UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

30, 2017

Commission file number 1-13293

The Hillman Companies, Inc.

(Exact name of registrant as specified in its charter)

Delaware23-2874736

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)
 

(I.R.S. Employer

Identification No.)

10590 Hamilton Avenue

Cincinnati, Ohio

45231
(Address of principal executive offices)(Zip Code)

Registrant’s

Registrant's telephone number, including area code: (513) 851-4900

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

11.6% Junior Subordinated DebenturesNone
Preferred Securities GuarantyNone

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  ¨    NO  xý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    YES  ¨    NO  xý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  xý    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  xý    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  xý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-212b‑2 of the Exchange Act. (Check one):

Large accelerated filer¨Accelerated filer¨
Non-accelerated filer
x  (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging growth company
¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    YES  ¨    NO  xý

On March 27, 2015,21, 2018, 5,000 shares of the Registrant’sRegistrant's common stock were issued and outstanding and 4,217,724 Trust Preferred Securities were issued and outstanding by the Hillman Group Capital Trust. The Trust Preferred Securities trade on the NYSE Amex under the symbol HLM.Pr."HLM.Pr." The aggregate market value of the Trust Preferred Securities held by non-affiliates at June 30, 20142017 was $128,176,632.

$143,824,388.



PART I

Forward-Looking Statements
Certain disclosures related to acquisitions, refinancing, capital expenditures, resolution of pending litigation, and realization of deferred tax assets contained in this annual report involve substantial risks and uncertainties and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements include statements regarding our future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” “project,” or the negative of such terms or other similar expressions.
These forward-looking statements are not historical facts, but rather are based on our current expectations, assumptions, and projections about future events. Although we believe that the expectations, assumptions, and projections on which these forward-looking statements are based are reasonable, they nonetheless could prove to be inaccurate, and as a result, the forward-looking statements based on those expectations, assumptions, and projections also could be inaccurate. Forward-looking statements are not guarantees of future performance. Instead, forward-looking statements are subject to known and unknown risks, uncertainties, and assumptions that may cause our strategy, planning, actual results, levels of activity, performance, or achievements to be materially different from any strategy, planning, future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Actual results could differ materially from those currently anticipated as a result of a number of factors, including the risks and uncertainties discussed under the caption “Risk Factors” set forth in Item 1A of this annual report. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements.
All forward-looking statements attributable to the Company, as defined herein, or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this annual report; they should not be regarded as a representation by the Company or any other individual. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this annual report might not occur or might be materially different from those discussed.
Item 1 – Business.

Business.

General

The Hillman Companies, Inc. and its wholly ownedwholly-owned subsidiaries (collectively, “Hillman” or the “Company”) are one of the largest providers of hardware-related products and related merchandising services to retail markets in North America. The Company’sOur principal business is operated through itsour wholly-owned subsidiary, The Hillman Group, Inc. (theand its wholly-owned subsidiaries (collectively, “Hillman Group”), which had net sales of approximately $734.7$838.4 million in 2014.2017. Hillman Group sells its products to hardware stores, home centers, mass merchants, pet supply stores, and other retail outlets principally in the United States, Canada, Mexico, Australia, Latin America, and the Caribbean. Product lines include thousands of small parts such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; builder’sbuilder's hardware; and identification items, such as tags and letters, numbers, and signs. The Company supports itsWe support product sales with services that include design and installation of merchandising systems and maintenance of appropriate in-store inventory levels.

For fiscal year 2017, we have changed from a calendar year ending on December 31 to a 52-53 week fiscal year ending on the last Saturday in December, effective beginning with the first quarter of 2017. In a 52 week fiscal year, each of our quarterly periods will comprise 13 weeks. The Company’sadditional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. Our first 53 week fiscal year will occur in fiscal year 2022. We have made the fiscal year change on a prospective basis and have not adjusted operating results for prior periods. The change does not materially impact the comparability of quarters or year ended 2017 to the quarters or years ended 2016 or 2015. The adoption of a 52-53 week year was not deemed a change in fiscal year for purposes of reporting subject to Rule 13a-10 or 15d-10; hence, no transition reports are required.
On November 8, 2017, we entered into an Asset Purchase Agreement with Hargis Industries, LP doing business as ST Fastening Systems and other related parties pursuant to which Hillman acquired substantially all of the assets, and assumed certain liabilities, of ST Fastening Systems. ST Fastening Systems, which is located in Tyler, Texas, specializes in manufacturing and distributing threaded self-drilling fasteners, foam closure strips, and other accessories to the steel-frame, post-frame, and residential building markets. Pursuant to the terms of the Agreement, we paid a cash purchase price of $47.2 million. The ST Fastening Systems business is included in our United States operating segment.


Our headquarters are located at 10590 Hamilton Avenue, Cincinnati, Ohio. The Company maintainsWe maintain a website at www.hillmangroup.com. Information contained or linked on itsour website is not incorporated by reference into this annual report and should not be considered a part of this annual report.

Background

On June 30, 2014, affiliates of CCMP Capital Advisors, LLC (“CCMP”) and Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and OHCP III HC RO, L.P. (“Oak Hill Funds”), together with certain current and former members of Hillman’s management, consummated a merger transaction (the “Merger Transaction”) pursuant to the terms and conditions of an Agreement and Plan of Merger dated as of May 16, 2014. As a result of the Merger Transaction, The Hillman Companies, Inc. remained a wholly-owned subsidiary of OHCP HM Acquisition Corp., which changed its name to HMAN Intermediate II Holdings Corp. (“Predecessor Holdco”), and became a wholly-owned subsidiary of HMAN Group Holdings Inc. (“Successor Holdco” or “Holdco”). The total consideration paid in the Merger Transaction was approximately $1.5 billion including repayment of outstanding debt and including the value of the Company’s outstanding junior subordinated debentures ($105.4 million liquidation value at the time of the Merger Transaction).

Hillman Group

The Company is

We are organized as fivethree separate business segments, the largest of which is (1) Hillman Group operating primarily in the United States. The other business segments consist of subsidiaries of the Hillman Group operating in (2) Canada under the names The Hillman Group Canada ULC and H. Paulin & Co., and (3) Mexico under the name SunSource Integrated Services de Mexico S.A. de C.V., (4) Florida under the name All Points Industries, Inc., and (5) Australia under the name The Hillman Group Australia Pty. Ltd. Hillman Group provides merchandising services and
We provide products such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; builder’sbuilder's hardware; and identification items, such as tags and letters, numbers, and signs, to retail outlets, primarily hardware stores, home centers and mass merchants, pet supply stores, grocery stores, and drug stores. Hillman complements itsWe complement our extensive product selection with regular retailer visits by itsour field sales and service organization.

Hillman markets

We market and distributesdistribute approximately 117,000120,000 stock keeping units (“SKUs”) of small, hard-to-find and hard-to-manage hardware items. Hillman functionsWe function as a category manager for retailers and supportssupport these products with in-store service, high order fill rates, and rapid delivery of products sold. Sales and service representatives regularly visit retail outlets to review stock levels, reorder items in need of replacement, and interact with the store management to offer new product and merchandising ideas. Thousands of items can be

actively managed with the retailer experiencing a substantial reduction of in-store labor costs and replenishment paperwork. Service representatives also assist in organizing the products in a consumer-friendly manner. Hillman complements itsWe complement our broad range of products with merchandising services such as displays, product identification stickers, retail price labels, store rack and drawer systems, assistance in rack positioning and store layout, and inventory restocking services. HillmanWe regularly refreshes retailers’refresh retailers' displays with new products and package designs utilizing color-coding to simplify the shopping experience for consumers and improve the attractiveness of individual store displays.

The Company ships its products

We operate from 1822 strategically located distribution centers in the United States, Canada, Mexico, and Australia, and is recognized for providing retailers with industry leading fill-rates and lead times. Hillman’sMexico. Our main distribution centers utilize state-of-the-art warehouse management systems (“WMS”) to ship customer orders within 48 hours while achieving a very high order fill rate. Hillman utilizesWe utilize third-party logistics providers to warehouse and ship customer orders in Mexicothe U.S.and Mexico.
We also design, manufacture, and Australia.

Hillman also designs, manufactures, and marketsmarket industry-leading identification and duplication equipment for home, office, automotive, and specialty keys. In 2000, the Companywe revolutionized the key duplication market with the patent-protected Axxess Key Duplication System™ which provided the ability to accurately identify and duplicate a key to store associates with little or no experience. In 2007, Hillmanwe upgraded itsour key duplication technology with Precision Laser Key™ utilizing innovative digital and laser imaging to identify a key and duplicate the cut-pattern automatically. In 2011, Hillmanwe introduced the innovative FastKey™ consumer operatedconsumer-operated key duplication system which utilizes technology from the Precision Laser Key System™. In 2016, we delivered our most innovative and effective key duplication equipment with the introduction of KeyKrafter™. The KeyKrafter™ provides significant reduction in duplication time while increasing accuracy and ease of use. Through the Company’sour creative use of technology and efficient use of inventory management systems, the sale of Hillmanour products have proven to be a profitable revenue source for big box retailers. The Company’sAs of December 30, 2017, our duplication systems have been placedare in service in over 25,00017,000 retail locations to date and are supported by Hillmanour sales and service representatives.

In addition, Hillman applieswe supply a variety of innovative options of consumer-operated vending systems for engraving specialty items such as pet identification tags, luggage tags, and other engraved identification tags. The Company hasWe have developed unique engraving systems leveraging state-of-the-art technologies to provide a customized solution for mass merchant and pet supply retailers. To date, approximately 8,800 HillmanAs of December 30, 2017, over 7,000 of our engraving systems have been placedare in service in retail locations which are also supported by Hillman’sour sales and service representatives.

Products and Suppliers

Hillman’s vast product portfolio is recognized by top retailers across North America for providing consistent quality and innovation to DIYers and professional contractors. The Company’s

Our product strategy concentrates on providing total project solutions for common and unique home improvement projects. Hillman’sOur portfolio provides retailers the assurance that their shoppers can find the right product at the right price within an ‘easy'easy to shop’shop' environment.

The Company

We currently managesmanage a worldwide supply chain comprised of approximately 620a large number of vendors, the largest of which accounted for approximately 5.0%4.4% of the Company’sCompany's annual purchases and the top five of which accounted for approximately 19.2%18.1% of its annual purchases. About 40.6% of Hillman’s annual purchases are from non-U.S. suppliers, with the balance from U.S. manufacturers and master distributors. The Company’sOur vendor quality control procedures include on-site evaluations and frequent product testing. Vendors are also evaluated based on delivery performance and the accuracy of their shipments.



Fasteners

and Wall Hanging

Fasteners remain the core of Hillman’sour business and the product line encompasses more than 87,000 SKUs, which management believeswhat we believe to be one of the largest selections among suppliers servicing the hardware retail segment. The fastener line includes standard and specialty nuts, bolts, washers, screws, anchors, and picture hanging items. Hillman offersWe offer zinc, chrome, and galvanized plated steel fasteners in addition to stainless steel, brass, and nylon fasteners in this vast line of products. In addition, the Company carrieswe carry a complete line of indoor and outdoor project fasteners for use with drywall and deck construction.

The Company keeps

We keep the fastener category vibrant and refreshed for retailers by providing a continuous stream of new products. Some of the Company’sour recent offerings include an expansion of Hillman’sHillman's WeatherMaxx™ stainless steel fasteners. TheWe believe that the fast-growing category provides consumers with value and performance in exterior applications and incremental margins for retailers. The new WeatherMaxx™ features a variety of packaging options ensuringto assist consumers to find the right quantity for large or small projects. In addition, the Tite-Series marks Hillman’sour expansion into the fast growing and highly profitable construction fastener segment. The Tite-Series features fasteners for common new construction and remodeling projects such as deck building, roof repair, landscaping, and gutter repair. TheWe believe that the Tite-Series offers enhanced performance with an easy-start, type 17 bit, serrated threads, and reduced torque requirements. The program also features an innovative new merchandising format which we believe allows retailers to increase holding power while displaying products in a neat and organized system.

In 2014, the Company introduced2015, we continued to expand a new line of hand driven nails, deck screws, and drywall screws. The new program features a comprehensive offering for DIYers and professional contractors across a good, better, best value platform. The program is marketed under the prominent Hillman brand and introduces three new categories: Fas-N-Rite, DeckPlus and PowerPro, allowing shoppers to choose their desired quality level. The Company’sOur new offering was the result of extensive consumer research and contains proprietary performance features that the Company’s management believeswe believe will positively influence end-users’end-users' purchase decision. The packaging and merchandising utilizes large product images, impactful graphics, and mounted product samples so that shoppers can easily navigate the display and locate items quickly.
In the fourth quarter of 2017, we launched an innovative new category within our premium brand named PowerPro One. PowerPro One features proprietary design elements which allow the screw to be used among a variety of materials. The Company has received positive feedback from potential customers on the new program across all Hillman core distribution channels.

In 2014, the Company expanded itsPowerPro One satisfies a unique market position as “The One Screw You’ll Ever Need” by providing superior performance in wood, metal, concrete and drywall substrates.

Our mass merchant fastener program in over 3,500 stores across the U.S. The line targets consumers visiting mass merchants, grocery, and department stores who desire to purchase their hardware needs while shopping for grocery and general merchandise needs. The product offering provides convenience to the light-duty DIYer and solutions to common home improvement projects. The program utilizes Hillman’sour proven packaging and merchandising best practices that simplify consumers’consumers' shopping experience. The Company’s management believesWe believe that this new line is among the most comprehensive and innovative in this market segment which is growing in popularity due to busy consumers who prefer one-stop shopping superstores.

Also

In 2017, Hillman launched High & Mighty an innovative series of tool-free wall hangers, decorative hooks, key and hook rails and floating shelves all designed to eliminate “hangxiety” and revolutionize the way consumers express their personal style through hanging home décor. High & Mighty was innovated with DIYers and décor enthusiasts in 2014,mind, creating simple solutions to empower them to decorate and personalize their homes in minutes. Eliminating the barrier between inspiration and installation, the new series makes wall décor design accessible, easy and fun in three simple steps: Place. Push. Hang. There is no longer a need for hammers, screws, anchors or nails when consumers are looking for a quick and secure decorating or organizing solution.

On November 8, 2017, we entered into an Asset Purchase Agreement with Hargis Industries, LP doing business as ST Fastening Systems and other related parties pursuant to which Hillman continued to expand our fastener presence beyond retailers’ ‘brickacquired substantially all of the assets, and mortar’ locations by entering into the e-commerce segment. Hillman supported e-commerce requestsassumed certain liabilities, of ST Fastening Systems. ST Fastening Systems, which is located in Tyler, Texas, specializes in manufacturing and now has over 25,000 items available for sale on retailers’ websites. The Company supported direct to storedistributing threaded self-drilling fasteners, foam closure strips, and direct to consumer fulfillment for consumers who choose to order fasteners directly from retailers’ websites. Consumers can visit the retailer’s website, select their desired fasteners, pay by credit card, and pick up their order at the retailer’s store or choose to have the order shippedother accessories to the address ofsteel-frame, post-frame, and residential building markets. ST Fastening Systems added $5.9 million in revenue for the consumer’s choice. The Company plans to continue to support retailers’ requests to expand their on-line offerings in 2015.

year ended December 30, 2017.

Fasteners generated approximately 64.5%65.4% of the Company’sour total revenues in 2014,2017, as compared to 64.2%64.6% in 20132016 and 55.6%63.4% in 2012.

2015.

Keys and Key Accessories

Hillman designs

We design and manufacturesmanufacture proprietary equipment which forms the cornerstone for the Company’sour key duplication business. The HillmanOur key duplication system is offered in various retail channels including mass merchants, home centers, automotive parts retailers, franchise and independent (“F&I”) hardware stores, and grocery/drug chains; it can also be found in many service-based businesses like parcel shipping outlets.

Hillman markets



We market multiple separate key duplication systems. The Axxess Precision Key Duplication System™ is marketed to national retailers requiring a key duplication program easily mastered by novice associates, while the Hillman Key Program targets the F&I hardware retailers with a machine that works well in businesses with lower turnover and highly skilled employees. There are over 25,0009,000 Axxess Programs placed in North American retailers including Home Depot, Lowe’s,Lowe's, and Walmart.

Hillman introduced the

Our Precision Laser Key System™ in 2007. This system uses a digital optical camera, lasers, and proprietary software to scan a customer’scustomer's key. The system identifies the key and retrieves the key’skey's specifications, including the appropriate blank and cutting pattern, from a comprehensive database. This technology automates nearly every aspect of key duplication and provides the ability for every store associate to cut a key accurately. Hillman hasWe have placed approximately 2,4002,900 of these key duplicating systems in North American retailers, and the Company’s management believeswe believe that the Company iswe are well-positioned to capitalize on this technology.

In 2014, Hillman expanded the launch of the

Our innovative FastKey™ consumer-operated key duplication system with an additional 300 Walmart stores bringing the total number of placements to 1,000 units. FastKey™ utilizes technology from the Precision Laser Key System™ and combines a consumer-friendly vending system which allows retail shoppers to duplicate the most popular home, office, and small lock keys. The FastKey™ system covers a large percentage of the key market and features a unique key sleeve that ensures proper insertion, alignment, and duplication of the key. Consumers who attempt to duplicate keys not included in the FastKey™ system receive a ‘service slip’slip' identifying their key and referring them to the main Hillman key cutting location within the store. The FastKey™ market testsystem has demonstrated the ability to increase overall key sales at the retail store retail level.

In addition to2016, we delivered our most innovative and effective key duplication Hillman has an exclusive, strategic partnershipequipment with Sid Tool Co., Inc. (acting through its Class C Solutions Group) for the distributionintroduction of the proprietary PC+© Code Cutter machine which produces automobile keys based on a vehicle’s identification number.KeyKrafter™. The Code Cutter machinesKeyKrafter™ provides significant reduction in duplication time while increasing accuracy and ease of use. There are marketed to automotive dealerships, auto rental agencies, and various companies with truck and vehicle fleets. Since its introduction, over 7,900 PC+© units and over 8,800 of the newer Flash Code Cutter units have been sold.

Hillman2,500 KeyKrafter™ Programs placed in North American retailers.

We also marketsmarket keys and key accessories in conjunction with itsour duplication systems. Hillman’sOur proprietary key offering features the universal blank which uses a ‘universal’"universal" keyway to replace up to five original equipment keys. This innovative system allows a retailer to duplicate 99% of the key market while stocking less than 100 SKUs. HillmanWe continually refreshesrefresh the retailer’sretailer's key offering by introducing decorated and licensed keys and accessories. The Company’sOur Wackey™ and Fanatix™ lines feature decorative themes of art and popular licenses such as NFL, Disney, Breast Cancer Awareness, M&M’s, and Harley DavidsonM&M's to increase the purchase frequency and average transaction value per key. The CompanyWe also marketsmarket a successful line of decorative and licensed lanyards. Hillman has taken the key
Keys and key accessory categories from a price sensitive commodity to a fashion driven business and has significantly increased retail pricing and gross margins.

Keys, key accessories and Code Cutter units represented approximately 16.6%14.0% of the Company’sour total revenues in 2014,2017, as compared to 17.1%14.4% in 20132016 and 20.8%15.1% in 2012.

2015.

Engraving

Hillman’s

Our engraving business focuses on the growing consumer spending trends surrounding personalized and pet identification. Innovation has played a major role in the development of the Company’sour engraving business unit. From the original Quick-Tag™ consumer-operated vending system to the proprietary laser system of TagWorks, Hillman continueswe continue to lead the industry with consumer-friendly engraving solutions.

Quick-Tag™ is a patented, consumer-operated vending system that custom engraves and dispenses pet identification tags, military-style I.D. tags, holiday ornaments, and luggage tags. Styles include NFL and NCAA logo military tags. Quick-Tag™ is an easy, convenient means for the consumer to custom-engrave tags and generates attractive margins for the retailer. Hillman has placedWe have over 4,3002,600 Quick-Tag™ machines in service in retail outlets throughout the U.S. and Canada.North America. In addition to placements in retail outlets, the Company haswe have placed machines inside theme parks such as Disney, Sea World, and Universal Studios.

In 2010, Hillman launched the next generation engraving platform with its new

Our FIDO™ system. This new engraving programsystem integrates a fun attractive design with a user interface that provides new features for the consumer. The individual tag is packaged in a mini cassette and the machine’smachine's mechanism flips the tag to allow engraving on both sides. The user interface features a loveable dog character that guides the consumer through the engraving process. Hillman hasWe have placed approximately 1,1003,500 FIDO™ systems in PETCO stores as of December 31, 2014.

In 2011, Hillman acquired the30, 2017.

The innovative TagWorks engraving system featuringfeatures patented technology, a unique product portfolio, and attractive off-board merchandising. The TagWorks system utilizes laser printing technology and allows consumers to watch the engraving process. The off-board merchandising allows premium-priced tags to be displayed in store-front locations and is effective at increasing the average price per transaction.

Hillman designs, manufactures,

We design, manufacture, and assemblesassemble the engraving equipment in the Company’sour Tempe, Arizona facility. Engraving products represented approximately 6.7%6.6% of the Company’sour total revenues in 2014, as compared to 6.9% in 20132017, 2016, and 8.8% in 2012.

2015.

Letters, Numbers, and Signs



Letters, numbers, and signs (“LNS”) includes product lines that target both the homeowner and commercial user. Product lines within this category include individual and/or packaged letters, numbers, signs, safety related products (e.g., 911 signs), driveway markers, and a diversity of sign accessories, such as sign frames.

Through a series of strategic acquisitions, exclusive partnerships, and organic product developments, Hillman haswe have created an LNS program which gives retailers one of the largest product offerings available in this category. This SKU intensive product category is considered a staple for retail hardware departments and is typically merchandised in eight linear feet of retail space containing hundreds of SKUs. In addition to the core product program, Hillman provides itswe provide our customers with retail support including custom plan-o-grams and merchandising solutions.

Hillman has

We have demonstrated the continual launch of new products to match the needs of DIY and commercial end-users. HillmanWe recently introduced popular programs such as high-end address plaques and numbers, the custom create-a-sign program, and commercial signs. The Company also introduced innovative solar technology to add an element of illumination to the core category.

The Hillman

Our LNS program can be found in big box retailers, mass merchants, and pet supply accounts. In addition, Hillman haswe have product placement in F&I hardware retailers.

The LNS category represented approximately 4.8%4.7% of the Company’sour total revenues in 2014, as compared to2017 and 2016 and 4.9% in 2013, and 5.8% in 2012.

2015.

Threaded Rod

Hillman is

We are a leading supplier of metal shapes and threaded rod in the retail market. The SteelWorks™ threaded rod product includes hot and cold rolled rod, both weld-able and plated, as well as a complete offering of All-Thread rod in galvanized steel, stainless steel, and brass.

The SteelWorks™ program is carried by many top retailers, including Lowe’sLowe's and Menards, and through cooperatives such as Ace Hardware. In addition, Hillman iswe are the primary supplier of metal shapes to many wholesalers throughout the country.

Threaded rod generated approximately 4.5%4.4% of the Company’sour total revenues in 2014,2017, as compared to 4.5% in 20132016 and 6.0%4.6% in 2012.

Builder’s2015.

Builder's Hardware

The builder’sbuilder's hardware category includes a variety of common household items such as coat hooks, door stops, hinges, gate latches, hasps, and decorative hardware.

Hillman markets

We market the builder’sbuilder's hardware products under the Hardware Essentials™ brand and providesprovide the retailer with an innovative merchandising solution. The Hardware Essentials™ program utilizes modular packaging, color coding, and integrated merchandising to simplify the shopping experience for consumers. Colorful signs, packaging, and installation instructions guide the consumer quickly and easily to the correct product location. Hardware Essentials™ provides retailers and consumers decorative upgrade opportunities through the introduction of high-end finishes such as satin nickel, pewter, and antique bronze.

The combination of merchandising, upgraded finishes, and product breadth is designed to improve the retailer’sretailer's performance. The addition of the builder’sbuilder's hardware product line exemplifies the Company’sour strategy of leveraging itsour core competencies to further penetrate customer accounts with new product offerings. In 2014, the
Hillman’s innovation efforts resulted in several new products in 2017. The Company expanded the placementlaunched a new line of the Hardware Essentials™ linedecorative, interior hanging-door hardware targeting a growing trend in the F&I channel. The F&I channel provided successful conversions in over 350 new locations in 2014.

upscale marketplace. Hillman’s line of hanging hardware offers a do-it-yourself installation solution for those who want the look of a rustic, sliding barn door for interior entryway applications. Hillman also launched an innovative adjustable barrel bolt branded, Adjust-a-Lock to provide a premium solution to a variety of interior and exterior projects.

As of December 31, 2014,30, 2017, the Hardware Essentials™ line was placed in over 2,8003,600 retail locations and generated approximately 2.9%4.3% of the Company’sour total revenues in 2014,2017, as compared to 2.4%4.6% in 20132016 and 2.9% in 2012.

2015.

Markets and Customers

Hillman sells

We sell our products to national accounts such as Lowe’s,Lowe's, Home Depot, Walmart, Tractor Supply, Menards, PetSmart, and PETCO. Hillman’sOur status as a national supplier of proprietary products to big box retailers allows itus to develop a strong market position and high barriers to entry within itsour product categories.

Hillman services



We service more than 15,000 F&I retail outlets. These individual dealers are typically members of the larger cooperatives, such as True Value, Ace Hardware, and Do-It-Best. The Company shipsWe ship directly to the cooperative’scooperative's retail locations and also suppliessupply many items to the cooperative’scooperative's central warehouses. These central warehouses distribute to their members that do not have a requirement for Hillman’sHillman's in-store service. These arrangements reduce credit risk and logistic expenses for Hillmanus while also reducing central warehouse inventory and delivery costs for the cooperatives.

A typical hardware store maintains thousands of different items in inventory, many of which generate small dollar sales but large profits. It is difficult for a retailer to economically monitor all stock levels and to reorder the products from multiple vendors. This problem is compounded by the necessity of receiving small shipments of inventory at different times and stocking the goods. The failure to have these small items available will have an adverse effect on store traffic, thereby possibly denying the retailer the opportunity to sell items that generate higher dollar sales.

Hillman sells its

We sell our products to approximately 25,000a large volume of customers, the top fivethree of which accounted for approximately 45.0%$383.7 million, or approximately 46%, of the Company’sour total revenue in 2014.2017. For the year ended December 31, 2014, Lowe’s30, 2017, Lowe's was the single largest customer, representing approximately 17.6%$176.6 million of the Company’sour total revenue,revenues, Home Depot was the second largest at approximately 16.4%,$140.2 million, and Walmart was the third largest at approximately 6.7%$66.9 million of the Company’sour total revenue. No other customer accounted for more than 5.0% of the Company’s total revenue in 2014.2017. In each of the years ended December 30, 2017 and December 31, 2014, 2013,2016 and 2012, the Company2015, we derived over 10% of itsour total revenues from two separate customersLowe's and Home Depot which operated in the following segments: United States, excluding All Points, Canada, and Mexico.

In 2017, Hillman launched its first B2B eCommerce platform to a select number of customers. During this beta test, the Company confirmed the ordering functionality and distribution capability for online ordering through the Company’s website, www.hillmangroup.com. In 2018, Hillman’s eCommerce platform will expand to include all customers and all channels of distribution.
The Company’sCompany continued to expand our fastener presence beyond retailers' ‘brick and mortar' locations by supporting the e-commerce segment. We supported e-commerce requests and now have over 25,000 items available for sale on retailers' websites. We supported direct-to-store and direct-to-consumer fulfillment for consumers who choose to order fasteners directly from retailers' websites. Consumers can visit the retailer's website, select their desired fasteners, pay by credit card, and pick up their order at the retailer's store or choose to have the order shipped to the address of the consumer's choice. We continued to support retailers' requests to expand their on-line offerings in 2017.
Our telemarketing activity sells to thousands of smaller hardware outlets and non-hardware accounts. The Company isWe are also pursuing new business internationally in such places as Canada, Mexico, Australia, South and Central America, and the Caribbean. See Note 21,18 - Segment Reporting and Geographic Information, of Notes to Consolidated Financial Statements.

Sales and Marketing

Hillman provides

We provide product support and customer service and profit opportunities for itsour retail distribution partners. The Company believesWe believe that itsour competitive advantage is in itsour ability to provide a greater level of customer service than itsour competitors.

Company-wide, service

Service is the hallmark of Hillman.Hillman company-wide. The national accounts field service organization consists of over 600approximately 527 employees and 4051 field managers focusing on big box retailers, pet super stores, large national discount chains, and grocery stores. This organization reorders products, details store shelves, and sets up in-store promotions. Many of the Company’sour largest customers use electronic data interchange (“EDI”) for handling of orders and invoices.

The Company employs

We employ what it believeswe believe to be the largest factory direct sales force in the industry. The sales force, which consists of over 250approximately 213 employees and is managed by 21 field managers, focuses on the F&I customers. The depth of the sales and service team enables Hillmanus to maintain consistent call cycles ensuring that all customers experience proper stock levels and inventory turns. This team also prepares custom plan-o-grams of displays to fit the needs of any store and establishes programs that meet customers’customers' requirements for pricing, invoicing, and other needs. This group also benefits from daily internal support from the Company’sour inside sales and customer service teams. On average, each sales representative is responsible for approximately 5560 full service accounts that the sales representative calls on approximately every two weeks.

These efforts, coupled with those of the marketing department, allow the sales force to sell and support itsour product lines. Hillman’sOur marketing department provides support through the development of new products and categories, sales collateral material, promotional items, merchandising aids, and custom signage. Marketing services such as advertising, graphic design, and trade show management are also provided to the sales force. The department is organized along Hillman’sour three marketing competencies: product management, channel marketing, and marketing communications.



Competition

The Company’s

Our primary competitors in the national accounts marketplace for fasteners are Illinois Tool Works Inc., Dorman Products Inc., Midwest Fastener Corporation, Primesource Building Products, Inc.,Inc, and Nova Capital.competition from direct import by our customers. Competition is based primarily on in-store service and price. Other competitors are local and regional distributors. Competitors in the pet tag market are specialty retailers, direct mail order, and retailers with in-store mail order capability. The Quick-Tag™, FIDO™, and TagWorks systems have patent protected technology that is a major barrier to entry and helps to preserve this market segment.

The principal competitors for Hillman’sour F&I business are Midwest FastenersFastener and Hy-Ko Products Company (“Hy-Ko”) in the hardware store marketplace. Midwest FastenersFastener primarily focuses on fasteners, while Hy-Ko is the major competitor in LNS products and

keys/key accessories. The Company’s management estimates that Hillman sells to approximately 63% of the full service hardware stores in the F&I marketplace. The hardware outlets that purchase Hillmanour products without regularly scheduled sales representative visits may also purchase products from local and regional distributors and cooperatives. Hillman competesWe compete primarily on field service, merchandising, as well as product availability, price, and depth of product line.

Products and Suppliers

Our vast product portfolio is recognized by top retailers across North America for providing consistent quality and innovation to DIYers and professional contractors. Our product strategy concentrates on providing total project solutions for common and unique home improvement projects. Our portfolio provides retailers the assurance that their shoppers can find the right product at the right price within an ‘easy to shop’ environment. We currently manage a worldwide supply chain of approximately 620 vendors, the largest of which accounted for approximately 5.0% of our annual purchases and the top five of which accounted for approximately 19.2% of our annual purchases. About 40.6% of our annual purchases are from non-U.S. suppliers, with the balance from U.S. manufacturers and master distributors. Our vendor quality control procedures include on-site evaluations and frequent product testing. Vendors are also evaluated based on delivery performance and the accuracy of their shipments.

Insurance Arrangements

Under the Company’sour current insurance programs, commercial umbrella coverage is obtained for catastrophic exposure and aggregate losses in excess of expected claims. Since 1991, the Company has retainedWe retain the exposure on certain expected losses related to workers’workers' compensation, general liability, and automobile. The Companyautomobile claims. We also retainsretain the exposure on expected losses related to health benefits of certain employees. The Company believesWe believe that itsour present insurance is adequate for itsour businesses. See Note 17,14 - Commitments and Contingencies, of Notes to Consolidated Financial Statements.

Employees

As of December 31, 2014, the Company30, 2017, we had 2,6053,482 full time and part time employees, none of which were covered by a collective bargaining agreement. In theour opinion, of the Company’s management, employee relations are good.

Backlog

The Company does

We do not consider the sales backlog to be a significant indicator of future performance due to the short order cycle of itsour business. The Company’sOur sales backlog from ongoing operations was approximately $5.1$10.4 million as of December 30, 2017 and approximately $9.0 million as of December 31, 2014 and approximately $4.4 million as of December 31, 2013. The Company expects2016. We expect to realize the entire December 31, 201430, 2017 backlog during 2015.

2018.

Where You Can Find More Information

The Company files

We file quarterly reports on Form 10-Q and annual reports on Form 10-K and furnishesfurnish current reports on Form 8-K and other information with the Securities and Exchange Commission (the “Commission”). You may read and copy any reports, statements, or other information filed by the Company at the Commission’sCommission's public reference rooms at 100 F Street, N.E., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for more information on the public reference rooms. The Commission also maintains an Internet site at www.sec.gov that contains quarterly, annual, and current reports, proxy and information statements, and other information regarding issuers, like Hillman, that file electronically with the Commission.

In addition, the Company’sour quarterly reports on Form 10-Q, and annual reports on Form 10-K, current reports on Form 8-K, and all amendments to those reports, are available free of charge on the Company’sour website at www.hillmangroup.com as soon as reasonably practicable after such reports are electronically filed with the SEC. The Company isCommission. We are providing the address to itsour website solely for the information of investors. The Company doesWe do not intend the address to be an active link or to incorporate the contents of the website into this report.

Item 1A - Risk Factors.

An investment in

You should carefully consider the Company’s securities involves certain risks as discussed below.following risks. However, the risks set forth below are not the only risks that the Company faces,we face, and we face other risks which have not yet been identified or which are not yet otherwise predictable. If any of the following risks occur or are otherwise realized, the Company’sour business, financial condition, and results of operations could be materially adversely affected. You should consider carefully the risks described below and all other information in this annual report,Annual Report on Form 10-K, including the Company’sour consolidated financial statements and the related notes and schedules thereto, priorthereto.
Risks Relating to making an investment decision with regard to the Company’s securities.

A prolongedOur Business



Unfavorable economic downturnconditions may adversely impact demand for our products, reduce access to credit, and cause our customers and others with which we do business to suffer financial hardship, all of which could adversely impactaffect our business, results of operations, financial condition, and cash flows.

Our business, financial condition, and results of operations have and may continue to be affected by various economic factors. The U.S. economy is experiencing an uneven recovery following a protracted slowdown, and the future economic environment may continue to be challenging. The economic slowdown led to reduced consumer and business spending and any delay in the recovery could lead to further reduced spending in the foreseeable future, including by our customers. In addition, a decline in economic conditions may result in financial difficulties leading to restructurings, bankruptcies, liquidations and other unfavorable events for our customers, suppliers, and other service providers. If such conditions deteriorate in 2015 or through 2016, our industry, business, and results of operations may be materially adversely impacted.

The Company’s business is impacted by general economic conditions in the U.S., Canada,North American and other international markets, particularly the U.S. retail markets including hardware stores, home centers, mass merchants, and other retailers. In recent quarters, operations have been negatively impacted by the slow growthThe current and future economic conditions in the U.S. economy,and internationally, including, high unemployment figureswithout limitation, the level of consumer debt, higher interest rates, and the contractionability of the retail market. Although there have been certain signs of improvementour customers to obtain credit, may cause a continued or further decline in business and consumer spending.

Adverse changes in economic conditions, including inflation, recession, or instability in the economy and stabilization of domesticfinancial markets or credit markets from the height of the financial crisis, general expectations callmay either lower demand for slow economic growth in the near term and itour products or increase our operational costs, or both. Such conditions may have the effect of reducing consumer spending which could adversely affectalso materially impact our results of operations during the next year.

If the current weakness continues in the retail markets including hardware stores, home centers, mass merchants,customers, suppliers, and other retail outletsparties with whom we do business and may result in North America, or generalfinancial difficulties leading to restructurings, bankruptcies, liquidations, and other unfavorable events for our customers, suppliers, and other service providers. Our revenue will be adversely affected if demand for our products declines. The impact of unfavorable economic conditions worsen, itmay also impair the ability of our customers to pay for products they have purchased and could have a material adverse effect on the Company’s business.

In the past several years, the Company’s business has been adversely affected by the decline in the North American economy, particularly with respect to retail markets including hardware stores, home centers, lumberyards,our results of operations, financial condition, and mass merchants. It is possible that this softness will continue or further deteriorate in 2015 or through 2016. To the extent that this decline persists or deteriorates, there is likely to be an unfavorable impact on demand for Company products which could have a material adverse effect on sales, earnings, and cash flows. In addition, due to current economic conditions, it is possible that certain customers’ credit-worthiness may erode and result in increased write-offsresults of customer receivables.

The Company operatesoperations.

We operate in a highly competitive industry, which may have a material adverse effect on itsour business, financial condition, and results of operations.

The retail industry is highly competitive, with the principal methods of competition being product innovation, price, quality of service, quality of products, product availability and timeliness, credit terms, and the provision of value-added services, such as merchandising design, in-store service, and inventory management. The Company encountersWe encounter competition from a large number of regional and national distributors, some of which have greater financial resources than the Companyus and may offer a greater variety of products. If these competitors are successful, the Company’sour business, financial condition, and results of operations may be materially adversely affected.

To compete successfully, the Companywe must develop and commercialize a continuing stream of innovative new products that create consumer demand.

Our long-term success in the current competitive environment depends on our ability to develop and commercialize a continuing stream of innovative new products, including those in our new mass merchant fastener program, which create and maintain consumer demand. The CompanyWe also facesface the risk that our competitors will introduce innovative new products that compete with the Company’sour products. The Company’sOur strategy includes increased investment in new product development and continued focus on innovation. There are, nevertheless, numerous uncertainties inherent in successfully developing and commercializing innovative new products on a continuing basis, and new product launches may not provide expected growth results.

The Company’s

Our business may be adversely affected by seasonality.

In general, the Company haswe have experienced seasonal fluctuations in sales and operating results from quarter to quarter. Typically, the first calendar quarter is the weakest due to the effect of weather on home projects and the construction industry. If adverse weather conditions persist on a regional or national basis into the second or other calendar quarters, the Company’sour business, financial condition, and results of operations may be materially adversely affected.

Large customer concentration and the inability to penetrate new channels of distribution could adversely affect the Company’sour business.

The Company’s

Our three largest customers constituted approximately 40.7%$383.7 million of net sales and 42.2%$21.3 million of the year-end accounts receivable balance for 2014.2017. Each of these customers is a big box chain store. As a result, the Company’sOur results of operations depend greatly on itsour ability to maintain existing relationships and arrangements with these big box chain stores. To the extent that the big box chain stores are materially adversely impacted by the current slow growth in economic condition,changing retail landscape, this could have a negative effect on our results of operations. The loss of one of these customers or a material adverse change in the relationship with these customers could have a negative impact on the Company’sour business. The Company’sOur inability to penetrate new channels of distribution, including ecommerce, may also have a negative impact on our future sales and business.

Successful sales and marketing efforts depend on the Company’sour ability to recruit and retain qualified employees.

The success of the Company’sour efforts to grow our business depends on the contributions and abilities of key executives, our sales force, and other personnel, including the ability of our sales force to achieve adequate customer coverage. The CompanyWe must therefore continue to


recruit, retain, and motivate management, sales, and other personnel to maintain our current business and to support our projected growth. A shortage of these key employees might jeopardize the Company’sour ability to implement our growth strategy.

The Company is

We are exposed to adverse changes in currency exchange rates.

Exposure to foreign currency risk resultsexists because the Company,we, through our global operations, entersenter into transactions and makesmake investments denominated in multiple currencies. The Company’sOur predominant exposures are in Canadian, Australian, Mexican, and Asian currencies, including the Chinese RenminbiYuan (“RMB”CNY”). In preparing the Company’sour consolidated financial statements, for foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates, and income and expenses are translated using weighted-average exchange rates. With respect to the effects on translated earnings, if the U.S. dollar strengthens relative to local currencies, the Company’sour earnings could be negatively impacted. The Company doesWe do not make a practice of hedging our non-U.S. dollar earnings.

The Company sources

We source many products from China and other Asian countries for resale in other regions. To the extent that the RMBCNY or other currencies appreciate with respect to the U.S. dollar, the Companywe may experience cost increases on such purchases. The RMB depreciated against the U.S. dollar by 2.5% in 2014, andCNY appreciated against the U.S. dollar by 2.8%6.3% in 2013,2017, and 1.0%depreciated by 7.2% in 2012.2016 and 4.4% in 2015. Significant appreciation of the RMBCNY or other currencies in countries where the Company sourceswe source our products could adversely impact the Company’s profitability.our profit ability. In addition, the Company’sour foreign subsidiaries in Canada and Mexico may purchase certain products from their vendors denominated in U.S. dollars. If the U.S. dollar strengthens compared to the local currencies, it may result in margin erosion. The Company hasWe have a practice of hedging some of itsour Canadian subsidiary’ssubsidiary's purchases denominated in U.S. dollars. The CompanyWe may not be successful at implementing customer pricing or other actions in an effort to mitigate the related cost increases and thus our results of operations may be adversely impacted.

The Company’s

Our results of operations could be negatively impacted by inflation or deflation in the cost of raw materials, freight, and energy.

The Company’s

Our products are manufactured of metals, including but not limited to steel, aluminum, zinc, and copper. Additionally, the Company useswe use other commodity-based materials in the manufacture of LNS that are resin-based and subject to fluctuations in the price of oil. The Company isWe are also exposed to fluctuations in the price of diesel fuel in the form of freight surcharges on customer shipments and the cost of gasoline used by the field sales and service force. Continued inflation over a period of years would result in significant increases in inventory costs and operating expenses. If the Company iswe are unable to mitigate these inflation increases through various customer pricing actions and cost reduction initiatives, the Company’sour financial condition may be adversely affected. Conversely, in the event that there is deflation, the Companywe may experience pressure from our customers to reduce prices. There can be no assurance that the Companywe would be able to reduce our cost base (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact the Company’sour results of operations and cash flows.

We are subject to the risks of doing business internationally.

A portion of our revenue is generated outside the United States, primarily from customers located in Canada, Mexico, Australia, Latin America, and the Caribbean. Because we sell our products and services outside the United States, our business is subject to risks associated with doing business internationally, which include:

changes in a specific country’scountry's or region’sregion's political and cultural climate or economic condition;

unexpected or unfavorable changes in foreign laws and regulatory requirements;

difficulty of effective enforcement of contractual provisions in local jurisdictions;

inadequate intellectual property protection in foreign countries;

the imposition of duties and tariffs and other trade barriers;
trade-protection measures, import or export licensing requirements such as Export Administration Regulations promulgated by the U.S. Department of Commerce, Economic Sanctions Laws and Regulations administered by the Office of Foreign Assets Control, and fines, penalties, or suspension or revocation of export privileges;

violations of the United States Foreign Corrupt Practices Act;

the effects of applicable and potentially adverse foreign tax law changes;

significant adverse changes in foreign currency exchange rates;

longer accounts receivable cycles;

managing a geographically dispersed workforce; and



difficulties associated with repatriating cash in a tax-efficient manner.

Any failure to adapt to these or other changing conditions in foreign countries in which we do business could have an adverse effect on our business and financial results.

The Company’s

Our business is subject to risks associated with sourcing product from overseas.

The Company imports

We import large quantities of our fastener products. Substantially all of our import operationsproducts which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements orand bilateral actions. We could be subject to the assessment of additional duties and interest if we or our suppliers fail to comply with customs regulations or similar laws. The U.S. Department of Commerce (the "Department”) has received requests from petitioners to conduct administrative reviews of compliance with anti-dumping duty and countervailing duty laws for certain nails products sourced from Asian countries. We sourced products under review from vendors in China and Taiwan during the periods currently open for review, and it is at least reasonably possible that we may be subject to additional duties pending the results of the review. We accrue for the duty expense once it is determined to be probable and the amount can be reasonably estimated. In the year ended December 30, 2017, we recorded expense of $6.3 million for anti-dumping duties, which is included in Cost of Goods Sold in the Consolidated Statement of Comprehensive Income (Loss) (see Note 14 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information).
In addition, the countries from which the Company’sour products and materials are manufactured or imported may, from time to time, impose additional quotas, duties, tariffs, or other restrictions on their importsexports or adversely modify existing restrictions. Adverse changes in these import costs and restrictions, or the Company’s suppliers’our suppliers' failure to comply with customs regulations or similar laws, could harm our business.
If any of our existing vendors fail to meet our needs, we believe that sufficient capacity exists in the Company’s business.

The Company’sopen market to supply any shortfall that may result. However, it is not always possible to replace a vendor on short notice without disruption in our operations which may require more costly expedited transportation expense, and replacement of a major vendor is often at higher prices.

Our ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes, severe weather, or increased homeland security requirements in the U.S. and other countries. These issues could delay importation of products or require the Companyus to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’sour business and financial condition.

Acquisitions have formed a significant part of our growth strategy in the past including the acquisition of Paulin in 2013, and may continue to do so. If we are unable to identify suitable acquisition candidates, successfully integrate an acquired business, or obtain financing needed to complete an acquisition, our growth strategy may not succeed.

Historically, the Company’sour growth strategy has relied on acquisitions that either expand or complement our businesses in new or existing markets, including the Paulin Acquisition in 2013, which expanded our presence in Canada.markets. However, there can be no assurance that the Companywe will be able to identify or acquire acceptable acquisition candidates on terms favorable to the Companyus and in a timely manner, if at all, to the extent necessary to fulfill Hillman’sour growth strategy.

The process of integrating acquired businesses into the Company’sour operations may result in unforeseen difficulties and may require a disproportionate amount of resources and management attention, and there can be no assurance that Hillmanwe will be able to successfully integrate acquired businesses into our operations.

Additionally, we may not achieve the anticipated benefits from any acquisition.

Unfavorable changes in the current economic environment may make it difficult to acquire businesses in order to further our growth strategy. We will continue to seek acquisition opportunities both to expand into new markets and to enhance our position in our existing markets. However, our ability to do so will depend on a number of factors, including our ability to obtain financing that we may need to complete a proposed acquisition opportunity which may be unavailable or available on terms that are not advantageous to us. If financing is unavailable, we may be forced to forego otherwise attractive acquisition opportunities which may have a negative effect on our ability to grow.

If the Companywe were required to write down all or part of our goodwill or indefinite-lived trade names, our results of operations could be materially adversely affected.

The Company has $621.6



We have $620.5 million of goodwill and $86.5$85.8 million of indefinite-lived trade names recorded on our Consolidated Balance Sheet at December 31, 2014. The Company is30, 2017. We are required to periodically determine if our goodwill or indefinite-lived trade names have become impaired, in which case we would write down the impaired portion of the intangible asset.portion. If the Companywe were required to write down all or part of our goodwill or indefinite-lived trade names, our net income could be materially adversely affected.

The Company’s

Our success is highly dependent on information and technology systems.

The Company believes

We believe that itsour proprietary computer software programs are an integral part of itsour business and growth strategies. Hillman dependsWe depend on itsour information systems to process orders, to manage inventory and accounts receivable collections, to purchase, sell, and ship products efficiently and on a timely basis, to maintain cost-effective operations, and to provide superior service to our customers. If these systems are damaged, intruded upon, shutdown, or cease to function properly (whether by planned upgrades, force majeure, telecommunications failures, hardware or software break-ins or viruses, other cyber-security incidents, or otherwise), the Companywe may suffer disruption in itsour ability to manage and operate itsour business.

There can be no assurance that the precautions which the Company haswe have taken against certain events that could disrupt the operations of our information systems will prevent the occurrence of such a disruption. Any such disruption could have a material adverse effect on the Company’sour business and results of operations.

In addition, we are in the process of implementing a newexpanding our enterprise resource planning (“ERP”) system to improve our business capabilities. Although it is not anticipated, any disruptions, delays, or deficiencies in the design and/or implementation of the new ERP system, or our inability to accurately predict the costs of such initiatives or our failure to generate revenue and corresponding profits from such activities and investments, could impact our ability to perform necessary business operations, which could adversely affect our reputation, competitive position, business, results of operations, and financial condition.

Unauthorized disclosure of sensitive or confidential customer, employee, supplier, or Company information, whether through a breach of our computer systems, including cyber-attacks or otherwise, could severely harm our business.

As part of our business, we collect, process, and retain sensitive and confidential personal information about our customers, employees, and suppliers. Despite the security measures we have in place, our facilities and systems, and those of the retailers and other third party distributors with which we do business, may be vulnerable to security breaches, cyber-attacks, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events. Any security breach involving the misappropriation, loss, or other unauthorized disclosure of confidential customer, employee, supplier, or Company information, whether by us or by the retailers and other third party distributors with which we do business, could result in losses, severely damage our reputation, expose us to the risks of litigation and liability, disrupt our operations, and have a material adverse effect on our business, results of operations, and financial condition. The regulatory environment related to information security, data collection, and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs.

Failure to adequately protect intellectual property could adversely affect our business.

Intellectual property rights are an important and integral component of our business. The Company attemptsWe attempt to protect our intellectual property rights through a combination of patent, trademark, copyright, and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. Failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business.

