company. (2)(Exhibit
2.1)3.1
    
    Bylaws as adopted by the Corporations stockholders as of March 30, 2004.
(10)(Exhibit 3.2)3.2
    
    Restated Certificate of Incorporation of the Company as of March 30, 2004. (10)
(Exhibit 3.1)4.1
    
    HCI Stockholders Agreement dated March 31, 2004. (9)(Exhibit 4.1)4.2
    
    Amended and Restated Declaration of Trust (1)(Exhibit 4.1)4.3
    
    Indenture between the Company and the Bank of New York (1)(Exhibit 4.2)4.4
    
    Preferred Securities Guarantee (1) (Exhibit 4.3)
 84




---



##### 



4.5
    
    Rights Agreement between the Company and the Registrar and Transfer Company
(1)(Exhibit 10.5)4.6
    
    Amendment No. 1 to the Rights Agreement dated June 18, 2001. (8)(Exhibit 4.6)4.7
    
    Amendment No. 2 to the Rights Agreement dated February 14, 2004. (8)(Exhibit 4.7)4.8
    
    Hillman Investment Company Stockholders Agreement dated March 31, 2004. (9)
(Exhibit 4.2)4.9
    
    Registration Agreement dated March 31, 2004. (9) (Exhibit 4.3)10.1
    
    Credit Agreement dated as of March 31, 2004 by and among The Hillman Companies,
Inc., Hillman Investment Company, The Hillman Group, Inc., Merrill Lynch Capital as
Administrative Agent, Issuing Lender and Swingline Lender, JP Morgan Chase Bank as
Syndication Agent, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and JP Morgan Securities as Joint Lead Arrangers and Joint Lead
Bookrunners. (9) (Exhibit 10.1)10.2
    
    Loan Agreement dated as of March 31, 2004 by and among The Hillman Companies,
Inc., Hillman Investment Company, The Hillman Group, Inc., and Allied Capital
Corporation. (9) (Exhibit 10.2)10.3
    
    Subordination and Intercreditor Agreement dated March 31, 2004. (9) (Exhibit
10.3)10.4
    
    The Hillman Companies, Inc. 2004 Stock Option Plan. (9) (Exhibit 10.4)10.5
    
    The Hillman Companies, Inc Amended and Restated 2004 Stock Option Plan. (12)
(Exhibit 10.5)10.6
    
    Hillman Companies Employee Securities Purchase Plan. (9) (Exhibit 10.5)10.7
    
    Hillman Investment Company Employee Securities Purchase Plan. (9) (Exhibit 10.6)10.8
    
    HCI Securities Purchase Agreement dated March 31, 2004. (9) (Exhibit 10.7)10.9
    
    Joinder to Securities Purchase Agreement dated March 31, 2004. (9) (Exhibit 10.8)10.10
    
    Hillman Investment Company Securities Purchase Agreement dated March 31, 2004.
(9) (Exhibit 10.9)10.11
    
    Management Agreement dated March 31, 2004. (9) (Exhibit 10.10)10.12
    
    Employment Agreement by and between The Hillman Group, Inc. and Max W. Hillman
dated March 31, 2004. (9) (Exhibit 10.11)10.13
    
    Executive Securities Agreement between Max W. Hillman and HCI Acquisition Corp.
dated March 31, 2004. (9) (Exhibit 10.12)10.14
    
    Employment Agreement by and between The Hillman Group, Inc. and Richard P.
Hillman dated March 31, 2004. (9) (Exhibit 10.13)10.15
    
    Executive Securities Purchase Agreement between HCI Acquisition Corp. and
Richard P. Hillman dated March 31, 2004. (9) (Exhibit 10.14)10.16
    
    Employment Agreement by and between The Hillman Group, Inc. and James P. Waters
dated March 31, 2004. (9) (Exhibit 10.15)
 85




---



##### 



10.17
    
    Executive Securities Agreement by and between HCI Acquisition Corp. and James
P. Waters date March 31, 2004. (9) (Exhibit 10.16)10.18
    
    Executive Securities Agreement by and between HCI Acquisition Corp. and George
L. Heredia date March 31, 2004. (12) (Exhibit 10.18)10.19
    
    Executive Securities Agreement by and between HCI Acquisition Corp. and Terry R.
Rowe date March 31, 2004. (12) (Exhibit 10.19)10.20
    
    SunSource Inc. Nonqualified Deferred Compensation Plan dated as of August 1,
2000. (3)(Exhibit 10.1)10.21
    
    The Hillman Companies, Inc. Nonqualified Deferred Compensation Plan (amended and
restated). (11) (Exhibit 10.1)10.22
    
    First Amendment to The Hillman Companies, Inc. Nonqualified Deferred
Compensation Plan. (11) (Exhibit 10.2)12.1
    
    Computation of Ratio of Income to Fixed Charges. (12) (Exhibit 12.1)21.1
    
    Subsidiaries (As of December 31, 2004) (12) (Exhibit 21.1)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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    * Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(1)
    
    Filed as an exhibit to Registration Statement No. 333-44733 on Form S-2.(2)
    
    Filed as an exhibit to the Form 8-K filed February 17, 2004.(3)
    
    Filed as an exhibit to Annual Report on Form 10-K for the year ended December 31,
2000.(4)
    
    Filed on June 21, 2001 as an exhibit to the Current Report on Form 8-K filed on
June 21, 2001.(5)
    
    Filed as an exhibit to the Current Report on Form 8-K filed on October 15, 2001.(6)
    
    Filed as an exhibit to Quarterly Report on Form 10-Q for the Quarter ended June
30, 2002.(7)
    
    Filed as an exhibit to the Current Report on Form 8-K filed on October 4, 2002.(8)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the year ended December
31, 2003.(9)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q for the Quarter ended
March 31, 2004.(10)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q for the Quarter ended
June 30, 2004.(11)
    
    Filed as an exhibit to the Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2004.(12)
    
    Filed as an exhibit to the Annual Report on Form 10-K for the year ended December
31, 2004.
 
 *
    
    Filed herewith. 86




---



##### 



SIGNATURES
  THE HILLMAN COMPANIES, INC.
 Date: March 28, 2006
    By:
    /s/ James P. WatersJames P. WatersTitle:
    Chief Financial Officer and Duly
Authorized Officer of the Registrant
(Principal Financial Officer)  Signature
    
    Capacity
    
    Date/s/ Max W. Hillman
    
    Principal Executive Officer and Director
    
    March 28, 2006Max W. Hillman/s/ Peter M. Gotsch
    
    Chairman and Director
    
    March 28, 2006Peter M. Gotsch/s/ Harold J. Wilder
    
    Principal Accounting Officer
    
    March 28, 2006Harold J. Wilder/s/ Andrew W. Code
    
    Director
    
    March 28, 2006Andrew W. Code/s/ Mark A. Dolfato
    
    Director
    
    March 28, 2006Mark A. Dolfato/s/ Larry Wilton
    
    Director
    
    March 28, 2006Larry Wilton/s/ Maurice P. Andrien, Jr.
    
    Director
    
    March 28, 2006Maurice P. Andrien, Jr./s/ Shael J. Dolman
    
    Director
    
    March 28, 2006Shael J. Dolman
 87