Risks

Regulations related to conflict minerals could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as “conflict minerals”, originating from the Democratic Republic of Congo (“DRC”) and adjoining countries. These rules could adversely affect the sourcing, supply, and pricing of materials used in our products, as the number of suppliers who provide conflict-free minerals may be limited. We may also suffer harm to our image if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to modify our products to avoid the use of such materials. We may also face challenges in satisfying customers who may require that our products be certified as containing conflict-free minerals.
We are subject to legal proceedings and legal compliance risks.
We are involved in various legal proceedings, which from time to time may involve class action lawsuits, state and federal governmental inquiries, audits and investigations, environmental matters, employment, tort, state false claims act, consumer


litigation, and intellectual property litigation. At times, such matters may involve executive officers and other management. Certain of these legal proceedings may be a significant distraction to management and could expose us to significant liability, including settlement expenses, damages, fines, penalties, attorneys' fees and costs, and non-monetary sanctions, any of which could have a material adverse effect on our business and results of operations.
Increases in the cost of employee health benefits could impact our financial results and cash flows.
Our expenses relating to employee health benefits are significant. Healthcare costs have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform have resulted and could continue to result in significant changes to the U.S. healthcare system. Unfavorable changes in the cost of such benefits could have a material adverse effect on our financial results and cash flows.
Risks Relating to Our Indebtedness

The Company has

We have significant indebtedness that could affect operations and financial condition and prevent the Companyus from fulfilling itsour obligations under itsour indebtedness.

The Company has

We have a significant amount of indebtedness. On December 31, 2014,30, 2017, total indebtedness was $983.3$989.4 million, consisting of $105.4$108.7 million of indebtedness of Hillman and $877.9$880.7 million of indebtedness of Hillman Group.

The Company’s

Our substantial indebtedness could have important consequences to investors in Hillman securities.consequences. For example, it could:

make it more difficult for the Companyus to satisfy obligations to holders of itsour indebtedness;

increase the Company’sour vulnerability to general adverse economic and industry conditions;

require the dedication of a substantial portion of cash flow from operations to payments on indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, research and development efforts, and other general corporate purposes;

limit flexibility in planning for, or reacting to, changes in the Company’sour business and the industry in which it operates;we operate;

place the Companyus at a competitive disadvantage compared to competitors that have less debt; and

limit the Company’sour ability to borrow additional funds.

In addition, the indenture governing The Hillman Group’sGroup's notes and its senior secured credit facilities contain financial and other restrictive covenants that limit the ability to engage in activities that may be in the Company’sour long-term best interests. The failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all outstanding debts.

Despite current indebtedness levels, the Company and its subsidiarieswe may still be able to incur substantially more debt. This could further exacerbate the risks associated with the Company’sour substantial leverage.

The Company

We may be able to incur substantial additional indebtedness in the future. The terms of the indenture do not fully prohibit the Company or our subsidiariesus from doing so. The senior secured credit facilities permit additional borrowing of $44.0 million on the revolving credit facility. If new debt is added to our current debt levels, the related risks that the Company and its subsidiarieswe now face could intensify.

The failure to meet certain financial covenants required by The Hillman Group’sour credit agreements may materially and adversely affect assets, financial position, and cash flows.

Certain aspects of the Company’sour credit agreements require the maintenance of a leverage ratio and limit our ability to incur debt, make investments, make dividend payments to holders of the Trust Preferred Securities, or undertake certain other business activities. In particular, our maximum allowed senior secured net leverage requirement is 6.50x as of December 31,

2014.30, 2017. A breach of the leverage covenant, or any other covenants, could result in an event of default under the credit agreements. Upon the occurrence of an event of default under the credit agreements, all amounts outstanding, together with accrued interest, could be declared immediately due and payable by our lenders. If this happens, our assets may not be sufficient to repay in full the payments due under the credit agreements. The current credit market environment and other macro-economic challenges affecting the global economy may adversely impact our ability to borrow sufficient funds or sell assets or equity in order to pay existing debt.

The Company is



We are subject to fluctuations in interest rates.

On June 30, 2014, Hillman and certain of its subsidiarieswe closed on a $620,000$620.0 million senior secured credit facility (the “Senior Facilities”), consisting of a $550,000$550.0 million term loan and a $70,000$70.0 million revolving credit facility (“Revolver”(the “Revolver”).

All of our indebtedness incurred in connection with the Senior Facilities has variable rate interest.interest rates. Increases in borrowing rates will increase our cost of borrowing, which may adversely affect our results of operations and financial condition.

Restrictions imposed by the indenture governing the notes,6.375% Senior Notes, and by our Senior Facilities and our other outstanding indebtedness, may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities.

The terms of Hillman Group’sour Senior Facilities and the indenture governing the notes restrict us and our subsidiaries from engaging in specified types of transactions. These covenants restrict our ability and the ability of our restricted subsidiaries, among other things, to:

incur or guarantee additional indebtedness;

pay dividends on our capital stock or redeem, repurchase, or retire our capital stock or indebtedness;

make investments, loans, advances, and acquisitions;

create restrictions on the payment ofpay dividends or other amounts to us from our restricted subsidiaries;

engage in transactions with our affiliates;

sell assets, including capital stock of our subsidiaries;

consolidate or merge; and

create liens.

In addition, the Revolver requires us to comply, under certain circumstances, with a maximum senior secured net leverage ratio covenant. Our ability to comply with this covenant can be affected by events beyond our control, and we may not be able to satisfy them. A breach of this covenant would be an event of default. In the event of a default under the Revolver, those lenders could elect to declare all amounts outstanding under the Revolver to be immediately due and payable or terminate their commitments to lend additional money, which would also lead to a cross-default and cross-acceleration of amounts owing under the term loan.Senior Facilities. If the indebtedness under our Senior Facilities or the notes were to be accelerated, our assets may not be sufficient to repay such indebtedness in full. In particular, note holders will be paid only if we have assets remaining after we pay amounts due on our secured indebtedness, including our Senior Facilities. We have pledged a significant portion of our assets as collateral under our Senior Facilities.

We may not be able to generate sufficient cash to service all of our indebtedness, including the notes, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the notes. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, or

restructure or refinance our indebtedness, including the notes.indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments and the indenture governing the notes may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our Senior Facilities and the indenture governing the notes will restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

Our ability to repay our debt including the notes, is affected by the cash flow generated by our subsidiaries.



Our subsidiaries own substantially all of our assets and conduct substantially all of our operations. Accordingly, repayment of our indebtedness including the notes, will be dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment, or otherwise. Unless they are guarantors of the notes, our subsidiaries will not have any obligation to pay amounts due on the notes or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the notes.indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the indenture governing the notes limits the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness,indebtedness.
Volatility and weakness in bank and capital markets may adversely affect credit availability and related financing costs for us.
Bank and capital markets can experience periods of volatility and disruption. If the disruption in these markets is prolonged, our ability to refinance, and the related cost of refinancing, some or all of our debt could be adversely affected. Additionally, during periods of volatile credit markets, there is a risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments. Although we currently can access the bank and capital markets, there is no assurance that such markets will continue to be a reliable source of financing for us. These factors, including the notes.

tightening of credit markets, could adversely affect our ability to obtain cost-effective financing. Increased volatility and disruptions in the financial markets also could make it more difficult and more expensive for us to refinance outstanding indebtedness and obtain financing. In addition, the adoption of new statutes and regulations, the implementation of recently enacted laws or new interpretations or the enforcement of older laws and regulations applicable to the financial markets or the financial services industry could result in a reduction in the amount of available credit or an increase in the cost of credit. Disruptions in the financial markets can also adversely affect our lenders, insurers, customers, and other counterparties. Any of these results could results in a material adverse effect to our business, financial condition, and results of operations.

Item 1B - Unresolved Staff Comments.

None.

Item 2 – Properties.

As of December 31, 2014, the Company’s30, 2017, our principal office, manufacturing, and distribution properties were as follows:



Business Segment

Approximate
Square
Footage
 Description

United States excluding All Points

Cincinnati, Ohio

  
Cincinnati, Ohio270,000
 Office, Distribution

Dallas, Texas (1)
166,000
Distribution
Fairfield, Ohio81,000
Distribution
Forest Park, Ohio

385,000
 Office, Distribution

Jacksonville, Florida

97,000
 Distribution

Lewisville, Texas

(1)81,000
 Distribution

Parma, Ohio

16,000
 Office, Distribution

Shafter, California

Pompano Beach, Florida		39,000
 Office, Distribution
Rialto, California134,000402,000
 Distribution

Tempe, Arizona

Shafter, California		134,000
 Distribution
Tempe, Arizona184,000
 Office, Mfg., Distribution

United States, All Points

Springdale, OH		28,000
 

Pompano Beach, Florida

39,000Office,Mfg., Distribution

Canada

Tyler, Texas (2)
202,000

Burnaby, British Columbia

29,000Distribution

Edmonton, Alberta

41,000Distribution

Laval, Quebec

36,000Distribution

Milton, Ontario

27,000Manufacturing

Mississauga, Ontario

65,000Manufacturing, Distribution

Moncton, New Brunswick

13,000Office, Distribution

Pickering, Ontario

191,000Distribution

Scarborough, Ontario

372,000
 Office, Mfg., Distribution

Winnipeg, Manitoba

Canada		  40,000
Burnaby, British Columbia29,000
 Distribution

Mexico

Edmonton, Alberta		41,000

Monterrey

13,000
 Distribution

Australia

Laval, Quebec		34,000
 Distribution
Milton, Ontario26,000
 Manufacturing

Melbourne

Mississauga, Ontario		25,000
Distribution
Moncton, New Brunswick16,000
Distribution
Pickering, Ontario301,000
Distribution
Scarborough, Ontario372,000
Office, Mfg., Distribution
Winnipeg, Manitoba42,000
Distribution
Mexico  16,000
Monterrey13,000
 Distribution

(1)The Company is moving from 81,000 square feet of space in a facility in Lewisville, Texas to a larger 166,000 square foot facility in Dallas, Texas. We expect to be fully moved in fiscal year 2018.
(2)The Company leases two facilities in Tyler, Texas. The first is a 139,000 square foot facility located at 2329 E. Commerce Street used for manufacturing and distribution. The second is a 63,000 square foot facility located at 6357 Reynolds Road used for offices, manufacturing, and distribution.
All of the Company’sCompany's facilities are leased, with the exception of one distribution facility located in Scarborough, Ontario. In the opinion of the Company’sCompany's management, the Company’sCompany's existing facilities are in good condition.

Item 3 – Legal Proceedings.

The information set forth under

We are subject to various claims and litigation that arise in the normal course of business. For a description of our material legal proceedings, see Note 17,14 - Commitments and Contingencies, to the accompanying consolidated financial statements included in this Annual Report on Form 10-K is incorporated herein by reference.

10-K.

Item 4 – Mine Safety Disclosures.

Not Applicable.



PART II

Item 5 – Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Stock Exchange Listing

The Company’s

Our common stock does not trade and is not listed on or quoted in an exchange or other market. The Trust Preferred Securities trade under the ticker symbol HLM.Pr"HLM.Pr." on the NYSE Amex. The following table sets forth the high and low sales prices as reported on the NYSE Amex for the Trust Preferred Securities.

2014

  High   Low 

First Quarter

  $31.00    $30.15  

Second Quarter

   31.40     29.80  

Third Quarter

   31.98     30.12  

Fourth Quarter

   32.24     30.60  

2013

  High   Low 

First Quarter

  $32.99    $29.98  

Second Quarter

   34.00     25.32  

Third Quarter

   31.00     28.68  

Fourth Quarter

   31.02     29.75  

2017High Low
First Quarter$34.00
 $32.00
Second Quarter34.75
 33.17
Third Quarter36.95
 32.26
Fourth Quarter34.90
 33.55
2016High Low
First Quarter$31.94
 $30.03
Second Quarter33.50
 31.31
Third Quarter34.74
 32.47
Fourth Quarter33.58
 32.30
The Trust Preferred Securities have a liquidation value of $25.00 per security. As of March 1, 2015,6, 2018, there were 382325 holders of Trust Preferred Securities. As of March 27, 2015,21, 2018, the total number of Trust Preferred Securities outstanding was 4,217,724. As of March 27, 2015, the Company’s21, 2018, our total number of shares of common stock outstanding was 5,000, held by one stockholder.

Distributions

The Company pays

We pay interest to the Hillman Group Capital Trust (the “Trust”) on the Junior Subordinated Debenturesjunior subordinated debentures underlying the Trust Preferred Securities at the rate of 11.6% per annum on their face amount of $105.4 million, or $12.2 million per annum in the aggregate. The Trust distributes an equivalent amount to the holders of the Trust Preferred Securities. For the years ended December 30, 2017 and December 31, 2014 and 2013, the Company2016, we paid $12.2 million per year in interest on the Junior Subordinated Debentures,junior subordinated debentures, which was equivalent to the amounts distributed by the Trust for the same periods.

Pursuant to the indenture that governs the Trust Preferred Securities, the Trust is able to defer distribution payments to holders of the Trust Preferred Securities for a period that cannot exceed 60 months (the “Deferral Period”). During the Deferral Period, the Company iswe are required to accrue the full amount of all interest payable, and such deferred interest payments are immediately payable by the Company at the end of the Deferral Period. There were no deferrals of distribution payments to holders of the Trust Preferred Securities in 20142017 or 2013.

2016.

The interest payments on the Junior Subordinated Debenturesjunior subordinated debentures underlying the Trust Preferred Securities are deductible for federal income tax purposes by the Company under current law and will remain anour obligation of the Company until the Trust Preferred Securities are redeemed or upon their maturity in 2027.

For more information on the Trust and Junior Subordinated Debentures,junior subordinated debentures, see “Item 7-Management’s7 - Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Unregistered Sales of Equity Securities
We made no sales of our equity securities during the year ended December 30, 2017.
Issuer Purchases of Equity Securities

The Company

We made no repurchases of our equity securities during 2014.

the year ended December 30, 2017.


Item 6 – Selected Financial Data.

The Company’s operations for the periods presented subsequent to the May 28, 2010 acquisition by the Oak Hill Funds and certain members of management but prior to June 30, 2014 are referenced herein as the Predecessor or Predecessor Operations. The Company’s operations for the periods presented since the Merger Transaction are referenced herein as the Successor or Successor Operations and include the effects of the Company’s debt refinancing. Periods prior to the acquisition by the Oak Hill Funds, certain members of management and Board of Directors are referred to below as the Pre-predecessor or Pre-predecessor Operations.

The following table sets forth selected consolidated financial data of the Pre-predecessor as of and for the five months ended May 28, 2010; and consolidated financial data of the Predecessor for the six months ended June 29, 2014, as of and for the years ended December 31, 2013, 2012, and 2011 and the seven months ended December 31, 2010; and consolidated financial data of the Successor as of and for the six months ended December 31, 2014. See the accompanying Notes to Consolidated Financial Statements and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding the acquisition of the Company by affiliates of CCMP Capital Advisors, LLC and the Oak Hill Funds and the Company’s debt refinancing as well as other acquisitions that affect comparability.

   Successor     Predecessor     Pre-
predecessor		 
(dollars in thousands)  Period from
6/30/2014
Through
12/31/14		      Six
Months
Ended
6/29/14		  Year
Ended
12/31/13		  Year
Ended
12/31/12		  Year
Ended
12/31/11		  Seven
Months
Ended
12/31/10		      Five
Months
Ended
5/28/10		 

Income Statement Data:

              

Net sales

  $377,292      $357,377   $701,641   $555,465   $506,526   $276,680      $185,716  

Cost of Sales (exclusive of depreciation and amortization)

   193,221       183,342    359,326    275,016    252,491    136,554       89,773  

Acquisition and integration expense (1)

   22,719       31,681    8,638    3,031    2,805    11,150       11,342  

Net loss

   (18,937)      (44,526)   (1,148)   (7,234)   (9,779)   (8,038)      (25,208) 
  

Balance Sheet Data at December 31:

              

Total assets

  $1,903,013       N/A   $1,264,856   $1,175,793   $1,127,851   $1,052,778       N/A  

Long-term debt & capital lease obligations (2)

   547,857       N/A    385,955    313,439    315,709    300,714       N/A  

6.375% Senior Notes

   330,000       N/A    —      —      —      —         N/A  

10.875% Senior Notes

   —         N/A    265,000    265,000    200,000    150,000       N/A  

(1)Acquisition and integration expenses for investment banking, legal, and other professional fees incurred in connection with the Merger Transaction and subsequent acquisitions.
(2)Includes current portion of long-term debt (at face value) and capitalized lease obligations.

Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation.

The following discussion provides information which the Company’s management believes is relevant to an assessment and understanding of the Company’s operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and related notes and schedules thereto appearing elsewhere herein.

Forward-Looking Statements

Certain disclosures related to acquisitions, refinancing, capital expenditures, resolution of pending litigation, and realization of deferred tax assets contained in this annual report involve substantial risks and uncertainties and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” “project,” or the negative of such terms or other similar expressions.

These forward-looking statements are not historical facts, but rather are based on management’s current expectations, assumptions, and projections about future events. Although management believes that the expectations, assumptions, and projections on which these forward-looking statements are based are reasonable, they nonetheless could prove to be inaccurate, and as a result, the forward-looking statements based on those expectations, assumptions, and projections also could be inaccurate. Forward-looking statements are not guarantees of future performance. Instead, forward-looking statements are subject to known and unknown risks, uncertainties, and assumptions that may cause the Company’s strategy, planning, actual results, levels of activity, performance, or achievements to be materially different from any strategy, planning, future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Actual results could differ materially from those currently anticipated as a result of a number of factors, including the risks and uncertainties discussed under the caption “Risk Factors” set forth in Item 1A of this annual report. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements.

All forward-looking statements attributable to the Company or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this annual report; they should not be regarded as a representation by the Company or any other individual. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this annual report might not occur or might be materially different from those discussed.

General

Hillman is one of the largest providers of hardware-related products and related merchandising services to retail markets in North America. The Company’s principal business is operated through its wholly-owned subsidiary, The Hillman Group, Inc. (the “Hillman Group”), which had net sales of approximately $734.7 million in 2014. Hillman Group sells our products to hardware stores, home centers, mass merchants, pet supply stores, and other retail outlets principally in the United States, Canada, Mexico, Australia, Latin America, and the Caribbean. Product lines include thousands of small parts such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; builder’s hardware; and identification items, such as tags and letters, numbers, and signs. The Company supports our product sales with services that include the design and installation of merchandising systems and maintenance of appropriate in-store inventory levels.

Merger Transaction

On June 30, 2014, affiliates of CCMP Capital Advisors, LLC (“CCMP”) and Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and OHCP III HC RO, L.P. (“Oak(collectively, “Oak Hill Funds”), together with certain current and former members of Hillman’sHillman's management, consummated a merger transaction (the “Merger Transaction”) pursuant to the terms and conditions of an Agreement and Plan of Merger dated as of May 16, 2014. As a result of the Merger Transaction, The Hillman Companies, Inc. remained a wholly-owned subsidiary of OHCP HM Acquisition Corp., which changed its name to HMAN Intermediate II Holdings Corp. (“Predecessor Holdco”), and became a wholly-owned subsidiary of HMAN Group Holdings Inc. (“Successor Holdco” or “Holdco”). The total consideration paid in the Merger Transaction was approximately $1.5 billion including repayment of outstanding debt and including the value of the Company’s outstanding junior subordinated debentures ($105.4 million liquidation value at the time of the Merger Transaction).

Prior to the Merger Transaction, the Oak Hill Funds owned 95.6% of the Predecessor Holdco’s outstanding common stock and certain current and former members of management owned 4.4% of the Predecessor Holdco’s outstanding common stock. Upon consummation of the Merger Transaction, affiliates of CCMP owned 80.4% of the Successor Holdco’s outstanding common stock, the Oak Hill Funds owned 16.9% of the Successor Holdco’s outstanding common stock, and certain current and former members of management owned 2.7% of the Successor Holdco’s outstanding common stock.

The Company’s consolidated balance sheet and its related statements of comprehensive loss, cash flows, and stockholders’ equity

Our operations for the periods presented prior to June 30, 2014 are referenced herein as the predecessor financial statements (the “Predecessor”). The Company’s consolidated balance sheet as of December 31, 2014 and its related statements of comprehensive loss, cash flows, and stockholders’ equityPredecessor or Predecessor Operations. Our operations for the periods presented subsequent tosince the Merger Transaction are referenced herein as the successorSuccessor or Successor Operations and include the effects of our debt refinancing.
The following table sets forth selected consolidated financial statements (the “Successor”).

Financing Arrangements

On June 30, 2014, Hillman and certain of its subsidiaries closed on a $620.0 million Senior Facilities consisting of a $550.0 million term loan and a $70.0 million Revolver. The term loan portiondata of the Senior Facilities has a sevenPredecessor for the six months ended June 29, 2014, as of and for the year termended December 31, 2013; and consolidated financial data of the Revolver has a five year term. ForSuccessor as of and for the first fiscal quarter after June 30, 2014, the Senior Facilities provide term loan borrowings at interest rates based on a LIBOR plus a LIBOR Spread of 3.50%, or an Alternate Base Rate (“ABR”) plus an ABR Spread of 2.50%. The LIBOR is subject to a minimum floor rate of 1.00% and the ABR is subject to a minimum floor of 2.00%. Additionally, the Senior Facilities provide Revolver borrowings at interest rates based on a LIBOR plus a LIBOR Spread of 3.25%, or an ABR plus an ABR Spread of 2.25%. There is no minimum floor rate for Revolver loans. After the initial fiscal quarter, the borrowing rate is adjusted quarterly on a prospective basis on each adjustment date based upon total leverage ratio for initial term loans and the senior secured leverage ratio for Revolver loans. For the fiscal quarter beginning aftersix months ended December 31, 2014 the term loan borrowings will be at an adjusted interest rate of 4.5% and the Revolver loans will be at interest rates based on Libor plus a Libor spread of 3.25% or an ABR plus an ABR spread of 2.25%.

Concurrent with the consummation of the Merger Transaction, Hillman Group issued $330.0 million aggregate principal amount of its senior notes due July 15, 2022 (the “6.375% Senior Notes”), which are guaranteed by Hillman Companies and its domestic subsidiaries other than the Hillman Group Capital Trust. Hillman Group pays interest on the 6.375% Senior Notes semi-annually on January 15 and July 15 of each year.

Prior to the consummation of the Merger Transaction, the Company, through Hillman Group, was party to a Senior Credit Agreement (the “Prior Credit Agreement”), consisting of a $30.0 million revolving credit line and a $384.4 million term loan. The facilities under the Prior Credit Agreement had a maturity date of May 28, 2017. In addition, the Company, through Hillman Group, had issued $265.0 million in aggregate principal amount of 10.875% Senior Notes that were scheduled to mature on June 1, 2018. In connection with the Merger Transaction, both the Prior Credit Agreement and the 10.875% Senior Notes were repaid and terminated.

In September 1997, The Hillman Group Capital Trust, a Grantor trust (the “Trust”), completed a $105.4 million underwritten public offering of 4,217,724 Trust Preferred Securities. The Trust invested the proceeds from the sale of the preferred securities in an equal principal amount of 11.6% Junior Subordinated Debentures of Hillman due September 2027. The Company pays interest to the Trust on the Junior Subordinated Debentures underlying the Trust Preferred Securities at the rate of 11.6% per annum on their face amount of $105.4 million, or $12.2 million per annum in the aggregate. The Trust distributes an equivalent amount to the holders of the Trust Preferred Securities. Pursuant to the Indenture that governs the Trust Preferred Securities, the Trust is able to defer distribution payments to holders of the Trust Preferred Securities for a period that cannot exceed 60 months (the “Deferral Period”). During a Deferral Period, the Company is required to accrue the full amount of all interest payable, and such deferred interest payable would become immediately payable by the Company at the end of the Deferral Period. There were no deferrals of distribution payments to holders of the Trust Preferred Securities in 2014 or 2013.

The Senior Facilities provide for customary events of default, including but not limited to, payment defaults, breach of representations or covenants, cross-defaults, bankruptcy events, failure to pay judgments, attachment of its assets, change of control, and the issuance of an order of dissolution. Certain of these events of default are subject to notice and cure periods or materiality thresholds. The Company is also required to comply, in certain circumstances, with a senior secured net leverage ratio covenant. This covenant only applies if, at the end of a fiscal quarter, there are outstanding Revolver borrowings in excess of 35% of the total revolving commitments. As of December 31, 2014, the Revolver loan had no amounts outstanding and the outstanding letters of credit were $3.7 million. The $3.7 million outstanding usage represented 5% of total revolving commitments and this financial covenant was not in effect. The occurrence of an event of default permits the lenders under the Senior Facilities to accelerate repayment of all amounts due. The Company was in compliance with all provisions and covenants of the Senior Facilities as of December 31, 2014.

Acquisitions

On February 19, 2013, the Company acquired all of the issued and outstanding Class A common shares of H. Paulin & Co., Limited (the “Paulin Acquisition”). The aggregate purchase price of the Paulin Acquisition was $103.4 million paid in cash. On March 31, 2013, H. Paulin & Co., Limited was amalgamated with The Hillman Group Canada ULC and continues as a division operating under the trade name of H. Paulin & Co. (“Paulin”).

Product Revenues

The following is revenue based on products for the Company’s significant product categories (in thousands):

   Successor       Predecessor 
   Period from
June 30, 2014
through
December 31,
2014		       Six months
ended
June 29,
2014		   Year
ended
December 31,
2013		   Year
ended
December 31,
2012		 

Net sales

           

Keys

  $48,327       $45,511    $90,518    $86,943  

Engraving

   25,465        24,065     48,442     48,979  

Letters, numbers and signs

   19,439        16,145     34,045     32,251  

Fasteners

   241,636        232,222     450,234     308,770  

Threaded rod

   16,269        16,535     31,802     33,326  

Code cutter

   1,425        1,392     2,680     2,851  

Builders hardware

   10,482        10,106     17,320     16,370  

Other

   14,249        11,401     26,600     25,975  
  

 

 

      

 

 

   

 

 

   

 

 

 

Consolidated net sales

$377,292   $357,377  $701,641  $555,465  
  

 

 

      

 

 

   

 

 

   

 

 

 

Results of Operations

Sales and profitability for the years ended December 31, 20142015 and 2013:

   Successor      Predecessor 
   Period from June 30, 2014
through December 31, 2014		      Six months ended
June 29, 2014		  Year ended
December 31, 2013		 
(dollars in thousands)  Amount  % of
Total		      Amount  % of
Total		  Amount  % of
Total		 

Net sales

  $377,292    100.0%     $357,377    100.0%  $701,641    100.0% 

Cost of sales (exclusive of depreciation and amortization shown separately below)

   193,221    51.2%      183,342    51.3%   359,326    51.2% 

Selling

   53,248    14.1%      55,312    15.5%   102,354    14.6% 

Warehouse & delivery

   44,585    11.8%      41,449    11.6%   78,606    11.2% 

General & administrative

   17,346    4.6%      20,772    5.8%   35,685    5.1% 

Stock compensation

   675    0.2%      39,229    11.0%   9,006    1.3% 

Transaction, acquisition and integration (a)

   22,719    6.0%      31,681    8.9%   8,638    1.2% 

Depreciation

   17,277    4.6%      14,149    4.0%   24,796    3.5% 

Amortization

   19,128    5.1%      11,093    3.1%   22,112    3.2% 

Management fees to related party

   276    0.1%      15    0.0%   77    0.0% 

Other expense (income), net

   576    0.2%      (277)   (0.1%)   4,600    0.7% 
  

 

 

  

 

 

     

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from operations

 8,241   2.2%   (39,388)  (11.0%)  56,441   8.0% 
 

Interest expense, net

 27,250   7.2%   23,150   6.5%  48,138   6.9% 

Interest expense on junior subordinated debentures

 6,305   1.7%   6,305   1.8%  12,610   1.8% 

Investment income on trust common securities

 (189)  (0.1%)   (189)  (0.1%)  (378)  (0.1%) 
  

 

 

  

 

 

     

 

 

  

 

 

  

 

 

  

 

 

 

Loss before income taxes

 (25,125)  (6.7%)   (68,654)  (19.2%)  (3,929)  (0.6%) 
 

Income tax benefit

 (6,188)  (1.6%)   (24,128)  (6.8%)  (2,781)  (0.4%) 
  

 

 

  

 

 

     

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

$(18,937)  (5.0%)  $(44,526)  (12.5%) $(1,148)  (0.2%) 
  

 

 

  

 

 

     

 

 

  

 

 

  

 

 

  

 

 

 

2016, and December 30, 2017.
 SuccessorPredecessor
(dollars in thousands)Year
Ended
12/30/17		Year
Ended
12/31/16		Year
Ended
12/31/15		Period from
6/30/2014
Through
12/31/14		Six
Months
Ended
6/29/14		Year
Ended
12/31/13
Income Statement Data:      
Net sales$838,368
$814,908
$786,911
$377,292
$357,377
$701,641
Cost of Sales (exclusive of depreciation and amortization)455,717
438,418
436,004
193,221
183,342
359,326
Acquisition and integration expense (1)
—
—
257
22,719
31,681
8,638
Income (loss) from operations36,985
41,515
27,398
8,241
(39,388)56,441
Net income (loss)58,648
(14,206)(23,083)(18,937)(44,526)(1,148)
Balance Sheet Data:      
Total assets$1,799,217
$1,781,636
$1,844,999
$1,880,230
N/A
$1,255,465
Long-term debt & capital lease obligations (2) (3)
550,685
536,572
570,277
547,857
N/A
385,955
11.6% Junior Subordinated Debentures108,704
108,704
108,704
108,704
N/A
108,704
 6.375% Senior Notes (3)
330,000
330,000
330,000
330,000
N/A
—
10.875% Senior Notes (3)
—
—
—
—
N/A
265,000
(a)Represents
(1)Acquisition and integration expenses for investment banking, legal, and other professional fees incurred in connection with the Merger Transaction and the Paulin Acquisition.previous significant acquisitions.

(2)Includes current portion of long-term debt (at face value) and capitalized lease obligations.
(3)
In connection with the Merger Transaction, the Company made changes to the debt structure. Prior to the Merger Transaction, we were party to a Senior Credit Agreement consisting of a $30 million revolving credit line and a $384.4 million term loan. Additionally, prior to the Merger Transaction, we had issued $265 million in 10.875% Senior Notes. In connection with the Merger Transaction both the Senior Credit agreement and 10.875% Senior notes were repaid and terminated. In connection with the Merger Transaction, we closed on a $620 million senior secured credit facility, consisting of a $550 million term loan and a $70 million revolver. Additionally, concurrent with the consummation of the Merger Transaction, we issued $330 million in 6.375% Senior Notes. See Note 7 - Long-Term Debt of the Notes to Consolidated Financial Statements for additional information on our current debt.

Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion provides information which our management believes is relevant to an assessment and understanding of our operations and financial condition. This discussion should be read in conjunction with the consolidated financial statements and related notes and schedules thereto appearing elsewhere herein. In addition, see “Safe Harbor Statement under


the Private Securities Litigation Reform Act of 1995 Regarding Forward-Looking Information”, as well as “Risk Factors” in Item 1A of this Annual Report.
General
Hillman is one of the largest providers of hardware-related products and related merchandising services to retail markets in North America. Our principal business is operated through our wholly-owned subsidiary, The Hillman Group, Inc. and its wholly-owned subsidiaries (collectively, “Hillman Group”), which had net sales of approximately $838.4 million in 2017. We sell our products to hardware stores, home centers, mass merchants, pet supply stores, and other retail outlets principally in the United States, Canada, Mexico, Latin America, and the Caribbean. Product lines include thousands of small parts such as fasteners and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; builder's hardware; and identification items, such as tags and letters, numbers, and signs. We support our product sales with services that include the design and installation of merchandising systems and maintenance of appropriate in-store inventory levels.
Current Economic Conditions

The Company’s

Our business is impacted by general economic conditions in the North American and international markets, particularly the U.S. and Canadian retail markets including hardware stores, home centers, mass merchants, and other retailers. In recent quarters, operations have been negatively impacted by the slow, uneven growth in the U.S. economy and the retail market we sell into. Although there have been certain signs of improvement in the economy and stabilization of domestic credit markets from the height of the financial crisis, general expectations do not call for significant economic growth to return in the near term and may have the effect of reducing consumer spending which could adversely affect our results of operations during the current year and beyond.

Hillman is

We are exposed to the risk of unfavorable changes in foreign currency exchange rates for the U.S. dollar versus local currency of our suppliers located primarily in China and Taiwan. Hillman purchasesWe purchase a significant variety of our products for resale from multiple vendors located in China and Taiwan. The purchase price of these products is routinely negotiated in U.S. dollar amounts rather than the local currency of the vendors and our suppliers’suppliers' profit margins decrease when the U.S. dollar declines in value relative to the local currency. This puts pressure on our suppliers to increase prices to us. The U.S. dollar declinedincreased in value relative to the Chinese renminbiCNY by approximately 0.25%by 4.4% in 2012, declined2015, by 2.94%7.2% in 2013,2016, and has increaseddecreased by 0.46% in 2014.6.3% during the year ended December 30, 2017. The U.S. dollar declinedincreased in value relative to the Taiwan dollar by approximately 3.8% in 2015, declined by 3.11%1.2% in 2012, increased2016, and declined by 3.75% in 2013, and has increased by 5.82% in 2014.

8.5% during the year ended December 30, 2017.

In addition, the negotiated purchase price of our products may be dependent upon market fluctuations in the cost of raw materials such as steel, zinc, and nickel used by our vendors in their manufacturing processes. The final purchase cost of our products may also be dependent upon inflation or deflation in the local economies of vendors in China and Taiwan that could impact the cost of labor used in the manufacturemanufacturing of our products. The Company doesWe identify the directional impact of changes in our product cost, but the quantification of each of these variable impacts cannot be measured as to the individual impact on our product cost with a sufficient level of precision.

We are also exposed to risk of unfavorable changes in Canadian dollar exchange rate versus the U.S. dollar. Our sales in Canada are denominated in Canadian dollars while a majority of the products are sourced in U.S. dollars. A weakening of the Canadian dollar versus the U.S. dollar results in lower sales in terms of U.S. dollars while the cost of sales remains unchanged. We have a practice of hedging some of our Canadian subsidiary's purchases denominated in U.S. dollars. The Company took pricing actionU.S. dollar increased in responsevalue relative to the increases to our product cost caused by the above factors. The pricing actions resulted in increasing revenuesCanadian dollar by approximately $12 million for19.3% in 2015, decreased by 3.0% in 2016, and decreased by 6.6% in 2017. In response, we implemented price increases in the year ended December 31, 2012. The Company has not taken significant pricing action since 2012, however, the CompanyCanada operating segment during 2015 and 2016. We may take future pricing action, when warranted, in an attempt to offset a portion of product cost increases. The ability of the Company’sour operating divisions to institute price increases and seek price concessions, as appropriate, is dependent on competitive market conditions.

Predecessor Period

Product Revenues
The following is revenue based on products for our significant product categories:
(dollars in thousands)Year Ended
December 30, 2017		 Year Ended
December 31, 2016		 Year Ended
December 31, 2015
Net sales     
Keys and key accessories$117,013
 $117,167
 $118,445
Engraving55,391
 53,477
 51,694
Letters, numbers and signs39,678
 38,660
 38,822
Fasteners and wall hanging548,101
 526,423
 498,935
Threaded rod36,887
 36,690
 36,230
Builders hardware36,265
 37,864
 36,501
Other5,033
 4,627
 6,284
Consolidated net sales$838,368
 $814,908
 $786,911


Results of January 1 – June 29, 2014 vs Operations
Results of operations for the years ended December 30, 2017 and December 31, 2016:
 Year Ended
December 30, 2017		 Year Ended
December 31, 2016
(dollars in thousands)Amount % of
Total		 Amount % of
Total
Net sales$838,368
 100.0 % $814,908
 100.0 %
Cost of sales (exclusive of depreciation and amortization shown separately below)455,717
 54.4 % 438,418
 53.8 %
Selling, general and administrative expenses274,044
 32.7 % 265,241
 32.5 %
Depreciation34,016
 4.1 % 32,245
 4.0 %
Amortization38,109
 4.5 % 37,905
 4.7 %
Management fees to related party519
 0.1 % 550
 0.1 %
Other expense (income), net(1,022) (0.1)% (966) (0.1)%
Income from operations36,985
 4.4 % 41,515
 5.1 %
Interest expense, net of investment income63,248
 7.5 % 63,411
 7.8 %
Loss before income taxes(26,263) (3.1)% (21,896) (2.7)%
Income tax benefit(84,911) (10.1)% (7,690) (0.9)%
Net income (loss)$58,648
 7.0 % $(14,206) (1.7)%
Year Ended December 30, 2017 vs December 31, 2013

2016

Net Sales

Net sales for the first six months of 2014year ended December 30, 2017 were $357.4$838.4 million, or $2.84$3.31 million per shipping day, compared to net sales of $701.6$814.9 million, or $2.82$3.22 million per shipping day for the year ended December 31, 2013.2016, an increase of approximately $23.5 million. The decreaseincrease from prior year was primarily driven by volume growth with big box retailers of $8.2 million, growth in revenueour Canada segment of $344.2$7.5 million, was directly attributable to comparing operating resultsand the acquisition of 126 shipping days in the first six months of 2014 to the results from 249 shipping days in the full year of 2013. The sales per shipping day of $2.84ST Fastening Systems which added $5.9 million in the first six monthsnet sales. Additionally, our commercial industrial sales increased $2.9 million due to higher hurricane related demand in 2017.
Cost of 2014Sales
Our cost of sales was approximately 0.7% higher than the$455.7 million, or 54.4% of net sales, per shipping day of $2.82 million in the full year of 2013. The inclusion of the Paulin business in the entire first six months of 2014 and sales improvement of fastener and key products contributed to the higher average sales per day amount.

Expenses

Operating expenses for the six monthsyear ended June 29, 2014 were $182.0 million, after excluding transaction costsDecember 30, 2017, an increase of $31.7$17.3 million compared to $281.3$438.4 million, or 53.8% of net sales, for the full year ended December 31, 2016. The increase of 2013. The decrease0.6% in operating expense iscost of sales, expressed as a percent of net sales, in 2017 compared to 2016 was primarily due to the shorter 126 day ship period$6.3 million of additional expense in the first six monthsyear ended December 30, 2017 for anti-dumping duties associated with nails imported from China from 2014 through 2016 (see Note 14 - Commitments and Contingencies of 2014 which provided favorable operating expense variances asthe Notes to Consolidated Financial Statements for additional information).

Expenses
Operating expenses and other income (expenses) were $10.7 million higher for the year ended December 30, 2017 compared to the 249 day ship period in the full year of 2013. The first six months of 2014 also includes a significant amount of operating expenses as a result of administrative, stock compensation, and transaction expense incurred in connection with the Merger Transaction.ended December 31, 2016. The following changes in underlying trends impacted the change in operating expenses and cost of sales:

expenses:
The Company’s cost of sales was $183.3 million, or 51.3% of net sales, in the first six months of 2014, compared to $359.3 million, or 51.2% of net sales, in the full year of 2013. The primary reason for the decrease in cost of sales was the shorter 126 day ship period in the first six months of 2014. Purchasing efficiencies and stable inventory prices allowed the cost of sales expressed as a percentage of net sales to remain nearly the same as the prior year.

Selling expense was $55.3$119.9 million or 15.5% of net sales, in the first six monthsyear ended December 30, 2017, an increase of 2014, a decrease of $47.1$3.1 million compared to $102.4$116.8 million or 14.6% of net sales,for the year ended December 31, 2016. The increase in the full year of 2013. The selling expense expressed as a percentage on net sales increased inwas primarily due the first six monthslaunch of 2014 compared to the full yearour new product line, High & Mighty, an innovative series of 2013 as a result of costs attributable to the new Paulin business, higher set up costs on customer displays, commissions ontool-free wall hangers, decorative hooks, key vending sales, and sales service payrollhook rails, and payroll benefit related expenditures.floating shelves.

Warehouse and delivery expense was $41.4expenses were $110.8 million or 11.6%for the year ended December 30, 2017, an increase of net sales, in the first six months of 2014, a decrease of $37.2$5.7 million compared to warehouse and delivery expenses of $105.1 million for the year ended December 31, 2016. We incurred approximately $5.4 million of additional warehouse expense in 2017 associated with the operations of $78.6 million, or 11.2%a new hub facility located on the U.S. West Coast, which became operational at the end of net sales, in the full year of 2013. In the first six monthsquarter of 2014, warehouse and delivery expense expressed as a percentage on net sales increased compared2017. The remaining increase was driven by the unfavorable conversion of local currency to the full year of 2013 as a result of expenses attributable to the new Paulin business together with higher freight rates.U.S. dollar for our Canadian operations.



General and administrative (“G&A”) expenses were $20.8 million, or 5.8% of net sales, in the first six months of 2014, a decrease of $14.9 million compared to $35.7 million, or 5.1% of net sales in the full year 2013. In the first six months of 2014, G&A expense expressed as a percentage on net sales increased compared to the full year of 2013 as a result of expenses attributable to the new Paulin business.

Stock compensation expenses from stock options primarily related to the Merger Transaction resulted in cost of $39.2$43.4 million in the first six months of 2014. The stock compensation expenseyear ended December 30, 2017 was $9.0consistent with $43.3 million in the full year of 2013. The increase in stock compensationended December 31, 2016.
Depreciation expense was the result of an increase in the fair value of the underlying common stock and accelerated vesting of stock options as a result of the Merger Transaction.

Transaction expenses of $31.7$34.0 million in the first six months of 2014 represent costs for investment banking, legal, and other expenses incurred in connection with the Merger Transaction. Acquisition and integration costs were $8.6year ended December 30, 2017 compared to $32.2 million in the full year of 2013 as a result ofended December 31, 2016. The primary reason for the Paulin Acquisition and integration.

Depreciation expense was $14.1 million in the first six months of 2014, a decrease of $10.7 million compared to $24.8 million in the full year of 2013. The decreaseincrease in depreciation expense was the resultfixed asset additions of the shorter period for the first six months of 2014 comparedkey and engraving machines and software related to the full year of 2013.our ERP system.

Amortization expense was $11.1of $38.1 million in the first six monthsyear ended December 30, 2017 was higher than the amortization expense of 2014, a decrease of $11.0 million compared to $22.1$37.9 million in the full year ended December 31, 2016 due to the amortization of 2013. The decrease in amortization expense was the resultintangible assets acquired as part of the shorter periodST Fastening Systems acquisition in 2017. See Note 5 - Acquisitions of the Notes to Consolidated Financial Statements for additional information.
Other income of $1.0 million for the first six months of 2014 compared toyear ended December 30, 2017 was consistent with other income for the full year of 2013.ended December 31, 2016.

Interest expense, net, was $23.2of $63.2 million in the first six months of 2014 compared to $48.1 million in the full year of 2013. The decrease in interest expense was the result of the shorter period for the first six months of 2014 compared to the full year of 2013.

Other (income) expense, netended December 30, 2017 was ($0.3) million in the first six months of 2014 compared to $4.6consistent with $63.4 million for the year ended December 31, 2013. The other expenses incurred in 2013 were primarily2016.
Results of Operations
Results of operations for the result of the restructuring costs incurred to streamline the warehouse distribution system.

Successor Period of June 30 –years ended December 31, 2014 vs Predecessor 2016 and 2015:

 Year Ended
December 31, 2016		 Year Ended
December 31, 2015
(dollars in thousands)Amount % of
Total		 Amount 
% of
Total
Net sales$814,908
 100.0 % $786,911
 100.0 %
Cost of sales (exclusive of depreciation and amortization shown separately below)438,418
 53.8 % 436,004
 55.4 %
Selling, general and administrative expenses265,241
 32.5 % 252,327
 32.1 %
Depreciation32,245
 4.0 % 29,027
 3.7 %
Amortization37,905
 4.7 % 38,003
 4.8 %
Management fees to related party550
 0.1 % 630
 0.1 %
Other expense (income), net(966) (0.1)% 3,522
 0.4 %
Income (loss) from operations41,515
 5.1 % 27,398
 3.5 %
Interest expense, net of investment income63,411
 7.8 % 62,815
 8.0 %
Loss before income taxes(21,896) (2.7)% (35,417) (4.5)%
Income tax benefit(7,690) (0.9)% (12,334) (1.6)%
Net loss$(14,206) (1.7)% $(23,083) (2.9)%
Year Ended December 31, 2013

2016 vs Year Ended December 31, 2015

Net Sales

Net sales for the last six months of 2014year ended December 31, 2016 were $377.3$814.9 million, or $3.07$3.22 million per shipping day, compared to net sales of $701.6$786.9 million, or $2.82$3.11 million per shipping day for the year ended December 31, 2013. The decrease in revenue of $324.3 million was directly attributable to comparing operating results of 123 shipping days in the last six months of 2014 to the results from 249 shipping days in the full year of 2013.2015. The sales per shipping day of $3.07 million in the last six months of 2014for 2016 was approximately 8.9%3.6% higher than the sales per shipping day of $2.82in 2015. The primary contributor for the higher sales during 2016 was $17.1 million in higher sales to big box retailers driven by the full yearcompletion of 2013. The inclusion of the Paulin businessa construction fastener products (“CFP”) product line rollout in 2015, $11.0 million in higher sales to traditional and regional hardware stores driven by new stores, and $5.2 million from an automotive fastener rollout in 2016. These increases were partially offset by a $3.0 million decrease in sales in Canada due to currency exchange rates and softening demand in the entire last six monthsretail and industrial markets.
Cost of 2014 andSales
Our cost of sales improvementwas $438.4 million, or 53.8% of fastener and key products contributed to the higher averagenet sales, per day amount.

Expenses

Operating expenses for the last six monthsyear ended December 31, 2016, an increase of 2014 were $152.5 million, after excluding transaction costs of $22.7$2.4 million compared to $281.3$436.0 million, or 55.4% of net sales, for the full year of 2013.ended December 31, 2015. The decrease of 1.6% in operating expense iscost of sales, expressed as a percent of net sales, in 2016 compared to 2015 was due primarily due to the shorter 123 day ship period$15.0 million reduction in air freight costs, domestic sourcing, and other costs associated with the introduction of the new CFP line in the last six months of 2014 which provided favorable operating expense variances asprior year.



Expenses
Operating expenses and other income (expenses) were $11.5 million higher for the year ended December 31, 2016 compared to the 249 day ship period in the full year of 2013. The last six months of 2014 also includes a significant amount of operating expenses as a result of increased depreciation and amortization expense incurred in connection with the Merger Transaction.ended December 31, 2015. The following changes in underlying trends impacted the change in operating expenses and cost of sales:

expenses:
The Company’s cost of sales was $193.2 million, or 51.2% of net sales, in the last six months of 2014, compared to $359.3 million, or 51.2% of net sales, in the full year of 2013. The primary reason for the decrease in cost of sales was the shorter 123 day ship period in the last six months of 2014. Purchasing efficiencies and stable inventory prices allowed the cost of sales expressed as a percentage of net sales to remain the same as the prior year.

Selling expense was $53.2$116.8 million or 14.1% of net sales, in the last six monthsyear ended December 31, 2016, an increase of 2014, a decrease of $49.1$6.5 million compared to $102.4$110.3 million or 14.6% of net sales,for the year ended December 31, 2015. The increase in the full year of 2013. The selling expense expressed aswas primarily due to $7.4 million increase in compensation and benefits expense to accommodate sales growth with big box retail and traditional customers that was partially offset by a percentage on net sales decreaseddecrease in the last six months of 2014 compared to the full year of 2013 as a result of less sales travelexpenses associated with new product and customer display expense.rollouts.

Warehouse and delivery expense was $44.6expenses were $105.1 million or 11.8%for the year ended December 31, 2016, an increase of net sales, in the last six months of 2014, a decrease of $34.0$5.5 million compared to warehouse and delivery expenseexpenses of $78.6$99.6 million or 11.2% of net sales,for the year ended December 31, 2015. The increase in the full year of 2013. In the last six months of 2014, warehouse and delivery expenses was primarily due to $3.0 million increase in compensation and benefits expense, expressed as a percentage$1.2 million increase in storage to accommodate sales growth with big box retail and traditional customers, and $0.6 million increase in freight. Additionally, we incurred approximately $1.1 million of warehouse expense in 2016 associated with the opening of hub facility located on net sales increased compared to the full year of 2013 as a result of expenses attributable to the new Paulin business together with higher freight rates.U.S. West Coast.

G&A expenses were $17.3$43.3 million or 4.6% of net sales, in the last six monthsyear ended December 31, 2016, an increase of 2014, a decrease of $18.4$0.8 million compared to $35.7$42.5 million or 5.1% of net sales in the full year 2013. Inended December 31, 2015. The increase was primarily due to $4.0 million in higher compensation and benefits, $1.2 million in higher legal fees in 2016 related to our lawsuit against Minute Key Inc. (see Note 14 - Commitments and Contingencies of the last six months of 2014, G&ANotes to Consolidated Financial Statements for additional information). These increases were partially offset by a $5.5 million decrease in consulting expense expressed as a percentage of net sales decreased compared to the full year of 2013 as a result of an adjustment to management bonuses for the reduced earnings level in 2014.ended December 31, 2015.

Stock compensation expenses from stock options of the successor company resulted in cost of $0.7Depreciation expense was $32.2 million in the last six months of 2014. The stock compensation expense was $9.0year ended December 31, 2016 compared to $29.0 million in the full year of 2013.ended December 31, 2015. The 2013 stock compensation expense wasprimary reason for the result of an increase in the fair value of the underlying common stock.

Transaction expenses of $22.7 million in the last six months of 2014 represent costs for investment banking, legal, and other expenses incurred in connection with the Merger Transaction. Acquisition and integration costs were $8.6 million in the full year of 2013 as a result of the Paulin Acquisition and integration.

Depreciation expense was $17.3 million in the last six months of 2014, a decrease of $7.5 million compared to $24.8 million in the full year of 2013. The decrease in depreciation expense was the resultfixed asset additions of key and engraving machines and software related to our ERP system.
Amortization expense of $37.9 million in the shorter periodyear ended December 31, 2016 is consistent with the amortization expense of $38.0 million in the year ended December 31, 2015.
Other income was $1.0 million for the last six months of 2014year ended December 31, 2016 compared to the full yearother expense of 2013. In addition, the monthly rate of depreciation expense increased in the last six months of 2014 as a result of a higher amount of fixed assets acquired in connection with the Merger Transaction.

Amortization expense was $19.1$3.5 million in the last six months of 2014, a decrease of $3.0 million compared to $22.1 million in the full year of 2013.ended December 31, 2015. The decrease in amortization expense was the result of the shorter period for the last six months of 2014 comparedprimarily due to the full year of 2013. In addition, the monthlygain on interest rate of amortization expense increased in the last six months of 2014 as a result of a higher amount of intangible assets acquired in connection with the Merger Transaction.swaps when adjusted to fair value and gains on currency revaluation.

Interest expense, net, was $27.3$63.4 million for the year ended December 31, 2016 compared to $62.8 million in the last six months of 2014 compared to $48.1 million in the full year of 2013.ended December 31, 2015. The decreaseincrease in interest expense was the result of the shorter period for the last six monthsvariable component of 2014 compared to the full year of 2013. In addition, the monthlyour interest rate of interest expense increased in the last six months of 2014 as a result of a higher amount of debt acquired in connection with the Merger Transaction.

Other (income) expense, net was $0.6 million in the last six months of 2014 compared to $4.6 million for the year ended December 31, 2013. The other expenses incurred in 2013 were primarily the resultswaps which started on October 1, 2015 (see Note 12 - Derivatives and Hedging of the restructuring costs incurredNotes to streamline the warehouse distribution system.

Results of Operations

Sales and profitabilityConsolidated Financial Statements for the year ended December 31, 2013 and December 31, 2012:

   Year ended
December 31, 2013		  Year ended
December 31, 2012		 
(dollars in thousands)  Amount   % of
Total		  Amount   % of
Total		 

Net sales

  $701,641     100.0%  $555,465     100.0% 

Cost of sales (exclusive of depreciation and amortization shown below)

   359,326     51.2%   275,016     49.5% 

Selling

   102,354     14.6%   90,498     16.3% 

Warehouse & delivery

   78,606     11.2%   58,097     10.5% 

General & administrative

   44,691     6.4%   39,735     7.2% 

Acquisition and integration

   8,638     1.2%   3,031     0.5% 

Depreciation

   24,796     3.5%   22,009     4.0% 

Amortization

   22,112     3.2%   21,752     3.9% 

Management and transaction fees to related party

   77     0.0%   155     0.0% 

Other (income) expense, net

   4,600     0.7%   4,204     0.8% 
  

 

 

   

 

 

  

 

 

   

 

 

 

Income from operations

 56,441   8.0%  40,968   7.4% 

Interest expense

 48,138   6.9%  41,138   7.4% 

Interest expense on junior subordinated debentures

 12,610   1.8%  12,610   2.3% 

Investment income on trust common securities

 (378)  (0.1%)  (378)  (0.1%) 
  

 

 

   

 

 

  

 

 

   

 

 

 

Loss before taxes

 (3,929)  (0.6%)  (12,402)  (2.2%) 

Income tax benefit

 (2,781)  (0.4%)  (5,168)  (0.9%) 
  

 

 

   

 

 

  

 

 

   

 

 

 

Net loss

$(1,148)  (0.2%) $(7,234)  (1.3%) 
  

 

 

   

 

 

  

 

 

   

 

 

 

Year Ended December 31, 2013 vs Year Ended December 31, 2012

Net Sales

Net sales for the year ended December 31, 2013 were $701.6 million, an increase of $146.1 million compared to net sales of $555.5 million for the year ended December 31, 2012. The increase in revenue was primarily attributable to the acquisition of the Paulin business in 2013 which contributed approximately $130.4 million in incremental net sales to the 2013 period. Our national accounts, All Points, Mexico, and F&I businesses provided favorable revenue gains compared to the prior year, however a decline in retail activity and a reduced level of product penetration in the 2013 period resulted in revenue decreases from the prior year in our engraving and regional accounts.

Expenses

Operating expenses were substantially higher for the year ended December 31, 2013 than for the year ended December 31, 2012. The primary reasons for the increase in operating expenses were the inclusion of the Paulin business for approximately ten months of 2013 and the increase in stock compensation expense. These costs were partially offset by the settlement of the Hy-Ko antitrust case and legal costs related to the Hy-Ko patent infringement and antitrust litigation recorded in 2012. The following changes in underlying trends also impacted the change in operating expenses and cost of sales:

The Company’s cost of sales was $359.3 million, or 51.2% of net sales, in the year ended December 31, 2013 compared to $275.0 million, or 49.5% of net sales, in the year ended December 31, 2012. The cost of sales percentage in the 2013 period was higher than the comparable 2012 period as a result of the inclusion of the Paulin business which increased cost of sales by 2.5% expressed as a percent of sales. The favorable change in the cost of sales percentage for 2013 excluding Paulin was the result of favorable changes in product cost and sales mix.

Selling expense was $102.4 million, or 14.6% of net sales, in the year ended December 31, 2013 compared to $90.5 million, or 16.3% of net sales, in the year ended December 31, 2012. Selling expense of approximately $9.6 million was attributable to the new Paulin business in the 2013 period. In 2013, selling expense excluding the Paulin business expressed as a percentage of sales was approximately equal to the prior year.

Warehouse and delivery expense was $78.6 million, or 11.2% of net sales, in 2013, an increase of $20.5 million compared to warehouse and delivery expense of $58.1 million, or 10.5% of net sales, in 2012. Warehouse and delivery expense of approximately $18.6 million was attributable to the new Paulin business in the year of 2013. The costs in the remaining Hillman businesses were up approximately $1.9 million from the prior year period primarily from increased warehouse lease cost and freight on customer shipments.

G&A expenses were $44.7 million, or 6.4% of net sales in 2013, an increase of $5.0 million compared to $39.7 million, or 7.2% of net sales in 2012. G&A expenses in the 2013 period included approximately $9.0 million in stock compensation cost and approximately $8.3 million in costs from the new Paulin business. G&A expenses in 2012 included approximately $11.7 million in legal fees and settlements related to the Hy-Ko patent infringement and antitrust cases.

Acquisition and integration costs were $8.6 million for the year ended December 31, 2013 primarily as a result of charges for investment banking, legal, and other expenses incurred in connection with the acquisition of Paulin. The acquisition and integration costs were $3.0 million for the year ended December 31, 2012 as a result of charges for investment banking, legal, and other expenses incurred in connection with the acquisitions of Paulin and Ook.

Depreciation expense was $24.8 million for the year ended December 31, 2013 compared to $22.0 million for the prior year. The higher amount of depreciation expense for the 2013 period was primarily due to the additional depreciation expense of the fixed assets acquired as a result of the Paulin Acquisition.information).

Amortization expense was $22.1 million for the year ended December 31, 2013 compared to $21.8 million for the prior year. The slightly higher amount of amortization expense for the 2013 period was due to the additional amortization expense of certain intangible assets acquired as a result of the Paulin Acquisition.

Interest expense, net, was $48.1 million for the year ended December 31, 2013 compared to $41.1 million in the prior year. The increase in interest expense was primarily the result of the Company’s higher borrowing levels in both the $265.0 million aggregate principal amount of the 10.875% Senior Notes and the Senior Facilities during 2013 compared to 2012.

Other (income) expense, net was $4.6 million for the year ended December 31, 2013 compared to $4.2 million for the year ended December 31, 2012. The other expenses incurred in 2013 and 2012 were primarily the result of the restructuring costs incurred to streamline the warehouse distribution system.

Results of Operations – Operating Segments

The following table provides supplemental information of our sales and profitability by operating segment (in 000’s)thousands):

   Successor       Predecessor 
   Period from
6/30/2014
through
12/31/2014		       Six Months
Ended
6/29/2014		   Year
Ended
12/31/2013		   Year
Ended
12/31/2012		 
          

Segment Revenues

           
 

United States, excluding All Points

  $293,219       $269,009    $541,037    $517,135  

All Points

   9,362        10,238     20,798     18,837  

Canada

   70,566        73,867     132,158     12,555  

Mexico

   3,507        3,620     6,842     6,268  

Australia

   638        643     806     670  
  

 

 

      

 

 

   

 

 

   

 

 

 

Total revenues

$377,292   $357,377  $701,641  $555,465  
  

 

 

      

 

 

   

 

 

   

 

 

 

Segment Income (Loss) from Operations

 
 

United States, excluding All Points

$5,072   $(44,830) $52,255  $42,896  

All Points

 655    896   1,737   881  

Canada

 3,189    4,214   2,847   (3,050) 

Mexico

 73    446   629   787  

Australia

 (748)   (114)  (1,027)  (546) 
  

 

 

      

 

 

   

 

 

   

 

 

 

Total income (loss) from operations

$8,241   $(39,388) $56,441  $40,968  
  

 

 

      

 

 

   

 

 

   

 

 

 

Predecessor Period of January 1 – June 29, 2014 vs

 Year Ended
December 30, 2017		 Year Ended
December 31, 2016		 Year Ended
December 31, 2015
Segment Revenues     
United States$693,599
 $677,526
 $645,658
Canada137,800
 130,255
 133,152
Other6,969
 7,127
 8,101
Total revenues$838,368
 $814,908
 $786,911
Segment Income (Loss) from Operations     
United States$32,583
 $42,148
 $33,438
Canada2,881
 932
 (5,436)
Other1,521
 (1,565) (604)
Total income from operations$36,985
 $41,515
 $27,398


Year Ended December 30, 2017 vs December 31, 2013

2016

Net Sales

Net sales for the first six months of 2014 were $357.4year ended December 30, 2017 increased $23.5 million compared to the net sales for the year ended December 31, 2016. Net sales for our United States operating segment increased by $16.1 million from the prior year primarily driven by $8.2 million of $701.6volume growth with big box retailers and the acquisition of ST Fastening Systems which added $5.9 million in net sales. Additionally, our U.S. commercial industrial sales increased $2.9 million due to higher hurricane related demand in 2017.
Net sales for our Canada operating segment increased by $7.5 million. The increase was due to $5.3 million in retail volume and $2.2 million from the favorable impact of conversion of the local currency to U.S. dollars. The revenue impact of the remaining operating segments was not material to the overall variance between the two periods.
Income (loss) from Operations

Income from operations for the year ended December 31, 2013. The decrease in revenue of $344.230, 2017 decreased $4.5 million was directly attributable to comparing operating results of 126 shipping days in the first six months of 2014 to the results from 249 shipping days in the full year of 2013. Although the net sales of each operating segment were less in the first six months of 2014 compared to the full year ended December 31, 2016.

Income from operations of 2013, operatingour United States segment sales were comparable to first six months of 2013. The Paulin business contributeddecreased by approximately $0.9$9.5 million in incremental salesthe year ended December 30, 2017 to the US segment and $13.3$32.6 million from $42.1 million in incrementalthe year ended December 31, 2016.  The decrease was the result of higher cost of goods sold as a percentage of net sales, tohigher SG&A costs, and higher depreciation expense that offset the Canada segment during the first six monthsincrease in net sales. Our cost of 2014.

Expenses

The operating expenses were substantially lower for the first six monthsgoods sold was 52.0% of 2014 thannet sales for the year ended December 31, 2013. The decrease in operating expenses of $67.6 million was directly attributable to comparing operating results of 126 shipping days in the first six months of 2014 to the results from 249 shipping days in the full year of 2013.

Cost of sales for the US segment was $127.9 million, or 47.6% of net sales in the first six months of 201430, 2017 compared to $259.4 million, or 48.0% for the full year51.1% of 2013. The cost of sales of the Canada segment was $45.9 million, or 62.2% in the first six months of 2014 compared to $80.7 million, or 61.0% of net sales for the full year of 2013. In the first six months of 2014, unfavorable fluctuations in the Canadian dollar exchange rate resulted in higher costs for the Canada segment.

SG&A expense for the US segment was $131.0 million for the first six months of 2014 compared to $179.9 million in 2013. The decrease in the first six months of 2014 compared to the full year of 2013 was primarily the result of fewer days of operations which was partially offset by $39.2 million in stock compensation cost related to the Merger Transaction. The SG&A expense of the Canada segment was $22.3 million in the first six months of 2014 compared to $39.1 million in the full year of 2013.

Transaction, Acquisition, and Integration (“TA&I”) expense for the US segment was $31.7 million in the first six months of 2014 primarily related to the Merger Transaction. The TA&I expense was $3.0 million in 2013 for the US segment. There was no TA&I expense for the Canada segment in the first six months of 2014 and $5.6 million in the full year of 2013 as a result of expenses for investment banking, legal, and other expenses incurred in connection with the acquisition of Paulin.

Depreciation and amortization expense for the US segment was $23.4 million in the first six months of 2014 and $43.5 million in the full year of 2013. The primary reason for the decrease in expense was the comparison of a six month period of 2014 to a twelve month period in 2013.

Other (income) expense, net in the US segment was ($0.2) million in the first six months of 2014 compared to $2.8 million in the full year of 2013 as a result of a decrease in restructuring costs incurred to streamline the warehouse distribution system. Other (income) expense in the Canada segment was approximately ($0.3) million in the first six months of 2014 compared to $1.0 million in 2013 as a result of exchange rate losses in 2013. Other (income) expense in the Australia segment was approximately ($0.1) million in the first six months of 2014 compared to $0.6 million in 2013 as a result of exchange rate losses.

Successor Period of June 30 – December 31, 2014 vs Predecessor Year Ended December 31, 2013

Net Sales

Net sales for the last six months of 2014 were $377.3 million compared to net sales of $701.6 million for the year ended December 31, 2013. The decrease in revenue of $324.3 million was directly attributable to comparing operating results of 123 shipping days in the last six months of 2014 to the results from 249 shipping days in the full year of 2013. Although the net sales of each operating segment were less in the last six months of 2014 compared to the full year of 2013, operating segment sales were comparable to last six months of 2013. The Paulin business contributed approximately $11.8 million in incremental sales to the Canada segment during the last six months of 2014.

Expenses

The operating expenses were substantially lower for the last six months of 2014 than for the year ended December 31, 2013. The decrease in operating expenses of $106.0 million was directly attributable to comparing operating results of 123 shipping days in the last six months of 2014 to the results from 249 shipping days in the full year of 2013.

Cost of sales for the US segment was $138.6 million, or 47.3% of net sales in the last six months of 2014 compared to $259.4 million, or 48.0% for the full year of 2013. The cost of sales of the Canada segment was $45.6 million, or 64.6% in the last six months of 2014 compared to $80.7 million, or 61.0% of net sales for the full year of 2013. In the last six months of 2014, unfavorable fluctuations in the Canadian dollar exchange rate resulted in higher costs for the Canada segment.

SG&A expense for the US segment was $91.9 million for the last six months of 2014 compared to $179.9 million in 2013. The decrease in the last six months of 2014 compared to the full year of 2013 was primarily the result of fewer days of operations and less stock compensation expense. The SG&A expense of the Canada segment was $20.6 million in the last six months of 2014 compared to $39.1 million in the full year of 2013.

TA&I expense for the US segment was $22.1 million in the last six months of 2014 primarily related to the Merger Transaction. The TA&I expense was $3.0 million in 2013 for the US segment. There was $0.6 million in TA&I expense related to the Merger Transaction for the Canada segment in the last six months of 2014 and $5.6 million in the full year of 2013 as a result of expenses for investment banking, legal, and other expenses incurred in connection with the acquisition of Paulin.

Depreciation and amortization expense for the US segment was $33.8 million in the last six months of 2014 and $43.5 million in the full year of 2013. The primary reason for the decrease in expense was the comparison of a six month period of 2014 to a twelve month period in 2013 although the last six months of 2014 include depreciation and amortization expense on the stepped up value of fixed and intangible assets as a result of the independent valuation conducted in connection with the Merger Transaction.

Other (income) expense, net in the US segment was $1.6 million in the last six months of 2014 compared to $2.8 million in the full year of 2013 primarily as a result of a decrease in restructuring costs incurred to streamline the warehouse distribution system. Other (income) expense in the Canada segment was ($1.8) million in the last six months of 2014 primarily due to gains on foreign currency derivatives. Other (income) expense was $1.0 million in 2013 as a result of exchange rate losses.

Year Ended December 31, 2013 vs Year Ended December 31, 2012

Net Sales

Net sales for the year ended December 31, 20132016 primarily due to $6.3 million of additional expense in the year ended December 30, 2017 for anti-dumping duties associated with nails imported from China from 2014 through 2016 (see Note 14 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information). SG&A expenses were $8.5 million higher in the year ended December 30, 2017 compared to the year ended December 31, 2016 primarily due to $5.4 million in higher warehousing costs for expenses associated with our new hub facility located on the West Coast. Selling expense increased $146.1$3.2 million primarily due to costs associated with the launch of our new product line, High & Mighty, an innovative series of tool-free wall hangers, decorative hooks, key and hook rails, and floating shelves. Depreciation expense was $1.3 million higher in the United States segment in the year ended December 30, 2017 due to capital expenditures for key and engraving machines and software related to our ERP system partially offset by certain assets becoming fully depreciated.


Income from operations of our Canada segment increased by $2.0 million in the year ended December 30, 2017 to $2.9 million as compared to $0.9 million in the year ended December 31, 2016. The increase was due to higher sales and a decrease in cost of goods sold as a percentage of sales that was partially offset by higher SG&A expense related to restructuring charges in the year ended December 30, 2017. Cost of goods sold as a percentage of sales was 65.8% in the year ended December 30, 2017 as compared to 66.4% in the year ended December 31, 2016 due to change in product mix.


In the year ended December 31, 2016, we decided to exit the Australia market following the withdrawal from Australia of a key customer and we recorded charges of $1.0 million in the Other segment related to the write-off of inventory and other assets. In the year ended December 30, 2017, we fully liquidated our Australian subsidiary and reclassified the cumulative translation adjustment to income. The $0.6 million cumulative translation adjustment gain was recorded as Other Income on the Consolidated Statement of Comprehensive Income (Loss).
Year Ended December 31, 2016 vs Year Ended December 31, 2015
Net Sales
Net sales for the year ended December 31, 2016 increased $28.0 million compared to the net sales for the year ended December 31, 2012.2015. Net sales for our United States operating segment increased by $31.9 million. The US, All Points, and Canada operating segments generated increased net sales of $23.9increase was due to $17.1 million $2.0 million, and $119.6 million, respectively. The acquisition of the Paulin business in 2013 contributed approximately $11.1 million in sales to the US segment and $119.3 million in sales to the Canada segment. The remaining increase in US sales was the result of higher sales to Lowe’s, Home Depotour big box retail customers on higher demand and our F&I customers. The All Points sales increased by $2.0 million as a resultthe completion of the improving economic conditionsnew CFP product line rollout in 2015, $11.0 million in higher sales to traditional and regional hardware stores driven by new stores, and $5.2 million from an automotive fastener rollout in 2016. Net sales for our Canada operating segment decreased by $2.9 million due to the central and southern Florida markets they serve.

Expenses

impact of unfavorable conversion of their local currency to U.S. dollars. The revenue impact of the remaining operating expenses were substantially highersegments was not material to the overall variance between the two periods.



Income (loss) from Operations

Income from operations for the year ended December 31, 2013 than for2016 increased $14.1 million compared to the year ended December 31, 2012. The primary reasons for the increase in operating expenses was the inclusion2015.

Income from operations of portions of the Paulin businessour United States segment increased by approximately $8.7 million in the US and Canada operating segments and the increase in stock compensation expenses recorded in the US segment.

Cost of sales for the US segment was $259.4year ended December 31, 2016 to $42.1 million or 48.0% of net salesas compared to $33.4 million in the year ended December 31, 20132015. In addition to the sales increase discussed above, cost of sales expressed as a percentage of net sales decreased from 52.7% in 2015 to 51.1% in 2016 due to reduced costs driven by our strategic sourcing initiatives and lower air freight costs, domestic sourcing, and other costs associated with the introduction of the new CFP line in the prior year. The improvements in sales and cost of sales were partially offset by increases in selling costs of $8.1 million and warehouse and delivery cost of $7.7 million associated with the higher sales volume and inflation. Depreciation expense increased $3.4 million due to the fixed asset additions of key and engraving machines and software related to our ERP system. General and administrative costs increased $0.6 million due to higher legal fees in 2016 related to our lawsuit against Minute Key Inc. (see Note 14 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional information). These increases were partially offset by a decrease in consulting expense as compared to $248.0the year ended December 31, 2015.

Income from operations of our Canada segment increased by $6.4 million or 48.0%in the year ended December 31, 2016 to $0.9 million as compared to a loss from operations of net sales$5.4 million in the year ended December 31, 2012. The cost2015. Cost of sales of the Canada segment was $80.7 million, or 61.0%expressed as a percentage of net sales for 2013decreased from 68.1% in 2015 to 66.4% in 2016 due to the implementation of price increases and customer mix that translated to $1.3 million improvement in gross margin compared to $9.02015 despite lower sales due to the unfavorable impact of currency conversion rates. Operating costs decreased $3.1 million or 71.5% of net salesprimarily due to higher selling and warehousing costs in the year ended December 31, 2012. The US and Canada segments included incremental Paulin related cost of sales of $8.0 million and $72.9 million, respectively.

SG&A expense2015 for the US segmenta new customer roll out. Other income was $179.9$0.7 million in 2013 compared to $177.3 million in 2012. The increase in 2013 was primarily the result of the higher sales volume, stock compensation cost of $9.0 million and Paulin expense of $2.5 million which were partially offset by approximately $11.7 million in legal fees and settlements related to the Hy-Ko patent infringement and antitrust cases settled in 2012. The SG&A expense of the Canada segment was $39.1 million in 2013 compared to $5.1 million in 2012. The primary reason for the increase in the Canada segment SG&A was the addition of $34.1 million from the acquisition of Paulin.

TA&I expense for the US segment was $3.0 million in 2013 compared to $1.5 million in 2012. The TA&I expense for the Canada segment was $5.6 million in 2013 compared to $1.6 million in 2012. The TA&I expenses in both segments and both years were primarily the result of expenses for investment banking, legal, and other expenses incurred in connection with the acquisition of Paulin.

Depreciation and amortization expense in the Canada segment was $2.9 million in 2013 compared to $0.1 million in 2012. The primary reason for the increase in 2013 expense was the acquisition of Paulin which provided incremental depreciation of $2.2 million and incremental amortization of $0.6 million.

Other (income) expense, net in the US segment was $2.8 million in 2013 compared to $4.3 million in 2012 as a result of a decrease in restructuring costs incurred to streamline the warehouse distribution system. Other expense in the Canada segment was approximately $1.0 million in 20132016 compared to other (income)expense of ($0.2)$1.0 million in 2012primarily as a result of exchange rate gains in 2016 compared to losses in 20132015.


In the year ended December 31, 2016, we decided to exit the Australia market following the withdrawal from Australia of a key customer and gains in 2012. Other expensewe recorded charges of $1.0 million in the AustraliaOther segment was approximately $0.6 million in 2013 comparedrelated to $0.1 million in 2012 as a resultthe write-off of exchange rate losses.inventory and other assets.


Income Taxes

Year Ended December 31, 2014 and Year Ended30, 2017 vs December 31, 2013

2016

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law making significant changes to the Internal Revenue Code.  Changes include, among other things, a permanent corporate rate reduction to 21% requiring a remeasurement of the Company’s U.S. net deferred tax liabilities, a change in U.S. international taxation to a modified territorial system including a mandatory deemed repatriation on certain unrepatriated earnings of foreign subsidiaries (“Transition Tax”), and providing for additional first-year depreciation that allows full expensing of qualified property placed into service after September 27, 2017.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which allows registrants to record provisional amounts during a one year "measurement period". However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed.

There are provisions of the 2017 Tax Act that are effective in 2018 which may impact income taxes in future years including: an exemption from U.S. tax on dividends of future foreign earnings, limitation on the current deductibility of net interest expense in excess of 30 percent of adjusted taxable income, a limitation of net operating losses generated after fiscal 2018 to 80 percent of taxable income, an incremental tax (base erosion anti-abuse tax or BEAT) on excessive amounts paid to foreign related parties, and a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or GILTI). The Company is reviewing the impact of these provisions and will make adjustments to income tax expense upon completion of the review.

In the year ended December 30, 2017, we recorded an income tax benefit of $84.9 million on a pre-tax loss of $26.3 million. The effective income tax rate was 24.6%323.3% for the six month Successor period from Juneyear ended December 30, 2014 through2017. In the year ended December 31, 2014 and2016, we recorded an income tax benefit of $7.7 million on a pre-tax loss of $21.9 million. The effective income tax rate was 35.1% and 70.8% for


the six month and twelve month Predecessor periodsyear ended June 29, 2014 and December 31, 2013, respectively.

2016.

The effective income tax rate differed from the federal statutory tax rate in the six month Successor period Juneyear ended December 30, 2014 through December 31, 2014 and the six month Predecessor period ended June 29, 20142017 primarily due to certain non-deductible costs associated with the Merger Transaction.remeasurement of our net deferred tax liabilities required by the 2017 Tax Act. We recorded approximately $75 million of an income tax benefit as a result of the remeasurement. The remaining differences between the effective income tax rate also differed fromand the federal statutory rate in the six month Successor period Juneyear ended December 30, 2014 through2017 were attributable to other provisions of the 2017 Tax Act and state and foreign income taxes.

Year Ended December 31, 2014 and2016 vs. December 31, 2015

In the six month Predecessor periodyear ended June 29, 2014, due to a current period benefit caused by the effect of changes in certain stateDecember 31, 2016, we recorded an income tax ratesbenefit of $7.7 million on a pre-tax loss of $21.9 million. The effective income tax rate was 35.1% for the Company’s deferredyear ended December 31, 2016. In the year ended December 31, 2015, we recorded an income tax assets and liabilities.

benefit of $12.3 million on a pre-tax loss of $35.4 million. The effective income tax rate was 34.8% for the year ended December 31, 2015.

The effective income tax rate differed from the federal statutory tax rate in the twelve month Predecessor periodyear ended December 31, 20132016 primarily due to a decreasean increase in the reserve for unrecognized tax benefits. In addition, due to the cumulative loss recognized in previous years and in the current year in Australia, any tax benefit recorded is offset by the valuation allowance recorded against the subsidiary's loss. While the tax benefit is offset by the valuation allowance, the loss decreases total income utilized in calculating the effective rate during the year ended December 31, 2016. The effective income tax rate in the year ended December 31, 2016 was also differed fromaffected by the benefit recorded to reconcile the 2015 income tax return as filed to the tax provision recorded for financial statement purposes. The remaining differences between the effective income tax rate and the federal statutory rate in the twelve month Predecessor periodyear ended December 31, 2013 due to the decrease in the valuation reserve recorded against certain deferred tax assets in addition to the effect of state rates.

The remaining differences between the federal statutory rate and the effective tax rate in the six month Successor period June 30, 2014 through December 31, 2014 and the six and twelve month Predecessor periods ended June 29, 2014 and December 31, 2013, respectively,2016 were primarily due to state and foreign income taxes. See Note 6, Income Taxes, of Notes to Consolidated Financial Statements for income taxes and disclosures related to 2014 and 2013 income tax events.

Year Ended December 31, 2013 and Year Ended December 31, 2012

The effective income tax rates were 70.8% and 41.7% for the twelve month Predecessor periods ended December 31, 2013 and 2012, respectively. The effective income tax rate differed from the federal statutory rate in the twelve month Predecessor periods ended December 31, 2013 and 2012 primarily due to a decrease in the reserve for unrecognized tax benefits, as well as the effect of foreign and state taxes. The effective income tax rate also differed from the federal statutory rate in the twelve month Predecessor period ended December 31, 2013 due to the decrease in the valuation reserve recorded against certain deferred tax assets in addition to the effect of state rates. See Note 6, Income Taxes, of Notes to Consolidated Financial Statements for income taxes and disclosures related to 2013 and 2012 income tax events.




Liquidity and Capital Resources

Cash Flows

The statements of cash flows reflect the changes in cash and cash equivalents for the six months ended December 31, 2014 (Successor), six months period ended June 29, 2014 (Predecessor), and for the years ended December 30, 2017, December 31, 2013 (Predecessor)2016 and 2012 (Predecessor)2015 by classifying transactions into three major categories: operating, investing, and financing activities. The cash flows from the Merger Transaction are separately discussed below.

Merger Transaction

In connection with the Merger Transaction, Successor Holdco issued common stock for $542.9 million in cash. Proceeds from borrowings under the Senior Facilities provided an additional $566.0 million and proceeds from the 6.375% Senior Notes provided $330.0 million, less net aggregate financing fees of $26.4 million. The debt and equity proceeds were used to repay the existing senior debt, 10.875% Senior Notes, and accrued interest thereon of $657.6 million, to repurchase the existing shareholders’ common equity and stock options of $729.6 million. The remaining proceeds were used to pay transaction expenses of $22.0 million and prepaid expenses of $0.1 million.

Operating Activities

Excluding $40.2 million in cash used for the Merger Transaction, net cash provided by operating activities for the six months ended December 31, 2014 was $28.0 million and was the result of the net loss of $3.1 million adjusted for non-cash items of $39.5 million for depreciation, amortization, dispositions of equipment, deferred taxes, deferred financing, stock-based compensation, and other non-cash interest together with cash related adjustments of $8.4 million for routine operating activities, represented by changes in accounts receivable, inventories, accounts payable, accrued liabilities, and other assets. During the period from June 30, 2014 through December 31, 2014, routine operating activities provided cash through a decrease in accounts receivable of $22.4 million, an increase in accounts payable of $6.2 million. This was partially offset by an increase in inventories of $14.6 million, a decrease in other accrued liabilities of $14.5 million, an increase in other items of $0.7 million, a decrease in interest payable on junior subordinated debentures of $1.0 million, and an increase in other assets of $6.1 million.

Net cash provided by operating activities for the six months periodyear ended June 29, 2014 of $11.7 millionDecember 30, 2017 was approximately $82.9 million.  Operating cash flows for the result of theyear ended December 30, 2017 were favorably impacted by our focus on reducing net loss of $44.5 million adjusted for non-cash items of $41.3 million for depreciation, amortization, deferred taxes, deferred financing, and stock-based compensation together with cash related adjustments of $14.9 million for routine operating activities represented by changes in accounts receivable, inventories, accounts payable, accrued liabilities, and other assets. In the first six months of 2014, routine operating activities used cash through an increase in accounts receivable of $25.2 million, an increase in inventories of $17.9 million, and an increase in other items of $3.8 million. This was partially offset by an increaseworking capital which translated to improvements in accounts payable of $20.8 million, an increase inand other accrued liabilities of $31.2 million, decrease in other assets of $8.8 million, and an increase of $1.0 million in interest payable on the junior subordinated debentures. In the first six months of 2014, increases in the accounts payable and accrued liabilities provided cash that was primarily used for seasonal increases in accounts receivable and inventory.

liabilities. Net cash provided by operating activities for the year ended December 31, 2013 of $41.52016 was approximately $77.5 million and was generatedfavorably impacted by theour focus on reducing net loss of $1.1 million adjusted for non-cash charges of $54.0 million for depreciation, amortization, dispositions of equipment, deferred taxes, deferred financing, stock-based compensation, and other non-cash interestworking capital which was partially offset by cash related adjustments of $12.5 million for routine operating activities represented by changes in inventories, accounts receivable, accounts payable, accrued liabilities, and other assets. In 2013, routine operating activities used cash for an increase in inventories of $11.5 million, an increasetranslated to improvements in accounts receivable of

$9.1 million and other assets of $4.1 million while operating activities provided cash from an increase in accounts payable of $8.4 million, an increase of accrued liabilities of $2.7 million and an increase in other items of $1.1 million.

inventory. Net cash provided byused for operating activities for the year ended December 31, 2012 of $23.32015 was approximately $2.2 million and was generatedunfavorably impacted by the net loss of $7.2 million adjusted for non-cash charges of $33.3 million for depreciation, amortization, dispositions of equipment, deferred taxes, deferred financing, stock-based compensation, and other non-cash interest which was partially offset by cash related adjustments of $10.0 million for routine operating activities represented by changes in inventories, accounts receivable, accounts payable, accrued liabilities, and other assets. In 2012, routine operating activities used cash for an increase in inventoriesinventory of $10.2approximately $49.0 million an increaserelated to the rollouts of the new CFP line and new customers in other assets of $4.1, and a decrease in accounts payable of $2.2 million while operating activities provided cash from a decrease in accounts receivable of $1.4 million, an increase of accrued liabilities of $5.0 million, and other items of $0.1 million.

2015.

Investing Activities

Excluding $729.6 million in cash used for the Merger Transaction, net cash used by investing activities for the six months ended December 31, 2014 was $15.0 million and consisted of $5.3 million for key duplicating machines, $2.6 million for engraving machines, $4.3 million for computer software and equipment, and $2.8 million for machinery and equipment.

Capital expenditures for the six months ended June 29, 2014 totaled $12.9 million, consisting of $6.7 million for key duplicating machines, $2.9 million for engraving machines, $2.8 million for computer software and equipment, and $0.5 million for machinery and equipment.

Net cash used for investing activities was $140.7$100.1 million, $41.4 million, and $26.0 million for the years ended December 30, 2017 and December 31, 2016 and 2015, respectively. Cash was used in all periods to invest in new, state of the art key cutting technology, the KeyKrafter™, as well as engraving machines and the implementation of our ERP system in Canada. Additionally, in the year ended December 30, 2017, we acquired ST Fastening Systems with a cash payment of $47.2 million (see Note 5 - Acquisitions of the Notes to Consolidated Financial Statements for additional information).
Financing Activities
Net cash provided by financing activities was $14.4 million for the year ended December 31, 2013.30, 2017. The Company used $103.4 million for the Paulin Acquisition. Capital expenditures for the year totaled $38.0 million, consisting of $22.8 million for key duplicating machines, $5.4 million for engraving machines, $5.7 million for computer software and equipment, and $4.1 million for plant equipment and other equipment purchases. The Company received $0.8 million in proceeds from the sale of property and equipment.

Net cash used for investing activities was $24.3 million for the year ended December 31, 2012. Capital expenditures for the year totaled $24.3 million, consisting of $12.1 million for key duplicating machines, $5.5 million for engraving machines, $5.6 million for computer software and equipment, and $1.1 million for plant equipment and other equipment purchases.

Financing Activities

Excluding $763.2 million in net cashborrowings on revolving credit loans provided by borrowings and capital contributions related to the Merger Transaction, net cash used for financing activities was $17.9 million for the period from June 30, 2014 through December 31, 2014.$35.5 million. The Company used $16.0 million of cash for the repayment of revolving credit loans $2.8 million of cash for the repayment of senior term loans and $0.1 million for the repayment of other credit and capitalized lease obligations. The Company received cash of $1.0 million from the sale of securities to a Board member.

Net cash used for financing activities was $0.6 million for the six months ended June 29, 2014. The Company received cash of $0.5 million from the exercise of stock options and used cash to pay $1.0 million in principal payments on the senior term loans under the Senior Facilities and $0.1 million in principal payments under capitalized lease obligations.

Net cash provided by financing activities was $69.0 million for the year ended December 31, 2013. The borrowings on senior term loans provided $73.6 million, including the discount of $3.2 million and were used to pay the purchase price of the Paulin Acquisition. Other borrowings, net, used an additional $0.9 million in cash.

Net cash provided by financing activities was $54.4 million for the year ended December 31, 2012. The borrowings on senior notes provided $69.2 million, including the premium received of $4.2 million, and were used together with the net proceeds from the term loan financing to pay a portion of the purchase price of the Paulin Acquisition, to repay a portion of indebtedness under the revolving credit facility, and for general Company purposes. During 2012, the Company used cash to make payments of $12.4 million for additional acquisition consideration and $3.2$5.5 million for principal payments on the senior term loans. Other

Net cash used for financing activities was $33.2 million for the year ended December 31, 2016. The borrowings neton revolving credit loans provided an additional $0.8$16.0 million. The Company used $44.0 million in cash.

Liquidity

of cash for the repayment of revolving credit loans and $5.5 million for principal payments on the senior term loans.



Net cash provided by financing activities was $22.2 million for the year ended December 31, 2015. The Company’s management believesborrowings on revolving credit loans provided $55.0 million. The Company used $27.0 million of cash for the repayment of revolving credit loans and $5.5 million for principal payments on the senior term loans.
Liquidity
We believe that projected cash flows from operations and Revolver availability will be sufficient to fund working capital and capital expenditure needs for the next 12 months.

The Company’s

Our working capital (current assets minus current liabilities) position of $231.3$191.0 million as of December 31, 201430, 2017 represents a decrease of $7.5$23.2 million from the December 31, 20132016 level of $238.8$214.2 million.

Contractual Obligations

The Company’s

Our contractual obligations as of December 31, 201430, 2017 are summarized below:

       Payments Due 
(dollars in thousands)  Total   Less Than
One Year		   1 to 3
Years		   3 to 5
Years		   More Than
Five Years		 

Junior Subordinated Debentures (1)

  $130,685    $—      $—      $—      $130,685  

Interest on Jr Subordinated Debentures

   155,950     12,231     24,463     24,463     94,793  

Long Term Senior Term Loans

   547,250     5,500     11,000     11,000     519,750  

6.375% Senior Notes

   330,000     —       —       —       330,000  

KeyWorks License Agreement

   2,370     419     792     737     422  

Interest payments (2)

   313,558     45,652     90,607     89,672     87,627  

Operating Leases

   61,546     10,192     13,778     9,814     27,762  

Deferred Compensation Obligations

   2,244     494     —       —       1,750  

Capital Lease Obligations

   687     243     343     96     5  

Purchase Obligations (3)

   846     263     583     —       —    

Other Obligations

   2,253     946     1,045     262     —    

Uncertain Tax Position Liabilities

   435     —       —       58     377  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Contractual Cash Obligations (4)

$1,547,824  $75,940  $142,611  $136,102  $1,193,171  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   Payments Due
(dollars in thousands)Total 
Less Than
One Year
 
1 to 3
Years
 
3 to 5
Years
 
More Than
Five Years
Junior Subordinated Debentures (1)
$108,704
 $—
 $—
 $—
 $108,704
Interest on Jr Subordinated Debentures119,256
 12,231
 24,463
 24,463
 58,099
Long Term Senior Term Loans530,750
 5,500
 11,000
 514,250
 —
Bank Revolving Credit Facility19,500
 —
 19,500
 —
 —
6.375% Senior Notes330,000
 —
 —
 330,000
 —
KeyWorks License Agreement1,159
 375
 712
 72
 —
Interest payments (2)
191,217
 49,917
 96,385
 44,915
 —
Operating Leases72,426
 13,854
 21,105
 16,200
 21,267
Deferred Compensation Obligations2,294
 752
 —
 —
 1,542
Capital Lease Obligations435
 206
 210
 19
 —
Other Obligations2,159
 775
 1,107
 277
 —
Uncertain Tax Position Liabilities1,101
 —
 —
 1,101
 —
Total Contractual Cash Obligations (3)
$1,379,001
 $83,610
 $174,482
 $931,297
 $189,612
(1)The junior subordinated debenturesJunior Subordinated Debentures liquidation value is approximately $108,704.
(2)Interest payments for borrowings under the Senior Facilities, the 6.375% Senior Notes, and Revolver borrowings. Interest payments on the variable rate Senior Term Loans were calculated using the actual interest rate of 4.50%5.19%, excluding the impact of interest rate swaps, as of December 31, 2014.30, 2017. Interest payments on the 6.375% Senior Notes were calculated at their fixed rate and interest payments on Revolver borrowings were calculated using the actualadjusted interest rate of 3.41%6.75%.
(3)The Company has a purchase agreement with our supplier of key blanks which requires minimum purchases of 100 million key blanks per year. To the extent minimum purchases of key blanks are below 100 million, the Company must pay the supplier $0.0035 per key multiplied by the shortfall. Since the inception of the contract on 1998, the Company has purchased more than the requisite 100 million key blanks per year from the supplier. In 2013, the Company extended this contract for an additional three years.
(4)(3)All of the contractual obligations noted above are reflected on the Company’sCompany's consolidated balance sheet as of December 31, 201430, 2017 except for the interest payments, purchase obligations, and operating leases.

Off-Balance Sheet Arrangements

The Company does

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended.

Borrowings

As of December 31, 2014, the Company had $66.3 million available under our secured credit facilities. The Company had approximately $547.9 million of outstanding debt under our secured credit facilities at December 31, 2014, consisting of $547.3 million in term loans and $0.6 million in capitalized lease and other obligations. The term loans consisted of $547.3 million in Term B Loans at a three month LIBOR rate plus margin of 4.50%. The capitalized lease and other obligations were at various interest rates.

At December 31, 2014 and 2013, the Company borrowings were as follows:

   December 31, 2014  December 31, 2013 
   Facility   Outstanding   Interest  Facility   Outstanding   Interest 
(dollars in thousands)  Amount   Amount   Rate  Amount   Amount   Rate 

Term B Loan

    $547,250     4.50%    $385,399     3.75% 

Revolving credit facility

  $70,000     —       —     $30,000     —       —    

Capital leases & other obligations

     607     various      556     various  
    

 

 

      

 

 

   

Total secured credit

 547,857   385,955  

Senior notes

 330,000   6.375%  265,000   10.875% 
    

 

 

      

 

 

   

Total borrowings

$877,857  $650,955  
    

 

 

      

 

 

   

Descriptions of the Company’s credit agreement governing the Senior Facilities, as amended, and the 6.375% Senior Notes are contained in the “Financing Arrangements” section of this annual report on Form 10-K.

Terms of the Senior Facilities subject the Company to a revolving facility test condition whereby a senior secured leverage ratio covenant of no greater than 6.5 times last twelve months Adjusted EBITDA comes into effect if more than 35% of the total Revolver commitment is drawn or utilized in letters of credit at the end of a fiscal quarter. If this covenant comes into effect, it may restrict the Company’s ability to incur debt, make investments, pay dividends to holders of the Trust Preferred Securities, or undertake certain other business activities. As of December 31, 2014, the total revolving credit commitment of the Company was 5% utilized.

Adjusted EBITDA

The reconciliation of Net Loss to Adjusted EBITDA for the years ended December 31, 2014, 2013, and 2012 follows:

   Year
Ended
2014 (1)		   Year
Ended
2013		   Year
Ended
2012		 

Net loss

  $(63,463)   $(1,148)   $(7,234) 

Income tax benefit

   (30,316)    (2,781)    (5,168) 

Interest expense, net

   50,400     48,138     41,138  

Interest expense on junior subordinated debentures

   12,610     12,610     12,610  

Investment income on trust common securities

   (378)    (378)    (378) 

Depreciation

   31,426     24,796     22,009  

Amortization

   30,221     22,112     21,752  
  

 

 

   

 

 

   

 

 

 

EBITDA

 30,500   103,349   84,729  

Stock compensation expense

 39,904   9,006   714  

Management fees

 291   77   155  

Foreign exchange (gain) loss

 (550)  2,252   1,171  

Acquisition and integration expense

 57,834   8,638   3,031  

Legal fees and settlements

 1,170   —     11,295  

Restructuring costs

 1,303   4,382   3,684  

Other adjustments

 986   313   2,240  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

$131,438  $128,017  $107,019  
  

 

 

   

 

 

   

 

 

 

Pro-forma purchasing savings

 3,322  
  

 

 

     

Pro-Forma Adjusted EBITDA

$134,760  
  

 

 

     

(1)For purposes of the Adjusted EBITDA computation, the predecessor six month period ended June 29, 2014 was combined with the successor six month period ended December 31, 2014.

Related Party Transactions

The SuccessorCompany has recorded aggregate management fee charges and expenses from the Oak Hill Funds and CCMP of $276 thousandapproximately $0.5 million for the six month periodyears ended December 30, 2017 and December 31, 2014. The Predecessor recorded aggregate management fee charges2016, respectively, and expenses from the Oak Hill Funds of $15 thousand for the six month period ended June 29, 2014, $77 thousand$0.6 million for the year ended December 31, 2013,2015.
We recorded proceeds from the sale of Holdco stock to members of management and $155 thousandthe Board of Directors of $0.5 million for the year ended December 30, 2017, $0.5 million for the year ended December 31, 2012.

2016, and $0.4 million for the year ended December 31, 2015. We recorded the purchase of Holdco stock from a former member of management of $0.5 million for the year ended December 31, 2015.



Gregory Mann and Gabrielle Mann are employed by the All Points subsidiary of Hillman. All PointsHillman leases an industrial warehouse and office facility from companies under the control of the Manns. The Company hasWe have recorded rental expense for the lease of this facility on an arm’sarm's length basis. In the six month period ended December 31, 2014 the Successor’sOur rental expense for the lease of this facility was $146 thousand. In the six month period ended June 29, 2014 the Predecessor’s rental expense$0.4 million for the lease of this facility was $165 thousand. The Predecessor’s rental expense for the lease of this facility was $311 thousandyear ended December 30, 2017 and $0.3 million for the years ended December 31, 20132016 and 2012.

In connection with the Paulin Acquisition, the2015, respectively.

The Company entered intohas three leases for five properties containing industrial warehouse, manufacturing plant, and office facilities on February 19, 2013.in Canada. The owners of the properties under one lease are relatives of Richard Paulin, who iswas employed by The Hillman Group Canada ULC until his retirement effective April 30, 2017, and the owner of the properties under the other two leases is a company which is owned by Richard Paulin and certain of his relatives. The Company hasWe have recorded rental expense for the three leases on an arm’sarm's length basis. In the six month period ended December 31, 2014 the Successor’s rentalRental expense for these facilities was $371 thousand. In the six month period ended June 29, 2014 the Predecessor’s rental expense for these facilities was $375 thousand. The Predecessor’s rental expense for these facilities was $687 thousand$0.7 million for the year ended December 30, 2017 and $0.6 million for the years ended December 31, 2013.

2016 and 2015, respectively.

Critical Accounting Policies and Estimates

The Company’s

Our accounting policies are more fully described in Note 2 - Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements. As disclosed in that note, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Future events cannot be predicted with certainty and, therefore, actual results could differ from those estimates. The following section describes the Company’sour critical accounting policies.

Revenue Recognition:

Recognition:

Revenue is recognized when products are shipped or delivered to customers depending upon when title and risks of ownership have passed and the collection of the relevant receivables is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore excluded from revenues in the consolidated statements of comprehensive loss.

The Company offersincome (loss).

We offer a variety of sales incentives to our customers primarily in the form of discounts, rebates, and slotting fees. Discounts are recognized in the consolidated financial statements at the date of the related sale. Rebates are based on the revenue to date and the contractual rebate percentage to be paid. A portion of the cost of the rebate is allocated to each underlying sales transaction. Discounts, rebates, and slotting fees are included in the determination of net sales.

The Company

We also establishesestablish reserves for customer returns and allowances. The reserve is established based on historical rates of returns and allowances. The reserve is adjusted quarterly based on actual experience. Returns and allowances are included in the determination of net sales.

The Company has

We have determined that our customer product sales arrangements contain multiple elements. The following is a description of the elements present in the typical Hillman sales arrangements:

One-time design and set-up of a customized store display.

One-time cost of customized store display (such as racks and hooks) and merchandising materials (such as point of sale signage) to hold solely Hillman products.

One-time opening order sales of Hillman products for store display.

On-going store visits by Hillman sales and service representatives for order taking, maintaining store displays, and exploring new sales opportunities.

On-going reorder sales of Hillman products used in store display.

After consideration of the guidance provided in ASCAccounting Standards Codification (“ASC”) 605-25-25, we have determined that all elements would be considered together under the same one unit of accounting.

Accounts Receivable

We will adopt a new revenue recognition standard effective the beginning of fiscal year 2018 that will supersede existing revenue recognition guidance. See Note 3 - Recent Accounting Pronouncements of the Notes to the Consolidated Financial Statements for additional information.
Inventory Realization:


Inventories consisting predominantly of finished goods are valued at the lower of cost or net realizable value, cost being determined principally on the weighted average cost method. The historical usage rate is the primary factor used in assessing the net realizable value of excess and Allowance for Doubtful Accounts:

The Company establishes the allowance for doubtful accounts using the specific identification method and also provides a reserveobsolete inventory. A reduction in the aggregate. The estimatescarrying value of an inventory item from cost to net realizable value is recorded for calculating the aggregate reserve areinventory with excess on-hand quantities as determined based on historical information which includeshistoric and projected sales, product category, and stage in the aging of customer receivables and adjustments for any collectability concerns. We have not made any material changes to the accounting methodology used to establish and adjust our aggregate reserve during the past three fiscal years.product life cycle. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our aggregateexcess and obsolete inventory reserve. However, if actual results are not consistent with our estimates or assumptions,regarding excess and obsolete inventory are inaccurate, we may be exposed to losses or gains that could be material. A 5% changedifference in our aggregate reserveactual excess and obsolete inventory reserved for at December 31, 201430, 2017, would have affected net earnings by less than $0.1 million. Increases to the allowance for doubtful accounts resultapproximately $1 million in a corresponding expense. The Company writes off individual accounts receivable when they become uncollectible. The allowance for doubtful accounts was $0.6 million and $0.7 million as of December 31, 2014 and 2013, respectively.

Inventory Realization:

Inventories consisting predominantly of finished goods are valued at the lower of cost or market, cost being determined principally on the weighted average cost method. Excess and obsolete inventories are carried at net realizable value. The historical usage rate is the primary factor used by the Company in assessing the net realizable value of excess and obsolete inventory. A reduction in the carrying value of an inventory item from cost to market is recorded for inventory with no usage in the preceding twenty-four month period or with on-hand quantities in excess of twenty-four months average usage.

fiscal 2017.

Goodwill:
We have adopted ASU 2017-04, Intangibles – Goodwill and Other Intangible Assets(Topic 350):

Simplifying the Test for Goodwill representsImpairment which eliminates Step 2 from the excess purchase cost overgoodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of net assets of companies acquired in business combinations. Goodwill is an indefinite lived asset and is assessed for impairment at least annually or more frequently if a triggering event occurs. If the carrying amount of a reporting unit is greater thanwith its carrying amount. If, after assessing the fair value, impairment may be present. ASC 350 permits an entity to assess qualitative factors tototality of events or circumstances, we determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the two-step goodwill impairment model. This qualitative assessment is referred to as a “step zero” approach. If it is determined through the qualitative assessment that a reporting unit’s fair value is more likely than not greater than its carrying value, the remainingthen we would recognize an impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment.

The quantitative assessment for goodwill impairment is a two-step test. Under the first step, the fair value of each reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment existscharge for the reporting unit and the Company must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess ofamount by which the carrying amount ofexceeds the reporting unit’s goodwill over the impliedunit's fair value, of that goodwill. The implied fair valuenot to exceed the total amount of goodwill is determined by allocating the fair value ofallocated to the reporting unit in a manner similar to a purchase price allocation, in accordance with ASC 805, Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed.

The Company also evaluates indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually or more frequently if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. ASC 350 permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying the two-step impairment model. In connection with the evaluation, an independent appraiser assessed the value of our intangible assets based on a relief from royalties, excess earnings, and lost profits discounted cash flow model. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date. No impairment charges were recorded by the Company in 2014 as a result of the qualitative annual impairment assessment.

The Company identified the following four reporting units for testing of goodwill impairment – All Points, Canada, Mexico, and United States excluding All Points. Each of these reporting units is also an operating segment that was assigned goodwill as a result of the Company’s acquisition by CCMP Capital Advisors, LLC in 2014. The goodwill was initially assigned to each of the reporting units based upon an independent valuation appraisal.

In considering the step zero approach to testing goodwill for impairment, the Company performed a qualitative analysis evaluating factors including, but not limited to, macro-economic conditions, market and industry conditions, internal cost factors, competitive environment, results of past impairment tests, and the operational stability and overall financial performance of the reporting units. During the fourth quarter of 2014, the Company utilized a qualitative assessment for reporting units where no significant change occurred and no potential impairment indicators existed since the previous evaluation of goodwill, and concluded it is more-likely-than-not that the fair value was more than its carrying value on a reporting unit basis. No impairment charges were recorded by the Company in 2014 as a result of the qualitative annual impairment assessment.

The Company’sunit.

Our annual impairment assessment is performed for the reporting units as of October 1. In years prior to 2014, the Company did not conduct2017, 2016, and 2015, an optional qualitative assessment of possible goodwill impairment for any reporting unit, rather we went directly to performance of the quantitative assessment. The October 1 goodwill and intangible impairment test data aligns the impairment assessment with the preparation of the Company’s annual strategic plan and allows additional time for a more thorough analysis by the Company’s independent appraiser. An independent appraiser assessed the value of the Company’sour reporting units based on a discounted cash flow model and multiple of earnings. Assumptions critical to the Company’sour fair value estimates under the discounted cash flow model include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values. The results of the quantitative assessmentassessments in 20132017, 2016, and 20122015 indicated that the fair value of each reporting unit was substantiallyin excess of its carrying value.
In 2017, 2016, and 2015 the fair value of each reporting unit except the United States reporting unit, was in excess of its carrying value in each case by more than 10%. NoIn 2017, 2016, and 2015, the fair value of United States reporting unit, exceeded its carrying value by approximately 4%, 5%, and 8%, respectively. A 100 basis point decrease in the projected long-term growth rate or a 100 basis point increase in the discount rate for this reporting unit could decrease the fair value by enough to result in some impairment charges were recorded bybased on the Companycurrent forecast model. Future declines in 2013 or 2012 asthe market and deterioration in earnings could lead to a result of the quantitative annual impairment assessments.

potential impairment. The United States reporting unit had goodwill totaling $586.4 million at December 30, 2017.


Long-Lived Assets:

The Company evaluatesAssets:

We evaluate our long-lived assets, including definite lived intangible assets, for impairment and will continue to evaluate them based on the estimated undiscounted future cash flows as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. In the year ended December 30, 2017, we recorded an impairment charge of $1.6 million related to the exit of a pilot program in our kiosk business in our U.S. operating segment. No impairment charges were recognized for long-lived assets in the years ended December 31, 2014, 2013,2016 or 2012.

2015.

Income Taxes:

Taxes:

Deferred income taxes are computed using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Valuation allowances are provided for tax benefits where it is more likely than not that certain tax benefits will not be realized. Adjustments to valuation allowances are recorded for changes in utilization of the tax related item. For additional information, see Note 6 - Income Taxes, of the Notes to the Consolidated Financial Statements.

Risk Insurance Reserves:

The Company self-insures our product liability, automotive, workers’ compensation, and general liability losses up

In accordance with guidance regarding the accounting for uncertainty in income taxes, we recognize a tax position if, based solely on its technical merits, it is more likely than not to $250.0 thousand per occurrence. Catastrophic coverage has been purchased from third party insurers for occurrences in excess of $250.0 thousand up to $40.0 million. The two risk areas involving the most significant accounting estimates are workers’ compensation and automotive liability. Actuarial valuations performedbe sustained upon examination by the Company’s outside risk insurance expert were used to formrelevant taxing authority. 
If a tax position does not meet the basis for workers’ compensation and automotive liability loss reserves. The actuary contemplated the Company’s specific loss history, actual claims reported, and industry trends among statistical and other factors to estimate the range of reserves required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for development of these claims, as well as for incurred butmore likely than not yet reported claims. The Company believes that the liability recorded for such risk insurance reserves is adequate as of December 31, 2014.

We have not made any material changes to the accounting methodology used to establish and adjust our workers’ compensation and automotive liability loss reserves during the past three fiscal years. Werecognition threshold, we do not believe thererecognize the benefit of that position in our financial statements. A tax position that meets the more likely than not recognition threshold is a reasonable likelihood that there willmeasured to determine the amount of benefit to be a material changerecognized in the estimates or assumptions we use to calculate our workers’ compensation and automotive liability loss reserves. However, if actual resultsfinancial statements.

Recent Accounting Pronouncements:


Recently issued accounting standards are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 5% changedescribed in our workers’ compensation and automotive liability loss reserves at December 31, 2014 would have affected net earnings by approximately $0.1 million.

The Company self-insures our group health claims up to an annual stop loss limit of $200.0 thousand per participant. Aggregate coverage is maintained for annual group health insurance claims in excess of 125% of expected claims. Historical group insurance loss experience forms the basis for the recognition of group health insurance reserves. The Company believes the liability recorded for such insurance reserves is adequate as of December 31, 2014.

Common Stock:

The Hillman Companies, Inc. has one class of common stock. All outstanding shares of The Hillman Companies, Inc. common stock are owned by Holdco. The management shareholders of Holdco do not have the ability to put their shares back to Holdco.

Under the terms of the Predecessor Stockholders Agreement for the Predecessor Holdco common stock, management shareholders had the ability to put their shares back to Predecessor Holdco under certain conditions, including death or disability. ASC 480-10-S99 requires shares to be classified outside of permanent equity if they can be redeemed and the redemption is not solely within control of the issuer. Further, if it is determined that redemption of the shares is probable, the shares are marked to fair value at each balance sheet date with the change in fair value recorded in additional paid-in capital. The Predecessor Company determined that redemption of the shares was probable as they could be put back to Predecessor Holdco upon death or disability. Accordingly, the 161.2 shares of common stock held by management as of December 31, 2013 were recorded outside permanent equity. These shares were adjusted to the fair value of $16,975 as of December 31, 2013.

At December 31, 2013, the fair value of the management owned common stock of $1,699.89 per share was based upon an independent valuation appraisal of the common stock. An independent appraiser assessed the value of the Company’s common stock based on a discounted cash flow model and multiple of earnings. Assumptions critical to the Company’s common stock value under the discounted cash flow model include the discount rate, projected average revenue growth, and projected long-term growth rates in the determination of terminal values.

Stock-Based Compensation:

Effective June 30, 2014, Holdco established the HMAN Group Holdings Inc. 2014 Equity Incentive Plan (the “2014 Equity Incentive Plan”), pursuant to which Holdco may grant options, stock appreciation rights, restricted stock, and other stock-based awards for up to an aggregate of 44,021.264 shares of its common stock. The 2014 Equity Incentive Plan is administered by a committee of the Holdco board of directors. Such committee determines the terms of each stock-based award grant under the 2014 Equity Incentive Plan, except that the exercise price of any granted options and the grant price of any granted stock appreciation rights may not be lower than the fair market value of one share of common stock of Holdco as of the date of grant. The options granted were considered equity-classified awards in accordance with ASC Topic 718, “Compensation-Stock Compensation”.

The Predecessor Company had a stock-based employee compensation plan. The options had certain put features and, therefore, liability classification was required. The Company elected to use the intrinsic value method to value the option in accordance with ASC Topic 718. See Note 14, Stock-Based Compensation,3 - Recent Accounting Pronouncements of the Notes to the Consolidated Financial Statements for further information.

Fair Value of Financial Instruments:

The carrying amounts of the Company’s cash, restricted investments, accounts receivable, short-term borrowings, accounts payable, and accrued liabilities approximate fair value because of the short term maturity of these instruments. The carrying amounts of the long-term debt under the revolving credit facility and variable rate senior term loan approximate the fair value at December 31, 2014 and 2013 as the interest rate is variable and approximates current market rates. The fair values of the fixed rate senior notes and junior subordinated debentures were determined utilizing current trading prices obtained from indicative market data at December 31, 2014 and 2013, respectively. See Note 16, Fair Value Measurements of the Notes to the Consolidated Financial Statements.

Recent Accounting Pronouncements:

In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08,Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which stipulates that the disposal of a component of an entity is to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The pronouncement also removed the conditions that (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. The ASU is effective prospectively for all disposals (except disposals classified as held for sale before the adoption date) or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted. We do not believe the adoption of this guidance will have a significant impact on our Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update outlines a five-step model and related application guidance, which replaces most existing revenue recognition guidance. ASU 2014-09 is effective for us in the fiscal year ending December 31, 2017, and for interim periods within that year. The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. Early application is not permitted. We are currently assessing the impact of implementing this guidance on our consolidated results of operations and financial condition.

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be achieved after the Requisite Service Period. The issue is the result of a consensus of the FASB Emerging Issues Task Force (EITF). The amendments in this ASU require that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 and can be either applied prospectively or retrospectively. Early adoption is permitted. We are currently assessing the impact of implementing this guidance on our consolidated results of operations and financial condition.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable) and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. We do not believe the adoption of this guidance will have a significant impact on our Consolidated Financial Statements.

In November 2014, the FASB issued ASU 2014-17, “Business Combinations (Topic 805): Pushdown Accounting”. The amendments in this ASU apply to the separate financial statements of an acquired entity and its subsidiaries that are a business (either public or nonpublic) when an acquirer obtains control of an acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change in control event occurs. If pushdown accounting is applied to an individual change in control event, the election is irrevocable. The amendments in the ASU are effective on November 18, 2014. The adoption of this guidance did not have a material effect on the Company’s’ financial condition or results of operations.

Item 7A – Quantitative and Qualitative Disclosures About Market Risk.

The Company is

Interest Rate Exposure
We are exposed to the impact of interest rate changes as borrowings under the Senior Facilities bear interest at variable interest rates. It is the Company’sour policy to enter into interest rate swap and interest rate cap transactions only to the extent considered necessary to meet our objectives.

Based on the Company’sour exposure to variable rate borrowings at December 31, 2014,30, 2017, after consideration of the Company’sour LIBOR floor rate and interest rate swap agreements, a one percent (1%) change in the weighted average interest rate for a period of one year would change the annual interest expense by approximately $4.2 million.

The Company is

Foreign Currency Exchange
We are exposed to foreign exchange rate changes of the Australian, Canadian and Mexican currencies as it impacts the $152.5$132.4 million tangible and intangible net asset value of our Australian, Canadian and Mexican subsidiaries as of December 31, 2014.30, 2017. The foreign subsidiaries net tangible assets were $67.2$61.1 million and the net intangible assets were $85.3$71.3 million as of December 31, 2014.

The Company utilizes30, 2017.

We utilize foreign exchange forward contracts to manage the exposure to currency fluctuations in the Canadian dollar versus the U.S. Dollar. See Note 15,12 - Derivatives and Hedging, of the Notes to the Consolidated Financial Statements.

Item 8 – Financial Statements and Supplementary Data.

Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULE

 Page(s)

Report of Management on Internal Control Over Financial Reporting

50-51
30

Report of Independent Registered Public Accounting Firm

31
52Consolidated Financial Statements: 

Consolidated Financial Statements:

Consolidated Balance Sheets

53-54
32

Consolidated Statements of Comprehensive LossIncome (Loss)

55
33

Consolidated Statements of Cash Flows

56
34

Consolidated Statements of Stockholders’Stockholder's Equity

57
35

Notes to Consolidated Financial Statements

36
58-99Financial Statement Schedule: 

Financial Statement Schedule:

Valuation Accounts

100
60



Report of Management on Internal Control Over Financial Reporting

The Company’s

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of The Hillman Companies, Inc. and its consolidated subsidiaries; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of The Hillman Companies, Inc. and its consolidated subsidiaries are being made only in accordance with authorizations of management and directors of The Hillman Companies, Inc. and its consolidated subsidiaries, as appropriate; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of The Hillman Companies, Inc. and its consolidated subsidiaries that could have a material effect on the consolidated financial statements.

The Company’s

Our management, with the participation of our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2014,30, 2017, the end of our fiscal year. Management based its assessment on criteria established inInternal Control — Integrated Framework (1992) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’sManagement's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed under the direction of management.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even an effective system of internal control over financial reporting will provide only reasonable assurance with respect to financial statement preparation.

Based on its assessment, and solely because of the material weakness described below,our management has concluded that our internal control over financial reporting was not effective, atas of December 31, 2014. Management identified pervasive deficiencies related30, 2017, to the design and operating effectiveness of transaction, process level, and management monitoring controls that have a direct impact on the financial reporting of our Canadian subsidiary (The Hillman Group Canada ULC), which in aggregate are considered a material weakness to the overall consolidated financial statements. In 2013, Hillman acquired H. Paulin & Co., which has since been amalgamated with The Hillman Group Canada ULC. There are numerous manual procedures necessary to be performed on both the data input into our legacy system and the subsequent output in order to validate, prepare, and record information in the general ledger of our Canadian subsidiary. These required manual procedures vary in complexity and extend throughout all functions of the entire financial reporting process. Further, there is an ineffective control environment surrounding these manual procedures and management review controls, as well as ineffective controls over change management, critical access, and end user system access to the legacy system. As a result of these deficiencies, financial information may not be accurately reflected in key reports that are used in higher level management review controls or subsequently recorded in the Canadian general ledger.

The Company is not aware of any transactions that were improperly undertaken as a result of this material weakness and therefore does not believe that such material weakness had any material impact on the Company’s consolidated financial statements.

In light of the foregoing conclusion, management undertook additional procedures in order that management could conclude thatprovide reasonable assurance exists regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. We reviewed the results of management’smanagement's assessment with the Audit Committee of The Hillman Companies, Inc.

This annual report does not include an attestation report of the Company’sour independent registered public accounting firm regarding internal control over financial reporting. Management’sManagement's report was not subject to attestation by the Company’sour independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Companyus to provide only management’smanagement's report in this annual report.

/s/ JAMES P. WATERSGREGORY J. GLUCHOWSKI, JR./s/ ANTHONY A. VASCONCELLOSROBERT O. KRAFT
James P. WatersGregory J. Gluchowski, Jr.Anthony A. VasconcellosRobert O. Kraft
President and Chief Executive OfficerChief Financial Officer
Dated:March 27, 201521, 2018Dated:March 27, 201521, 2018



Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

The Hillman Companies, Inc.:

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of The Hillman Companies, Inc. and subsidiaries (the “Company”) as of December 30, 2017 and December 31, 2014 and 2013, and2016, the related consolidated statements of comprehensive loss, stockholders’income (loss), stockholder's equity, and cash flows for the six months ended December 31, 2014 (Successor), the six months ended June 29, 2014 (Predecessor), and each of the years in the two-yearthree-year period ended December 31, 2013 (Predecessor)30, 2017, and the related notes and financial statement Schedule II – Valuation Accounts (collectively, the “consolidated financial statements”). In connection with our audits ofopinion, the consolidated financial statements we also have auditedpresent fairly, in all material respects, the financial statement schedule II – Valuation Accounts. position of the Company as of December 30, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 30, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion,

We have served as the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Hillman Companies, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the six months ended December 31, 2014 (Successor), the six months ended June 29, 2014 (Predecessor), and each of the years in the two-year period ended December 31, 2013 (Predecessor), in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

Company’s auditor since 2010.

/s/ KPMG LLP

Cincinnati, Ohio

March 27, 2015

21, 2018



THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

   Successor       Predecessor 
   December 31,
2014		       December 31,
2013		 
ASSETS       

Current assets:

       

Cash and cash equivalents

  $18,485       $34,969  

Restricted investments

   494        2,856  

Accounts receivable, net

   89,884        87,515  

Inventories, net

   204,723        177,580  

Deferred income taxes, net

   13,239        11,096  

Other current assets

   10,324        9,082  
  

 

 

      

 

 

 

Total current assets

 337,149    323,098  

Property and equipment, net

 114,531    95,818  

Goodwill

 621,560    466,227  

Other intangibles, net

 798,941    362,365  

Restricted investments

 1,750    1,530  

Deferred financing fees, net

 24,407    9,798  

Investment in trust common securities

 3,261    3,261  

Other assets

 1,414    2,759  
  

 

 

      

 

 

 

Total assets

$ 1,903,013   $ 1,264,856  
  

 

 

      

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 

Accounts payable

$66,462   $44,369  

Current portion of senior term loans

 5,500    3,968  

Current portion of capitalized lease and other obligations

 207    219  

Accrued expenses:

 

Salaries and wages

 5,247    11,864  

Pricing allowances

 6,662    6,210  

Income and other taxes

 3,301    3,121  

Interest

 10,587    2,674  

Deferred compensation

 494    2,856  

Other accrued expenses

 7,423    9,031  
  

 

 

      

 

 

 

Total current liabilities

 105,883    84,312  

Long-term senior term loans

 541,750    377,641  

Long-term capitalized lease and other obligations

 400    337  

Long-term senior notes

 330,000    271,750  

Junior subordinated debentures

 130,685    114,941  

Deferred compensation

 1,750    1,530  

Deferred income taxes, net

 273,781    120,060  

Other non-current liabilities

 5,621    15,391  
  

 

 

      

 

 

 

Total liabilities

 1,389,870    985,962  
  

 

 

     

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS


 December 30, 2017 December 31, 2016
ASSETS   
Current assets:   
Cash and cash equivalents$9,937
 $14,106
Accounts receivable, net of allowances of $1,121 ($907 - 2016)78,994
 71,082
Inventories, net219,479
 220,893
Other current assets11,850
 13,086
Total current assets320,260
 319,167
Property and equipment, net of accumulated depreciation of $98,674 ($74,713 - 2016)153,143
 119,428
Goodwill620,503
 615,682
Other intangibles, net of accumulated amortization of $132,659 ($94,658 - 2016)693,195
 715,812
Other assets12,116
 11,547
Total assets$1,799,217
 $1,781,636
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$74,051
 $61,906
Current portion of debt and capital lease obligations5,706
 5,643
Accrued expenses:   
Salaries and wages9,784
 8,303
Pricing allowances5,908
 4,982
Income and other taxes4,146
 3,208
Interest9,717
 9,776
Other accrued expenses19,911
 11,146
Total current liabilities129,223
 104,964
Long-term debt989,674
 973,455
Deferred income taxes, net145,728
 237,312
Other non-current liabilities7,189
 7,979
Total liabilities1,271,814
 1,323,710
    
Commitments and Contingencies (Note 14)—
 —
Stockholder's Equity:   
Preferred stock, $.01 par, 5,000 shares authorized, none issued and outstanding at December 30, 2017 and December 31, 2016—
 —
Common stock, $.01 par, 5,000 shares authorized, issued and outstanding at December 30, 2017 and December 31, 2016—
 —
Additional paid-in capital551,518
 548,534
Retained earnings (accumulated deficit)2,422
 (56,226)
Accumulated other comprehensive loss(26,537) (34,382)
Total stockholder's equity527,403
 457,926
Total liabilities and stockholder's equity$1,799,217
 $1,781,636















The Notes to Consolidated Financial Statements are an integral part of these statements.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands)

   Successor      Predecessor 
   December 31,
2014		      December 31,
2013		 

Common stock with put options:

      

Common stock, $.01 par, 5,000 shares authorized, none issued and outstanding at December 31, 2014 and 161.2 issued and outstanding at December 31, 2013

   —         16,975  
  

 

 

     

 

 

 

Commitments and contingencies (Note 17)

 
 

Stockholders’ Equity:

 

Preferred Stock:

 

Preferred stock, $.01 par, 5,000 shares authorized, none issued and outstanding at December 31, 2014 and 2013

 —      —    
 

Common Stock:

 

Common stock, $.01 par, 5,000 shares authorized, issued and outstanding at December 31, 2014 and 4,838.8 issued and outstanding at December 31, 2013

 —      —    
 

Additional paid-in capital

 544,604    292,989  

Accumulated deficit

 (18,937)   (26,199) 

Accumulated other comprehensive loss

 (12,524)   (4,871) 
  

 

 

     

 

 

 

Total stockholders’ equity

 513,143    261,919  
  

 

 

     

 

 

 

Total liabilities and stockholders’ equity

$ 1,903,013   $ 1,264,856  
  

 

 

     

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS


 
Year Ended
12/30/2017
 
Year Ended
12/31/2016
 
Year Ended
12/31/2015
Net sales$838,368
 $814,908
 $786,911
Cost of sales (exclusive of depreciation and amortization shown separately below)455,717
 438,418
 436,004
Selling, general and administrative expenses274,044
 265,241
 252,327
Depreciation34,016
 32,245
 29,027
Amortization38,109
 37,905
 38,003
Management fees to related party519
 550
 630
Other (income) expense(1,022) (966) 3,522
Income from operations36,985
 41,515
 27,398
Interest expense, net51,018
 51,181
 50,584
Interest expense on junior subordinated debentures12,608
 12,608
 12,609
Investment income on trust common securities(378) (378) (378)
Loss before income taxes(26,263) (21,896) (35,417)
Income tax benefit(84,911) (7,690) (12,334)
Net income (loss)$58,648
 $(14,206) $(23,083)
Net income (loss) from above$58,648
 $(14,206) $(23,083)
Other comprehensive income (loss):
 
 
Foreign currency translation adjustments7,845
 808
 (22,666)
Total other comprehensive income (loss)7,845
 808
 (22,666)
Comprehensive income (loss)$66,493
 $(13,398) $(45,749)














The Notes to Consolidated Financial Statements are an integral part of these statements.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CASH FLOWS

(dollars in thousands)

   Successor      Predecessor 
   Period from
06/30/2014
through
12/31/2014		      Six months
Ended
06/29/2014		  Year
Ended
12/31/2013		  Year
Ended
12/31/2012		 

Net sales

  $377,292      $357,377   $701,641   $555,465  

Cost of sales (exclusive of depreciation and amortization shown separately below)

   193,221       183,342    359,326    275,016  

Selling, general and administrative expenses

   115,854       156,762    225,651    188,330  

Transaction, acquisition and integration (Note 22)

   22,719       31,681    8,638    3,031  

Depreciation

   17,277       14,149    24,796    22,009  

Amortization

   19,128       11,093    22,112    21,752  

Management fees to related party

   276       15    77    155  

Other expense (income)

   576       (277)   4,600    4,204  
  

 

 

     

 

 

  

 

 

  

 

 

 

Income (loss) from operations

 8,241    (39,388)  56,441   40,968  
 

Interest expense, net

 27,250    23,150   48,138   41,138  

Interest expense on junior subordinated debentures

 6,305    6,305   12,610   12,610  

Investment income on trust common securities

 (189)   (189)  (378)  (378) 
  

 

 

     

 

 

  

 

 

  

 

 

 

Loss before income taxes

 (25,125)   (68,654)  (3,929)  (12,402) 
 

Income tax benefit

 (6,188)   (24,128)  (2,781)  (5,168) 
  

 

 

     

 

 

  

 

 

  

 

 

 

Net loss

$(18,937)  $(44,526) $(1,148) $(7,234) 
  

 

 

     

 

 

  

 

 

  

 

 

 

Net loss (from above)

$(18,937)  $(44,526) $(1,148) $(7,234) 
 

Other comprehensive (loss) income:

 

Foreign currency translation adjustments

 (12,524)   (95)  (5,742)  1,051  
  

 

 

     

 

 

  

 

 

  

 

 

 

Total other comprehensive (loss) income

 (12,524)   (95)  (5,742)  1,051  
  

 

 

     

 

 

  

 

 

  

 

 

 

Comprehensive loss

$(31,461)  $(44,621) $(6,890) $(6,183) 
  

 

 

     

 

 

  

 

 

  

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS


 
Year Ended
12/30/2017
 
Year Ended
12/31/2016
 
Year Ended
12/31/2015
Cash flows from operating activities:     
Net income (loss)$58,648
 $(14,206) $(23,083)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:     
Depreciation and amortization72,125
 70,150
 67,030
(Gain) loss on dispositions of property and equipment1,140
 364
 (405)
Impairment of long lived assets1,569
 —
 —
Deferred income taxes(85,874) (8,076) (13,216)
Deferred financing and original issue discount amortization2,530
 2,627
 2,718
Stock-based compensation expense2,484
 2,280
 1,290
(Gain) loss on disposition of Australia assets(638) 1,047
 —
Other non-cash interest and change in value of interest rate swap(1,481) (706) 1,629
Changes in operating items:     
Accounts receivable(2,777) 2,485
 11,471
Inventories13,800
 23,668
 (48,982)
Other assets517
 (2,697) (1,956)
Accounts payable9,305
 (2,280) 1,013
Other accrued liabilities11,562
 2,931
 907
Other items, net—
 (94) (593)
Net cash provided by (used for) operating activities82,910
 77,493
 (2,177)
Cash flows from investing activities:     
Acquisition of business(47,188) —
 —
Capital expenditures(51,410) (41,355) (28,199)
Proceeds from sale of property and equipment—
 —
 2,182
Other investing activities(1,500) —
 —
Net cash used for investing activities(100,098) (41,355) (26,017)
Cash flows from financing activities:     
Repayments of senior term loans(5,500) (5,500) (5,500)
Borrowings of revolving credit loans35,500
 16,000
 55,000
Repayments of revolving credit loans(16,000) (44,000) (27,000)
Principal payments under capitalized lease obligations(124) (215) (158)
Repurchase Holdco stock from a former member of management—
 —
 (540)
Proceeds from sale of Holdco stock500
 500
 400
Net cash provided by (used for) financing activities14,376
 (33,215) 22,202
Effect of exchange rate changes on cash(1,357) (202) (1,108)
Net increase (decrease) in cash and cash equivalents(4,169) 2,721
 (7,100)
Cash and cash equivalents at beginning of period14,106
 11,385
 18,485
Cash and cash equivalents at end of period$9,937
 $14,106
 $11,385





The Notes to Consolidated Financial Statements are an integral part of these statements.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

STOCKHOLDER'S EQUITY

(dollars in thousands)

   Successor  Predecessor 
   Period from
06/30/2014
through
12/31/2014		  Six months
Ended
06/29/2014		  Year
Ended
12/31/2013		  Year
Ended
12/31/2012		 

Cash flows from operating activities:

      

Net loss

  $(18,937)  $(44,526)  $(1,148)  $(7,234) 

Adjustments to reconcile net loss to net cash (used for) provided by operating activities:

      

Depreciation and amortization

   36,405    25,242    46,908    43,761  

Loss on dispositions of property and equipment

   120    —      777    292  

Deferred income taxes

   (7,226)   (24,458)   (3,624)   (5,613) 

Deferred financing and original issue discount amortization

   2,405    1,374    2,492    2,180  

Stock-based compensation expense

   675    39,229    9,006    714  

Other non-cash interest and change in value of interest rate swap

   935    —      (418)   (787) 

Changes in operating items:

      

Accounts receivable

   22,434    (25,267)   (9,098)   1,459  

Inventories

   (14,641)   (17,851)   (11,467)   (10,239) 

Other assets

   (8,397)   8,799    (4,089)   (4,109) 

Accounts payable

   6,187    20,811    8,409    (2,184) 

Interest payable on junior subordinated debentures

   (1,019)   1,019    —      —    

Other accrued liabilities

   (28,291)   31,183    2,712    4,968  

Other items, net

   (2,799)   (3,843)   1,065    72  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash (used for) provided by operating activities

 (12,149)  11,712   41,525   23,280  
  

 

 

  

 

 

  

 

 

  

 

 

 

Cash flows from investing activities:

 

Paulin Acquisition

 —     —     (103,416)  —    

Acquisition of Hillman Companies, Inc.

 (729,616)  —     —     —    

Capital expenditures

 (14,975)  (12,933)  (38,038)  (24,305) 

Proceeds from sale of property and equipment

 —     —     799   3  
  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash used for investing activities

 (744,591)  (12,933)  (140,655)  (24,302) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Cash flows from financing activities:

 

Borrowings of senior term loans

 550,000   —     76,800   —    

Repayments of senior term loans

 (387,157)  (992)  (3,776)  (3,200) 

Discount on senior term loans

 —     —     (3,152)  —    

Borrowings of revolving credit loans

 16,000   —     —     19,000  

Repayments of revolving credit loans

 (16,000)  —     —     (19,000) 

Payment of additional acquisition consideration

 —     —     —     (12,387) 

Principal payments under capitalized lease obligations

 (112)  (84)  (503)  (47) 

Borrowings of senior notes

 330,000   —     —     65,000  

Repayment of senior notes

 (265,000)  —     —     —    

Premium on senior notes

 —     —     —     4,225  

Proceeds from exercise of stock options

 —     474   —     —    

Capital contribution from parent

 542,929   —     —     —    

Capital contribution from board member

 1,000   —     —     —    

Financing fees

 (26,355)  —     —     —    

Borrowings under other credit obligations

 —     —     324   1,119  

Repayments of other credit obligations

 (70)  —     (683)  (297) 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net cash provided by (used for) financing activities

 745,235   (602)  69,010   54,413  
  

 

 

  

 

 

  

 

 

  

 

 

 

Effect of exchange rate changes on cash

 (3,040)  (116)  (459)  130  

Net (decrease) increase in cash and cash equivalents

 (14,545)  (1,939)  (30,579)  53,521  

Cash and cash equivalents at beginning of period

 33,030   34,969   65,548   12,027  
  

 

 

  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

$18,485  $33,030  $34,969  $65,548  
  

 

 

  

 

 

  

 

 

  

 

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS


 
Common
Stock
 
Additional
Paid-in
Capital
 Retained Earnings (Accumulated Deficit) 
Accumulated
Other
Comprehensive
(Loss)
 Total
Stockholder's
Equity
Balance at December 31, 2014$—
 $544,604
 $(18,937) $(12,524) $513,143
Net loss—
 —
 (23,083) —
 (23,083)
Stock-based compensation—
 1,290
 —
 —
 1,290
Purchase of Holdco shares from former member of management—
 (540) —
 —
 (540)
Proceeds from sale of Holdco shares of stock—
 400
 —
 —
 400
Change in cumulative foreign currency translation adjustment —
 —
 —
 (22,666) (22,666)
Balance at December 31, 2015$—
 $545,754
 $(42,020) $(35,190) $468,544
Net loss—
 —
 (14,206) —
 (14,206)
Stock-based compensation—
 2,280
 —
 —
 2,280
Proceeds from sale of Holdco shares of stock—
 500
 —
 —
 500
Change in cumulative foreign currency translation adjustment —
 —
 —
 808
 808
Balance at December 31, 2016$—
 $548,534
 $(56,226) $(34,382) $457,926
Net income—
 —
 58,648
 —
 58,648
Stock-based compensation—
 2,484
 —
 —
 2,484
Proceeds from sale of Holdco shares of stock—
 500
 —
 —
 500
Change in cumulative foreign currency translation adjustment —
 —
 —
 7,845
 7,845
Balance at December 30, 2017$—
 $551,518
 $2,422
 $(26,537) $527,403






The Notes to Consolidated Financial Statements are an integral part of these statements.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

   Common
Stock		   Additional
Paid-in
Capital		  Accumulated
Deficit		  Accumulated
Other
Comprehensive
Income (Loss)		  Total
Stockholders’
Equity		 

Balance at December 31, 2011 - Predecessor

   —       296,544    (17,817)   (180)   278,547  

Net loss

   —       —      (7,234)   —      (7,234) 

FMV adjustment to common stock with put options (1)

   —       (1,869)   —      —      (1,869) 

Change in cumulative foreign translation adjustment (2)

   —       —      —      1,051    1,051  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2012 - Predecessor

 —     294,675   (25,051)  871   270,495  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

 —     —     (1,148)  —     (1,148) 

FMV adjustment to common stock with put options (1)

 —     (6,791)  —     —     (6,791) 

Adjustment to common stock with expired put options (3)

 —     5,105   —     —     5,105  

Change in cumulative foreign translation adjustment (2)

 —     —     —     (5,742)  (5,742) 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2013 - Predecessor

 —     292,989   (26,199)  (4,871)  261,919  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Net loss

 —     —     (44,526)  —     (44,526) 

FMV adjustment to common stock with put options (1)

 —     (4,876)  —     —     (4,876) 

Exercise of stock options

 —     804   —     —     804  

Change in cumulative foreign currency translation adjustment (2)

 —     —     —     (95)  (95) 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance at June 29, 2014 - Predecessor

 —     288,917   (70,725)  (4,966)  213,226  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Close Predecessor’s stockholders’ equity at merger date

 —     (288,917)  70,725   4,966   (213,226) 

Capital contribution from parent

 —     542,929   —     —     542,929  

Net loss

 —     —     (18,937)  —     (18,937) 

Stock based compensation

 —     675   —     —     675  

Sale of 1,000 shares to Board member

 —     1,000   —     —     1,000  

Change in cumulative foreign currency translation adjustment (2)

 —     —     —     (12,524)  (12,524) 
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2014 - Successor

$—    $544,604  $(18,937) $(12,524) $513,143  
  

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

(1)Management of the Predecessor Company controlled 161.2 shares of common stock at December 31, 2013. These shares contained a put feature that allowed redemption at the holder’s option. Prior to the June 30, 2014 Merger Transaction, these shares were classified as temporary equity and adjusted to fair value. See Note 13, Common and Preferred Stock, for further details.
(2)The cumulative foreign currency translation adjustment is the only item of other comprehensive loss.
(3)Former management of the Company controlled 51.9 shares of common stock at December 31, 2013. These shares do not contain the put feature that allows redemption at the holder’s option.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

1.Basis of Presentation:



1. Basis of Presentation:
The accompanying financial statements include the consolidated accounts of The Hillman Companies, Inc. and its wholly-owned subsidiaries (collectively “Hillman” or the “Company”). All significant intercompany balances and transactions have been eliminated.

On June 30, 2014, affiliates

The Hillman Companies, Inc. is a wholly-owned subsidiary of HMAN Group Holdings Inc. (“Holdco”). Affiliates of CCMP Capital Advisors, LLC (“CCMP”) andown 79.9% of Holdco's outstanding common stock, affiliates of Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and OHCP III HC RO, L.P. (“Oak(collectively “Oak Hill Funds”), together with certain current and former members own 16.8% of Hillman’s management, consummated a merger transaction (the “Merger Transaction”) pursuant to the terms and conditions of an Agreement and Plan of Merger dated as of May 16, 2014. As a result of the Merger Transaction, The Hillman Companies, Inc. remained a wholly-owned subsidiary of OHCP HM Acquisition Corp., which changed its name to HMAN Intermediate II Holdings Corp. (“Predecessor Holdco”), and became a wholly-owned subsidiary of HMAN Group Holdings Inc. (“Successor Holdco” or “Holdco”). The total consideration paid in the Merger Transaction was $1,504,498 including repayment of outstanding debt and including the value of the Company’s outstanding junior subordinated debentures ($105,443 liquidation value at the time of the Merger Transaction).

Prior to the Merger Transaction, affiliates of the Oak Hill Funds owned 95.6% of the Predecessor Holdco’sHoldco's outstanding common stock, and certain current and former members of management owned 4.4%own 3.3% of Holdco's outstanding common stock.

For fiscal year 2017, the Company has changed from a calendar year ending on December 31 to a 52-53 week fiscal year ending on the last Saturday in December, effective beginning with the first quarter of 2017. In a 52 week fiscal year, each of the Predecessor Holdco’s outstanding common stock. Upon consummationCompany’s quarterly periods will comprise 13 weeks. The additional week in a 53 week fiscal year is added to the fourth quarter, making such quarter consist of 14 weeks. The Company’s first 53 week fiscal year will occur in fiscal year 2022. The Company made the fiscal year change on a prospective basis and has not adjusted operating results for prior periods. The change does not materially impact the comparability of quarters or year ended 2017 to the quarters or years ended 2016 or 2015. The adoption of a 52-53 week year was not deemed a change in fiscal year for purposes of reporting subject to Rule 13a-10 or 15d-10; hence, no transition reports are required.
In 2017, the Company completed the integration of its All Points subsidiary into the rest of its United States business. After this transition, discrete financial information for the All Points business is no longer regularly reviewed by the Chief Operating Decision Maker. Accordingly, to align the operating segments with the current way management reviews information to make operating decisions, assess performance, and allocate resources, the results of the Merger Transaction, affiliates of CCMP owned 80.4%Company's All Points business are now reported in the United States operating segment. Additional information on the Company's reportable segments is presented at Note 18 - Segment Reporting and Geographic Information.
On November 8, 2017, the Company entered into an Asset Purchase Agreement with Hargis Industries, LP doing business as ST Fastening Systems and other related parties, pursuant to which Hillman acquired substantially all of the Successor Holdco’s outstanding common stock, affiliatesassets, and assumed certain liabilities, of ST Fastening Systems. ST Fastening Systems, which is located in Tyler, Texas, specializes in manufacturing and distributing threaded self-drilling fasteners, foam closure strips, and other accessories to the steel-frame, post-frame, and residential building markets. Pursuant to the terms of the Oak Hill Funds owned 16.9% of the Successor Holdco’s outstanding common stock, and certain current and former members of management owned 2.7% of the Successor Holdco’s outstanding common stock.

The Company’s consolidated balance sheet and its related statements of comprehensive loss,Agreement, Hillman paid a cash flows, and stockholders’ equity for the periods presented prior to June 30, 2014 are referenced herein as the predecessor financial statements (the “Predecessor”). The Company’s consolidated balance sheet as of December 31, 2014 and its related statements of comprehensive loss, cash flows, and stockholders’ equity for the periods presented subsequent to the Merger Transaction are referenced herein as the successor financial statements (the “Successor”).

The Successor financial statements reflect the allocation of the aggregate purchase price of $1,504,498, including the value of$47.2 million. The ST Fastening Systems business is included in the Company’s junior subordinated debentures, to the assets and liabilities of Hillman based on fair values at the date of the Merger Transaction in accordance with ASC Topic 805, “Business Combinations.” The excess of the purchase price over the net assets has been allocated to goodwill and intangible assets based upon an independent valuation appraisal. The intangible assets and goodwill are not deductibleUnited States reportable segment. See Note 5 - Acquisitions for income tax purposes.

The Company’s financial statements have been presented on the basis of push down accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 805-50-S99. FASB ASC 805-50-S99 states that the push down basis of accounting should be used in a purchase transaction in which the entity becomes wholly-owned by another entity. Under the push down basis of accounting, certain transactions incurred by the parent company which would otherwise be accounted for in the accounts of the parent are “pushed down” and recorded on the financial statements of the subsidiary. Accordingly, certain items resulting from the Merger Transaction have been recorded on the financial statements of the Company.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

1.Basis of Presentation (continued):

The following table reconciles the fair value of the acquired assets and assumed liabilities to the total purchase price:

   Amount 

Fair value of consideration transferred

  $1,399,055  
  

 

 

 

Cash

$28,695  

Accounts Receivable

 113,030  

Inventory

 187,509  

Other current assets

 25,224  

Property and equipment

 117,336  

Goodwill

 624,870  

Intangible assets

 822,620  

Other non-current assets

 3,481  
  

 

 

 

Total assets

 1,922,765  

Less:

Accounts payable

 (65,009) 

Deferred income taxes

 (275,957) 

Junior subordinated debentures

 (105,443) 

Junior subordinated debentures premium

 (22,437) 

Other liabilities

 (54,864) 
  

 

 

 

Net assets

$1,399,055  
  

 

 

 

The following table indicates the pro-forma financial statements of the Company for the years ended December 31, 2014 (includes transaction costs of $54,400 as discussed in Note 22) and 2013. The pro-forma financial statements give effect to the acquisition (the “Paulin Acquisition”), on February 19, 2013, of all of the issued and outstanding Class A common shares of H. Paulin & Co., Limited (“Paulin”) and the Merger Transaction as if they had each occurred on January 1, 2013.

   2014   2013 

Net Sales

  $734,669    $717,571  

Net Loss

   (4,863)    (60,082) 

The pro-forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro-forma results are not necessarily indicative of the operating results that would have occurred if the Paulin Acquisition and Merger Transaction had been effective January 1, 2013, nor are they intended to be indicative of results that may occur in the future. The underlying pro-forma information includes the historical results of the Company and Paulin, the Company’s financing arrangements related to the Merger Transaction, and certain purchase accounting adjustments.

additional information.

Nature of Operations:

The Company is comprised of fivethree separate business segments, the largest of which is (1) The Hillman Group, Inc. (“Hillman Group”) operating primarily in the United States. The other business segments consist of separate subsidiaries of Hillman Group operating in (2) Canada under the names The Hillman Group Canada ULC and H. Paulin & Co., and (3) Mexico under the name SunSource Integrated Services de Mexico S.A. de C.V., (4) Florida under In prior years, the name All Points Industries, Inc., and (5)Company had operations in  Australia under the name The Hillman Group Australia Pty. Ltd. In the year ended December 31, 2016, the Company decided to exit the Australia market following the withdrawal from Australia of a key customer and recorded charges of $1.0 million related to the write-off of inventory and other assets. In the year ended December 30, 2017, the Company fully liquidated its Australian subsidiary and reclassified the cumulative translation adjustment to income. The $638 gain was recorded as other income on the Consolidated Statement of Comprehensive Income (Loss).
Hillman Group provides merchandising services and, on a limited basis, produces products such as fasteners

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

1.Basis of Presentation (continued):

and related hardware items; threaded rod and metal shapes; keys, key duplication systems, and accessories; builder’sbuilder's hardware; and identification items, such as tags and letters, numbers, and signs, to retail outlets, primarily hardware stores, home centers and mass merchants, pet supply stores, grocery stores, and drug stores. The Canada segment also produces fasteners, stampings, fittings, and processes threaded parts for automotive suppliers, industrial Original Equipment Manufacturers (“OEMs”), and industrial distributors. The Company has approximately 25,000 customers, the largest three

2. Summary of which accounted for 40.7%, 39.7%, and 40.1% of net salesSignificant Accounting Policies:

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in 2014, 2013, and 2012, respectively. In each of the years ended December 31, 2014, 2013, and 2012, the Company derived over 10% of its total revenues from two separate customers which operated in the following segments: United States excluding All Points, Canada, and Mexico.

2.Summary of Significant Accounting Policies:

thousands)


Cash and Cash Equivalents:

Cash and cash equivalents consist of commercial paper, U.S. Treasury obligations, and other liquid securities purchased with initial maturities less than 90 days and are stated at cost which approximates fair value. The Company has foreign bank balances of approximately $4,597$6,035 and $6,701$5,892 at December 30, 2017 and December 31, 2014 and 2013,2016, respectively. The Company maintains cash and cash equivalent balances with financial institutions that exceed federally insured limits. The Company has not experienced any losses related to these balances. Management believes ourits credit risk is minimal.

Restricted Investments:

The Company’sCompany's restricted investments are trading securities carried at fair market value which represent assets held in a Rabbi Trust to fund deferred compensation liabilities owed to the Company’sCompany's employees. See Note 11,9 - Deferred Compensation Plan.

Accounts Receivable and Allowance for Doubtful Accounts:

The Company establishes the allowance for doubtful accounts using the specific identification method and also provides a reserve in the aggregate. The estimates for calculating the aggregate reserve are based on historical collection experience. Increases to the allowance for doubtful accounts result in a corresponding expense. The Company writes off individual accounts receivable when collection becomes improbable. The allowance for doubtful accounts was $627$1,121 and $703$907 as of December 30, 2017 and December 31, 20142016, respectively.
In the years ended December 30, 2017 and 2013,December 31, 2016, the Company entered into agreements to sell, on an ongoing basis and without recourse, certain trade accounts receivable. The buyer is responsible for servicing the receivables. The sale of the receivables is accounted for in accordance with Financial Accounting Standards Board (“FASB”) ASC 860, Transfers and Servicing. Under that guidance, receivables are considered sold when they are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the receivables, and the Company has surrendered control over the transferred receivables. The Company has received proceeds from the sales of trade accounts receivable of approximately $214,527 and $200,643 for the years ended December 30, 2017 and December 31, 2016, respectively, and has included the proceeds in net cash provided by operating activities in the consolidated statements of cash flows. Related to the sale of accounts receivable, the Company recorded losses of approximately $1,426 and $1,059 for the years ended December 30, 2017 and December 31, 2016, respectively.

Inventories:

Inventories consisting predominantly of finished goods are valued at the lower of cost or market,net realizable value, cost being determined principally on the weighted average cost method. Excess and obsolete inventories are carried at net realizable value. The historical usage rate is the primary factor used by the Company in assessing the net realizable value of excess and obsolete inventory. A reduction in the carrying value of an inventory item from cost to marketnet realizable value is recorded for inventory with no usageexcess on-hand quantities as determined based on historic and projected sales, product category, and stage in the preceding 24 month period or with on hand quantities in excess of 24 months average usage.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

2.Summary of Significant Accounting Policies: (continued)

product life cycle.

Property and Equipment:

Property and equipment including assets acquired under capital leases, are carried at cost and include expenditures for new facilities and major renewals. Capital leases are recorded at the present value of minimum lease payments. For financial accounting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets, generally two to 25 years. Assets acquired under capital leases are depreciated over the terms of the related leases. Maintenance and repairs are charged to expense as incurred. The Company capitalizes certain costs that are directly associated with the development of internally developed software, representing the historical cost of these assets. Once the software is completed and placed into service, such costs are amortized over the estimated useful lives. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and the resulting gain or loss is reflected in income (loss) from operations.

Costs incurred to develop software for internal use are capitalized

Property and amortized over the estimated useful lifeequipment, net, consists of the software. Costs related to maintenance of internal-use software are expensed as incurred. Costs used for the development of internal-use software were capitalizedfollowing at December 30, 2017 and placed in to service in the amounts of $5,097 in the Successor period from June 30, 2014 through December 31, 2014, $7042016:

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in the Predecessor six months ended June 29, 2014 and $2,298 and $5,685 for the years ended December 31, 2013 and 2012, respectively.

Depreciationthousands)


 
Estimated
Useful Life
    
 (Years) 2017 2016
Landn/a $1,117
 $1,044
Buildings25 1,976
 1,846
Leasehold improvements3-13 6,530
 5,429
Machinery and equipment2-10 190,209
 142,244
Computer equipment and software3-5 41,345
 34,156
Furniture and fixtures8 1,671
 1,427
Construction in process  8,969
 7,995
Property and equipment, gross  251,817
 194,141
Less: Accumulated depreciation  98,674
 74,713
Property and equipment, net  $153,143
 $119,428
Goodwill:

For financial accounting purposes, depreciation, including that related to plant and equipment acquired under capital leases, is computed on the straight-line method over the estimated useful lives of the assets, generally two to 27 years or over the terms of the related leases, whichever is shorter.

The Company has adopted ASU 2017-04, Intangibles – Goodwill and Other Intangible Assets(Topic 350):

Simplifying the Test for Goodwill representsImpairment, which eliminates Step 2 from the excess purchase cost overgoodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of net assets of companies acquired in business combinations. Goodwill is an indefinite lived asset and is assessed for impairment at least annually, or more frequently if a triggering event occurs. If the carrying amount of a reporting unit is greater thanwith its carrying amount. If, after assessing the fair value, impairment may be present. ASC 350 permits an entity to assess qualitative factors tototality of events or circumstances, we determine whether it is more likely than not that the fair value of a reporting unit is less than itsthe carrying value, then we would recognize an impairment charge for the amount by which the carrying amount before applyingexceeds the two-stepreporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

The Company’s annual impairment model. This qualitative assessment is referredperformed for its three reporting units as of October 1. An independent appraiser assessed the value of the reporting units based on a discounted cash flow model and multiple of earnings. Assumptions critical to as a “step zero” approach. If it is determined through the qualitative assessment that a reporting unit’sour fair value is more likely than not greater than its carrying value,estimates under the remaining impairment steps would be unnecessary.discounted cash flow model include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values. The qualitative assessment is optional, allowing companies to go directly toresults of the quantitative assessment.

The quantitative assessment for goodwill impairment is a two-step test. Under the first step,in 2017, 2016, and 2015 indicated that the fair value of each reporting unit is compared withwas in excess of its carrying value (including goodwill). Ifvalue.

In 2017, 2016, and 2015, the fair value of theeach reporting unit is less thanexcept the United States was in excess of its carrying value an indication of goodwill impairment exists for the reporting unitby more than 10%. In 2017, 2016, and the Company must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating2015, the fair value of theUnited States reporting unit exceeded its carrying value by approximately 4%, 5%, and 8%, respectively. A 100 basis point decrease in the projected long-term growth rate or a manner similar to a purchase price allocation,100 basis point increase in accordance with ASC 805, Business Combinations. The residual fair value afterthe discount rate for this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. Ifcould decrease the fair value ofby enough to result in some impairment based on the current forecast model. Future declines in the market and deterioration in earnings could lead to a potential impairment.
No impairment charges were recorded in the years ended December 30, 2017, December 31, 2016, or December 31, 2015.
Goodwill amounts by reporting unit exceeds its carrying value, step two does not need to be performed.

are summarized as follows:

 Goodwill at       Goodwill at
 December 31, 2016 
Acquisitions(1) 
 Dispositions 
Other(2)
 December 30, 2017
United States$583,780
 $8,881
 $—
 $(6,224) $586,437
Canada28,377
 —
 —
 1,995
 30,372
Mexico3,525
 —
 —
 169
 3,694
Total$615,682
 $8,881
 $—
 $(4,060) $620,503
(1)Goodwill acquired related to ST Fastening Systems. See Note 5 - Acquisitions for additional information.
(2)The "Other" change to goodwill relate to adjustments resulting from fluctuations in foreign currency exchange rates and deferred taxes related to a previous acquisition.

Intangible Assets:

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

2.Summary of Significant Accounting Policies: (continued)


Intangible assets are stated at the lower of cost or fair value.  With the exception of certain trade names, intangible assets are amortized on a straight-line basis over periods ranging from five to 20 years, representing the period over which we expect to receive future economic benefits from these assets. 
Other intangibles, net, as of December 30, 2017 and December 31, 2016 consist of the following:
 Estimated    
 
Useful Life
(Years)
 December 30, 2017 December 31, 2016
Customer relationships13-20 $703,399
 $687,642
Trademarks - All OthersIndefinite 85,759
 85,294
Trademarks - TagWorks5 300
 300
Patents7-12 31,941
 32,796
KeyWorks license7 4,455
 4,438
Intangible assets, gross  825,854
 810,470
Less: Accumulated amortization  132,659
 94,658
Other intangibles, net  $693,195
 $715,812
Estimated annual amortization expense for intangible assets subject to amortization at December 30, 2017 for the next five fiscal years is as follows:
Year EndedAmortization Expense
2018$38,892
2019$38,862
2020$38,832
2021$38,513
2022$38,195
The Company also evaluates indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually or more frequently if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. ASC 350 permits an entity to assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying the two-step impairment model. In connection with the evaluation, an independent appraiser assessed the fair value of our indefinite-lived intangible assets based on a relief from royalties, excess earnings, and lost profits discounted cash flow model. An impairment charge is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date. No impairment charges related to indefinite-lived intangible assets were recorded by the Company in 2014 as a result of the qualitative annual impairment assessment.

In considering the step zero approach to testing goodwill for impairment, the Company performed a qualitative analysis evaluating factors including, but not limited to, macro-economic conditions, market and industry conditions, internal cost factors, competitive environment, results of past impairment tests, and the operational stability and overall financial performance of the reporting units. During the fourth quarter of 2014, the Company utilized a qualitative assessment for reporting units where no significant change occurred and no potential impairment indicators existed since the previous evaluation of goodwill, and concluded it is more-likely-than-not that the fair value was more than its carrying value on a reporting unit basis. No impairment charges were recorded by the Company in 2014 as a result of the qualitative annual impairment assessment.

The Company’s annual impairment assessment is performed for the reporting units as of October 1. In years prior to 2014, the Company did not conduct an optional qualitative assessment of possible goodwill impairment for any reporting unit, rather we went directly to performance of the quantitative assessment. The October 1 goodwill and intangible impairment test data aligns the impairment assessment with the preparation of the Company’s annual strategic plan and allows additional time for a more thorough analysis by the Company’s independent appraiser. In 2013 and 2012, an independent appraiser assessed the value of The Company’s reporting units based on a discounted cash flow model and multiple of earnings. Assumptions critical to the Company’s fair value estimates under the discounted cash flow model include the discount rate, projected average revenue growth and projected long-term growth rates in the determination of terminal values. The results of the quantitative assessment in 2013 and 2012 indicated that the fair value of each reporting unit was substantially in excess of its carrying value, in each case by more than 10%. No impairment charges were recorded by the Company in 20132017, 2016, or 20122015 as a result of the quantitative annual impairment assessments.

The Company identified the following four reporting units for testing of goodwill impairment – All Points, Canada, Mexico, and United States excluding All Points. Each of these reporting units is also an operating segment that was assigned goodwill as a result of the Company’s acquisition by CCMP Capital Advisors, LLC in 2014. The goodwill was initially assigned to each of the reporting units based upon an independent valuation appraisal.

test.

Long-Lived Assets:

The Company evaluates ourits long-lived assets, including definite-lived intangibles assets, for impairment including an evaluation based on the estimated undiscounted future cash flows as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. In the year ended December 30, 2017, the Company recorded an impairment charge of $1.6 million related to the exit of a pilot program in the kiosk business in our U.S. operating segment. The charge was recorded to other income/expense recorded in the statement of comprehensive income. No impairment charges were recognized for long-lived assets in the six month periods ended December 31, 2014 or June 29, 2014 or in the years ended December 31, 2013 and 2012.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

2.Summary of Significant Accounting Policies: (continued)

2016 or 2015.

Income Taxes:

Deferred income taxes are computed using the asset and liability method. Under this method, deferred income taxes are recognized for temporary differences between the financial reporting basis and income tax basis of assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Valuation allowances are provided for tax benefits where management estimates it is more likely than not that certain tax

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

benefits will not be realized. Adjustments to valuation allowances are recorded for changes in utilization of the tax related item. See Note 6 - Income Taxes, for additional information.

In accordance with guidance regarding the accounting for uncertainty in income taxes, the Company recognizes a tax position if, based solely on its technical merits, it is more likely than not to be sustained upon examination by the relevant taxing authority. If a tax position does not meet the more likely than not recognition threshold, the Company does not recognize the benefit of that position in its consolidated financial statements. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to be recognized in the consolidated financial statements.
Risk Insurance Reserves:

The Company self-insures our product liability, automotive, workers’workers' compensation, and general liability losses up to $250 per occurrence. Catastrophic coverage has been purchased from third party insurers for occurrences in excess of $250 up to $40,000. The two risk areas involving the most significant accounting estimates are workers’ compensation and automotive liability. Actuarial valuations performed by the Company’s outside risk insurance expert were used to form the basis for workers’ compensation and automotive liability loss reserves. The actuary contemplated the Company’s specific loss history, actual claims reported, and industry trends among statistical and other factorsOur policy is to estimate the rangereserves based upon a number of reserves required. Risk insurance reserves are comprised of specific reserves for individualfactors, including known claims, and additional amounts expected for development of these claims, as well as forestimated incurred but not yet reported claims.claims, and outside actuarial analysis.  The Company believesoutside actuarial analysis is based on historical information along with certain assumptions about future events.  These reserves are classified as other current and other long-term liabilities within the liability recorded for such risk insurance reserves is adequate as of December 31, 2014.

balance sheets.

The Company self-insures our group health claims up to an annual stop loss limit of $200$250 per participant. Aggregate coverage is maintained for annual group health insurance claims in excess of 125% of expected claims. Historical group insurance loss experience forms the basis for the recognition of group health insurance reserves. The Company believes the liability recorded for such health insurance reserves is adequate as of December 31, 2014.

Retirement Benefits:

Certain employees of the Company are covered under a profit-sharing and retirement savings plan (“defined contribution plan”).plan. The plan provides for a matching contribution for eligible employees of 50% of each dollar contributed by the employee up to 6% of the employee’semployee's compensation. In addition, the plan provides an annual contribution in amounts authorized by the Board of Directors, subject to the terms and conditions of the plan.

Paulin

Hillman Canada sponsors a Deferred Profit Sharing Plan (“DPSP”) and a Group Registered Retirement Savings Plan (“RRSP”) for all qualified, full timefull-time employees, with at least two yearsthree months of continuous service. DPSP is an employer-sponsored profit sharing plan registered as a trust with the Canada Revenue Agency (“CRA”). On a periodic basis, PaulinHillman Canada shares business profits with employees by contributing to the DPSP on each employee’semployee's behalf. Employees do not contribute to the DPSP. There is no minimum required contribution; however, DPSPs are subject to maximum contribution limits set by the CRA. The DPSP is offered in conjunction with a RRSP. Depending on the level of seniority and Paulin’s profits, required employee contributions to the RRSP vary from one to five percent of the employee’s gross earnings. All eligible employees may contribute an additional voluntary amount of up to eight percent of the employee’semployee's gross earnings. PaulinHillman Canada is required to match 100% of all employee required contributions where profit criteria are met.up to 2% of the employee's compensation. The assets of the RRSP are held separately from those of PaulinHillman Canada in independently administered funds.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

2.Summary of Significant Accounting Policies: (continued)

The Company’s defined contribution plan

Retirement benefit costs were $983$2,222, $2,101, and $2,084 in the Successor period from June 30, 2014 through December 31, 2014, $1,003 in the Predecessor six months period ended June 29, 2014 and $1,843 and $1,426 for the years ended December 30, 2017, December 31, 20132016, and 2012,December 31, 2015, respectively.

Revenue Recognition:

Revenue is recognized when products are shipped or delivered to customers depending upon when title and risks of ownership have passed and the collection of the relevant receivables is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore excluded from revenues in the consolidated statements of comprehensive loss.

income (loss).

The Company offers a variety of sales incentives to our customers primarily in the form of discounts and rebates. Discounts are recognized in the consolidated financial statements at the date of the related sale. Rebates are estimated based on the revenue to date and the contractual rebate percentage to be paid. A portion of the estimated cost of the rebate is allocated to each underlying sales transaction. Discounts, rebates, and slotting fees are included in the determination of net sales.

The Company also establishes reserves for customer returns and allowances. The reserve is established based on historical rates of returns and allowances. The reserve is adjusted quarterly based on actual experience. Returns and allowances are included in the determination of net sales.


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

The Company will adopt a new revenue recognition standard effective the beginning of fiscal year 2018 that will supersede existing revenue recognition guidance. See Note 3 - Recent Accounting Pronouncements for additional information.
Shipping and Handling:

The costs incurred to ship product to customers, including freight and handling expenses, are included in selling, general, and administrative (“SG&A”) expenses on the Company’sCompany's consolidated statements of comprehensive loss.

The Company’s shippingincome (loss).

Shipping and handling costs were $15,989$39,205, $36,283, and $35,795 in the Successor period from June 30, 2014 through December 31, 2014, $14,890 in the Predecessor six months period ended June 29, 2014 and $26,095 and $23,067 for the years ended December 30, 2017, December 31, 2013,2016, and 2012,December 31, 2015, respectively.

Research and Development:

The Company expenses research and development costs consisting primarily of internal wages and benefits in connection with improvements to the key duplicating and engraving machines. The Company’sCompany's research and development costs were $598$2,216, $2,277, and $1,833 in the Successor period from June 30, 2014 through December 31, 2014, $1,094 in the Predecessor period ended June 29, 2014 and $1,366 and $1,222 for the years ended December 30, 2017, December 31, 20132016, and 2012,December 31, 2015, respectively.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

2.Summary of Significant Accounting Policies: (continued)

Common Stock:

Stock:

The Hillman Companies, Inc. has one class of common stock. All outstanding shares of The Hillman Companies, Inc. common stock are owned by Holdco. The management shareholders of Holdco do not have the ability to put their shares back to Holdco.

Under the terms of the Predecessor Stockholders Agreement for the Predecessor Holdco common stock, management shareholders had the ability to put their shares back to Predecessor Holdco under certain conditions, including death or disability. ASC 480-10-S99 requires shares to be classified outside of permanent equity if they can be redeemed and the redemption is not solely within control of the issuer. Further, if it is determined that redemption of the shares is probable, the shares are marked to fair value at each balance sheet date with the change in fair value recorded in additional paid-in capital. The Predecessor Company determined that redemption of the shares was probable as they could be put back to Predecessor Holdco upon death or disability. Accordingly, the 161.2 shares of common stock held by management as of December 31, 2013 were recorded outside permanent equity. These shares were adjusted to the fair value of $16,975 as of December 31, 2013.

Stock Based Compensation:

The Company has a stock-based employee compensation plan pursuant to which Holdco may grant options, stock appreciation rights, restricted stock, and other stock-based awards. The Company uses a Black-Scholes option pricing model to determine the fair value of stock options on the dates of grant. The Black-Scholes pricing model requires various assumptions, including expected term, which is based on our historical experience and expected volatility which is estimated based on the average historical volatility of similar entities with publicly traded shares. The Company also makes assumptions regarding the risk-free interest rate and the expected dividend yield. The risk-free interest rate is based on the U.S. Treasury interest rate whose term is consistent with the expected term of the share-based award. The dividend yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to do so in the future. Determining the fair value of stock options at the grant date requires judgment, including estimates for the expected life of the share-based award, stock price volatility, dividend yield, and interest rate. These assumptions may differ significantly between grant dates because of changes in the actual results of these inputs that occur over time.
Stock-based compensation expense is recognized using a fair value based recognition method. Stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite vesting period or performance period of the award on a straight-line basis. The stock-based compensation expense is recorded in general and administrative expenses.The plan is more fully described in Note 14,11 - Stock Based Compensation.

Fair Value of Financial Instruments:

Cash, restricted investments, accounts receivable, short-term borrowings, accounts payable,

The Company uses the accounting guidance that applies to all assets and accrued liabilities that are reflected in the consolidated financial statements at book value, which approximatesbeing measured and reported on a fair value duebasis. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the short-term naturemeasurement date. A fair value hierarchy requires an entity to maximize the use of these instruments. The carrying amountsobservable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. Whenever possible, quoted prices in active markets are used to determine the fair value of the long-term debt under the revolving credit facility and variable rate senior term loan approximate the fair value at December 31, 2014 and 2013 because the interest rate is variable and approximates current market rates. The fair values of the fixed rate senior notes and junior subordinated debentures at December 31, 2014 and 2013 were determined utilizing current trading prices obtained from indicative market data. See Note 16, Fair Value Measurements.

Company's financial instruments.

Derivatives and Hedging:

Hedging:

The Company uses derivative financial instruments to manage ourits exposures to (1) interest rate fluctuations on ourits floating rate senior debt;debt and (2) price fluctuations in metal commodities used in our key products; and (3) fluctuations in foreign currency exchange rates. The Company measures those instruments at fair value and recognizes changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures. The Company enters into derivative instrument transactions with financial

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

institutions acting as the counter-party. The Company does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

2.Summary of Significant Accounting Policies: (continued)

The relationships between hedging instruments and hedged items are formally documented, in addition to the risk management objective and strategy for each hedge transaction. For interest rate swaps, the notional amounts, rates, and maturities of our interest rate swaps are closely matched to the related terms of hedged debt obligations. The critical terms of the interest rate swap are matched to the critical terms of the underlying hedged item to determine whether the derivatives used for hedging transactions are highly effective in offsetting changes in the cash flows of the underlying hedged item. If it is determined that a derivative ceases to be a highly effective hedge, the hedge accounting is discontinued and all subsequent derivative gains and losses are recognized in the statement of comprehensive income or loss.

Derivative instruments designated in hedging relationships that mitigate exposure to the variability in future cash flows of the variable-rate debt variable cost of key products and foreign currency exchange rates are considered cash flow hedges. The Company records all derivative instruments in other assets or other liabilities on the consolidated balance sheets at their fair values. If the derivative is designated as a cash flow hedge and the hedging relationship qualifies for hedge accounting, the effective portion of the change in the fair value of the derivative is recorded in other comprehensive income or loss. InstrumentsThe change in fair value for instruments not qualifying for hedge accounting are recognized in the statement of comprehensive income or loss in the period of the change. See Note 15,12 - Derivatives and Hedging.

Translation of Foreign Currencies:

The translation of the Company’sCompany's Canadian, Mexican, and Australian local currency based financial statements into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period. Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income or loss in stockholders’stockholders' equity.

Use of Estimates in the Preparation of Financial Statements:

Statements:

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results may differ from these estimates.

Reclassifications:

Reclassifications:
Certain amounts in the prior year consolidated financial statements were reclassified to conform to the current year’s presentation. The reclassifications were primarily related to the reclassification of segment information and goodwill reporting units (see Note 18 - Segment Reporting and Geographic Information for additional information). There were other insignificant corrections made to the 2016 consolidated financial statements to correct the classification of expenses between cost of sales and selling, general and administrative expenses. Cost of sales and selling, general and administrative expenses have been adjusted to correct the classification of certain management salaries based on the results of an internal cost structure analysis. These reclassificationsreclassification had no impact on the prior periods’ statement of financial position, net income or stockholders’ equity.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

3.Recent Accounting Pronouncements:

In April 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-08,Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity(loss), which stipulates that the disposal of a component of an entity is to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The pronouncement also removed the conditions that (a) the operations and cash flows, of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. The ASU is effective prospectively for all disposals (except disposals classified as held for sale before the adoption date) or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted. We do not believe the adoption of this guidance will have a significant impact on our Consolidated Financial Statements.

stockholder’s equity.

3. Recent Accounting Pronouncements:
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), ("ASU 2014-09") which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updateASU outlines a five-step model and related application guidance, which replaces most existing revenue recognition guidance. In August 2015, the FASB issued ASU 2014-09 is2015-14 which deferred the effective date by one year making the guidance effective for us in the fiscal year ending December 31, 2017,29, 2018, and for interim periods within that year. The amendments can be applied retrospectively to each prior reporting period or retrospectivelyprospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. Early adoption is permitted as of the original effective date. In March 2016, the FASB issued ASU No. 2016-08, Revenue from

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

Contracts with Customers. This guidance amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. This ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others. This ASU has the same effective date as the new revenue standard, ASU 2014-09, and entities are required to adopt this ASU by using the same transition method used to adopt the new revenue standard. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. This ASU clarifies the implementation guidance on identifying performance obligations and licensing on the previously issued ASU 2014-09. In May 2016, the FASB issued ASU No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting. ASU No. 2016-11 rescinds several SEC Staff Announcements that are codified in Topic 605, including, among other items, guidance relating to accounting for shipping and handling fees and freight services. In May 2016, the FASB also issued ASU 2016-12, which provided narrow scope improvements and practical expedients related to ASU 2014-09. The improvements address completed contracts and contract modifications at transition, noncash consideration, the presentation of sales taxes and other taxes collected from customers, and assessment of collectability when determining whether a transaction represents a valid contract. Additionally, on December 21, 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which provides disclosure relief, and clarifies the scope and application of the new revenue standard and related cost guidance. ASU No. 2016-10, ASU No. 2016-11, ASU No. 2016-12, and ASU No. 2016-20 are effective for the fiscal year ending December 29, 2018, and for interim periods within that year. Early adoption is not permitted.permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year. ASU No. 2016-10, ASU No. 2016-11, ASU No. 2016-12, and ASU No. 2016-20 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.
The Company has performed a detailed review of its contract portfolio representative of the different businesses and compared historical accounting policies and practices to the new standard. The Company will adopt this ASU effective the beginning of fiscal year 2018 with a cumulative adjustment that will decrease retained earnings by approximately $7,900 rather than retrospectively adjusting prior periods. The cumulative adjustment will primarily relate to payments to customers. The Company will begin to recognize certain payments as a reduction of revenue when the payment is made as opposed to over the life of the master service agreement. The most significant impact the adoption of the new standard will have on the consolidated financial statements are the required financial statement disclosures.The Company's sales arrangements with customers are short term in nature and generally provide for transfer of control and revenue recognition at the time of product delivery.  The Company has identified two performance obligations for its keys and engraving revenue, the delivered products and access to the cutting/engraving machines.  The Company has determined that both performance obligations are satisfied at the delivery of the products, and there is no impact to the timing of revenue recognition.  The Company has identified two performance obligations for its hardware products revenue, the delivered products and in-store servicing.  The Company has determined that both performance obligations are satisfied at the delivery of the products, and there is no impact to the timing of revenue recognition. We also have evaluated the changes in controls and process that are necessary to implement the new standard, and no material changes were required.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this update require lessees, among other things, to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous authoritative guidance. This update also introduces new disclosure requirements for leasing arrangements. The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption will be permitted for all entities. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented with various optional practical expedients. The Company has operating leases with remaining rental payments of approximately $72,426 as of December 30, 2017.  The discounted minimum remaining rental payments will be the starting point for determining the right-of-use asset and lease liability. The Company is currently assessingevaluating the impact of implementing this guidance on our consolidated results of operations and financial condition.

its Consolidated Financial Statements.

In June 2014,2016, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting2016-13, Financial Instruments – Credit Losses. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Company to measure all expected credit losses for Share-Based Payments Whenfinancial instruments held at the Termsreporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of an Award Provide That a Performance Target Could Be achievedcredit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15,

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

2019, including interim periods within those fiscal years. The Company is currently assessing the Requisite Service Period. The issue is the result of a consensusimpact of the adoption of this ASU on its Consolidated Financial Statements.
In August 2016, the FASB Emerging Issues Task Force (EITF)issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU amends the guidance in ASC 230, Statement of Cash Flows, and clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The amendments in this ASU require that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. The amendments in this ASUupdate are effective for annual periods and interim periods within those annual periods beginning after December 15, 20152017, and can be either applied prospectively or retrospectively.interim periods within those fiscal years. Early adoption is permitted. We are currently assessingThe Company does not expect the adoption this ASU to have a material impact of implementing this guidance on our consolidated results of operations and financial condition.

its Consolidated Financial Statements.

In August 2014,January 2017, the FASB issued ASU 2014-15, Presentation2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard provides guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The updated guidance requires a prospective adoption. Early adoption is permitted. The ASU is effective for fiscal years beginning after December 15, 2017. The Company does not expect the provisions of this ASU to have a material impact on its Consolidated Financial StatementsStatements.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Going Concern (Subtopic 205-40)Goodwill and Other (Topic 350): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.Simplifying the Test for Goodwill Impairment. The guidancenew standard eliminates Step 2 from the goodwill impairment test and instead requires an entity to evaluate whether there are conditionsperform its annual, or events, ininterim, goodwill impairment test by comparing the aggregate, that raise substantial doubt aboutfair value of a reporting unit with its carrying amount. The entity should recognize an impairment charge for the entity’s abilityamount by which the carrying amount exceeds the reporting unit’s fair value, not to continue asexceed the total amount of goodwill allocated to the reporting unit. The updated guidance requires a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable) and to provide related footnote disclosures in certain circumstances.prospective adoption. Early adoption is permitted. The guidanceASU is effective for the annual period endingfiscal years and interim periods within those years beginning after December 15, 2016,2019.  The Company adopted this guidance in 2017 and for annual and interim periods thereafter. Early application is permitted. We dodoes not believeexpect the adoptionprovisions of this guidance willASU to have a significantmaterial impact on ourits Consolidated Financial Statements.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

3.Recent Accounting Pronouncements (continued):

In November 2014,May 2017, the FASB issued ASU 2014-17, “Business Combinations2017-09, Compensation-Stock Compensation (Topic 805)718): Pushdown Accounting”.Scope of Modification Accounting. The amendments innew standard provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. This ASU is effective prospectively for annual periods beginning after December 15, 2017, with early adoption permitted. The Company does not expect the provisions of this ASU apply to the separate financial statements of an acquired entity and its subsidiaries that are a business (either public or nonpublic) when an acquirer obtains control of an acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change in control event occurs. If pushdown accounting is applied to an individual change in control event, the election is irrevocable. The amendments in the ASU are effective on November 18, 2014. The adoption of this guidance did not have a material effectimpact on its Consolidated Financial Statements.
In August 2017, the Company’s’FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial condition or results of operations.

4.Acquisitions:

On February 19, 2013, the Company consummated the Paulin Acquisition to expand our presence in Canada.statements. The aggregate purchase price of the Paulin Acquisition was $103,416 paid in cash. On March 31, 2013, H. Paulin & Co., Limited was amalgamated with The Hillman Group Canada ULC and continues as a division operating under the trade name of H. Paulin & Co.

Paulinstandard is a leading Canadian distributor and manufacturer of fasteners, fluid system products, automotive parts, and retail hardware components. Paulin’s distribution facilities are located across Canada in Vancouver, Edmonton, Winnipeg, Toronto, Montreal, and Moncton, as well as in Flint, Michigan and Cleveland, Ohio. Paulin’s manufacturing facilities are located in Ontario, Canada. For the year endedeffective for fiscal years beginning after December 31, 2013, the post-acquisition revenues of H. Paulin & Co., Limited were approximately $130,459 and the post-acquisition net income was approximately $3,009.

The following table reconciles the estimated fair value of the acquired assets and assumed liabilities to the total purchase price of the Paulin Acquisition:

Accounts receivable

$17,259  

Inventory

 55,552  

Other current assets

 2,701  

Property and equipment

 16,121  

Goodwill

 11,687  

Intangibles

 18,967  
  

 

 

 

Total assets acquired

 122,287  

Less:

Deferred income taxes

 (5,437) 

Liabilities assumed

 (13,434) 
  

 

 

 

Total purchase price

$103,416  
  

 

 

 

The excess of the purchase price over the net assets has been allocated to goodwill and intangible assets based upon an independent valuation appraisal.15, 2018, including interim periods within those years. Early adoption is permitted. The Company has madedoes not expect the provisions of this ASU to have a Section 338(g) election which willmaterial impact the deductibility of goodwill for tax purposes.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

5.Related Party Transactions:

on its Consolidated Financial Statements.

4. Related Party Transactions:
The SuccessorCompany has recorded aggregate management fee charges and expenses from the Oak Hill FundsCCMP and CCMP of $276 for the six month period ended December 31, 2014. The Predecessor recorded aggregate management fee charges and expenses from the Oak Hill Funds of $15$519 , $550, and $630 for the six month periodyears ended June 29, 2014, $77December 30, 2017 and December 31, 2016 and 2015, respectively.
The Company recorded proceeds from the sale of Holdco stock to members of management and the Board of Directors of $500 for the year ended December 30, 2017, $500 for the year ended December 31, 2013,2016, and $155$400 for the year ended December 31, 2012.

2015. The Company recorded the purchase of Holdco stock from a former member of management of $540 for the year ended December 31, 2015.

Gregory Mann and Gabrielle Mann are employed by the All Points subsidiary of Hillman. All PointsHillman leases an industrial warehouse and office facility from companies under the control of the Manns. The Company has recorded rental expense for the lease of this facility on an arm’sarm's length basis. In the six month period ended December 31, 2014 the Successor’s rentalRental expense for the lease of this facility was $146. In the six month period ended June 29, 2014 the Predecessor’s rental expense$353 for the lease of this facility was $165. The Predecessor’s rental expenseyear ended December 30, 2017, $343 for the lease of this facility wasyear ended December 31, 2016, and $311 for the yearsyear ended December 31, 2013 and 2012.

In connection with the Paulin Acquisition, the2015.

The Company entered intohas three leases for five properties containing industrial warehouse, manufacturing plant, and office facilities on February 19, 2013.in Canada. The owners of the properties under one lease are relatives of Richard Paulin, who iswas employed by The Hillman Group Canada ULC until his retirement effective April 30, 2017, and the owner of the properties under the other two leases is a

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

company which is owned by Richard Paulin and certain of his relatives. The Company has recorded rental expense for the three leases on an arm’sarm's length basis. In the six month period ended December 31, 2014 the Successor’sThe Company's rental expense for these facilities was $371. In$663 for the six month periodyear ended June 29, 2014 the Predecessor’s rental expense for these facilities was $376. The Predecessor’s rental expense for these facilities was $687December 30, 2017, $621 for the year ended December 31, 2013.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars2016, and $645 for the year ended December 31, 2015.

5. Acquisitions
On November 8, 2017, the Company entered into an Asset Purchase Agreement with Hargis Industries, LP doing business as ST Fastening Systems ("STFS") and other related parties pursuant to which Hillman acquired substantially all of the assets, and assumed certain liabilities, of STFS. STFS, which is located in thousands)

6.Income Taxes:

Tyler, Texas, specializes in manufacturing and distributing threaded self-drilling fasteners, foam closure strips, and other accessories to the steel-frame, post-frame, and residential building markets. Pursuant to the terms of the Agreement, Hillman paid a cash purchase price of $47.2 million. The transaction was financed with additional borrowings under the Company's revolving credit facility. The STFS business is included in the Company’s United States reportable segment.

The following table reconciles the preliminary estimated fair value of the acquired assets and assumed liabilities to the total purchase price of the STFS acquisition:
Accounts receivable $3,975
Inventory 7,820
Property and equipment 16,281
Goodwill 8,881
Customer relationships 13,500
Other non-current assets 6
Total assets acquired 50,463
Less:  
Liabilities assumed (3,275)
Total purchase price $47,188
The excess of the purchase price over the net assets has been allocated to goodwill and intangibles based on an independent valuation appraisal. The customer relationships have been assigned a useful life of 13 years based on the limited turnover and long-standing relationships STFS has with its existing customer base. The acquired customer relationships were valued using the discounted cash flow approach, and significant assumptions used in the valuation included the customer attrition rate assumed and the expected level of future sales.
The amount of net sales and operating loss of the acquired business included in the Company's consolidated statement of comprehensive income for the year ended December 30, 2017 were approximately $5.9 million and $0.5 million, respectively. Unaudited pro forma financial information has not been presented for STFS as the financial results of STFS were insignificant to the financial results of the Company on a standalone basis.
6. Income Taxes:
Loss before income taxes are comprised of the following components for the periods indicated:
  Year Ended December 30, 2017 Year Ended December 31, 2016 Year Ended December 31, 2015
 
 United States based operations(24,624) (15,442) (23,366)
 Non-United States based operations(1,639) (6,454) (12,051)
 Loss before income taxes(26,263) (21,896) (35,417)
Below are the components of the Company’sCompany's income tax (benefit) provision for the periods indicated:

   Successor      Predecessor 
   Period from
06/30/2014
through
12/31/2014		       Six months
Ended
06/29/2014		   Year
Ended
12/31/2013		   Year
Ended
12/31/2012		 
          

Current:

           

Federal & State

  $102       $105    $552    $206  

Foreign

   800        212     795     344  
  

 

 

      

 

 

   

 

 

   

 

 

 

Total current

 902    317   1,347   550  
  

 

 

      

 

 

   

 

 

   

 

 

 

Deferred:

 

Federal & State

 (7,081)   (23,056)  (2,857)  (5,000) 

Foreign

 (98)   328   (890)  (746) 
  

 

 

      

 

 

   

 

 

   

 

 

 

Total deferred

 (7,179)   (22,728)  (3,747)  (5,746) 
  

 

 

      

 

 

   

 

 

   

 

 

 

Valuation allowance

 89    (1,717)  (381)  28  
  

 

 

      

 

 

   

 

 

   

 

 

 

Income tax benefit

$(6,188)  $(24,128) $(2,781) $(5,168) 
  

 

 

      

 

 

   

 

 

   

 

 

 


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

  Year Ended
December 30, 2017		 Year Ended
December 31, 2016		 Year Ended December 31, 2015
 
 Current:     
 Federal & State$164
 $368
 $330
 Foreign814
 18
 235
 Total current978
 386
 565
 Deferred:     
 Federal & State(85,461) (7,464) (10,892)
 Foreign(1,989) (847) (2,492)
 Total deferred(87,450) (8,311) (13,384)
 Valuation allowance1,561
 235
 485
 Income tax benefit$(84,911) $(7,690) $(12,334)
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law making significant changes to the Internal Revenue Code.  Changes include, among other things, a permanent corporate rate reduction to 21% requiring a remeasurement of the Company’s U.S. net deferred tax liabilities, a change in U.S. international taxation to a modified territorial system including a mandatory deemed repatriation on certain unrepatriated earnings of foreign subsidiaries (“Transition Tax”), and providing for additional first-year depreciation that allows full expensing of qualified property placed into service after September 27, 2017.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to provide guidance on accounting for the tax effects of the 2017 Tax Act.  SAB 118 provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date to complete the related accounting under U.S. GAAP.  In accordance with SAB 118, the Company recorded an estimate for the remeasurement of our net U.S. deferred tax liabilities, the Transition Tax, and other less significant items.  The remeasurement of net U.S. deferred tax liabilities resulted in a deferred income tax benefit of approximately $75,000 for the period ended December 30, 2017.  The Company did not record a liability for the Transition Tax given the lack of historical earnings in our foreign subsidiaries.  The estimate of Transition Tax is considered provisional as additional time is needed to ensure a Transition Tax does not apply for December 30, 2017. Additionally, the Company recorded a provisional $807 valuation allowance on its foreign tax credit deferred tax assets given insufficient foreign source income projected to utilize the credits.  Since the 2017 Tax Act was passed late in the fourth quarter of 2017, further guidance and accounting interpretation is expected over the next 12 months that will enable the Company to refine these calculations.

The Company has U.S. federal net operating loss (“NOL”) carryforwards for tax purposes, totaling $105,867$108,086 as of December 31, 2014,30, 2017 that are available to offset future taxable income. These carry forwards expire from 20222028 to 2034. Management estimates that the Company will not be able to utilize some2037. Approximately $17,924 of the loss carryforwards before they expire due to limitations imposed by Internal Revenue Code Section 382. A valuation allowance with a year-end balance of $6 has been recorded for these deferred tax assets. In addition, the Company’s foreign subsidiaries have NOL carryforwards aggregating $1,668. A portion of these carryforwards expire from 2031 to 2034. Approximately $1.3 million of the USU.S. NOL carryforward has an indefinite life carryforward provided the Company continues to meet certain obligations under Luxembourg’sLuxembourg's tax codes. In addition, the Company's foreign subsidiaries have NOL carryforwards aggregating $17,396. A portion of these carryforwards expire from 2025 to 2033. Management has recorded a valuation reserveallowance of $703$2,350 against the deferred tax assets recorded for thea foreign subsidiary.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

6.Income Taxes: (continued)


The Company has state net operating lossNOL carryforwards with an aggregate tax benefit of $4,089$3,082 which expire from 20152018 to 2034.2037. Management estimates that the Company will not be able to utilize some of the loss carryforwards in certain states before they expire. A valuation allowance with a year-end balance of $290$162 has been recorded for these deferred tax assets. In 2014,2017, the valuation allowance for state net operating lossNOL carryforwards increaseddecreased by $72.$222. The increasedecrease was primarily a result of a changeexpiring NOLs in the estimation of the utilization of the net operating losses in the carryforward years. In conjunction with the Paulin Acquisition, the Company recorded a deferred tax asset related to the carryforward of a foreign exchange loss. The total carryforward balance at year-end is $194. Management estimates that the Company will not be able to realize the benefit of this deferred tax asset and has recorded a valuation reserve of $74.

The Company fully utilized its federal capital loss carryforward as of December 31, 2013. Management had previously recordedcertain states where a valuation allowance for this capital loss carryforward to fully offset the deferred tax asset at 2012. In 2013, the valuation allowance for the capital loss carryforward was decreased by $374 due to utilization in the current period. existed.

The Company has $294$501 of general business tax credit carryforwards which expire from 20162018 to 2033.2037. A valuation allowance of $149$78 has been establishedmaintained for a portion of these tax credits. The Company has $675$807 of foreign tax credit carryforwards which expire from 20202019 to 2024.

Deferred2025. A valuation allowance of $807 has been established for these credits given insufficient foreign source income taxes reflect the net effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

6.Income Taxes: (continued)

projected to utilize these credits.

The table below reflects the significant components of the Company’sCompany's net deferred tax assets and liabilities at December 30, 2017 and December 31, 2014 and 2013:

   Successor Period
As of December 31, 2014		       Predecessor Period
As of December 31, 2013		 
   Current   Non-current       Current   Non-current 

Deferred Tax Asset:

           

Inventory

  $9,905    $—         $8,377    $—    

Bad debt reserve

   956     —          978     —    

Casualty loss reserve

   363     502        297     410  

Accrued bonus / deferred compensation

   1,013     907        1,805     4,608  

Deferred rent

   —       68        —       546  

Derivative security value

   276     —          (120)    —    

Deferred distribution of foreign subsidiary

     312          —    

Deferred financing fees

   —       5,190        —       283  

Deferred revenue - shipping terms

   421          285     —    

Medical insurance reserve

   373     —          355     —    

Original issue discount amortization

     513        —       596  

Transaction costs

     1,389        —       3,454  

Federal / foreign net operating loss

     37,552        —       20,595  

State net operating loss

     4,089        —       2,524  

Unrecognized tax benefit

     (58)       —       (2,024) 

Tax credit carryforwards

     3,619        —       2,881  

All other

   31     531        (275)    824  
  

 

 

   

 

 

      

 

 

   

 

 

 

Gross deferred tax assets

 13,338   54,614    11,702   34,697  

Valuation allowance for deferred tax assets

 (99)  (1,124)   (606)  (2,302) 
  

 

 

   

 

 

      

 

 

   

 

 

 

Net deferred tax assets

$13,239  $53,490   $11,096  $32,395  
  

 

 

   

 

 

      

 

 

   

 

 

 

Deferred Tax Liability:

 

Intangible asset amortization

$—    $303,124   $—    $135,335  

Property and equipment

 —     24,147    —     17,106  

All other items

 —     —      —     14  
  

 

 

   

 

 

      

 

 

   

 

 

 

Deferred tax liabilities

$—    $327,271   $—    $152,455  
  

 

 

   

 

 

      

 

 

   

 

 

 

Net deferred tax liability

$260,542   $108,964  
    

 

 

        

 

 

 

Long term net deferred tax liability

$273,781   $120,060  

Current net deferred tax asset

 13,239    11,096  

Long term net deferred tax asset

 —      —    
    

 

 

        

 

 

 

Net deferred tax liability

$260,542   $108,964  
    

 

 

        

 

 

 

2016:


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

6.Income Taxes: (continued)


  As of December 30, 2017 As of December 31, 2016
  Non-current Non-current
Deferred Tax Asset:    
Inventory $8,717
 $10,356
Bad debt reserve 853
 1,048
Casualty loss reserve 546
 649
Accrued bonus / deferred compensation 2,825
 3,289
Deferred rent 791
 488
Derivative security value —
 659
Deferred distribution of foreign subsidiary —
 256
Deferred financing fees 359
 699
Deferred revenue - shipping terms 301
 674
Medical insurance reserve 186
 102
Original issue discount amortization 3,882
 —
Transaction costs 2,683
 4,200
Federal / foreign net operating loss 26,838
 37,687
State net operating loss 3,082
 3,195
Tax credit carryforwards 4,312
 3,978
All other 2,007
 770
Gross deferred tax assets 57,382
 68,050
Valuation allowance for deferred tax assets (3,396) (1,835)
Net deferred tax assets $53,986
 $66,215
Deferred Tax Liability:    
Intangible asset amortization $177,338
 $279,776
Property and equipment 21,385
 22,659
All other items 991
 1,092
Deferred tax liabilities $199,714
 $303,527
Net deferred tax liability $145,728
 $237,312
Long term net deferred tax liability $145,728
 $237,312
Realization of the net deferred tax assets is dependent on the reversal of deferred tax liabilities and generating sufficient taxable income prior to their expiration. Although realization is not assured, management estimates it is more likely than not that the net deferred tax assets will be realized. The amount of net deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward periods are reduced.


Hillman is subject to income taxes in the United States and in certain foreign jurisdictions. In general, it is the practice and intention of the Company to reinvest the earnings of certain of its non-U.S. subsidiaries in those operations. Based on direction fromIn 2014, the newCompany's management team, the Company’srevised its position with respect to permanent reinvestment of earnings in its foreign subsidiaries was revised in the fourth quarter of 2014. As a result of this management decision, only one of the foreign subsidiaries had accumulated E&P that warranted establishment of a DTA. Due to the availability of a foreign tax credit which can offset the US tax on future distributions from this subsidiary, an overall deferred tax asset of $312 was established in 2014.

subsidiaries. As of December 31, 2014,30, 2017, the Company does not have any excess amount for financial reporting over the tax basis in these certain foreign subsidiaries. In 2014 the Company recorded a deferred tax asset of $312 based on undistributed earnings in one of its foreign subsidiaries that is not being indefinitely reinvested.

would result in an income tax liability.

Below is a reconciliation of statutory income tax rates to the effective income tax rates for the periods indicated:

   Successor     Predecessor 
   

Period from
06/30/2014

through

     

Six months

Ended

  Year
Ended		  Year
Ended		 
   12/31/2014      06/29/2014  12/31/2013  12/31/2012 

Statutory federal income tax rate

   35.0%      35.0%   35.0%   35.0% 

Non-U.S. taxes and the impact of non-U.S. losses for which a current tax benefit is not available

   -11.0%      1.5%   -19.6%   -6.1% 

State and local income taxes, net of U.S. federal income tax benefit

   2.5%      3.0%   -0.1%   1.9% 

Adjustment of reserve for change in valuation allowance and other items

   0.5%      -0.3%   15.0%   1.2% 

Adjustment for change in tax law

   3.1%      0.5%   8.9%   -0.4% 

Adjustment of unrecognized tax benefits

   0.0%      0.0%   36.6%   11.6% 

Permanent differences:

        

Acquisition and related transaction costs

   -8.2%      -4.0%   -4.0%   -0.9% 

Meals and entertainment expense

   -0.2%      -0.1%   -3.5%   -1.1% 

Foreign tax credit

   2.4%      0.0%   1.3%   0.0% 

Reconciliation of tax provision to return

   0.0%      0.0%   2.0%   0.5% 

Reconciliation of other adjustments

   0.5%      -0.5%   -0.8%   0.0% 
  

 

 

     

 

 

  

 

 

  

 

 

 

Effective income tax rate

 24.6%   35.1%  70.8%  41.7% 
  

 

 

     

 

 

  

 

 

  

 

 

 


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

6.Income Taxes: (continued)

On September 13, 2013, the US Treasury and IRS issued final Tangible Property Regulations (“TPR”) under IRC Section 162 and IRC Section 263(a). These regulations address the acquisition, production and improvement of tangible property, and also the disposition of property. The regulations were effective for tax years beginning on or after January 1, 2014; however, certain portions may require an accounting method change on a retroactive basis, thus requiring an IRC Section 481(a) adjustment related to fixed assets. The accounting rules under ASC 740 treat the release of the regulations as a change in tax law as of the date of issuance and require the Company to determine whether there will be an impact on its financial statements. Any such impact of the final tangible property regulations would affect deferred taxes only and result in a balance sheet reclassification between current and deferred taxes. The Company is currently analyzing the expected impacts of the TPR but does not believe that they will have a material impact on the Company’s consolidated financial statements. The Company will continue to monitor the impact of any future changes to the TPR on the Company prospectively.


  Year Ended
December 30, 2017		Year Ended
December 31, 2016		Year Ended December 31, 2015
Statutory federal income tax rate 35.0 %35.0 %35.0 %
Non-U.S. taxes and the impact of non-U.S. losses for which a current tax benefit is not available 6.9 %8.1 %(0.8)%
State and local income taxes, net of U.S. federal income tax benefit 3.4 %2.8 %2.6 %
Adjustment of reserve for change in valuation allowance and other items (6.5)%0.5 %(0.7)%
Adjustment for change in tax law 281.4 %(3.1)%— %
Adjustment of unrecognized tax benefits 1.4 %(7.7)%— %
Permanent differences:    
Acquisition and related transaction costs — %(0.3)%(0.2)%
Meals and entertainment expense (0.9)%(0.9)%(0.4)%
Foreign tax credit — %0.3 %— %
Reconciliation of tax provision to return 1.7 %(0.3)%(0.7)%
Reconciliation of other adjustments 0.9 %0.7 %— %
Effective income tax rate 323.3 %35.1 %34.8 %
The Company has recorded a $1,558$959 decrease in the reserve for unrecognized tax benefits infor the six month Predecessor periodyear ended June 29, 2014 dueDecember 30, 2017 related to statute expirations and the resolution of a recent IRS examination in 2014. The Company has decreased its reserve for unrecognizedincome tax benefits in the six month Successor period June 30, 2014 through December 31, 2014 and the six month Predecessor period ended June 29, 2014 by $30 and $1, respectively, related to items previously recognized by the acquired company in its financial statements.audit matters. A balance of $58$1,101 of the remaining unrecognized tax benefit is shown in the financial statements at December 31, 201430, 2017 as a reduction of the deferred tax asset for the Company’s net operating loss carryforwards while $377 of the ending reserve is included in the balance of other long term liabilities. Company's NOL carryforward.
The following is a summary of the changes for the periods indicated below:

   Successor      Predecessor 
   Period from
06/30/2014
through
12/31/2014		       Six months
Ended
06/29/2014		   Year
Ended
12/31/2013		   Year
Ended
12/31/2012		 

Unrecognized tax benefits - beginning balance

  $465       $2,024    $3,002    $4,440  
 

Gross increases - tax positions in current period

   —          —       —       —    

Gross increases - tax positions in prior period

        —       560     —    

Gross decreases - tax positions in prior period

   (30)       (1,559)    (1,538)    (1,438) 
  

 

 

      

 

 

   

 

 

   

 

 

 

Unrecognized tax benefits - ending balance

$435   $465  $2,024  $3,002  
  

 

 

      

 

 

   

 

 

   

 

 

 

Amount of unrecognized tax benefit that, if recognized would affect the company’s effective tax rate

$435   $465  $2,024  $3,002  
  

 

 

      

 

 

   

 

 

   

 

 

 

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

6.Income Taxes: (continued)

 Year Ended
December 30, 2017		 Year Ended
December 31, 2016		 Year Ended
December 31, 2015
Unrecognized tax benefits - beginning balance$2,060
 $374
 $435
Gross increases - tax positions in current period—
 1,676
 —
Gross increases - tax positions in prior period—
 10
 —
Gross decreases - tax positions in prior period(959) —
 (61)
Unrecognized tax benefits - ending balance$1,101
 $2,060
 $374
Amount of unrecognized tax benefit that, if recognized would affect the Company's effective tax rate$1,101
 $2,060
 $374
The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. In conjunction with Financial Accounting Standards Board (“FASB”)FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of FASB No. 109, “Accounting for Income Taxes”, which was codified in ASC 740-10, the Company has not recognized any adjustment of interest or penalties in its consolidated financial statements due to its net operating lossNOL position. The Company does not anticipate a decrease in the unrecognized tax benefits for the tax year ending December 31, 2015.

29, 2018.

The Company files a consolidated income tax return in the U.S. and numerous consolidated and separate income tax returns in various states and foreign jurisdictions. As of December 31, 2014, with a few exceptions, theThe Company is no longer subject to U.S. federal, state, and foreign tax examinations by tax authorities for the tax years prior to 2011. However, the IRS can make adjustments to losses carried forward by the Company from 2006 forward and utilized on its federal return.

7.Property and Equipment:

Property and equipment, net, consists of the following at December 31, 2014 and 2013:

   Estimated
Useful Life		  Successor      Predecessor 
   (Years)  2014       2013 

Land

  n/a  $1,069       $1,166  

Buildings

  27   2,184        2,758  

Leasehold improvements

  3-10   4,384        5,808  

Machinery and equipment

  2-10   116,371        143,002  

Furniture and fixtures

  3-8   1,127        1,102  

Construction in process

     3,757        3,352  
    

 

 

      

 

 

 

Property and equipment, gross

 128,892    157,188  

Less: Accumulated depreciation

 14,361    61,370  
    

 

 

      

 

 

 

Property and equipment, net

$114,531   $95,818  
    

 

 

      

 

 

 

Machinery and equipment includes capitalized software of $11,653 and $13,270 as of December 31, 2014 and 2013, respectively. Capitalized interest of $140 and $182 was recorded for the years ended December 31, 2014 and 2013, respectively.

The Predecessor’s depreciation expense for depreciable assets for the six months period ended June 29, 2014 was $14,149, and for the years ended December 31, 2013 and 2012 was $24,796 and $22,009, respectively. The Successor’s depreciation expense for depreciable assetsnot under any significant audits for the period from Juneended December 30, 2014 through December 31, 2014 was $17,277.

2017.

7. Long-Term Debt:
The following table summarizes the Company’s debt:

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

8.Goodwill and Other Intangible Assets:

Goodwill amounts by reporting unit are summarized as follows:

   Goodwill at
December 31, 2013		   Acquisitions
(1)		  Dispositions   Other
(2)		  Goodwill at
December 31, 2014		 

United States, excluding All Points

  $446,382    $134,038   $—      $—     $580,420  

All Points

   58     3,302    —       —      3,360  

Canada

   12,785     22,695    —       (2,636)   32,844  

Mexico

   7,002     (1,392)   —       (674)   4,936  

Australia

   —       —      —       —      —    
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total

$466,227  $158,643  $—    $(3,310) $621,560  
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

(1)Changes in values primarily related to the Merger Transaction.
(2)These amounts relate to adjustments resulting from fluctuations in foreign currency exchange rates.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

8.Goodwill and Other Intangible Assets (continued):

Definite-lived intangible assets are amortized over their useful lives


 December 30, 2017 December 31, 2016
Revolving loans$19,500
 $—
Senior term loan, due 2021530,750
 536,250
6.375% Senior Notes, due 2022330,000
 330,000
11.6% Junior Subordinated Debentures - Preferred105,443
 105,443
Junior Subordinated Debentures - Common3,261
 3,261
Capital leases & other obligations435
 322
 989,389
 975,276
(Add) unamortized premium on 11.6% Junior Subordinated Debentures18,771
 19,936
(Subtract) current portion of long term debt and capital leases(5,706) (5,643)
(Subtract) deferred financing fees(12,780) (16,114)
Total long term debt, net$989,674
 $973,455
Revolving loans and are subject to impairment testing. The values assigned to intangible assets, in connection with the Merger Transaction and the acquisition of Paulin, were determined through separate independent appraisals. Other intangibles, net, as of December 31, 2014 and 2013 consist of the following:

   Estimated  Successor      Estimated  Predecessor 
   Useful Life
(Years)		  December 31,
2014		       Useful Life
(Years)		  December 31,
2013		 

Customer relationships

  20  $693,852       20  $341,500  

Trademarks - All Others

  Indefinite   86,513       Indefinite   54,082  

Trademarks - TagWorks

  5   300       5   240  

Patents

  7-12   32,895       5-20   20,250  

Quick Tag license

  —     —         6   11,500  

Laser Key license

  —     —         5   1,250  

KeyWorks license

  7   4,476       10   4,100  

Non compete agreements

  —     —         5-10   4,450  
    

 

 

        

 

 

 

Intangible assets, gross

 818,036    437,372  

Less: Accumulated amortization

 19,095    75,007  
    

 

 

        

 

 

 

Other intangibles, net

$798,941   $362,365  
    

 

 

        

 

 

 

The Successor’s accumulated amortization was $19,095 as of December 31, 2014, which includes accumulated amortization of foreign subsidiaries translated using exchange rates in effect at the balance sheet date. The Successor’s amortization expense for amortizable assets was $19,128, including the adjustments resulting from fluctuations in foreign currency exchange rates, for the period from June 30, 2014 through December 31, 2014 and the Predecessor’s expense was $11,093 for the six months period ended June 29, 2014. The Predecessor’s amortization expense for amortizable assets was $22,112 and 21,752 for the years ended December 31, 2013 and 2012, respectively. For the years ending December 31, 2015, 2016, 2017, 2018, and 2019, the Successor’s amortization expense for amortizable assets is estimated to be $38,187, $38,187, $38,187, $38,187, and $38,187, respectively.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

9.Long-Term Debt:

term loans

On June 30, 2014, The Hillman Companies, Inc. and certain of its subsidiaries closed on a $620,000 senior secured credit facility (the “Senior Facilities”), consisting of a $550,000 term loan and a $70,000 revolving credit facility (“Revolver”( the “Revolver”). The term loan portion of the Senior Facilities has a seven year term and the Revolver has a five year term. For the first fiscal quarter after June 30, 2014, theThe Senior Facilities provide term loan borrowings at interest rates based on LIBOR plus a LIBOR Spread of 3.50%, or an Alternate Base Rate (“ABR”) plus an ABR Spread of 2.50%. The LIBOR is subject to a minimum floor rate of 1.00% and the ABR is subject to a minimum floor of 2.00%. Additionally, the Senior Facilities provide Revolver borrowings at interest rates based on a LIBOR plus a LIBOR Spread of 3.25%, or an ABR plus an ABR Spread of 2.25%. There is no minimum floor rate for Revolver loans. After the initial fiscal quarter, theThe borrowing rate shall behas been adjusted quarterly on a prospective basis on each adjustment date based upon total leverage ratio for initial term loans and the senior secured leverage ratio for Revolver loans. For the fiscal quarter beginning after December 31, 2014,30, 2017, the term loan borrowings will be at an adjusted interest rate of 4.5%5.2%, excluding the impact of interest rate swaps, and the Revolver loans will be at an adjusted interest rates based on Libor plusrate of 6.8%.

As of December 30, 2017, the Revolver had an outstanding amount of $19,500 and outstanding letters of credit of approximately $6,536. The Company had approximately $43,964 of available borrowings under the revolving credit facility as a Libor spreadsource of 3.25% or an ABR plus an ABR spreadliquidity as of 2.25%December 30, 2017.

Concurrent with the consummation of the Merger Transaction,

6.375% Senior Notes, due 2022
On June 30, 2014, Hillman Group issued $330,000 aggregate principal amount of its senior notes due July 15, 2022 (the “6.375% Senior Notes”), which are guaranteed by The Hillman Companies, Inc. and its domestic subsidiaries other than the Hillman Group Capital Trust. Hillman Group pays interest on the 6.375% Senior Notes semi-annually on January 15 and July 15 of each year.

Prior to


Guaranteed Preferred Beneficial Interest in the consummationCompany's Junior Subordinated Debentures
In September 1997, The Hillman Group Capital Trust, a Grantor trust, completed a $105,443 underwritten public offering of 4,217,724 Trust Preferred Securities (“TOPrS”). The Trust invested the proceeds from the sale of the Merger Transaction, the Company, through Hillman Group, was party to a Senior Credit Agreement (the “Prior Credit Agreement”), consisting of a $30,000 revolving credit line and a $384,400 term loan. The facilities under the Prior Credit Agreement had a maturity date of May 28, 2017. In addition, the Company, through Hillman Group, had issued $265,000preferred securities in aggregatean equal principal amount of 10.875% Senior Notes that were scheduled to mature on June 1, 2018. In connection with the Merger Transaction, both the Prior Credit Agreement and the 10.875% Senior Notes were repaid and terminated.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

9.Long-Term Debt: (continued)

11.6% Junior Subordinated Debentures of Hillman due September 30, 2027.

The Company pays interest to the Hillman Group Capital Trust (“Trust”) on the Junior Subordinated Debentures underlying the Trust Preferred Securities at the rate of 11.6% per annum on their face amount of $105,443, or $12,231 per annum in the aggregate. The Trust will redeemdistributes monthly cash payments it receives from the Trust Preferred Securities whenCompany as interest on the Junior Subordinated Debentures are repaid, ordebentures to preferred security holders at maturityan annual rate of 11.6% on September 30, 2027. The Trust distributes an equivalentthe liquidation amount to the holders of the Trust Preferred Securities.$25.00 per preferred security. Pursuant to the Indenture that governs the Trust Preferred Securities, the Trust is able to defer distribution payments to holders of the Trust Preferred Securities for a period that cannot exceed 60 months (the “Deferral Period”). During a Deferral Period, the Company is required to accrue the full amount of all interest payable, and such deferred interest payable would become immediately payable by the Company at the end of the Deferral Period. There were no deferrals of distribution payments to holders of the Trust Preferred Securities in 20142017 or 2013.

2016.

In connection with the public offering of TOPrS, the Trust issued $3,261 of trust common securities to the Company. The Senior Facilities provide for customary eventsTrust invested the proceeds from the sale of default, including but not limitedthe trust common securities in an equal principal amount of 11.6% Junior Subordinated

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

Debentures of Hillman due September 30, 2027. The Trust distributes monthly cash payments it receives from the Company as interest on the debentures to payment defaults, breachthe Company at an annual rate of representations or covenants, cross-defaults, bankruptcy events, failure to pay judgments, attachment11.6% on the liquidation amount of its assets, change of control,the common security.
The Company has determined that the Trust is a variable interest entity and the issuanceholders of an orderthe Trust Preferred Securities are the primary beneficiaries of dissolution. Certainthe Trust. Accordingly, the Company does not consolidate the Trust. Summarized below is the financial information of these eventsthe Trust as of default are subjectDecember 30, 2017:
December 30, 2017 Amount
Non-current assets - junior subordinated debentures - preferred $124,214
Non-current assets - junior subordinated debentures - common 3,261
Total assets $127,475
Non-current liabilities - trust preferred securities $124,214
Stockholder's equity - trust common securities 3,261
Total liabilities and stockholders' equity $127,475
The non-current assets for the Trust relate to notice and cure periods or materiality thresholds.its investment in the 11.6% junior subordinated deferrable interest debentures of Hillman due September 30, 2027.
The TOPrS constitute mandatorily redeemable financial instruments. The Company guarantees the obligations of the Trust on the Trust Preferred Securities. Accordingly, the guaranteed preferred beneficial interest in the Company's junior subordinated debentures is presented in long-term liabilities in the accompanying consolidated balance sheet.
On June 30, 2014, the junior subordinated debentures were recorded at the fair value of $131,141 based on the price underlying the Trust Preferred Securities of $30.32 per share upon close of trading on the NYSE Amex on that date plus the liquidation value of the trust common securities. The Company is also required to comply, in certain circumstances, with a senior secured net leverage ratio covenant. This covenant only applies if, atamortizing the endpremium on the junior subordinated debentures of a fiscal quarter, there are outstanding Revolver borrowings in excess of 35% of$22,437 over their remaining life. Unamortized premium on the total revolving commitments. As of December 31, 2014, the Revolver loan had no amounts outstandingjunior subordinated debentures was $18,771 and the outstanding letters of credit were $3.7 million. The $3.7 million outstanding usage represented 5% of total revolving commitments and this financial covenant was not in effect. The occurrence of an event of default permits the lenders under the Senior Facilities to accelerate repayment of all amounts due. The Company was in compliance with all provisions and covenants of the Senior Facilities$19,936 as of December 31, 2014.

As of30, 2017 and December 31, 2014 and 2013, long-term debt is summarized as follows:

   Successor     Predecessor 
   2014      2013 

Revolving credit agreement

  $—        $—    

Term Loan B

   547,250       381,609  

6.375% Senior Notes

   330,000       —    

10.875% Senior Notes

   —         271,750  

Capital leases and other obligations

   607       556  
  

 

 

     

 

 

 
 877,857    653,915  

Less: amounts due in one year

 5,707    4,187  
  

 

 

     

 

 

 

Long-term debt

$872,150   $649,728  
  

 

 

     

 

 

 

2016, respectively.


The aggregate minimum principal maturities of the long-term debt for each of the five years following December 31, 201430, 2017 are as follows:

Year

  Amount 

2015

  $5,707  

2016

   5,695  

2017

   5,612  

2018

   5,552  

2019

   5,536  

2020 and thereafter

   849,755  

As of December 31, 2014, the Company had $66,277 available under our revolving credit agreement and letter of credit commitments outstanding of $3,723. The Company had outstanding debt of $547,857 under our secured credit facilities at December 31, 2014, consisting of $547,250 in Term B loans and $607 in capitalized lease and other obligations. The term loan consisted of $547,250 in Term B Loans currently at a three (3) month LIBOR rate of 4.50%. The capitalized lease and other obligations were at various interest rates.

   
Year Amount
2018 $5,706
2019 25,137
2020 5,573
2021 514,269
2022 330,000
2023 and thereafter 108,704
  $989,389
Additional information with respect to the fair value of the Company’sCompany's fixed rate senior notes and junior subordinated debentures is included in Note 16 –13 - Fair Value Measurements.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

10.Leases:

Measurements.

8. Leases:
Certain warehouse, office space, and equipment are leased under capital and operating leases with terms in excess of one year. Future minimum lease payments under non-cancellable leases consisted of the following at December 31, 2014:

   Capital   Operating 
   Leases   Leases 

2015

  $243    $10,192  

2016

   218     7,633  

2017

   125     6,145  

2018

   58     5,088  

2019

   38     4,726  

Later years

   5     27,762  
  

 

 

   

 

 

 

Total minimum lease payments

 687  $61,546  
    

 

 

 

Less amounts representing interest

 (80) 
  

 

 

   

Present value of net minimum lease payments
(including $207 currently payable)

$607  
  

 

 

   

30, 2017:


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

Year 
Operating
Leases
2018 $13,854
2019 12,304
2020 8,801
2021 8,199
2022 8,001
Later years 21,267
Total minimum lease payments $72,426
The rental expense for all operating leases was $6,511, $5,890, $11,788$16,663, $16,160, and $8,787$14,300 for the Successor period from June 30, 2014 through December 31, 2014, Predecessor six months period ended June 29, 2014, and years ended December 30, 2017, December 31, 20132016, and 2012,December 31, 2015, respectively. Certain leases are subject to terms of renewal and escalation clauses.

11.Deferred Compensation Plan:

9. Deferred Compensation Plan:
The Company maintains a deferred compensation plan for key employees (the “Nonqualified Deferred Compensation Plan” or “NQDC”) which allows the participants to defer up to 25% of salary and commissions and up to 100% of bonuses to be paid during the year and invest these deferred amounts into certain Company directed mutual fund investments, subject to the election of the participants. The Company is permitted to make a 25% matching contribution on deferred amounts up to $10, subject to a five year vesting schedule.

As of Successor’s period endedDecember 30, 2017 and December 31, 2014 and Predecessor’s year ended December 31, 2013,2016, the Company’sCompany's consolidated balance sheets included $2,244$2,294 and $4,386,$1,787, respectively, in restricted investments representing the assets held in mutual funds to fund deferred compensation liabilities owed to the Company’sCompany's current and former employees. The current portion of the restricted investments was $494$752 and $2,856$271 as of Successor’s period endedDecember 30, 2017 and December 31, 20142016, respectively, and Predecessor’s year ended December 31, 2013, respectively.

is included in other current assets on the Consolidated Balance Sheet. The assets held in the NQDC are classified as an investment in trading securities. The Company recorded trading gains and offsetting compensation expense of $43, $95, $364, and $329 for

During the Successor’s period ended December 31, 2014, Predecessor’s period ended June 29, 2014, and Predecessor’s years ended December 31, 2013, and 2012, respectively.

During the Successor’s period ended30, 2017, December 31, 2014, Predecessor’s period ended June 29, 2014,2016, and Predecessor’s years ended December 31, 2013, and 2012,2015 distributions from the deferred compensation plan aggregated $0, $2,893, $864,$289, $719, and $357,$678, respectively.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

12.Guaranteed Preferred Beneficial Interest in the Company’s Junior Subordinated Debentures:

In September 1997, The Hillman Group Capital Trust, a Grantor trust, completed a $105,446 underwritten public offering of 4,217,724 Trust Preferred Securities (“TOPrS”). The Trust invested the proceeds from the sale of the preferred securities in an equal principal amount of 11.6% Junior Subordinated Debentures of Hillman due September 2027.

The Trust distributes monthly cash payments it receives from the Company as interest on the debentures to preferred security holders at an annual rate of 11.6% on the liquidation amount of $25.00 per preferred security.

In connection with the public offering of TOPrS, the Trust issued $3,261 of trust common securities to the Company. The Trust invested the proceeds from the sale of the trust common securities in an equal principal amount of 11.6% Junior Subordinated Debentures of Hillman due September 2027. The Trust distributes monthly cash payments it receives from the Company as interest on the debentures to the Company at an annual rate of 11.6% on the liquidation amount of the common security.

The Company may defer interest payments on the debentures at any time, for up to 60 consecutive months. If this occurs, the Trust will also defer distribution payments on the preferred securities. The deferred distributions, however, will accumulate interest at a rate of 11.6% per annum. The Trust will redeem the preferred securities when the debentures are repaid, or at maturity on September 30, 2027. The Company may redeem the debentures before their maturity at a price equal to 100% of the principal amount of the debentures redeemed, plus accrued interest. When the Company redeems any debentures before their maturity, the Trust will use the cash it receives to redeem preferred securities

10. Equity and common securities as provided in the trust agreement. The Company guarantees the obligations of the Trust on the Trust Preferred Securities.

The Company has determined that the Trust is a variable interest entity and the holders of the Trust Preferred Securities are the primary beneficiaries of the Trust. Accordingly, the Company has de-consolidated the Trust. Summarized below is the financial information of the Trust as of December 31, 2014:

Non-current assets - junior subordinated debentures - preferred

$127,424  

Non-current assets - junior subordinated debentures - common

 3,261  
  

 

 

 

Total assets

$130,685  
  

 

 

 

Non-current liabilities - trust preferred securities

$127,424  

Stockholder’s equity - trust common securities

 3,261  
  

 

 

 

Total liabilities and stockholders’ equity

$130,685  
  

 

 

 

The non-current assets for the Trust relate to its investment in the 11.6% junior subordinated deferrable interest debentures of Hillman due September 30, 2027.

The TOPrS constitute mandatorily redeemable financial instruments. The Company guarantees the obligations of the Trust on the Trust Preferred Securities. Accordingly, the guaranteed preferred beneficial interest in the Company’s junior subordinated debentures is presented in long-term liabilities in the accompanying consolidated balance sheet.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

12.Guaranteed Preferred Beneficial Interest in the Company’s Junior Subordinated Debentures: (continued)

On June 30, 2014, the Junior Subordinated Debentures were recorded at the fair value of $131,141 based on the price underlying the Trust Preferred Securities of $30.32 per share upon close of trading on the NYSE Amex on that date plus the liquidation value of the trust common securities. The Company is amortizing the premium on the Junior Subordinated Debentures of $22,437 over their remaining life.

13.Common and Preferred Stock:

Accumulated Other Comprehensive Income:

Common Stock

After consummation of the Merger Transaction,

The Hillman Companies, Inc. has one class of common stock. All outstanding shares of The Hillman Companies, Inc. common stock are owned by Holdco. The management shareholders of Holdco do not have the ability to put their shares back to Holdco.

Under the terms of the Predecessor Stockholders Agreement for the Predecessor Holdco common stock, management shareholders had the ability to put their shares back to Predecessor Holdco under certain conditions, including death or disability. ASC 480-10-S99 requires shares to be classified outside of permanent equity if they can be redeemed and the redemption is not solely within control of the issuer. Further, if it is determined that redemption of the shares is probable, the shares are marked to fair value at each balance sheet date with the change in fair value recorded in additional paid-in capital. The Predecessor Company determined that redemption of the shares was probable as they could be put back to Predecessor Holdco upon death or disability. Accordingly, the 161.2 shares of common stock held by management as of December 31, 2013 were recorded outside permanent equity. These shares were adjusted to the fair value of $16,975 as of December 31, 2013.

Preferred Stock

The Hillman Companies, Inc. has one class of preferred stock, with 5,000 shares authorized and none issued or outstanding as of December 30, 2017 or December 31, 2014 or 2013.

14.Stock-Based Compensation:

OHCP HM Acquisition Corp. 2010 Stock Option Plan

Effective May 28, 2010,2016.

Accumulated Other Comprehensive Loss
The following is the Predecessor established the OHCP HM Acquisition Corp. 2010 Stock Option Plan, as amended (the “Predecessor Option Plan”), pursuant to which Predecessor Holdco granted non-qualified stock options for the purchase of Predecessor Holdco common stock. Immediately prior to the consummationdetail of the Merger Transaction, there were outstanding options to purchase 44,180 shares of Predecessor Holdco common stock. In connection with the Merger Transaction, the Predecessor Option Plan was terminated, and all options outstanding thereunder were cancelled. Upon consummation of the Merger Transaction, each outstanding option to purchase shares of Predecessor Holdco common stock was converted into the right to receive, in cash, a portion of the merger considerationchange in the Merger Transaction.

Company's accumulated other comprehensive loss from December 31, 2014 to December 30, 2017 including the effect of significant reclassifications out of accumulated other comprehensive income (net of tax):


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)


 Foreign Currency Translation
Balance at December 31, 2014$(12,524)
Other comprehensive loss before reclassifications(22,666)
Amounts reclassified from other comprehensive loss—
Net current period other comprehensive loss(22,666)
Balance at December 31, 2015(35,190)
Other comprehensive income before reclassifications808
Amounts reclassified from other comprehensive income—
Net current period other comprehensive income808
Balance at December 31, 2016(34,382)
Other comprehensive income before reclassifications8,483
Amounts reclassified from other comprehensive income1
(638)
Net current period other comprehensive income7,845
Balance at December 30, 2017$(26,537)
14.Stock-Based Compensation: (continued)
1.
In the year ended December 30, 2017, the Company fully liquidated its Australian subsidiary and reclassified the cumulative translation adjustment to income. The $638 gain was recorded as other income on the Consolidated Statement of Comprehensive Income (Loss).

Option holders were not required by the terms of the Predecessor Option Plan or the Predecessor Stockholders Agreement to hold the shares for any period of time following exercise. Liability classification was required because this arrangement permits the holders to put the shares back without being exposed to the risks and rewards of the shares for a reasonable period of time. Consistent with past practice, the Company elected to use the intrinsic value method to value the options. Immediately prior to the cancelation of the Predecessor Option Plan, the stock option liability was $48,517.

11. Stock Based Compensation:
HMAN Group Holdings Inc. 2014 Equity Incentive Plan

Effective June 30, 2014, Holdco established the HMAN Group Holdings Inc. 2014 Equity Incentive Plan (the “2014 Equity Incentive Plan”), pursuant to which Holdco may grant options, stock appreciation rights, restricted stock, and other stock-based awards for up to an aggregate of 44,021.264 shares of its common stock. Effective December 5, 2016, the number of shares was increased to 45,445.418. The 2014 Equity Incentive Plan is administered by a committee of the Holdco board of directors. Such committee determines the terms of each stock-based award grant under the 2014 Equity Incentive Plan, except that the exercise price of any granted options and the grant price of any granted stock appreciation rights may not be lower than the fair market value of one share of common stock of Holdco as of the date of grant.

In 2014, Holdco granted a total of 35,817.010 non-qualified stock options with certain time-vesting and performance vesting conditions under the 2014 Equity Incentive Plan. The options were granted with an exercise price equal to the grant date fair value of the underlying securities. As of December 31, 2014, a total of 8,204.254 shares were available for future stock-based award grants.

The fair value of 18,208.523,126.492 time-vested options granted by Holdcooutstanding as of December 30, 2017 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: dividend yield equaling 0%, risk-free interest rate of 2.1%from 1.27% to 2.26%, expected volatility assumed to be 32.0%31.5%, and expected term from 6.55.75 years to 6.756.25 years. The fair value of an option in whole dollars was $372.598.

Compensation$351.61.

In the year ended December 30, 2017, the Company modified the vesting period of the outstanding awards, reducing the vesting period to four years from five years. The modification of the vesting term resulted in $687 of additional expense for the year ended December 30, 2017.
Stock option compensation expense of $675$1,984, $1,513, and $957 was recognized in the accompanying consolidated statements of Comprehensive Losscomprehensive income (loss) for the period from Juneyears ended December 30, 2014 through2017, December 31, 2014.2016, and December 31, 2015, respectively. As of December 31, 2014,30, 2017, there was $6,110$3,016 of unrecognized compensation expense for unvested common options. The expense will be recognized as a charge to earnings over a weighted average period of approximately 4.51.67 years.

Holdco also granted 17,608.5

As of December 30, 2017, there were 20,406.168 performance-based stock options outstanding that ultimately vest depending upon satisfaction of conditions that only arise in the event of a sale of the Company. No compensation expense will be recognized on these stock options unless it becomes probable the performance conditions will be satisfied.

A summary of stock option activity for the year ended December 30, 2017 is presented below:

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

14.Stock-Based Compensation (continued):


 
Number
of
Shares
 
Weighted
Average
Exercise
Price Per
Share (in whole dollars)
 
Weighted
Average
Remaining
Contractual
Term
(Years)
Outstanding at December 31, 201643,375.418
 $1,000
 8 years
Exercisable at December 31, 2016—
 —
 —
Granted8,720.000
 $1,000
 —
Exercised or converted—
 —
 —
Forfeited or expired(8,562.758) $1,000
 —
Outstanding at December 30, 201743,532.660
 $1,000
 8 years
Exercisable at December 30, 2017—
 —
 —
No options were exercised in the years ended December 30, 2017, December 31, 2016, or December 31, 2015. The aggregate intrinsic value of options outstanding as of December 30, 2017 was $6,878.
During the year ended December 31, 2015, the Company also granted a total of 1,600 shares of restricted stock under the 2014 Equity Incentive Plan. The shares were granted at the grant date fair value of the underlying common stock securities. The restrictions on 1,500 restricted stock shares lapsed in one-half increments on each of the two anniversaries of the award date. The restrictions on the remaining 100 restricted stock shares lapsed on the one year anniversary of the award date.

During the year ended December 30, 2017, the Company granted 425 shares of restricted stock under the 2014 Equity Incentive Plan. The shares were granted at the grant date fair value of the underlying common stock securities. The restrictions lapse upon change in control of the Company.
A summary of successorrestricted stock option activity for the six monthsyear ended December 31, 201430, 2017 is presented below:

   Number
of
Shares		   Weighted
Average
Exercise
Price Per
Share		   Weighted
Average
Remaining
Contractual
Term
(Years)		   Aggregate
Intrinsic
Value		 

Outstanding at June 30, 2014

   —       —       —       —    

Granted

   35,817.010    $1,000     —       —    

Exercised or converted

   —       —       —       —    

Forfeited or expired

   —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Outstanding at December 31, 2014

 35,817.010  $1,000   9.50 years  $—    

Exercisable at December 31, 2014

 —    $—     —    $—    

OHCP HM Acquisition Corp. Deferred Stock Unit Plan U.S.:

Effective

 Number of Shares Weighted-Average Grant Date Fair Value (in whole dollars)
Unvested at December 31, 2016750
 $1,000
Granted425
 $861
Vested(750) $1,000
Forfeited(150) $861
Unvested at December 30, 2017275
 $861
Compensation expense of $500, $767, and $333 was recognized in the accompanying consolidated statements of comprehensive income (loss) for the years ended December 30, 2017 and December 31, 2013, Predecessor Holdco established the OHCP HM Acquisition Corp. Deferred Stock Unit Plan U.S. for Senior Officers (the “DSU Plan”). The DSU Plan permitted an eligible executive to elect to have a short-term incentive award paid in the form of deferred stock units, which are bookkeeping entries equivalent in value to one share of Predecessor Holdco common stock.

The deferred stock units issued under the DSU Plan in respect to fiscal year 2013 (the “2013 DSUs”) were exchanged for the right to receive a cash payment in the aggregate amount of $1,323 in connection with the closing of the Merger Transaction. In connection with the Merger Transaction, the DSU Plan was terminated,2016 and all deferred stock units outstanding thereunder were cancelled.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

15.Derivatives and Hedging:

2015, respectively.


12. Derivatives and Hedging:
The Company uses derivative financial instruments to manage ourits exposures to (1) interest rate fluctuations on ourits floating rate senior debt;debt and (2) price fluctuations in metal commodities used in our key products; and (3) fluctuations in foreign currency exchange rates. The Company measures those instruments at fair value and recognizes changes in the fair value of derivatives in earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures.

Interest Rate Swap Agreements - On June 24, 2010,September 3, 2014, the Company entered into atwo forward Interest Rate Swap AgreementAgreements (the “2010 Swap”“2014 Swaps”) with a two-year termthree-year terms for a notional amountamounts of $115,000.$90,000 and $40,000. The forward start date of the 2010 Swap2014 Swaps was May 31, 2011October 1, 2015 and it terminated on May 31, 2013.the termination date is September 30, 2018. The 2010 Swap fixed2014 Swaps fix the interest rate at 2.47%2.2% plus the applicable interest rate margin.

The 2010 Swap was initially designated as a cash flow hedge. Effective April 18, 2011, the Company executed the second amendment to the Prior Credit Agreement which modified the interest rate on the Prior Senior Facilities (the “Prior Senior Facilities”). The critical terms for the 2010 Swap no longer matched the termsmargin of the amended Prior Senior Facilities3.5% and the 2010 Swap was de-designated. As a result, $643effective rate of previously unrecognized losses recorded as a component of other comprehensive income or loss was recognized as interest expense5.7%.


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in year ended December 31, 2011. thousands)

The 2011 adjustments of $284 to thetotal fair value of the 2010 Swap were recordedinterest rate swaps was $392 as a reduction in interest expense in the statement of comprehensive loss for the favorable change in fair value since December 31, 2010.

At December 31, 2012, the fair value of the 2010 Swap was $(418)30, 2017 and was reported on the consolidated balance sheet in other current liabilities with a reductionan increase in interest other income/expense recorded in the statement of comprehensive lossincome for the favorable change of $787$1,466 in fair value since December 31, 2011.

The 2010 Swap had no value at December 31, 2014 or at December 31, 2013. Adjustments of $418 to the fair value of the 2010 Swap were recorded as a reduction in interest expense in the statement of comprehensive loss for the favorable change in fair value from December 31, 2012 until its termination on May 31, 2013.

On September 3, 2014, the Company entered into a forward Interest Rate Swap Agreement (the “2014 Swap No. 1”) with a three-year term for a notional amount of $90,000. The forward start date of the 2014 Swap No. 1 is October 1, 2015 and its termination date is September 30, 2018. The 2014 Swap No. 1 fixes the interest rate at 2.2% plus the applicable interest rate margin.

On September 3, 2014, the Company entered into a forward Interest Rate Swap Agreement (the “2014 Swap No. 2”) with a three-year term for a notional amount of $40,000. The effective date of the 2014 Swap No. 2 is October 1, 2015 and its termination date is September 30, 2018. The 2014 Swap No. 2 fixes the interest rate at 2.2% plus the applicable interest rate margin.

2016.

The total fair value of the interest rate swaps was $(935)$1,858 as of December 31, 20142016 and was reported on the consolidated balance sheet in other non-current liabilities with an increase in interest other income/expense recorded in the statement of comprehensive loss for the unfavorable change of $935$706 in fair value since the inception.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

15.Derivatives and Hedging: (continued)

December 31, 2015.

The Company’sCompany's interest rate swap agreements did not qualify for hedge accounting treatment because they did not meet the provisions specified in ASC 815, Derivatives and Hedging (“ASC 815”).

Interest Rate Cap Agreements

Foreign Currency Forward Contracts - On May 20, 2013, During 2015, 2016, and 2017, the Company entered into an Interest Rate Cap Agreement (the “2013 Rate Cap No. 1”) with a two-year term for amultiple foreign currency forward contracts. The table below summarizes the maturity dates and the fixed exchange rates of the contracts.
  2017 FX Contracts 2016 FX Contracts 2015 FX Contracts
Maturity date range:      
Minimum October 2017 April 2016 February 2015
Maximum April 2018 April 2017 December 2016
Fixed exchange rate range:      
Minimum 1.3002 1.2536 1.1384
Maximum 1.3518 1.3458 1.3831
The purpose of the Company's foreign currency forward contracts is to manage the Company's exposure to fluctuations in the exchange rate of the Canadian dollar.
The total notional amount of $150,000contracts outstanding was C$2,993 and the maximum LIBOR interest rate set at 1.25%. 2013 Rate Cap No. 1 became effective on May 28, 2013 and was terminated effectiveC$29,887 as of June 19, 2014.

On May 20, 2013, the Company entered into an Interest Rate Cap Agreement (the “2013 Rate Cap No. 2”) with a two-year term for a notional amount of $75,000December 30, 2017 and the maximum LIBOR interest rate set at 1.25%. 2013 Rate Cap No. 2 became effective on May 28, 2013 and was terminated effective as of June 19, 2014.

Adjustments of $(53) to theDecember 31, 2016, respectively. The total fair value of the rate caps were recordedforeign currency forward contracts was $(140) and $616 as an increase in interest expense in the predecessor statement of comprehensive loss for the six months ended June 29, 2014 for the unfavorable change sinceDecember 30, 2017 and December 31, 2013.

As of December 31, 2013, the fair value of the interest rate caps of $532016, respectively, and was reported on the consolidated balance sheet in non-current other current liabilities and current assets, with anrespectively. An increase (decrease) in interest expenseother income of $(1,643) and $1,587 was recorded in the statement of comprehensive lossincome (loss) for the unfavorable change of $(81) in fair value since the inception.

The Company’s interest rate cap agreements did not qualify for hedge accounting treatment because they did not meet the provisions specified in ASC 815, Derivativesduring years ended December 30, 2017 and Hedging, (“ASC 815”).

Metal Swap Agreements - On April 20, 2012, the Company entered into a Commodity Metal Swap Agreement (the “2012 Metal Swap No. 1”) with an approximate eight-month term for 35 MT of copper at a notional amount of $294.7. The maturity date was December 31, 2012 and the 2012 Metal Swap No. 1 fixed the copper price at $8.42 per MT.

On May 30, 2012, the Company entered into a Commodity Metal Swap Agreement (the “2012 Metal Swap No. 2”) with an approximate seven-month term for 10 MT of copper at a notional amount of $77.9. 2016, respectively.

The maturity date was December 31, 2012 and the 2012 Metal Swap No. 2 fixed the copper price at $7.79 per MT.

On May 30, 2012, the Company entered into a Commodity Metal Swap Agreement (the “2012 Metal Swap No. 3”) with an approximate ten-month term for 35 MT of copper at a notional amount of $272.5. The maturity date was March 31, 2013 and the 2012 Metal Swap No. 3 fixed the copper price at $7.785 per MT.

The Company uses metal commodity swap agreements to hedge anticipated purchases of key blanks which can fluctuate with changes in copper prices. The Company’s current metal swap agreementsCompany's foreign currency forward contracts did not qualify for hedge accounting treatment because they did not meet the provisions specified in ASC 815. Accordingly, the gain or loss on these derivatives was recognized in current earnings.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

15.Derivatives and Hedging: (continued)

At December 31, 2012, the fair value of 2012 Metal Swap No. 1 was $17 and was reported on the consolidated balance sheet in other current assets with a decrease in cost of sales recorded in the statement of comprehensive loss for the favorable change in fair value since the inception date in the second quarter of 2012. At December 31, 2012, the fair value of 2012 Metal Swap No. 2 and 2012 Metal Swap No. 3 was ($6) and was reported on the consolidated balance sheet in other current liabilities with an increase in cost of sales recorded in the statement of comprehensive loss for the unfavorable change in fair value since the inception dates in the second quarter of 2012.

As of December 31, 2013, each of the 2012 metal swap agreements expired and had no value. A decrease in cost of sales was recorded in the statement of comprehensive loss for the favorable change in fair value since December 31, 2012.

Foreign Currency Forward Contracts - On December 18, 2012, the Company entered into a Foreign Currency Forward Contract (the “2012 FX Contract”) with an approximate six-month term for a notional amount of C$105,000. The 2012 FX Contract maturity date was May 21, 2013 and fixed the Canadian to U.S. dollar forward exchange rate at 0.9989. The purpose of the 2012 FX Contract was to manage the Company’s exposure to fluctuations in the exchange rate of the Canadian dollar investment used in the Paulin Acquisition.

At December 31, 2012, the fair value of the 2012 FX Contract was ($1,475) and was reported on the consolidated balance sheet in other current liabilities with an increase in other expense recorded in the statement of comprehensive loss for the unfavorable change in fair value since its inception.

The 2012 FX Contract was settled in connection with the Paulin Acquisition. Prior to its settlement on February 19, 2013, an increase in other expense of $1,138 was recorded in the statement of comprehensive loss for the unfavorable change in fair value from December 31, 2012.

During 2013, the Company entered into multiple foreign currency forward contracts (the “2013 FX Contracts”) with maturity dates ranging from July 2013 to December 2014 and a total notional amount of C$44,591. The 2013 FX Contracts fixed the Canadian to U.S. dollar forward exchange rate at points ranging from 1.02940 to 1.08210. The purpose of the 2013 FX Contracts was to manage the Company’s exposure to fluctuations in the exchange rate of the Canadian dollar.

At December 31, 2013, the fair value of the 2013 FX Contracts was ($42) and was reported on the consolidated balance sheet in other current liabilities with an increase in other expense of $42 recorded in the statement of comprehensive loss.

During 2014, the Company entered into multiple foreign currency forward contracts (the “2014 FX Contracts”) with maturity dates ranging from March 2014 to December 2015. The 2014 FX Contracts fixed the Canadian to U.S. dollar forward exchange rate at points ranging from 1.06800 to 1.1740. The purpose of the 2014 FX Contracts is to manage the Company’s exposure to fluctuations in the exchange rate of the Canadian dollar.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

15.Derivatives and Hedging: (continued)

The total notional amount of contracts outstanding was C$31,032 and C$26,856 as of December 31, 2014 and December 31, 2013, respectively. The total fair value of the 2014 FX Contracts was $1,247 as of December 31, 2014 and was reported on the consolidated balance sheet in other current assets. An increase in other income of $1,289 was recorded in the statement of comprehensive loss for the favorable change in fair value from December 31, 2013.

The Company’s FX Contracts did not qualify for hedge accounting treatment because they did not meet the provisions specified in ASC 815. Accordingly, the gain or loss on these derivatives was recognized in current earnings.

The Company does not enter into derivative transactions for speculative purposes and, therefore, holds no derivative instruments for trading purposes.

Additional information with respect to the fair value of derivative instruments is included in Note 16 –13 - Fair Value Measurements.

16.Fair Value Measurements:

13. Fair Value Measurements:
The Company uses the accounting guidance that applies to all assets and liabilities that are being measured and reported on a fair value basis. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

categories.
Level 1:Quoted market prices in active markets for identical assets or liabilities.

Level 2:Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3:Unobservable inputs reflecting the reporting entity’sentity's own assumptions.


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

The accounting guidance establishes a hierarchy which requires an entity to maximize the use of quoted market prices and minimize the use of unobservable inputs. An asset or liability’sliability's level is based on the lowest level of input that is significant to the fair value measurement.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

16.Fair Value Measurements: (continued)

The following tables set forth the Company’sCompany's financial assets and liabilities that were measured at fair value on a recurring basis during the period, by level, within the fair value hierarchy:

   As of December 31, 2014 
   Level 1   Level 2   Level 3   Total 

Trading securities

  $2,244    $—      $—      $2,244  

Interest rate swaps

   —       (935)    —       (935) 

Foreign exchange forward contracts

   —       1,247     —       1,247  
   As of December 31, 2013 
   Level 1   Level 2   Level 3   Total 

Trading securities

  $4,386    $—      $—      $4,386  

Interest rate caps

   —       53     —       53  

Foreign exchange forward contracts

   —       (42)    —       (42) 

 As of December 30, 2017
 Level 1 Level 2 Level 3 Total
Trading securities$2,294
 $—
 $—
 $2,294
Interest rate swaps—
 (392) —
 (392)
Foreign exchange forward contracts—
 (140) —
 (140)
        
 As of December 31, 2016
 Level 1 Level 2 Level 3 Total
Trading securities$1,787
 $—
 $—
 $1,787
Interest rate swaps—
 (1,858) —
 (1,858)
Foreign exchange forward contracts—
 616
 —
 616
Trading securities are valued using quoted prices on an active exchange. Trading securities represent assets held in a Rabbi Trust to fund deferred compensation liabilities and are included as restricted investments on the accompanying consolidated balance sheets.

For the Successor period from June 30, 2014 through December 31, 2014, the unrealized gains on these securities of $43 were recorded as other income. The unrealized gains on these securities of $95, $364, and $329 were recorded as other income by the Predecessor for the six months period ended June 29 and years ended December 31, 2013, and 2012, respectively. An offsetting entry for the same amount, increasing the deferred compensation liability and compensation expense within SG&A, was also recorded for the corresponding periods.

The Company utilizes interest rate cap and interest rate swap contracts to manage our targeted mix of fixed and floating rate debt, and these contracts are valued using observable benchmark rates at commonly quoted intervals for the full term of the cap and swap contracts. As of December 30, 2017 and December 31, 2014,2016, the interest rate swaps were included in other current and non-current liabilities, respectively, on the accompanying consolidated balance sheet. As of December 31, 2014 the interest rate caps had expired and had no value. As of December 31, 2013 the interest rate caps were included in other current assets on the accompanying consolidated balance sheet.

sheets.

The Company utilizes foreign exchange forward contracts to manage our exposure to currency fluctuations in the Canadian dollar versus the U.S. dollar. The forward contracts were valued using observable benchmark rates at commonly quoted intervals during the term of the forward contract. TheAs of December 30, 2017 and December 31, 2016, the foreign exchange forward contracts were included in other current assets as of December 31, 2014liabilities and other current liabilities as of December 31, 2013assets, respectively, on the accompanying consolidated balance sheets.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

16.Fair Value Measurements: (continued)

The fair value of the Company’sCompany's fixed rate senior notes and junior subordinated debentures as of December 30, 2017 and December 31, 2014 and 20132016 were determined by utilizing current trading prices obtained from indicative market data. As a result, the fair value measurement of the Company’sCompany's senior term loans is considered to be Level 2.

   December 31, 2014   December 31, 2013 
   Carrying
Amount		   Estimated
Fair Value		   Carrying
Amount		   Estimated
Fair Value		 

6.375% Senior Notes

  $330,000    $315,563    $—      $—    

10.875% Senior Notes

   —       —       271,750     285,538  

Junior Subordinated Debentures

   130,685     137,764     114,941     131,480  

The carrying amounts of the Company’s cash and cash equivalents,

 December 30, 2017 December 31, 2016
 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
6.375% Senior Notes$325,000
 $325,050
 $323,888
 $304,013
Junior Subordinated Debentures127,475
 148,098
 128,640
 139,831
Cash, restricted investments, accounts receivable, short-term borrowings and accounts payable approximateare reflected in the consolidated financial statements at book value, which approximates fair value, becausedue to the short-term nature of these instruments. The carrying amount of the short term maturity of these instrumentslong-term debt under the revolving credit facility approximates the fair value at December 30, 2017 and the carrying value of the variable rate senior term loans approximates fair valueDecember 31, 2016 as the interest rate is variable and approximates current market rates.

  The Company also believes the carrying amount of the long-term debt under the senior term loan approximates the fair value at December 30, 2017 and December 31, 2016 because, while subject to a minimum LIBOR floor rate, the interest rate approximates current market rates of debt with similar terms and comparable credit risk.

Additional information with respect to the derivative instruments is included in Note 15 –12 - Derivatives and Hedging. Additional information with respect to the Company’sCompany's fixed rate senior notes and junior subordinated debentures is included in Note 9 –7 - Long-Term Debt.


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

17.Commitments and Contingencies:


14. Commitments and Contingencies:
The Company self-insures our product liability, automotive, workers’workers' compensation, and general liability losses up to $250 per occurrence. Catastrophic coverage has been purchased from third party insurers for occurrences in excess of $250 up to $40,000. The two risk areas involving the most significant accounting estimates are workers’workers' compensation and automotive liability. Actuarial valuations performed by the Company’sCompany's outside risk insurance expert were used by the Company’sCompany's management to form the basis for workers’workers' compensation and automotive liability loss reserves. The actuary contemplated the Company’sCompany's specific loss history, actual claims reported, and industry trends among statistical and other factors to estimate the range of reserves required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for development of these claims, as well as for incurred but not yet reported claims. The Company believes that the liability of approximately $2,253$2,158 recorded for such risk insurance reserves is adequate as of December 31, 2014.

30, 2017.

As of December 31, 2014,30, 2017, the Company has provided certain vendors and insurers letters of credit aggregating $3,723$6,536 related to our product purchases and insurance coverage of product liability, workers’workers' compensation, and general liability.

The Company self-insures our group health claims up to an annual stop loss limit of $200$250 per participant. Aggregate coverage is maintained for annual group health insurance claims in excess of 125% of expected claims. Historical group insurance loss experience forms the basis for the recognition of group health insurance reserves. Provisions for losses expected under these programs are recorded based on an analysis of historical insurance claim data and certain actuarial assumptions. The Company believes that the liability of approximately $2,378$1,728 recorded for such group health insurance reserves is adequate as of December 31, 2014.

30, 2017.


The Company imports large quantities of fastener products which are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements and bilateral actions. The Company could be subject to the assessment of additional duties and interest if it or its suppliers fail to comply with customs regulations or similar laws. The U.S. Department of Commerce (the "Department”) has received requests from petitioners to conduct administrative reviews of compliance with anti-dumping duty and countervailing duty laws for certain nails products sourced from Asian countries. The Company sourced products under review from vendors in China and Taiwan during the periods currently open for review, and it is at least reasonably possible that the Company may be subject to additional duties pending the results of the review. The Company accrues for the duty expense once it is determined to be probable and the amount can be reasonably estimated. In the year ended December 30, 2017, the Company recorded expense of $6,274 for anti-dumping duties, which is included in Cost of Goods Sold on the Consolidated Statement of Comprehensive Income (Loss).  As of December 30, 2017, the Company has accrued $6,274 in other current liabilities for the estimated liability for purchases made from a specific vendor included in the Department’s review based on the preliminary results published by the Department in the third quarter of 2017.  On March 16, 2018, the Department published updated results, which will be finalized upon the completion of review of appeals from the petitioners and any other interested parties.  The appeals process is expected to be completed in 2018.  If the updated results remain unchanged by the appeals, the estimated liability for these purchases will be reduced to $2,147.  As there are still uncertainties regarding the ultimate outcome of the review, the Company believes that the accrual of $6,274 is appropriate as of December 30, 2017.

On October 1, 2013, The Hillman Group, Inc. ("Hillman Group") filed a complaint against Minute Key Inc., a manufacturer of fully-automatic, self-service key duplication kiosks, in the United States District Court for the Southern District of Ohio (Western Division), seeking a declaratory judgment of non-infringement and invalidity of a U.S. patent issued to Minute Key Inc. on September 10, 2013. Hillman Group’sGroup's filing against Minute Key Inc. was in response to a letter dated September 10, 2013 in which Minute Key Inc. alleged that Hillman Group’sGroup's FastKey™ product infringes the newly-issued patent.

On October 23, 2013, Minute Key Inc. filed an answer and counterclaim against the Hillman Group alleging patent infringement. Minute Key Inc. also requested that the court dismiss the Hillman Group’sGroup's complaint, enter judgment against the Hillman Group that we arethe Company is willfully and deliberately infringing the patent, grant a permanent injunction, and award unspecified monetary damages to Minute Key Inc.

Minute Key Inc. later filed two motions on March 17, 2014 seeking to voluntarily withdraw its counterclaim alleging infringement by Hillman Group and also to dismiss Hillman Group’sGroup's complaint for non-infringement and invalidity. Shortly after an April 23, 2014 court-ordered mediation, Minute Key Inc. provided Hillman Group with a covenant promising not to sue for infringement of two of its patents against any existing Hillman Group product, including the FastKey™ and Key Express™ products.


THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

Hillman Group filed a motion on May 9, 2014 seeking to add additional claims to the case against Minute Key Inc. under Federal and Ohio state unfair competition statutes. These claims relate to Minute Key Inc.’s's business conduct during competition with Hillman Group over a mutual client.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

17.Commitments and Contingencies: (continued)

In an August 15, 2014 order, the court granted Minute Key Inc.’s's March 17, 2014 motions to dismiss the claims relating to patent infringement butand also granted Hillman Group’sGroup's May 9, 2014 motion to add its unfair competition claims.

Hillman Group formally amended its complaint to add the unfair competition claims on September 4, 2014, and Minute Key Inc. answered on September 29, 2014 without filing any counterclaims. Minute Key Inc. filed a motion on October 1, 2014 to move the case from Cincinnati to either the District of Colorado or the Western District of Arkansas. The court denied that motion on February 3, 2015.

Because the lawsuit remains in a preliminary stage, it

It is not yet possible to assess the impact, if any, that the lawsuit will have on the Company. As a result of the Minute Key Inc. covenant not to sue, however, the Company’sCompany's FastKey™ and Key Express™ products no longer face any threat of patent infringement liability from two of Minute Key Inc.’s's patents. The scope of the lawsuit has changed from a bilateral dispute over patent infringement to a lawsuit solely about Minute Key Inc.’s's business conduct. Hillman Group intends to continue to pursue this lawsuit vigorously and believesMinute Key Inc. filed a motion for summary judgment on February 8, 2016. The court denied that it has meritorious claims formotion on July 8, 2016. Following the denial of Minute Key Inc.’s unfair competition.

On July 14, 2014, PrimeSource Building Products,summary judgment motion, a jury trial was held between August 24, 2016 and September 6, 2016. The jury returned a verdict in Hillman Group’s favor on September 6, 2016 finding that Minute Key Inc.’s actions violated the Federal Lanham Act and the Ohio Deceptive Trade Practices Act. Following this verdict against Minute Key Inc., a supplierHillman Group has filed post-trial motions for recovery of productsits costs, attorney fees, pre-and post-judgment interest, and materials in the building, construction, and do-it-yourself industries (“PrimeSource”),an injunction. Minute Key Inc. filed a complaint against Hillman Group in the United States District Court for the Northern District of Texas (Dallas Division) alleging trademark infringement, unfair competition, and unjust enrichment. On August 8, 2014, Hillman Group filed apost-trial motion to dismissset aside the complaint and, on August 29, 2014, PrimeSource filed an amended complaint. On September 12, 2014, Hillman Group filed a motion to dismiss the amended complaint and, on October 3, 2014, PrimeSource filed a response to the motion to dismiss the amended complaint. On October 17, 2014, Hillman Group filed a reply in support of its motion to dismiss the amended complaint. The motion to dismiss the amended complaint remainsjury verdict. All post-trial motions are pending before the court.

In addition to its earlier-filed complaint, PrimeSource filed a motion for preliminary injunction on July 30, 2014. On August 20, 2014, Hillman Group filed a response in opposition to the motion for preliminary injunction and, on September 3, 2014, PrimeSource filed a reply in support of its motion for preliminary injunction. On October 1, 2014, Hillman Group filed a surreply in opposition to the motion for preliminary injunction. The parties held a court hearing on the motion for preliminary injunction on March 24 and 25, 2015 and the court announced that it intends to enter a ruling on the motion by March 31, 2015.

Because the lawsuit is in a preliminary stage, it is not yet possible to assess the impact, if any, that the lawsuit will have on the Company. However, Hillman Group believes that it has meritorious defenses to the claims and intends to defend the lawsuit vigorously. Also, Hillman Group’s third party insurer has agreed to defend Hillman Group in the case subject to the right to withdraw its defense and/or to disclaim any obligation to indemnify Hillman Group, and reserving the right to seek a judicial determination that it is not obligated to defend or indemnify Hillman Group.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

17.Commitments and Contingencies: (continued)

On December 15, 2014, Maria Santos, on behalf of herself and all others similarly situated, filed a complaint against Hillman Group and Wal-Mart Stores, Inc. (“Wal-Mart”) in the United States District Court for the Central District of California (Western Division) alleging violations of the Americans with Disabilities Act, the California Unruh Civil Rights Act, and the California Disabled Persons Act. On behalf of herself and all others similarly situated, Ms. Santos claims to seek, among other things, (1) a preliminary and permanent injunction to correct the alleged violations of these acts, (2) a declaration that Hillman Group and Wal-Mart are violating these acts, and (3) unspecified money damages, as well as recovery of court costs and attorneys’ fees. On January 5, 2015, Hillman Group filed its answer.

The Company has paid a portion of the legal fees incurred by Wal-Mart and its affiliates in this lawsuit in connection with the agreement to license Hillman Group’s products in Wal-Mart’s stores, and expects to pay, in the future, the reasonable legal fees incurred by Wal-Mart in this case.

Because the lawsuit is in a preliminary stage, it is not yet possible to assess the impact or range of loss, if any, that the lawsuit will have on the Company. However, Hillman Group has retained counsel, believes that is has meritorious defenses to the claims, and intends to defend the lawsuit vigorously.

In addition, legal proceedings are pending which are either in the ordinary course of business or incidental to the Company’sCompany's business. Those legal proceedings incidental to the business of the Company are generally not covered by insurance or other indemnity. In the opinion of the Company’sCompany's management, the ultimate resolution of the pending litigation matters will not have a material adverse effect on the consolidated financial position, operations, or cash flows of the Company.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

18.Statements of Cash Flows:

15. Statement of Cash Flows:
Supplemental disclosures of cash flows information are presented below:

   Successor       Predecessor 
   Period from
June 30, 2014
through
December 31, 2014		       Six months ended
June 29,
2014		   Year ended
December 31,
2013		   Year ended
December 31,
2012		 

Cash paid during the period for:

           

Interest on junior subordinated debentures

  $6,116       $6,116    $12,232    $12,232  
  

 

 

      

 

 

   

 

 

   

 

 

 

Interest

$25,858   $21,702  $45,260  $38,880  
  

 

 

      

 

 

   

 

 

   

 

 

 

Income taxes

$8   $856  $1,078  $479  
  

 

 

      

 

 

   

 

 

   

 

 

 

Non-cash investing activities:

 

Property and equipment purchased with capital lease

$76   $241  $358  $155  
  

 

 

      

 

 

   

 

 

   

 

 

 

19.Quarterly Data (unaudited):

2014

  Total  Fourth  Third   Second  First 

Net sales

  $734,669   $181,336   $195,956    $202,598   $154,779  

(Loss) income from operations

   (31,147)   6,953    23,306     (69,003)   7,597  

Net (loss) income

   (63,463)   (4,959)   1,812     (56,254)   (4,062) 

2013

  Total  Fourth  Third   Second  First 

Net sales

  $701,641   $172,629   $192,382    $192,711   $143,919  

Income from operations

   56,441    8,655    22,429     17,573    7,784  

Net (loss) income

   (1,148)   (2,974)   1,748     4,663    (4,585) 

  Year Ended
December 30, 2017		 Year Ended
December 31, 2016		 Year Ended
December 31, 2015
Cash paid during the period for:      
Interest on junior subordinated debentures $12,230
 $12,230
 $12,231
Interest $48,511
 $48,132
 $47,337
Income taxes $295
 $732
 $1,175

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

20.Concentration of Credit Risks:


16. Quarterly Data (unaudited):
2017 First Second Third Fourth Total
Net sales $188,779
 $224,260
 $218,955
 $206,374
 $838,368
Income from operations 3,100
 18,502
 13,984
 1,399
 36,985
Net (loss) income (6,684) 1,219
 (1,322) 65,435
 58,648
2016 First Second Third Fourth Total
Net sales $189,604
 $226,900
 $211,528
 $186,876
 $814,908
Income from operations 2,951
 20,025
 15,770
 2,769
 41,515
Net (loss) income (7,844) 1,746
 (437) (7,671) (14,206)
17. Concentration of Credit Risks:
Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade receivables. The Company places ourits cash and cash equivalents with high credit quality financial institutions. Concentrations of credit risk with respect to sales and trade receivables are limited due to the large number of customers comprising the Company’sCompany's customer base and their dispersion across geographic areas. The Company performs periodic credit evaluations of our customers’its customers' financial condition and generally does not require collateral.

For the year ended December 31, 2014,30, 2017, the largest three customers accounted for 40.7%45.8% of combined sales of the Successor and Predecessor and 42.2%27.0% of the year-end accounts receivable balance. For the Predecessor’s year ended December 31, 2013,2016, the largest three customers accounted for 39.7%46.1% of sales and 44.2% of the year-end accounts receivable balance. For the Predecessor’s year ended December 31, 2012, the largest three customers accounted for 40.1% of sales and 49.7%34.3% of the year-end accounts receivable balance. No other customer accounted for more than 5.0% of the Company’sCompany's total sales in 2014, 2013,2017, 2016, or 2012.2015. In each of the years ended December 30, 2017, December 31, 2014, 2013,2016, and 2012,December 31, 2015, the Company derived over 10% of its total revenues from two separate customers which operated in the following segments: United States, excluding All Points, Canada, and Mexico.

Concentration of credit risk with respect to purchases

18. Segment Reporting and trade payables are limited due to the large number of vendors comprising the Company’s vendor base, with dispersion across different industries and geographic areas. Geographic Information:
The Company’s largest vendor in terms of annual purchases accounted for 5.0% of the combination of the purchases of the Successor and Predecessor and 1.1% of the Successor’s total trade payables on December 31, 2014. The Company’s largest vendor in terms of annual purchases accounted for 5.0% of the Predecessor’s total purchases and 2.0% of the Predecessor’s total trade payables on December 31, 2013. The Company’s largest vendor in terms of annual purchases accounted for 6.7% of the Predecessor’s total purchases and 4.7% of the Predecessor’s total trade payables on December 31, 2012.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

21.Segment Reporting and Geographic Information:

The Company’sCompany's segment reporting structure uses the Company’sCompany's management reporting structure as the foundation for how the Company manages ourits business. The Company periodically evaluates ourits segment reporting structure in accordance with ASC 350-20-55 and has concluded that it has fivethree reportable segments as of December 31, 2014. During 2013, the operations of Paulin were combined into the operations of the Canada segment.30, 2017. The United States segment excluding All Points and the Canada segment are considered material by Company’sCompany's management as of December 31, 2014. 30, 2017. The Company's other segments have been combined in the "Other" category.

The segments are as follows:

United States – excluding the All Points division

All Points

Canada

MexicoOther

Australia

The United States segment distributes fasteners and related hardware items, threaded rod, keys, key duplicating systems, accessories, and identification items, such as tags and letters, numbers, and signs to hardware stores, home centers, mass merchants, and other retail outlets primarily in the United States. This segment also provides innovative pet identification tag programs to a leading pet products retail chain using a unique, patent-protected/patent-pending technology and product portfolio.

The In 2017, the Company completed the integration of its All Points segmentsubsidiary into the rest of its United States business. After this transition, discrete financial information for the All Points business is a Florida-based distributorno longer regularly reviewed by the Chief Operating Decision Maker. Accordingly, to align the operating segments with the current way management reviews information to make operating decisions, assess performance, and allocate resources, the results of commercial and residential fasteners catering to the hurricane protection industryCompany's All Points business are now reported in the southern United States. All Points has positioned itself as a major supplier to manufacturers of railings, screen enclosures, windows, and hurricane shutters.

States operating segment.

The Canada segment distributes fasteners and related hardware items, threaded rod, keys, key duplicating systems, accessories, and identification items, such as tags and letters, numbers, and signs to hardware stores, home centers, mass merchants, industrial distributors, automotive aftermarket distributors, and other retail outlets and industrial Original Equipment

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

Manufacturers (“OEMs”) in Canada. The Canada segment also produces fasteners, stampings, fittings, and processes threaded parts for automotive suppliers and industrial OEMs.

The Mexico segment distributes fasteners and related hardware items to hardware stores, home centers, mass merchants, and other retail outlets in Mexico.

The Australia segment distributes keys, key duplicating systems, and accessories to home centers and other retail outlets in Australia.

The Company uses profit or loss from operations to evaluate the performance of our segments.its segments, and does not include segment assets or nonoperating income/expense items for management reporting purposes. Profit or loss from operations is defined as income from operations before interest and tax expenses. Hillman accounts for intersegment sales and transfers as if the sales or transfers were to third parties, at current market prices. Segment revenue excludes sales between segments, which is consistent with the segment revenue information provided to the Company’sCompany's chief operating decision maker. Segment income (loss) from operations for Mexico and
In the year ended December 31, 2016, the Company decided to exit the Australia include insignificant costs allocatedmarket following the withdrawal from the United States, excluding All Points segment, while the remaining operating segments do not include any allocations.

The transaction expenses incurred in connection with the Merger Transaction wereAustralia market of a key customer and recorded charges of $1,047 in the United States segment. For further information, see Note 22, Transaction, Acquisition,Other segment related to the write-off of inventory and Integration Expenses.

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

21.Segment Reporting and Geographic Information (continued):

other assets. In the year ended December 30, 2017, the Company fully liquidated its Australian subsidiary and reclassified the cumulative translation adjustment to income. The $638 gain was recorded as other income on the Consolidated Statement of Comprehensive Income (Loss).

The table below presents revenues and income (loss) from operations for the reportable segments for the years ended December 31, 2014, 2013, and 2012.

   Successor      Predecessor 
   Period from
June 30, 2014
through
December 31, 2014		      Six months
Ended
June 29,
2014		  Year
Ended
December 31,
2013		  Year
Ended
December 31,
2012		 

Revenues

        

United States, excluding All Points

  $293,219      $269,009   $541,037   $517,135  

All Points

   9,362       10,238    20,798    18,837  

Canada

   70,566       73,867    132,158    12,555  

Mexico

   3,507       3,620    6,842    6,268  

Australia

   638       643    806    670  
  

 

 

     

 

 

  

 

 

  

 

 

 

Total revenues

$377,292   $357,377  $701,641  $555,465  
  

 

 

     

 

 

  

 

 

  

 

 

 

Segment Income (Loss) from Operations

 

United States, excluding All Points

$5,072   $(44,830) $52,255  $42,896  

All Points

 655    896   1,737   881  

Canada

 3,189    4,214   2,847   (3,050) 

Mexico

 73    446   629   787  

Australia

 (748)   (114)  (1,027)  (546) 
  

 

 

     

 

 

  

 

 

  

 

 

 

Total segment income (loss) from operations

$8,241   $(39,388) $56,441  $40,968  
  

 

 

     

 

 

  

 

 

  

 

 

 

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

21.Segment Reporting and Geographic Information (continued):

Assets by segment as of30, 2017, December 31, 20142016, and 2013 were as follows:

   Successor       Predecessor 
   As of
December 31,
2014		       As of
December 31,
2013		 

Assets:

       

United States, excluding All Points

  $1,522,371       $936,008  

All Points

   16,108        8,379  

Canada

   346,691        300,906  

Mexico

   15,886        17,964  

Australia

   1,957        1,599  
  

 

 

      

 

 

 

Total Assets

$1,903,013   $1,264,856  
  

 

 

      

 

 

 
       
   Successor       Predecessor 
   As of
December 31,
2014		       As of
December 31,
2013		 

Cash & cash equivalents:

       

United States, excluding All Points

  $13,192       $27,632  

All Points

   696        714  

Canada

   3,186        5,039  

Mexico

   1,396        1,570  

Australia

   15        14  
  

 

 

      

 

 

 

Consolidated cash & cash equivalents

$18,485   $34,969  
  

 

 

     

 

 

 

Following is revenue based on products for the Company’s significant product categories:

   Successor       Predecessor 
   Period from June 30,
2014 through
December 31, 2014		       Six months
ended
June 29,
2014		   Year
ended December 31,
2013		   Year
ended
December 31,
2012		 

Net sales

           

Keys

  $48,327       $45,511    $90,518    $86,943  

Engraving

   25,465        24,065     48,442     48,979  

Letters, numbers and signs

   19,439        16,145     34,045     32,251  

Fasteners

   241,636        232,221     450,234     308,770  

Threaded rod

   16,269        16,535     31,802     33,326  

Code cutter

   1,425        1,392     2,680     2,851  

Builders hardware

   10,482        10,106     17,320     16,370  

Other

   14,249        11,402     26,600     25,975  
  

 

 

      

 

 

   

 

 

   

 

 

 

Consolidated net sales

$ 377,292   $ 357,377  $ 701,641  $ 555,465  
  

 

 

     

 

 

   

 

 

   

 

 

 

THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

22.Transaction, Acquisition, and Integration Expenses:

During the period from June 30, 2014 through December 31, 2014, the Successor incurred $22,719 in transaction expenses primarily for legal, professional, and other advisory services in connection with the acquisition of the Company. The Successor transaction expenses include a payment of $15,000 to CCMP Capital Advisors for services related to the Merger Transaction.

For the six months period ended June 29, 2014, the Predecessor incurred $31,681 in transaction expenses primarily for investment banking, legal, and advisory services related to the Merger Transaction.

For the year ended December 31, 2013, the Predecessor incurred $8,638 of expenses for banking, legal, and other professional fees incurred in connection with the Paulin Acquisition.

For the year ended December 31, 2012, the Predecessor incurred $3,031 of expenses for banking, legal, and other professional fees incurred in connection with the Ook Acquisition and the Paulin Acquisition.

2015.

  Year Ended
December 30, 2017		 Year Ended
December 31, 2016		 Year Ended December 31, 2015
Revenues      
United States $693,599
 $677,526
 $645,658
Canada 137,800
 130,255
 133,152
Other 6,969
 7,127
 8,101
Total revenues $838,368
 $814,908
 $786,911
Segment Income (Loss) from Operations      
United States $32,583
 $42,148
 $33,438
Canada 2,881
 932
 (5,436)
Other 1,521
 (1,565) (604)
Total segment income from operations $36,985
 $41,515
 $27,398



Financial Statement Schedule:

Schedule II - VALUATION ACCOUNTS


(dollars in thousands)

   Deducted From
Assets in
Balance Sheet		 
   Allowance for
Doubtful
Accounts		 

Ending Balance - December 31, 2011

   641  

Additions charged to cost and expense

   643  

Deductions due to:

  

Others

   (179)(A) 
  

 

 

 

Ending Balance - December 31, 2012

 1,105  

Additions charged to cost and expense

 29  

Additions from acquired company

 115  

Deductions due to:

Others

 (546) 
  

 

 

 

Ending Balance - December 31, 2013

 703  

Additions charged to cost and expense

 226  

Deductions due to:

Others

 (302) 
  

 

 

 

Ending Balance - December 31, 2014

$627  
  

 

 

 

Notes:

(A)Includes write-off of accounts receivable (net of bad debt recoveries).

 
Deducted From
Assets in
Balance Sheet
 
Allowance for
Doubtful
Accounts
Ending Balance - December 31, 2014$627
Additions charged to cost and expense117
Deductions due to: 
Others(143)
Ending Balance - December 31, 2015601
Additions charged to cost and expense401
Deductions due to: 
Others(95)
Ending Balance - December 31, 2016$907
Additions charged to cost and expense282
Deductions due to: 
Others(68)
Ending Balance - December 30, 2017$1,121

Item 9 – Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A – Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are those controls and procedures that are designed to ensure that material information relating to The Hillman Companies, Inc. required to be disclosed by the Company in reports that it fileswe file or submitssubmit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’sSEC's rules and forms and that such information is accumulated and communicated to the Company’sCompany's management, including the chief executive officer and the chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of the Company’sCompany's management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures. Based upon that evaluation, and solely as a result of the material weakness in internal control over financial reporting described below, the Company’sCompany's chief executive officer and chief financial officer concluded that the Company’sCompany's disclosure controls and procedures were not effective, as of the end of the period covered by this Report.Report (December 30, 2017). We view our internal control over financial reporting as an integral part of our disclosure controls and procedures.

In light of the foregoing conclusion, the Company’s management undertook additional procedures in order that management could conclude that reasonable assurance exists regarding the reliability of financial reporting and the preparation of the consolidated financial statements included in this Report. Accordingly, notwithstanding the material weakness described below, the Company’s management has concluded that the consolidated financial statements included in this annual report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the period presented in conformity with generally accepted accounting principles (“GAAP”).

Management’s

Management's Annual Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. Pursuant to the rules and regulations of the Commission, internal control over financial reporting is a process designed by, or under the supervision of, the Company’sCompany's principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’sCompany's Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and the dispositions of assets;



Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with appropriate authorizations; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’sCompany's assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’sCompany's management has evaluated the effectiveness of the Company’sCompany's internal control over financial reporting as of December 31, 2014,30, 2017, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (1992(2013 framework). Based on such evaluation, management concluded that internal control over financial reporting was not effective as of December 31, 2014. Management’s30, 2017. Management's report on internal control over financial reporting is set forth above under the heading, “Report of Management on Internal Control Over Financial Reporting” in Item 8 of this annual report on Form 10-K.

A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. As a result of management’s assessment, the Company concluded that the material weakness described below existed as of December 31, 2014.

Management identified pervasive deficiencies related to the design and operating effectiveness of transaction, process level, and management monitoring controls that have a direct impact on the financial reporting of our Canadian subsidiary (The Hillman Group Canada ULC), which in aggregate are considered a material weakness. In 2013, Hillman acquired H. Paulin & Co., which has since been amalgamated with The Hillman Group Canada ULC. There are numerous manual procedures required to be performed on both the data input into our legacy system and the subsequent output in order to validate, prepare, and record information in the general ledger. These required manual procedures vary in complexity and extend throughout all functions of the entire financial reporting process. Further, there is an ineffective control environment surrounding these aforementioned manual procedures, management review controls, as well as ineffective controls over change management, critical access, and end user system access to the legacy system. As a result of these deficiencies, financial information may not be accurately reflected in key reports that are used in higher level management review controls or subsequently recorded in the general ledger.

The Company is not aware of any transactions that were improperly undertaken as a result of this material weakness and therefore does not believe that such material weakness had any material impact on the Company’s consolidated financial statements.

Plan for Remediation of Material Weakness.

Management is, and intends to continue, taking appropriate and reasonable steps to make the necessary improvements to remediate this material weakness in internal control over financial reporting. In particular, a senior management team has been assigned responsibility for internal controls within the Canadian subsidiary and training will be provided to all employees in financial reporting roles. A thorough evaluation of all processes, controls and the legacy system will be conducted and enhancements will be made where necessary, and ultimately, the legacy system will be migrated to a new platform and additional resources will be added where deemed appropriate.

Management believes that the measures described above will facilitate remediation of the material weakness we have identified and will continue to strengthen our internal control over financial reporting. The Company is actively involved in improving the effectiveness and efficiency of its internal control over financial reporting.

Attestation Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.

This annual report does not contain an attestation report of the Company’sCompany's independent registered public accounting firm regarding internal control over financial reporting. Management’sManagement's report was not subject to attestation by the Company’sCompany's independent registered public accounting firm pursuant to rules of the Commission that permit the Company to provide only management’smanagement's report in this annual report.

Changes in Internal Control over Financial Reporting.

There were no changes in the Company’sCompany's internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act of 1934, as amended, that occurred during the quarter ended December 31, 2014,30, 2017, that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting under Management’s Annual Report on Internal Control over Financial Reporting.

reporting.

Item 9B – Other Information.

None.



PART III

Item 10 – Directors, Executive Officers, and Corporate Governance.

The following is a summary of the biographies for at least the last five years of Hillman’sHillman's directors and officers. In connection with the Merger Transaction, all of Hillman’s directors (except James P. Waters) resigned and Douglas J. Cahill, Alberto J. Delgado, Max W. Hillman, Jr., Kevin M. Mailender, and Tyler J. Wolfram were elected to the Board of
Directors effective June 30, 2014. Aaron Jagdfeld, Richard F. Zannino, Jonathan R. Lynch, and Philip K. Woodlief were elected to the Board of Directors effective August 7, 2014, August 18, 2014, November 13, 2014, and February 10, 2015, respectively.

Directors

Name and Age

  

Position and Five-year Employment History

Douglas J. Cahill (55)

(58)		  Mr. Cahill has served as director since June 2014 and as Chairman since September 2014. Mr. Cahill has been a Managing Director of CCMP since July 2014 and is a member of CCMP's Investment Committee and previously was an Executive Advisor of CCMP from March 2013. Mr. Cahill served as President and Chief Executive Officer of Oreck, the manufacturer of upright vacuums and cleaning products, from May 2010 until December 2012. Prior to joining Oreck, Mr. Cahill served as President and Chief Executive Officer of Doane Pet Care Company, a private label manufacturer of pet food and former CCMP portfolio company. Prior to joining Doane in 1997, Mr. Cahill spent 13 years at Olin Corporation, a diversified manufacturer of metal and chemicals, where he served in a variety of managerial and executive roles. Mr. Cahill serves as a Board Member for Junior Achievement of Middle Tennessee and at Vanderbilt University’sUniversity's Owen Graduate School of Management. In January 2009, Mr. Cahill was appointed as an Advisor to Mars Incorporated. Mr. Cahill iscurrently serves on the Chairmanboards of Badger Sportswear and Shoes for Crews. Mr. Cahill previously served as a director of Ollie’s Bargain Outlet from 2013 to 2016 and of Jamieson Laboratories and a Director of Ollie’s Bargain Outlet.from 2014 to 2017. Mr. Cahill serves as the Chairman of our board of directors due to his financial, investment, and extensive management experience.

AlbertoGregory J. Delgado (44)

Gluchowski, Jr. (52)		  Mr. DelgadoGluchowski has served as director and as President and Chief Executive Officer since June 2014. Mr. Delgado has been a Managing Director of CCMP since 2006 and is a member of CCMP’s Investment Committee.September 2015. Prior to joining CCMPHillman, Mr. Gluchowski served as President, Hardware & Home Improvement of Spectrum Brands Holdings Inc. and a former division of Stanley Black and Decker since January 2010. Prior to 2010, Mr. Gluchowski held positions of increasing responsibility at Black & Decker in 2006,operations, supply chain, and general management roles after joining the company in 2002. Mr. Delgado wasGluchowski started his career with J.P. Morgan Capitalthe Wire & Cable Division of Phelps Dodge Corporation for three years. Previously,in 1988. Mr. Delgado worked in the Latin America Mergers and Acquisitions group and the Structured Finance group at J.P. Morgan & Co. Mr. DelgadoGluchowski currently serves on the boardboards of directors of Edwards Group LimitedAmerican Outdoor Brands Corporation and Newark E&P Holdings, LLC.Milacron Corporation. Mr. Delgado was selectedGluchowski's qualifications to servesit on our board of directors due toinclude his financial, investment,role as President and business experience.Chief Executive Officer of Hillman and Hillman Group.

Max W. Hillman, Jr. (68)

(71)		  Mr. Hillman has served as director since September 2001. Prior to retirement from his executive position, effective July 1, 2013, Mr. Hillman was President and Chief Executive Officer and member of

Name and Age

Position and Five-year Employment History

the Board of Directors of Hillman and Chief Executive Officer of Hillman Group. From 2000 to 2001, Mr. Hillman was Co-Chief Executive Officer of Hillman Group. Mr. Hillman presentlycurrently serves on the boardboards of Woodstream Corp., Sunsource Technology Services Inc., and West Chester Holdings, Inc., LEM Products, and EVP International LLC. Mr. Hillman previously served as a director of State Industrial Products from 2006 to 2011.2011 and of Woodstream Corp. from 2007 to 2015. Mr. Hillman’sHillman's qualifications to sit on our board of directors include his former roles as President and Chief Executive Officer of the Company and Co-Chief Executive Officer of Hillman Group.

Aaron Jagdfeld (43)

(46)		  
Mr. Jagdfeld has served as director since August 2014. Mr. Jagdfeld has been the President and Chief Executive Officer of Generac Power Systems, Inc. since September 2008 and a director of Generac since November 2006. Mr. Jagdfeld began his career at Generac in the finance department in 1994 and became Generac’sGenerac's Chief Financial Officer in 2002. In 2007, he was appointed President and was responsible for sales, marketing, engineering, and product development. Prior to joining Generac, Mr. Jagdfeld worked in the audit practice of the Milwaukee, Wisconsin office of Deloitte & Touche.Touche from 1993 to 1994. Mr. Jagdfeld was selected to serve on our board of directors due to his extensive management and financial experience.







Name and Age

Position and Five-year Employment History
Jonathan R. Lynch (47)

(50)		  
Mr. Lynch has served as director since November 2014. Mr. Lynch has been a Managing Director of CCMP since 1993 and is a member of CCMP’sCCMP's Investment Committee. Prior to joining CCMP, Mr. Lynch was a member of the Mergers and Acquisitions division of Prudential Securities. Mr. Lynch serves on the board of directorspreviously served as a director of Infogroup, Inc. from 2014 to 2017. Mr. Lynch is past President of the Venture Investors Association of NY (VIANY) and a member of the board of advisors of the Georgetown University School of Business. Mr. Lynch was selected to serve on our board of directors due to his financial, investment, and business experience.

Kevin M. Mailender (37)

(40)		  Mr. Mailender has served as director since May 2010. Mr. Mailender has been a Partner of Oak Hill Capital Management LLC since 2013 and previously was(where he has been employed since 2004). Mr. Mailender is a Principalmemeber of Oak Hill Capital Management between 2008 and 2013 and a Vice President of Oak Hill Capital Management between 2004 and 2008.Managment's investment committee. Mr. Mailender currently serves on the boards of Earth Fare, Checkers Drive-In Restaurants, and Imagine! Print Solutions. Mr. Mailender previously served as a director of Berlin Packaging from 2014 to 2017 and Dave & Buster’s Entertainment, Inc., Earth Fare, Inc., and Berlin Packaging, LLC. from 2010 to 2016. Mr. Mailender was selected to serve on our board of directors due to his financial, investment, and business experience.

James P. Waters (53)

Joseph M. Scharfenberger, Jr. (46)		  Mr. WatersScharfenberger has served as director since May 2013. Effective as ofJune 2015. Mr. Hillman’s retirement on July 1, 2013, Mr. Waters was appointed Chief Executive Officer of Hillman and Hillman Group. From 2011 to 2013, Mr. Waters was Executive Vice President and Chief Operating Officer of Hillman and Hillman

Name and Age

Position and Five-year Employment History

Group. From 2001 to 2011, Mr. Waters was Chief Financial Officer and Secretary of Hillman and Vice President, Chief Financial Officer, and Secretary of Hillman Group. Mr. WatersScharfenberger has been witha Managing Director of CCMP since July 2009 and is a member of CCMP's Investment Committee. Prior to joining CCMP, Mr. Scharfenberger worked at Bear Stearns Merchant Banking. Prior to joining Bear Stearns Merchant Banking, Mr. Scharfenberger worked in the Company since 1999.private equity division at Toronto Dominion Securities. Mr. Waters presentlyScharfenberger currently serves on the boardboards of Apollo Retail Services.Badger Sportswear, Jetro Cash & Carry, Shoes for Crews, and Truck Hero, Inc. Mr. Waters’s qualificationsScharfenberger previously served as a director of Jamieson Laboratories from 2014 to sit2017. Mr. Scharfenberger was selected to serve on our board of directors includedue to his role as Chief Executive Officer of Hillmanfinancial, investment, and Hillman Group.business experience.

Tyler J. Wolfram (48)

(51)		  Mr. Wolfram has served as director since May 2010. Mr. Wolfram has been a Managing Partner of Oak Hill Capital Management LLC since 2013 and previously was(and a Partner of Oak Hill Capital Management between 2001 and 2013.since 2001). Mr. Wolfram is a memberChairman of Oak Hill Management’s Executive Committee andHill's Investment Committee. Mr. Wolfram servedcurrently serves on the boardboards of directorsEarth Fare, Berlin Packaging, Checkers Drive- In Restaurants, and Imagine! Print Solutions. Mr. Wolfram previously served as a director of Duane Reade Holdings, Inc. from 2004 untilto 2010, and on the board of directors of NSA International, Inc. from 2006 untilto 2013, and currently serves as a director of Dave & Buster’sBuster's Entertainment, Inc., Earth Fare, Inc., and Berlin Packaging, LLC. from 2010 to 2016. Mr. Wolfram was selected to serve on our board of directors due to his financial, investment, and business experience.

Philip K. Woodlief (61)

(64)		  Mr. Woodlief has served as director since February 2015. Mr. Woodlief has been an independent financial consultant since 2007 and an Adjunct Professor of Management at Vanderbilt University’sUniversity's Owen Graduate School of Business since October 2010. At Vanderbilt, Mr. Woodlief has taught Financial Statement Research and Financial Statement Analysis. In 2014, Mr. Woodlief was also an Adjunct Professor at Belmont University, teaching Integrated Accounting Principles.Principles in 2014, and currently serves as a Visiting Instructor of Accounting at Sewanee: The University of the South. Prior to 2008, Mr. Woodlief was Vice President and Chief Financial Officer of Doane Pet Care, a global manufacturer of pet products. Prior to 1998, Mr. Woodlief was Vice President and Corporate Controller of Insilco Corporation, a diversified manufacturer of consumer and industrial products. Mr. Woodlief began his career in 1979 at KPMG Peat Marwick in Houston, Texas, progressing to the Senior Manager level in the firm’sfirm's Energy and Natural Resources practice. Mr. Woodlief iswas a certified public accountant (inactive).accountant. Mr. Woodlief currently serves on the board, and chairs the Audit Committee, of Badger Sportswear. Mr. Woodlief was selected to serve on our board of directors due to his financial and business experience.

Richard F. Zannino (56)

(59)		  Mr. Zannino has served as director since August 2014. Mr. Zannino has been a Managing Director of CCMP since July 2009 and is a member of CCMP’sCCMP's Investment Committee. Prior to joining CCMP, Mr. Zannino was Chief Executive Officer and a member of the board of directors of Dow Jones & Company. Mr. Zannino joined Dow Jones as Executive Vice President and Chief Financial Officer in February 2001 before his promotion to Chief Operating Officer in July 2002 and to Chief Executive Officer

Name and Age

Position and Five-year Employment History

and Director in February 2006. Prior to joining Dow Jones, Mr. Zannino was Executive Vice President in charge of strategy, finance, M&A, technology, and a number of operating units at Liz Claiborne. Mr. Zannino joined Liz Claiborne in 1998 as Chief Financial Officer. In 1998, Mr. Zannino served as Executive Vice President and Chief Financial Officer of General Signal. From 1993 until early 1998, Mr. Zannino was at Saks Fifth Avenue, ultimately serving as Executive Vice President and Chief Financial Officer. Mr. Zannino is currently a memberserves on the boards of the board of directors of InfogroupOllie's Bargain Outlet, Estee Lauder Companies, IAC/InterActiveCorp., Badger Sportswear, Shoes for Crews, Truck Hero, Inc., Ollie’s Bargain Outlet, Pure Gym (U.K.), Jamieson Laboratories (Canada), Francesca’s Holdings Corporation, Estee Lauder, and IAC/InterActiveCorp.Eating Recovery Center and is a trustee of Pace University. Mr. Zannino previously served as a director of Jamieson Laboratories from 2014 to 2017. Mr. Zannino was selected to serve on our board of directors due to his financial, investment, and business experience.



All directors hold office until their successors are duly elected and qualified.

Committees

The Company is a controlled company within the meaning of the NYSE Amex listing standards because an affiliate of CCMP owns more than 50% of the outstanding shares of the Company’sCompany's common voting stock. Accordingly, the Company is exempt from the requirements of the NYSE Amex listing standards to maintain a majority of independent directors on the Company’sCompany's board of directors and to have a nominating committee and a compensation committee composed entirely of independent directors.

The Company does not have a nominating committee, but it does have a compensation committee. The board of directors believes that it is not necessary to utilize a nominating committee. Director nominees for the Company are selected by the board of directors following receipt of recommendations of potential candidates from the Chairman of the Board of the Company. The board of directors is not limited by the recommendation of the Chairman and may select other nominees. There is no charter setting forth these procedures and the board of directors has no policy regarding the consideration of any director candidates recommended by shareholders. While the board of directors does not have a formal policy on diversity, it will consider issues of diversity, including diversity of gender, race, and national origin, education, professional experiences, and differences in viewpoints and skills when filling vacancies on the board of directors.

The current members of the audit committee are Aaron Jagdfeld and Philip K. Woodlief, both of whom are considered independent under the SEC standards and the NYSE AMEX listing standards. In addition, Gregory J. Gluchowski, Jr., Kevin M. Mailender, James P. Waters, and Richard F. Zannino have observer rights with the audit committee. The Company has previously received an exemption from AMEX to Section 121 of the AMEX Company Guide that requires the audit committee to have three members. The board of directors has determined that each of Messrs. Jagdfeld and Woodlief is an “audit committee financial expert” within the meaning of applicable rules of the SEC.

Risk Oversight and Board Structure

The board of directors executes its oversight responsibility for risk management with the assistance of its audit committee and compensation committee. The audit committee oversees the Company’sCompany's risk management activities, generally, and is charged with reviewing and discussing with management the Company’sCompany's major risk exposures and the steps management has taken to monitor, control, and manage these exposures. The audit committee’scommittee's meeting agendas include discussions of individual risk areas throughout the year, as well as an annual summary of the risk management process, including the Company’sCompany's risk assessment and

risk management guidelines. The compensation committee oversees the Company’sCompany's compensation policies generally to determine whether they create risks that are reasonably likely to have a material adverse effect on the Company. The audit committee and compensation committee report the results of their oversight activities to the board of directors.

The compensation committee has conducted a comprehensive review of the Company’sCompany's compensation structure from the perspective of enterprise risk management and the design and operation of its executive and employee compensation plans, policies, and arrangements generally, including the performance objectives and target levels used in connection with our annual performance-based bonuses and stock option awards. The compensation committee has concluded that there are no risks arising from the Company’sCompany's compensation policies and practices for its employees that are reasonably likely to have a material adverse effect on the Company. Our compensation program as a whole does not encourage or incentivize our executives or other employees to take unnecessary and excessive risks or engage in other activities and behavior that threaten the value of the Company or the investments of its shareholders, as evidenced by the following design features that we believe mitigate risk taking:

taking.

Base Salaries

Base salaries are fixed in amount and thus do not encourage risk taking.

Annual Performance Based Bonuses

The compensation committee believes that the Company’sCompany's annual bonus program is structured to appropriately balance risk and the desire to focus executives on specific short-term goals important to the Company’sCompany's success. While specific performance criteria are set and communicated in advance, the Company does not consider that the pursuit of these objectives may encourage unnecessary or excessive risk taking or lead to behaviors that focus executives on their individual enrichment rather than the Company’sCompany's long-term welfare.

Stock Options

and Restricted Stock



Executives are also eligible to receive stock options to acquire Holdco common stock under the HMAN Group Holdings Inc. 2014 Equity Incentive Plan (the “2014 Equity Incentive Plan”). The 2014 Equity Incentive Plan is administered by the Holdco board of directors. In fiscal year 2014,2017, the Holdco board of directors granted 35,217.0108,720 options to members of executive management. These option grants included options subject to service-vesting (in four equal annual installments beginning on the second anniversary of the grant date), with possible acceleration upon a change of control. Since the vesting is staggered and in some cases tied directly to long-term performance, employees should not be incentivized to achieve only short-term increases in stock price.

Additionally, executives are also eligible to receive discretionary grants of restricted shares.

Code of Ethics

The Company has adopted a code of business conduct and ethics which applies to its directors, senior officers, including its Chief Executive Officer and its Chief Financial Officer, as well as every employee of the Company. The Company’sCompany's code of business conduct and ethics can be accessed at its website at www.hillmangroup.com. Information contained or linked on our website is not incorporated by reference into this annual report and should not be considered a part of this annual report. The Company will disclose amendments to or waivers from a provision of the code of business conduct and ethics on Form 8-K.

The executive officers of the Company (including the executive officers of The Hillman Group, Inc. and The Hillman Group Canada ULC, wholly-owned indirect subsidiaries of the Company) are set forth below:

Executive Officers



Name and Age

  

Position with the Company;

Five-year Employment History

James P. Waters (53)Gregory J. Gluchowski (52) Mr. Gluchowski has served as director and as President and Chief Executive Officer since September 2015. Prior to joining Hillman, Mr. Gluchowski served as President, Hardware & Home Improvement of The Hillman Companies,Spectrum Brands Holdings Inc. and The Hillman Group, Inc. See page 105 for five-year employment history.a former division of Stanley Black and Decker since January 2010. Prior to 2010, Mr. Gluchowski held positions of increasing responsibility at Black & Decker in operations, supply chain, and general management roles after joining the company in 2002. Mr. Gluchowski started his career with the Wire & Cable Division of Phelps Dodge Corporation in 1988. Mr. Gluchowski currently serves on the boards of American Outdoor Brands Corporation and Milacron Corporation.
Anthony A. Vasconcellos (50)Robert O. Kraft (47) Chief Financial Officer and Treasurer of The Hillman Companies, Inc. and The Hillman Group, Inc. since October 2011.November 2017. Prior to joining Hillman, Mr. Kraft served as the President of the Omnicare (Long Term Care) division, and an Executive Vice President, of CVS Health Corporation from August 2015 to September 2017. From October 2011November 2010 to May 2012,August 2015, Mr. Vasconcellos also servedKraft was Chief Financial Officer and Senior Vice President of Omnicare, Inc. Mr. Kraft began his career with PriceWaterhouseCoopers LLP in 1992, was admitted as a Partner in 2004, and is a certified public accountant (inactive). Mr. Kraft currently serves on the board of Medpace Holdings, Inc.
Douglas D. Roberts (54)General Counsel and Secretary of The Hillman Companies, Inc. and The Hillman Group, Inc. since May 2012.  Prior to joining Hillman, Mr. Roberts served as a Partner at Thompson Hine LLP since April 2005.  While at Thompson Hine, Mr. Roberts was a member of the Corporate Transactions & Securities and International practice groups and chair of the Private Equity practice subgroup.  From July 20101992 to April 2005, Mr. Roberts started as an Associate and was promoted to Partner at Graydon Head & Ritchey LLP.  From January 1991 to July 1992, Mr. Roberts was an Associate at Buchalter, Nemer, Fields & Younger.  From May 1988 to January 1991, Mr. Roberts was an Associate at Rosen, Wachtell & Gilbert. Mr. Roberts is licensed to practice law in California and Ohio.
Scott C. Ride (47)President of The Hillman Group Canada ULC since May 2017. Mr. Ride joined The Hillman Group Canada as the Chief Operating officer in January 2015. Prior to joining Hillman, Mr. Ride served as the President of Husqvarna Canada from May 2011 through JanuarySeptember 2014. From 2005 through 2011, Mr. Vasconcellos wasRide served in a consultant with Vasco Company. From September 1998 to April 2010, Mr. Vasconcellos served as Chief Financial Officer,variety of roles of increasing responsibility at Electrolux, including Senior Director of Marketing, Vice President and from 2005 also as Executive General Manager, and President.
Todd M. Spangler (48)
Vice President of Townsquare Media,Custom Solutions of The Hillman Group, Inc. (formerly knownsince May 2012. Prior to joining Hillman, Mr. Spangler served as Regent Communications, Inc.). On January 9, 2015, the Company filedDirector of Site Operations for First Solar's base plant from 2007 to 2012. From 1999 to 2007, Mr. Spangler served in a Form 8-K disclosing thatvariety of operational roles of increasing responsibility at Lutron Electronics, including plant manager, customer service, and supply chain management. Mr. Vasconcellos will be departing from the Company no later than March 31, 2015. On March 16, 2015, Spangler began his career at AMP Incorporated (later Tyco Electronics), where he started as a product design engineer then moved on to numerous management positions.

Jeffrey S. Leonard joined the Company as(50)Former Executive Vice President of Finance, and, on April 1, 2015, Mr. Leonard will be appointed as Chief Financial Officer, and Treasurer of The Hillman Companies, Inc. and The Hillman Group, Inc. from March 2015 to August 2017. Prior to joining Hillman, Mr. Leonard was employed by Baker & Taylor, Inc., where he served as Executive Vice President and Chief Financial Officer since August 2008. From October 2006 to August 2008, Mr. Leonard was Vice President Finance and Treasurer of Houghton Mifflin Harcourt/Harcourt Education Group. From May 1999 to September 2006, Mr. Leonard was employed by HD Supply/Hughes Supply, Inc. in various finance roles, his last being Vice President of Operations Finance. Prior to May 1999, Mr. Leonard was Corporate Controller of Planet Hollywood, Inc. and an Audit Manager with PriceWaterhouseCoopers LLP. Effective August 11, 2017, Mr. Leonard resigned from the Company.
Richard C. Paulin (60)(63) Former President of The Hillman Group Canada ULC since February 2013. From May 1990 to February 2013, Mr. Paulin served as President of H. Paulin & Co., Limited.
Jeffrey Jonsohn (66)Vice President of Operations of The Hillman Group Canada ULC since February 2013. From May 1996 to February 2013, Effective April 30, 2017, Mr. Jonsohn served as Vice President of Operations of H. Paulin & Co., Limited. On March 4, 2015, the Company filed a Form 8-K disclosing that Mr. Jonsohn will be departingretired from the Company no later than June 30, 2015.

Robert J. Lackman (58)

Executive Vice President of Global Operations of The Hillman Group, Inc. since August 2013. From November 2010 to August 2013, Mr. Lackman served as Senior Vice President of Operations for The Hillman Group, Inc. Prior to joining Hillman in November 2010, Mr. Lackman was employed by Duro Bag Manufacturing Co., where he served as Executive Vice President of Purchasing and Supply Chain from November 2008. From January 2007 to October 2008, he served as Vice President of Purchasing and Supply Chain of Broder Bros., Co. Prior to 2007, he held the position of Director of Procurement, Global Importing & Supply Chain of Xpedx. On March 4, 2015, the Company filed a Form 8-K disclosing that Mr. Lackman entered into a consulting arrangement with the Company for 90 days following the termination of his employment on February 27, 2015.two years.

All executive officers hold office at the pleasure of the board of directors.

Item 11 – Executive Compensation

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides an overview and analysis of our compensation programs, the compensation decisions we have made under these programs, and the factors we considered in making these decisions with


respect to the compensation earned by the following individuals, who as determined under the rules of the SEC are collectively referred to herein as our “NEOs”named executive officers (“NEOs”) for fiscal year 2014:

2017:
James P. Waters,Gregory J. Gluchowski, Jr., President and Chief Executive Officer

Anthony A. Vasconcellos,Robert O. Kraft, Chief Financial Officer and Treasurer

RichardDouglas D. Roberts, General Counsel and Secretary
Scott C. Paulin,Ride, President, The Hillman Group Canada ULC

Jeffrey Jonsohn,Todd M. Spangler, Vice President of Operations,Custom Solutions, The Hillman Group, Inc.
Jeffrey S. Leonard, Former Executive Vice President of Finance, Chief Financial Officer, and Treasurer
Richard C. Paulin, Former President, The Hillman Group Canada ULC

Robert J. Lackman, Executive Vice President of Global Operations, The Hillman Group, Inc.

Overview of the Compensation Program

Compensation Philosophy

The objective of Hillman’sHillman's corporate compensation and benefits program is to establish and maintain competitive total compensation programs that will attract, motivate, and retain the qualified and skilled workforce necessary for the continued success of Hillman. To help align compensation paid to executive officers with the achievement of corporate goals, Hillman has designed its cash compensation program as a pay-for-performance based system that rewards NEOs for their individual performance and contribution in achieving corporate goals. In determining the components and levels of NEO compensation each year, the Compensation Committee considers Company performance, the business objectives for specific divisions of the Company personal management performance objectives, as well as each individual’sindividual's performance and potential to enhance long-term stockholder value. To remain competitive, the Compensation Committee also periodically reviews compensation survey information published by various organizations as another factor in setting NEO compensation. The Compensation Committee relies on judgment and does not have any formal guidelines or formulas for allocating between long-term and currently paid compensation, cash and non-cash compensation, or among different forms of non-cash compensation for the Company’sCompany's NEOs.

Components of Total Compensation

Compensation packages in 20142017 for the Company’sCompany's NEOs were comprised of the following elements:

Short-Term Compensation Elements

Short-Term Compensation Elements

Element

  

Role and Purpose

Base Salary  Attract and retain executives and reward their skills and contributions to the day-to-day management of our Company.
Annual Performance-Based Bonuses  Motivate the attainment of annual Company, division, and individual financial, operational, and strategic goals by paying bonuses determined by the achievement of specified performance targets with a performance period of one year.
Discretionary Bonuses  From time to time, the Company may award discretionary bonuses to compensate executives for special contributions or extraordinary circumstances or events.


Long-Term Compensation Elements

Element

  

Role and Purpose

Stock Options and Restricted Shares  Motivate the attainment of long-term value creation, align executive interests with the interests of our stockholders, create accountability for executives to enhance stockholder value, and promote long-term retention through the use of multi-year vesting awards.
Severance and Change of Control Benefits  Promote long-term retention and align the interests of executives with stockholders in the event of a change in control transaction which, although in the best interests of stockholders generally, may result in loss of employment for an individual NEO.
Benefits

Element

  

Role and Purpose

Employee Benefit Plans and Perquisites

  Participation in Company-wide health and retirement benefit programs, provide financial security and additional compensation commensurate with senior executive level duties and responsibilities.

Effect of the Merger Transaction on Certain Compensation Arrangements

Immediately prior to the consummation of the Merger Transaction, the OHCP HM Acquisition Corp. 2010 Stock Option Plan (the “Predecessor Option Plan”) was terminated, all unvested options vested, and all outstanding options thereunder were cancelled. Upon consummation of the Merger Transaction, each outstanding option to purchase shares of Predecessor Holdco common stock was converted into the right to receive, in cash, a portion of the merger consideration in the Merger Transaction.

In connection with the Merger Transaction, Holdco established the HMAN Group Holdings Inc. 2014 Equity Incentive Plan (the “2014 Equity Incentive Plan”), pursuant to which Holdco may grant options, stock appreciation rights, restricted stock, and other stock-based awards for up to an aggregate of 44,021.264 shares of its common stock. The 2014 Equity Incentive Plan is administered by the Compensation Committee. Such committee determines the terms of each stock-based award grant under the 2014 Equity Incentive Plan, except that the exercise price of any granted options and the grant price of any granted stock

appreciation rights may not be lower than the fair market value of one share of common stock of Holdco as of the date of grant. Grants made pursuant to this plan in 2014 are described below.

Process

Role of the Compensation Committee and Management

The Compensation Committee meets annually to review and consider base salary and any proposed adjustments, prior year annual performance bonus results and targets for the current year, and any long-term incentive awards. The Compensation Committee also reviews the compensation package for all new executive officer hires.

The key member of management involved in the compensation process is our Chief Executive Officer (“CEO”), James P. Waters.Gregory J. Gluchowski, Jr. Our CEO presents recommendations for each element of compensation for each NEO, other than himself, to the Compensation Committee, which in turn evaluates these goals and either approves or appropriately revises them and presents them to the Board of Directors for review and approval. On an annual basis, a comprehensive report is provided by the CEO to the Compensation Committee on all of Hillman’sHillman's compensation programs.

Determination of CEO Compensation

The Compensation Committee determines the level of each element of compensation for our CEO and presents its recommendations to the full Board of Directors for review and approval. Consistent with its determination process for other NEOs, the Compensation Committee considers a variety of factors when determining compensation for our CEO, including past corporate and individual performance, general market survey data for similar size companies, and the degree to which the individual’sindividual's contributions have the potential to influence the outcome of the Company’sCompany's short- and long-term operating goals and alignment with shareholder value.

Assessment of Market Data and Use of Compensation Consultants

In establishing the compensation for each NEO, the Compensation Committee considers information about the compensation practices of companies both within and outside our industry and geographic region, and considers evolving compensation trends and practices generally. The Compensation Committee periodically reviews third-party market data published by various organizations such as the Employers Resource Association of Cincinnati, the National Association of Manufacturers, and the Compensation Data Manufacturing and Distribution Survey. The Compensation Committee may review such survey data for market trends and developments, and utilize such data as one factor when making its annual compensation determinations. The Compensation Committee does not typically use market data to establish specific targets for compensation or any particular component of compensation, and does not otherwise numerically benchmark its compensation decisions. Rather, the Compensation Committee may review survey information about the type and amount of compensation paid to executives in similar positions and with similar responsibilities as reported on an aggregate basis for companies with comparable sales volume and number of employees both within and outside its industry and geographic region. The Company did not utilize a compensation consultant during fiscal years 2014, 2013,2017, 2016, or 2012.

2015.



Short-Term Compensation Elements

Base Salary

Hillman believes that executive base salaries are an essential element to attract and retain talented and qualified executives. Base salaries are designed to provide financial security and a minimum level of fixed compensation for services rendered to the Company. Base salary adjustments may reflect an individual’sindividual's performance, experience, and/or changes in job responsibilities. The Company also considers other compensation provided to its NEOs, such as the value of outstanding options, when determining base salary.

Base salaries are generally effective on January 31 of the applicable year.

The rate of annual base salary for each NEO fors fiscal years 2014, 2013, and 20122017, 2016, or 2015 are set forth below.

Name

  2014 Base
Salary		   2013 Base
Salary		   2012 Base
Salary		 

James P. Waters(1)

  $425,000    $400,000    $300,000  

Anthony A. Vasconcellos

  $292,740    $287,000    $280,000  

Richard C. Paulin(2)

  $355,142    $376,081    $—    

Jeffrey Jonsohn(2)

  $221,964    $235,051    $—    

Robert J. Lackman(3)

  $300,000    $300,000    $250,000  

Name2017 Base Salary 2016 Base Salary 2015 Base Salary
Gregory J. Gluchowski, Jr. (1)
$650,000
 $550,000
 $550,000
Robert O. Kraft (2)
$415,000
 $—
 $—
Douglas D. Roberts$287,000
 $287,000
 $278,512
Scott C. Ride(3)
$263,053
 $245,773
 $223,988
Todd M. Spangler$284,421
 $284,421
 $280,218
Jeffrey S. Leonard (4)
$435,000
 $417,500
 $400,000
Richard C. Paulin (3)(5)
$342,868
 $320,346
 $310,786
(1)Mr. Waters’s 2013 annual salary as of January 31, 2013Gluchowski was $320,000 and was increased to $400,000hired effective July 1, 2013 in recognition of his expanded duties in connection with his promotion to Chief Executive Officer.September 8, 2015.
(2)Messrs. Paulin and Jonsohn wereMr. Kraft was hired effective February 19, 2013. Messrs.November 1, 2017.
(3)Mr. Ride and Mr. Paulin’s 2017, 2016, and Jonsohn’s 2013 and 20142015 base salaries were converted from Canadian dollars to U.S. dollars using a December 31, 2013the year end exchange raterates of 1.0636 Canadian dollars per U.S. dollar1.2545, 1.3427, and a December 31, 2014 exchange rate of 1.16011.3840 Canadian dollars per U.S. dollar, respectively.
(3)
(4)Mr. Lackman’s 2013 annual salary as of January 31, 2013 was $262,000 and was increased to $300,000Leonard resigned effective August 30, 2013 in recognition of his expanded duties in connection with his promotion to Executive Vice President of Global Operations.11, 2017.

(5)Mr. Paulin retired effective April 30, 2017.

The increase, if any, in base salary for each NEO for a fiscal year reflects each individual’sindividual's particular skills, responsibilities, experience, and prior year performance. The fiscal year 20142017 base salary amounts were determined as part of the total compensation paid to each NEO and were not considered, by themselves, as fully compensating the NEOs for their service to the Company.

The Company determined that employee base salary compensation for 2014 should generally reflect an average increase of 3% to compensate employees for cost of living increases, subject to adjustments to reflect specific factors relating to individual performance and expectations for the year. As with other elements of NEO compensation, Mr. Waters made recommendations for base salary adjustments to the Compensation Committee (other than for himself). Mr. Waters received a 6.3% salary increase in 2014 in recognition of his performance during the first six months of his tenure as Chief Executive Officer. Mr. Lackman did not receive a salary increase in 2014 because the Company had increased his salary in late 2013.

Annual Performance-Based Bonuses

Pursuant to their employment agreements, each NEO is eligible to receive an annual cash bonus under the terms of a performance-based bonus plan. Each employment agreement specifies an annual target and maximum bonus as a percentage of the NEO’sNEO's annual base salary, which percentages may be adjusted (but not decreased below those stated in the NEO’sNEO's employment agreement) for any particular year in the Company’sCompany's discretion. The specific performance criteria and performance goals are established annually by our Compensation Committee in consultation with our CEO (other than with respect to himself) and approved by our Board of Directors. The performance targets are communicated to the NEOs following formal approval by the Compensation Committee and Board of Directors, which is normally around late February.March. The table below shows the target bonus and maximum bonuses as a percentage of base salary for each NEO for 2014.2017. Generally, the higher the level of responsibility of the NEO within the Company, the greater the percentages of base salary applied for that individual’sindividual's target and maximum bonus compensation.

2014



2017 Target and Maximum Bonus

Name

  2014 Target Bonus as
Percentage of Base
Salary		  2014 Maximum Bonus as
Percentage of Base
Salary		 

James P. Waters

   75%   150% 

Anthony A. Vasconcellos

   45%   90% 

Richard C. Paulin

   60%   120% 

Jeffrey Jonsohn

   40%   80% 

Robert J. Lackman

   50%   100% 

Name 2017 Minimum Bonus as Percentage of Base Salary 2017 Target Bonus as Percentage of Base Salary 
2017 Maximum Bonus as
Percentage of Base Salary
Gregory J. Gluchowski, Jr. 50% 100% 200%
Robert O. Kraft 30% 60% 120%
Douglas D. Roberts 20% 40% 80%
Scott C. Ride 22.5% 45% 90%
Todd M. Spangler 25% 50% 100%
Jeffrey S. Leonard 37.5% 75% 150%
Richard C. Paulin 30% 60% 120%
Each NEO’sNEO's annual bonus is determined based on actual performance in several categories of pre-established performance criteria as further described below. If actual results for each performance category equal the specified target performance level, the total bonus is the target bonus shown above. If actual results for each performance category equal or exceed the specified maximum performance level, the total bonus is the maximum bonus shown above. As described below, for some performance criteria, a portion of the target bonus may be payable if actual results for that category are less than the target performance level but are at least equal to a specified threshold level of performance.

The table below shows the performance criteria for fiscal year 20142017 selected for each NEO and the relative weight of total target and maximum bonus assigned to each component.

2014

2017 Performance Criteria and Relative Weight

Name

  EBITDA  EBITDA
Canada		  PMOs 

James P. Waters

   80%   —      20% 

Anthony A. Vasconcellos

   70%   —      30% 

Richard C. Paulin

   35%   35%   30% 

Jeffrey Jonsohn

   35%   35%   30% 

Robert J. Lackman

   70%   —      30% 

Name EBITDA Free Cash Flow Net Sales AOP
Gregory J. Gluchowski, Jr. 45% 45% 10%
Robert O. Kraft 45% 45% 10%
Douglas D. Roberts 45% 45% 10%
Scott C. Ride 45% 45% 10%
Todd M. Spangler 45% 45% 10%
Jeffrey S. Leonard 45% 45% 10%
Richard C. Paulin 45% 45% 10%
For 2014,2017, the bonus criteria for all NEOs included a Companythree company performance goalgoals measured by 1) earnings before interest, taxes, depreciation, and amortization (“EBITDA”), as adjusted for other items included in the calculation of the fair value of the Company’sCompany's common stock. The 2014 bonus criteria for Messrs. Paulinstock, 2) free cash flow ("FCF") defined as EBITDA less the change in working capital, less capital expenditures, less cash restructuring items, and Jonsohn included EBITDA for the Hillman Canada operations. The remaining criteria for each NEO consisted of personal management objectives (“PMOs”3) net sales annual operating plan ("AOP"). Net Sales AOP is based on the attainment of special projectcompany wide performance, unless the NEO is specifically responsible for an account or division-based goals.

The Company has a policy ofbusiness segment. If performance targets are not paying annual performance bonuses if EBITDA is below 95% of target. For 2014, EBITDA equaled 93.8% of target. As a result, no annual performance bonuses were paid for fiscal year 2014.

Incentive Bonus

Pursuant to the terms of their employment agreements, Messrs. Paulin and Jonsohn were eligible for additional incentivemet, bonus compensation (the “Incentive Bonus”) of up to $940,203 and $188,041 (converted from Canadian dollars to U.S. dollars using a December 31, 2013 exchange rate of 1.0636 Canadian dollars per U.S. dollar), respectively, payable within ninety (90) days following December 31, 2013 and December 31, 2014 if adjusted EBITDA reaches $14,103,046 for 2013 and $15,043,249 for 2014 (converted from Canadian dollars to U.S. dollars using a December 31, 2013 exchange rate of 1.0636 Canadian dollars per U.S. dollar). In connection with the Merger Transaction, the Incentive Bonus that otherwise would have been payable following December 31, 2014 was calculated and paid immediately prior to the closing of the Merger Transaction. As a result, the Incentive

Bonus amounts paid to Messrs. Paulin and Jonsohn in July 2014 were $1,085,887 and $215,424 (converted from Canadian dollars to U.S. dollars using a June 30, 2014 exchange rate of 1.0670 Canadian dollars per U.S. dollar).

payouts are discretionary.

Long-Term Compensation Elements

All equity awards are granted under ourthe HMAN Group Holdings Inc. 2014 Equity Incentive Plan (the “2014 Equity Incentive Plan”), pursuant to which Holdco may grant options, stock appreciation rights, restricted stock, and other stock-based awards for up to an aggregate of 45,445.418 stock options. The 2014 Equity Incentive Plan is administered by the Compensation Committee. Such committee determines the terms of each stock-based award grant under the 2014 Equity Incentive Plan, except that the exercise price of any granted options and the grant price of any granted stock appreciation rights may not be lower than the fair market value of one share of common stock of Holdco as of the date of grant.

Our 2014 Equity Incentive Plan is designed to align the interests of our stockholders and executive officers by increasing the proprietary interest of our executive officers in our growth and success to advance our interests by attracting and retaining key employees, and motivating such executives to act in our long-term best interests. We grant equity awards to promote the success and enhance the value of the Company by providing participants with an incentive for outstanding performance. Equity-based awards also provide the Company with the flexibility to motivate, attract, and retain the services of employees


upon whose judgment, interest, and special effort the successful conduct of our operation is largely dependent. In connection with the Merger Transaction, Messrs. Waters, Paulin, Vasconcellos,year ended December 30, 2017, 3,000 stock options and Lackman425 shares of restricted stock were granted 6,603.190, 3,301.595, 2,861.382, and 2,861.382 stock options, respectively, on July 1, 2014.

to NEOs.

Severance and Change in Control Benefits

The Company has entered into an employment agreement with each NEO that provides for severance payments and benefits in the event that his employment is terminated under specified conditions including death, disability, termination by the Company without “cause”,“cause,” or his resignation for “good reason” (each as defined in the agreements). Pursuant to the employment agreements, certain severance payments and benefits may be accelerated if such termination or resignation occurs within 90 days following a change in control. The payments provided in the event of termination without cause or resignation for good reason following a change in control are designed to assure the Company of the continued employment and attention and dedication to duty of these key management employees and to seek to ensure the availability of their continued service, notwithstanding the possibility or occurrence of a change in control of the Company and resultant employment termination. The severance payments and benefits payable both in the event of, and independently from, a change in control are in amounts that the Company has determined are necessary to remain competitive in the marketplace for executive talent. See “Potential Payments Upon Termination or Change in Control” for additional information.

Employee Benefit Plans and Perquisites

Executives are eligible to participate in the same health and benefit plans generally available to all full-time employees, including health, dental, vision, term life, disability insurance, and supplemental long term disability insurance. All executives are entitled to four weeks (five weeks for Messrs. Paulin and Jonsohn) of paid vacation. In addition, the NEOs (except for Messrs. Paulin and Jonsohn) are eligible to participate in the Company’sCompany's Defined Contribution Plan (401(k) Plan) and the Hillman Nonqualified Deferred Compensation Plan, both described below. Messrs. Paulin and Jonsohn receive contributions to a registered retirement plan.

Defined Contribution Plan

Plans

The Company’sCompany's NEOs (except for Messrs. Paulin and Jonsohn) and most other full-time U.S. employees are covered under a 401(k) retirement savings plan (the “Defined Contribution Plan”) which permits employees to make tax-deferred contributions and provides for a matching contribution of 50% of each dollar contributed by the employee up to 6% of the employee’semployee's compensation. In addition, the Defined Contribution Plan provides a discretionary annual contribution in amounts authorized by the Board of Directors, subject to the terms and conditions of the plan.

Hillman Canada sponsors a Deferred Profit Sharing Plan (“DPSP”) and a Group Registered Retirement Savings Plan (“RRSP”) for all qualified, full-time employees, with at least three months of continuous service. DPSP is an employer-sponsored profit sharing plan registered as a trust with the Canada Revenue Agency (“CRA”). On a periodic basis, Hillman Canada shares business profits with employees by contributing to the DPSP on each employee's behalf. Employees do not contribute to the DPSP. There is no minimum required contribution; however, DPSPs are subject to maximum contribution limits set by the CRA. The DPSP is offered in conjunction with a RRSP. All eligible employees may contribute an additional voluntary amount of up to eight percent of the employee's gross earnings. Hillman Canada is required to match 100% of all employee contributions up to 2% of the employee's compensation. The assets of the RRSP are held separately from those of Hillman Canada in independently administered funds.
Nonqualified Deferred Compensation Plan

All NEOs (except for Messrs. Paulin and Jonsohn) and certain other senior managersdirectors are eligible to participate in the Hillman Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan allows eligible employees to defer up to 25% of salary and commissions and up to 100% of bonuses. The Company contributes a matching contribution of 25% on the first $10,000 of employee deferrals.

Registered Retirement Plan

Messrs. Paulin’s and Jonsohn’s employment agreements provide that The Hillman Group Canada ULC shall make an annual contribution of $20,921 (converted from Canadian dollars to U.S. dollars using a December 31, 2014 exchange rate of 1.1601 Canadian dollars per U.S. dollar) to a registered retirement plan (the “Registered Retirement Plan”). The required annual contribution to the Registered Retirement Plan shall increase, as necessary, to match the maximum annual limit permitted by the Canada Revenue Agency in effect from time to time.

Perquisites

All NEOs are entitled to reimbursement for the reasonable expenses of leasing or buying a car up to $700 per month ($1,050 per month for Mr. WatersGluchowski and $905$717 for Mr. Paulin and $776 for Mr. Jonsohn (convertedRide, converted from Canadian dollars to U.S. dollars using a December 31, 2014the year end exchange rate of 1.1601 Canadian dollars per U.S. dollar))1.2545). Mr. Waters receives up to $500 per month as reimbursement for membership dues at country clubs, which he uses in part for business development purposes. Mr. Paulin receives up to $862 (converted from Canadian dollars to U.S. dollars using a December 31, 2014 exchange rate of 1.1601 Canadian dollars per U.S. dollar) per month as reimbursement for membership dues at country clubs, which he uses in part for business development purposes.

Miscellaneous



The Company does not have any equity or security ownership guidelines for executives, including the NEOs. The Company considers the accounting and tax treatment of particular forms of compensation awarded to NEOs as part of its overall review of compensation, but does not structure its compensation practices to comply with specific accounting or tax treatment.

Compensation Committee Report

The Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’sCompany's Annual Report on Form 10-K for the fiscal year ended December 31, 201430, 2017 for filing with the Securities and Exchange Commission.

Respectfully submitted,

The Compensation Committee

Richard F. Zannino

Douglas J. Cahill

The information contained in the Compensation Committee Report above shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent specifically incorporated by reference therein.

Summary Compensation Table

The following table sets forth compensation that the Company’sCompany's principal executive officer, principal financial officer, and each of the next three highest paid executive officers of the Company, (collectively,or the “NEOs”)NEOs, earned during the years ended December 31, 2014,30, 2017, December 31, 2013,2016, and December 31, 20122015 in each executive capacity in which each NEO served. Mr. WatersGluchowski served as both an officer and director (upon his election to the Board of Directors effective May 23, 2013)September 8, 2015) but did not receive any compensation with respect to his role as a director.

Name and Principal Position

 Year  Salary
(1) ($)		  Bonus
(2) ($)		  Option
Awards
(3) ($)		  Non-Equity
Incentive Plan
Compensation
(4) ($)		  Nonqualified Deferred
Compensation Earnings
(5) ($)		  All Other
Compensation (6)
($)		  Total ($) 

James P. Waters(7)

  2014    422,115    300,000    —      —      —      16,606    738,721  

CEO

  2013    354,615    —      —      237,119    —      17,484    609,218  

The Hillman Companies, Inc.

  2012    300,000    —      —      201,114    —      10,933    512,047  

Anthony A. Vasconcellos(8)

  2014    286,558    200,000    —      —      —      18,186    504,744  

CFO and Treasurer

  2013    286,192    —      —      139,084    —      12,655    437,931  

The Hillman Companies, Inc.

  2012    279,423    —      —      143,208    —      14,233    436,864  

Richard C. Paulin(9)(10) President

  2014    355,142    —      —      1,087,399    —      46,861    489,402  

The Hillman Group Canada ULC

  2013    325,593    —      —      1,067,819    —      45,865    1,439,277  

Jeffrey Jonsohn(9)(10) VP of Operations

  2014    221,964    —      —      215,727    —      33,928    471,619  

The Hillman Group Canada ULC

  2013    203,496    —      —      259,170    —      33,742    496,408  

Robert J. Lackman(11)

�� 2014    300,000    300,000    —      —      —      14,811    614,811  

Executive VP of Global Operations

  2013    271,723    —      —      130,369    —      17,840    419,932  

The Hillman Group, Inc.

  2012    248,846    —      —      115,608    —      17,841    382,295  



Name and
Principal Position
Year
Salary(1)
Bonus(2)
Restricted Stock
Awards (3)
Option
Awards(4)
Non-Equity
Incentive Plan
Compensation(5)
Nonqualified 
Deferred
Compensation 
Earnings(6)
All Other
Compensa-tion(7)
Total
Gregory J. Gluchowski, Jr. (8)
President and CEO
The Hillman Companies, Inc.
2017$615,400
$—
$—
$—
$472,875
$—
$25,577
$1,113,852
 2016550,000
275,000
236,775
—
—
—
304,862
1,366,637
 2015167,115
550,000
1,500,000
1,529,271
—
—
3,829
3,750,215
Robert O. Kraft (9)
CFO and Treasurer
The Hillman Companies, Inc.
201760,654
—
—
390,623
—
—
1,380
452,657
 2016—
—
—
—
—
—
—
—
 2015—
—
—
—
—
—
—
—
Douglas D. Roberts
General Counsel and Secretary
The Hillman Companies, Inc.
2017287,000
—
—
—
83,517
—
18,717
389,234
 2016282,430
55,702
—
—
—
—
18,547
356,679
 2015287,782
27,900
—
—
—
—
20,561
336,243
Scott C. Ride(10)
President
The Hillman Group Canada ULC
2017263,053
35,841
—
114,174
95,686
—
18,391
527,145
 2016237,753
55,600
—
—
—
—
26,768
320,121
 2015219,681
66,662
—
—
316,789
—
16,203
619,335
Todd M. Spangler
Vice President of Custom Solutions
The Hillman Group, Inc.
2017284,421
—
—
—
103,458
—
15,984
403,863
 2016286,361
70,055
—
—
—
—
10,817
367,233
 2015289,114
100,000
—
—
—
—
13,176
402,290
Jeffrey S. Leonard (11)
Former Executive Vice President of Finance, CFO, and Treasurer The Hillman Companies, Inc.
2017275,493
—
—
—
—
—
13,658
289,151
 2016412,789
—
129,150
—
—
—
14,020
555,959
 2015315,385
125,000
100,000
724,793
—
—
57,013
1,322,191
Richard C. Paulin (10)(12)
Former President
The Hillman Group Canada ULC
2017130,554
—
—
—
—
—
847,436
977,990
 2016325,619
102,860
—
—
—
—
23,429
451,908
 2015336,688
100,000
—
—
—
—
24,306
460,994
(1)Represents base salary paid including any deferral of salary into the Defined Contribution Plan and the Deferred Compensation Plan. Base salary adjustments are generallydependent upon the executive performance for the prior year. Increases can be effective January 31on the anniversary of each fiscal year. Mr. Waters’s base salary was increased to $320,000 on January 31, 2013, $400,000 effective July 1, 2013 in recognition of his expanded duties in connection with his promotion to Chief Executive Officer, and $425,000 effective January 31, 2014. Mr. Lackman’s base salary was increased to $262,000 on January 31, 2013 and was increased to $300,000 effective August 30, 2013 in recognition of his expanded duties in connection with his promotion to Executive Vice President of Global Operations.the last increase, plus or minus three months.
(2)Messrs. Waters, Lackman, and VasconcellosMr. Gluchowski earned a signing bonus of $550,000 effective on December 31, 2015 but such amount was not paid until January 15, 2016. Mr. Ride received a sign on bonus of $36,127 paid in 2015. The other bonus payouts were discretionary based on the service of the executives for the years when annual bonus plan targets were not met. These discretionary bonuses are presented in the table in the year in which the bonuses were earned. The payments were made in the subsequent year. The presentation of the 2016 and 2015 discretionary bonuses were previously reported in the year of payment and have now been corrected to be reported in the year earned, as reflected in the table above.
In 2016, Mr. Gluchowski earned a bonus of $550,000, settled in cash and shares of restricted stock. He received $275,000 in cash and was granted 275 shares of restricted stock with a grant date of April 1, 2017. In 2016, Mr. Leonard received a bonus in the form of restricted stock. Mr. Leonard received 150 shares of restricted stock with a grant date of April 1, 2017.


(3)Represents the fair value of $300,000, $300,000,restricted stock shares granted by the Company and $200,000, respectively,calculated in 2014 in recognition of their extraordinary service in connectionaccordance with FASB ASC Topic 718. See Note 14, Stock-Based Compensation, to the Merger Transaction.accompanying consolidated financial statements for details.
(3)
(4)The amount included in the “Option Awards” column represents the grant date fair value of options calculated in accordance with FASB ASC Topic 718 (which is $0).718. See Note 14, Stock-Based11 - Stock Based Compensation, to the accompanying consolidated financial statements for details.

(4)
(5)Represents earned bonus for services rendered in each year and paid in the subsequent year based on achievement of performance goals under theperformance-based bonus arrangements and the Incentive Bonus payments to Messrs. Paulin and Jonsohn.arrangements.
(5)
(6)There were no above market earnings in the Deferred Compensation Plan for the NEOs.
(6)
(7)All other compensation consists of matching contributions to the Defined Contribution PlanPlans and the Deferred Compensation Plan and contributions to the Registered Retirement Plan, as shown in the chart below.Plan. In addition, this includes the car allowance for each NEO country club dues (for Messrs. Waters($12,600 in 2017 and Paulin),2016 for Mr. Gluchowski). The year ended December 31, 2016 includes $278,000 in relocation expenses for Mr. Gluchowski and payment of disability insurance premiums (for Messrs.the year ended December 31, 2015 includes $50,000 in relocation expenses for Mr. Leonard. In the year ended December 30, 2017, Mr. Paulin and Jonsohn).

NEO

  Matching
Contribution to
Hillman Retirement
Savings and 401(k)
Plan ($)		   Matching
Contribution to Non-
Qualified Deferred
Compensation Plan
($)		   Contribution to
Registered
Retirement Plan (12)
($)		 

James P. Waters

   5,624     2,500     —    

Anthony A. Vasconcellos

   7,720     2,500     —    

Richard C. Paulin

   —       —       20,921  

Jeffrey Jonsohn

   —       —       20,921  

Robert J. Lackman

   3,911     2,500     —    

(7)Mr. Waters served as Executive Vice President and Chief Operating Officer until July 1, 2013.received severance on his retirement, see footnote 12 below for additional details. No other items included in all other compensation were individually significant (greater than $10,000) for any period presented.
(8)Mr. Vasconcellos served as Secretary until May 10, 2012.Gluchowski was hired effective September 8, 2015.
(9)Messrs. Paulin and Jonsohn wereMr. Kraft was hired effective February 19, 2013.November 1, 2017.
(10)For Messrs. PaulinMr. Ride and Jonsohn, all 2013Mr. Paulin’s 2017, 2016, and 2015 compensation amounts were converted from Canadian dollars to U.S. dollars using athe December 31 2013 exchange raterates of 1.06361.2545, 1.3427, and 1.3840, Canadian dollars per U.S. dollar, and all 2014 amounts were converted from Canadian dollars to U.S. dollars using a December 31, 2014 exchange rate of 1.1601 Canadian dollars per U.S. dollar, except for the 2014 Incentive Bonus payments which were converted from Canadian dollars to U.S. dollars using a June 30, 2014 exchange rate of 1.0670 Canadian dollars per U.S. dollar.respectively.
(11)Mr. Lackman servedLeonard was hired as SeniorExecutive Vice President of Operations untilFinance effective March 16, 2015 and became Chief Financial Officer and Treasurer effective April 1, 2015. He resigned August 30, 2013.11, 2017.
(12)Converted from Canadian dollars to U.S. dollars usingMr. Paulin retired effective April 30, 2017. Mr. Paulin received severance upon his resignation. His severance included twenty four months of his base salary, a December 31, 2014 exchange ratetermination bonus, his prorated bonus for fiscal year 2017, accrued but unused vacation and twenty four months of 1.1601 Canadian dollars per U.S. dollar.health benefit coverage. Additionally, Mr. Paulin received approximately $22,000 in compensation under his consulting agreement in 2017.

Grants of Plan-Based Awards Table forin Fiscal Year 2014

2017

The following table below summarizes the non-equityequity incentive awards granted to NEOs in 2014.

Name

  Grant
Date		  Threshold
($)		   Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards (1)		   All Other
Option
Awards;
Number of
Securities
Underlying
Options (#)
(2)		   Exercise
Price of
Option
Awards
($)		   Grant
Date
Fair
Value
of
Option
Awards
($)
(3)		 
      Target ($)   Maximum ($)       

James P. Waters

  —     —       318,750     637,500     —       —       —    
  7/1/14         6,603.190     1,000     —    

Anthony A.Vasconcellos

  —     —       131,733     263,466     —       —       —    
  7/1/14         2,861.382     1,000    

Richard C. Paulin

  —     —       213,085     426,170     —       —       —    
  —     430,997     646,496     861,995     —       —       —    
  7/1/14         3,301.595     1,000     —    

Jeffrey Jonsohn

  —     —       88,785     177,571     —       —       —    
  —     86,199     129,299     172,399     —       —       —    

Robert J. Lackman

  —     —       150,000     300,000     —       —       —    
  7/1/14         2,861.382     1,000     —    

2017:
  
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)
All Other Stock Awards: Number of Shares of Stock or Units (#) (2)
All Other Option Awards: Number of Securities Underlying Options (#) (3)
Exercise Price of Option Awards ($)(3)
Grant Date Fair Value of Stock and Option Awards ($) (4)
NameGrant DateMinimum ($)Target ($)Maximum ($)
Gregory J. Gluchowski, Jr.(5)
—
$325,000
$650,000
$1,300,000
—
—
—
—
 4/1/2017
   275
—
—
236,775
Robert O. Kraft11/1/2017
—
—
—
—
3,000
1,000
390,623
Douglas D. Roberts—
57,400
114,800
229,600
—
—
—
—
Scott C. Ride (6)
—
65,763
131,527
263,053
—
—
—
—
 10/1/2017
   —
880
1,000
114,174
Todd M. Spangler—
71,105
142,211
284,421
—
—
—
—
Jeffery S. Leonard(5)
—
163,125
326,250
652,500
—
—
—
—
 4/1/2017
   150
—
—
129,150
Richard C. Paulin (6)
—
102,860
205,721
411,442
—
—
—
—


(1)The amounts in this table reflect the 20142017 performance-based bonus awards that each NEO was eligible to receive pursuant to the terms of his employment agreement and the Company’s 2014Company's 2017 performance bonus plan. Each NEO’sNEO's overall target and maximum performance-based bonus for 20142017 was determined as a percentage of base salary. There is no single threshold level of bonus payment under the 2014 annual bonus plan. In addition, for Messrs. Paulin and Jonsohn, it also includes the threshold, target, and maximum amounts payable under their Incentive Bonus awards for 2014. See the description of Annual Performance Bonus and Incentive Bonus in the CD&A for a description of the specific performance components and more detail regarding the determination of actual 20142017 annual performance bonus and Incentive Bonus payments. All dollar amounts for Messrs. Paulin and Jonsohn were converted from Canadian dollars to U.S. dollars using a December 31, 2014 exchange rate of 1.1601 Canadian dollars per U.S. dollar.
(2)Represents grants of restricted stock pursuant to the 2014 Equity Incentive Plan.
(3)Represents grants of options pursuant to the 2014 Equity Incentive Plan on July 1, 2014.Plan.
(3)
(4)
The amount included in the “Option Awards”this column represents the grant date fair value of options and restricted stock calculated in accordance with FASB ASC Topic 718 (which is $0).718. See Note 14, Stock-Based11 - Stock Based Compensation, to the accompanying consolidated financial statements for details.

(5)In 2017, Mr. Gluchowski and Mr. Leonard received grants of 275 and 150 shares of restricted stock, respectively. This grant was part of the bonus earned for fiscal year 2016.
(6)Mr. Ride and Mr. Paulin’s 2017, 2016, and 2015 compensation amounts were converted from Canadian dollars to U.S. dollars using the December 31 exchange rates of 1.2545, 1.3427, and 1.3840, Canadian dollars per U.S. dollar, respectively.

Outstanding Equity Awards at 20142017 Fiscal Year-End

The following table sets forth the number of unexercised options and unvested shares of restricted stock held by the NEOs at December 31, 2014. No stock awards were outstanding at the end of fiscal year 2014.

Option Awards

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable		   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable		   Equity Incentive
Plan Awards;
Number of
Securities
Underlying
Unexercised
Unearned Option
(#)		   Option
Exercise
Price
($)		   Option
Expiration Date

James P. Waters

   —       3,301.595     3,301.595     1,000    7/1/2024

Anthony A. Vasconcellos

   —       1,430.691     1,430.691     1,000    7/1/2024

Richard C. Paulin

   —       1,650.7975     1,650.7975     1,000    7/1/2024

Jeffrey Jonsohn

   —       —       —       —      —  

Robert J. Lackman

   —       1,430.691     1,430.691     1,000    7/1/2024

All stock options reported in the table above are options to acquire Holdco common stock granted under the 2014 Equity Incentive Plan in 2014. Pursuant to each NEO’s stock option award agreement, these options were divided into two equal vesting tranches.

The first tranche is a time-based award which, beginning on the second anniversary of July 1, 2014, vests 25% annually until fully vested on the fifth anniversary of July 1, 2014, subject to the optionee’s continued employment with Hillman on each such vesting date. None of the stock options granted under that tranche have vested.

30, 2017.

 
Option Awards (1)
 
Stock Awards(2)
Name
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
 
Equity Incentive
Plan Awards;
Number of
Securities
Underlying
Unexercised
Unearned Option
(#)
 
Option
Exercise
Price
($)
 
Option
Expiration Date
 Number of shares of restricted Common Stock that have not vested Market value of shares of restricted Common Stock that have not vested
Gregory J. Gluchowski, Jr.—
 4,217.5000
 4,217.5000
 1,000
 9/8/2025 275
 $318,450
Robert O. Kraft—
 1,500.0000
 1,500.0000
 1,000
 11/1/2027 —
 —
Douglas D. Roberts—
 880.4250
 880.4250
 1,000
 7/1/2024 —
 —
Scott C. Ride—
 880.0000
 880.0000
 1,000
 2/12/2025 —
 —
 —
 440.0000
 440.0000
 1,000
 10/1/2027 —
 —
Todd M. Spangler—
 1,320.6375
 1,320.6375
 1,000
 7/1/2024 —
 —
Jeffrey S. Leonard715.250
 —
 —
 1,000
 8/11/2018 —
 —
 142.375
 —
 —
 1,000
 8/11/2018 —
 —
Richard C. Paulin412.699
 —
 —
 1,000
 4/30/2018    
1)All stock options reported in the table above are options to acquire Holdco common stock granted under the 2014 Equity Incentive Plan. Pursuant to each NEO's stock option award agreement, these options were divided into two equal vesting tranches. The first tranche is a time-based award which, beginning on the first anniversary of the grant date, vests 25% annually until fully vested on the fourth anniversary of the grant date, subject to the optionee's continued employment with Hillman on each such vesting date.
The second tranche of each stock option grant is performance-based. Subject to the optionee’soptionee's continuous employment with the Company through the consummation of a sale event, 33%100% of the performance-based options will vest if the CCMP stockholders receive proceeds resulting in a multiple on investment (“MOI”) of at least 2.0, an additional 33% will vest with an MOI of at least 2.5, and the remaining 33% will vest with an MOI of at least 3.0.

2.0.



2)During the year ended December 30, 2017, the Company granted 425 shares of restricted stock under the 2014 Equity Incentive Plan. The shares were granted at the grant date fair value of the underlying common stock securities. The restrictions lapse upon Change in Control of the Company.
Option Exercises and Stock Vested During Fiscal Year 2014

The following table sets forth the number of2017

No NEO exercised any stock options exercised by the NEOs during the year ended December 30, 2017. Mr. Gluchowski and Mr. Leonard were granted shares of restricted stock in 2015. In the year ended December 31, 2014. In connection with the Merger Transaction, the Predecessor Option Plan was terminated and all options were cancelled with each holder receiving cash proceeds equal to the per share merger consideration less the applicable exercise price2016, 750 of the options. Value realized is calculated based onshares granted to Mr. Gluchowski and 100 of the cash proceeds received forshares granted to Mr. Leonard vested, respectively. In the options.year ending December 30, 2017, Mr. Gluchowski's remaining 750 shares vested. There were no other stock-based awards outstanding or eligible for vesting during fiscal year 2014.

Name

  Option Awards 
  Number of Shares
Acquired on
Exercise (#) (1)		   Value Realized on
Exercise ($)		 

James P. Waters

   4,000     4,045,718  

Anthony A. Vasconcellos

   2,300     2,746,987  

Richard C. Paulin

   2,625     2,518,953(2) 

Jeffrey Jonsohn

   1,575     1,509,277(2) 

Robert J. Lackman

   2,300     2,560,301  

(1)The cashless exercise of the options resulted in the NEOs receiving fewer shares than shown.

(2)Messrs. Paulin’s and Jonsohn’s value realized were converted from Canadian dollars to U.S. dollars using a December 31, 2014 exchange rate of 1.1601 Canadian dollars per U.S. dollar.

2017.

Nonqualified Deferred Compensation for Fiscal Year 2014

2017

The following table sets forth activity in the Deferred Compensation Plan for the NEOs for the year ended December 31, 2014:

Name

  Executive
Contributions
($) (1)		   Company
Matching
Contributions
($) (2)		   Aggregate
Earnings
($) (3)		   Aggregate
Withdrawal/
Distributions
($)		   Aggregate
Balance at
12/31/14 ($)
(4)		 

James P. Waters

   120,175     2,500     18,751     40,885     421,493  

Anthony A. Vasconcellos

   11,683     2,500     3,887     —       64,348  

Richard C. Paulin

   —       —       —       —       —    

Jeffrey Jonsohn

   —       —       —       —       —    

Robert J. Lackman

   15,000     2,500     4,821     —       61,326  

30, 2017:
Name 
Executive
Contributions(1)
 
Company
Matching
Contributions(2)
 
Aggregate
Earnings(3)
 
Aggregate
Withdrawal/
Distributions
 
Aggregate
Balance at
12/31/17(4)
Gregory J. Gluchowski, Jr. $24,462
 $2,500
 $4,505
 $—
 $45,432
Robert O. Kraft —
 —
 —
 —
 —
Douglas D. Roberts 11,480
 2,500
 15,324
 —
 110,199
Scott C. Ride —
 —
 —
 —
 —
Todd M. Spangler 11,377
 2,500
 3,612
 (15,270) 31,330
Jeffrey S. Leonard 5,510
 1,067
 2,773
 —
 20,324
Richard C. Paulin —
 —
 —
 —
 —
(1)The amounts in this column represent the deferral of base salary and annual performance bonuses. These amounts are also included in the Summary Compensation Table in the Salary or Non-Equity Incentive Plan Compensation columns, as appropriate.
(2)The amounts in this column are also included in the Summary Compensation Table in the All Other Compensation column.
(3)Earnings in the Deferred Compensation Plan are not required to be included in the Summary Compensation Table.
(4)Amounts reported in this column for each NEO include amounts previously reported in the Company’sCompany's Summary Compensation Table in previous years when earned if that officer’sofficer's compensation was required to be disclosed in a previous year. Amounts previously reported in such years include previously earned, but deferred, salary and bonus and Company matching contributions. This total reflects the cumulative value of each NEO’sNEO's deferrals, matching contributions, and investment experience.

All executives (other than Messrs. Paulin and Jonsohn) and certain senior managersdirectors are eligible to participate in the Deferred Compensation Plan. The Deferred Compensation Plan allows eligible employees to defer up to 25% of salary and commissions and up to 100% of bonuses. A separate account is maintained for each participant in the Deferred Compensation Plan, reflecting hypothetical contributions, earnings, expenses, and gains or losses. The plan is “unfunded” for tax purposes – those are notional accounts and not held in trust. The Company contributes a matching contribution of 25% on the first $10,000 of salary and bonus deferrals. A participant vests in the Company matching contributions 20% each year, over five years. Participants in the Deferred Compensation Plan can choose to invest amounts deferred and the matching company contributions in a variety of mutual fund investments, consisting of bonds, stocks, and short-term investments as well as blended funds. The account balances are thus subject to investment returns and will change over time depending on market performance. A participant is entitled to receive his or her account balance upon termination of employment or the date or dates selected by the participant on his or her enrollment forms. If a participant dies or experiences a total and permanent disability before terminating employment and before commencement of payments, the entire value of the participant’sparticipant's account shall be paid at the time selected by the participant in his or her enrollment forms.

The available investment choices are the same as the primary investment choices available under the Defined Contribution Plan, which are as follows (with 20142017 annual rates of return indicated for each):



Aberdeen Emerging Markets

Institutional (-2.45%(30.24%)

Janus Henderson Small Cap Value T (12.61%)Vanguard Target Retirement
2020 Fund (14.08%)
American Beacon Large Cap Value Fund Investor Class (10.19%(16.70%)

Artisan Mid Cap Value

Loomis Sayles Core Plus Bond Y Fund (1.52%(5.22%)

ASTON/Fairpointe Mid Cap N

Vanguard Target Retirement
2025 Fund (9.73%(15.94%)

Baron Small Cap

Fund (1.69%)

Columbia Acorn International

Z Fund (-4.28%)

Columbia Small Cap Index Z


Fund (5.48%(13.10%)

Morley Stable Value Fund (0%)Vanguard Target Retirement
2030 Fund (17.52%)
Dreyfus MidCap Index


Fund (9.37%(15.68%)

Fidelity

Contrafund (9.56%)

Fidelity Freedom

2040 Fund (5.71%)

Fidelity Freedom

2045 Fund (5.79%)

Fidelity Freedom

2055 Fund (5.75%)

Fidelity International

Discovery Fund (-5.58%)

Fidelity Retirement

Money Market (0.01%)

Oppenheimer International

Bond Y (0.41%)

Perkins Small Cap Value

Fund Class T (7.30%)

PIMCO Real Return
Institutional Fund

(3.92%)

Vanguard Target Retirement
2035 Fund (19.12%)
Fidelity
Contrafund (32.26%)		PIMCO All Asset
Institutional (3.42%)

PIMCO Total Return

Institutional (4.69%)

Royce Pennsylvania

Mutual Service Fund (34.77%(13.98%)

Spartan 500 Index

Vanguard Target Retirement
2040 Fund

(20.71%)

Fidelity Advantage Class (13.62%)

Spartan US Bond Index

International

Discovery Fund Advantage (5.93%(31.70%)

T. Rowe Price Dividend


Growth Fund (12.34%(19.32%)

Vanguard Target Retirement
2045 Fund (21.42%)
Fidelity International Index Premium Fund (25.35%)T. Rowe Price Mid-Cap


Growth Advantage (12.87%(24.53%)

Vanguard Target Retirement
2050 Fund (21.39%)
Fidelity Spartan 500 Index Institutional Fund (21.79%)

T. Rowe Price Real Estate

(29.75% Fund
(4.42%)

Vanguard Target Retirement

2010
2055 Fund (5.93%(21.38%)

Fidelity Spartan US Bond Index Advantage Fund (3.48%)T. Rowe Price QM US Small Cap Growth Equity Advantage (21.77%)Vanguard Target Retirement

2015
Income Fund (6.56%(8.47%)

Goldman Sachs International Small Cap Insights A Fund (32.54%)Vanguard Target Retirement

2020
2015 Fund (7.11%(11.50%)

Vanguard Target Retirement

2025 Fund (7.17%)

Vanguard Target Retirement

2030 Fund (7.17%)

Vanguard Target Retirement

2035 Fund (7.24%)

Vanguard Target Retirement

2040 Fund (7.15%)

Vanguard Target Retirement

2045 Fund (7.16%)

Vanguard Target Retirement

2050 Fund (7.18%)

Vanguard Target Retirement

2055 Fund (7.19%)

Vanguard Target Retirement

Income Fund (5.54%)

Potential Payments Upon Termination or Change in Control

Severance Payments and Benefits under Employment Agreements

The Company has an employment agreement in effect with Messrs. Waters, Vasconcellos, Paulin, Jonsohn,Gluchowski, Kraft, Roberts, Ride, and Lackman.Spangler. The employment agreements provide for an initial term of three years beginning May 28, 2010 for Mr. Waters, October 5, 2011 for Mr. Vasconcellos, February 19, 2013 forwith Messrs. PaulinRoberts, Ride, and Jonsohn, and November 1, 2010 for Mr. Lackman andSpangler automatically renew for successive one-year terms thereafter unless either the Company or the executive provides notice of non-renewal. The Company’s non-renewal notice must be provided 180 days in advance for Mr. Waters and 90 days in advance for Messrs. Vasconcellos, Paulin, Jonsohn, and Lackman. Each executive’s non-renewal notice must be provided 180 days in advance except for Messrs. Paulin and Jonsohn, which must be provided 90 days in advance. The employment agreement with each NEO provides for specified payments and benefits in connection with a termination of employment.

No severance payments or benefits are payable in the event of a termination for cause or resignation without good reason (each as defined below). For each NEO,Messrs. Roberts, Ride, and Spangler, in the event of termination by reason of executive’sexecutive's death, disability, or due to non-renewal by the executive, the executive would be entitled to a prorated portion of his annual bonus, if any, for the year in which termination occurs, based on actual performance results for the full year and payable when bonuses are paid to other senior executives. Additional severance payments and benefits for each NEO are described below.

For all NEOs, severance payments and benefits are conditioned upon the execution by the executive of a release of claims against the Company and his continued compliance with the restrictive covenants contained in the employment agreement and/or stock option award agreement. The employment agreements

and/or stock option award agreements require the executive not to disclose at any time confidential information of the Company or of any third party to which the Company has a duty of confidentiality and to assign to the Company all intellectual property developed during employment. Pursuant to their employment agreements and/or stock option award agreements, the executives are also required (i) during employment and for one year thereafter not to compete with the Company. Messrs. Waters, Vasconcellos,Company and Lackman are required(ii) during employment and for two years thereafter not to solicit the employees, customers, or business relations of the Company or make disparaging statements about the Company during employment and for two years thereafter. Messrs. Paulin and Johnson are subject to the same non-solicitation and non-disparagement requirements during employment and for one year thereafter. Company.

Gregory J. Gluchowski, Jr.
For Mr. Waters, the post-employment non-compete period is extended to two years following termination of employment by reason of termination by the Company without cause or resignation with good reason. For each NEO, non-renewal by the Company is treated the same as a termination by the Company without cause.

James Waters

For Mr. Waters,Gluchowski, in the event of termination of employment by the Company without cause or resignation by Mr. Gluchowski with good reason, Mr. Gluchowski would be entitled to continued payments of base salary and target bonus for a period of one year following termination.

Robert O. Kraft
For Mr. Kraft, in the event of termination of employment by the Company without cause or resignation by Mr. Kraft with good reason, or due to non-renewal by the Company, the executiveMr. Kraft would be entitled to (i) continued payments of base salary for a period of two years following termination, (ii) an amount equal to 50% of the greater of (a) the average of the annual bonuses for the preceding three years or (b) the most recent bonus paid to him prior to termination (whichever is greater, the “Termination Bonus Amount”), paid in theone year following termination (iii)and (ii) a proratedproportionate portion of his annual bonus if any, for the year in which the termination occurs, payable when bonus payments for such year are made to other senior executives, and (iv) Company-paid continuation of health benefits coverage for 12 months and life and disability benefits coverage for six months.

In the event of a termination by the Company without cause, resignation with good reason, or due to non-renewal by the Company within 90 days following a change in control (as defined below),executives.



Douglas D. Roberts
For Mr. Waters would be entitled to (i) a lump sum payment equal to the sum of one year of his then current rate of base salary plus 50% of the Termination Bonus Amount, payable within 30 days of termination, (ii) a prorated portion of his annual bonus, if any, for the year in which termination occurs, payable when bonus payments for such year are made to other senior executives, and (iii) beginning on the first anniversary of the termination date, payments of his base salary (as of the termination date) for a period of one year.

Anthony Vasconcellos and Robert Lackman

For Messrs. Vasconcellos and Lackman,Roberts, in the event of termination of employment by reason of termination by the Company without cause or resignation by Mr. Roberts with good reason, or due to non-renewal by the Company, the executiveMr. Roberts would be entitled to (i) continued payments of base salary for a period of one year following termination, (ii) 50% of the Termination Bonus Amount, payable when bonus payments for such year are made to other senior executives, (iii) a prorated portion of his annual bonus for the year in which termination occurs, payable when bonus payments for such year are made to other senior executives, and (iv) Company-paid continuation of health benefits coverage for 12 months and life and disability benefits coverage for sixtwelve months.

In

Scott C. Ride
For Mr. Ride, in the event of termination of employment by the Company without cause or resignation by Mr. Ride with good reason, or due to non-renewal by the Company within 90 days following a change in control, the executiveMr. Ride would be entitled to (i) continued payments of base salary for a lump sum payment equal to the sumperiod of one year of his then current rate of base salary plusfollowing termination, (ii) 50% of the Termination Bonus Amount, payable within 30 days of termination of employment and (ii)when bonus payments for such year are made to other senior executives, (iii) a prorated portion of his annual bonus for the year in which termination occurs, payable when bonus payments for such year are made to other senior executives.

Richard Paulinexecutives, and Jeffrey Jonsohn

(iv) Company-paid continuation of health benefits coverage and life and disability benefits coverage for twelve months.

Todd M. Spangler
For Messrs. Paulin and Jonsohn,Mr. Spangler, in the event of termination during the initial term by reason of terminationemployment by the Company without cause or resignation by Mr. Spangler with good reason, or due to non-renewal by the Company, the executiveMr. Splangler would be entitled to (i) continued payments of

base salary for a period of two yearsone year following termination, (ii) 50% of the Termination Bonus Amount, (which, for clarity, does not include any Incentive Bonus), payable when bonus payments for such year are made to other senior executives, (iii) a prorated portion of his annual performance bonus for the year in which termination occurs, payable when bonus payments for such year are made to other senior executives, and (iv) Company-paid continuation of health benefits coverage and life and disability benefits coverage for 24 months, provided the executive continues to pay his share of the premiums.

In the event of termination of employment after the initial term due to termination by the Company without cause, resignation with good reason, or due to non-renewal by the Company, the executive would receive the same severance payments and benefits described in the preceding paragraph except that he would be entitled to only 50% of the Termination Bonus Amount.

In the event of termination by the Company without cause, resignation with good reason, or due to non-renewal by the Company within 90 days following a change in control, the executive would be entitled to (i) a lump sum payment equal to the sum of two years of his then current rate of base salary plus the Termination Bonus Amount (or 50% of the Termination Bonus Amount if the termination occurs after the initial term), payable within 30 days of termination of employment, and (ii) a prorated portion of his annual performance bonus for the year in which termination occurs, payable when bonus payments for such year are made to other senior executives.

twelve months.

For purposes of the employment agreements, “cause” generally means (i) willful failure to substantially perform duties under the employment agreement, other than due to disability, (ii) willful act which constitutes gross misconduct or fraud and which is injurious to the Company, (iii) conviction of, or plea of guilty or no contest, to a felony, for Messrs. Waters, Vasconcellos, and Lackman, or conviction on any charge involving moral turpitude for Messrs. Paulin and Jonsohn, (iv) material breach of confidentiality, non-compete, or non-solicitation agreements with the Company which is not cured within 10 days after written notice from the Company, or (v) for Messrs. Paulin and Jonsohn, any act or omission which would in law permit an employer to, without notice or payment in lieu of notice, terminate the employment of an employee.

Company.

“Good reason” is defined generally as (i) any material diminution in the executive’sexecutive's position, authority, or duties with the Company, (ii) the Company reassigning the executive to work at a location that is more than 75 miles from the executive’sexecutive's current work location, (iii) any amendment to the Company’sCompany's bylaws which results in a material and adverse change to the officer and director indemnification provisions contained therein, or (iv) a material breach of the compensation, benefits, term, and severance provisions of the employment agreement by the Company which is not cured within 10 days following written notice from the executive. The Company has a 10-day period to cure all circumstances otherwise constituting good reason.

For purposes of the employment agreements, “change in control” generally means any transaction or series of transactions pursuant to which any person(s) or a group of related persons in the aggregate acquire(s) (i) capital stock of Hillman possessing the voting power (other than voting rights accruing only in the event of a default, breach, or event of noncompliance) to elect a majority of the board of Hillman or (ii) all or substantially all of Hillman’s assets determined on a consolidated basis, excluding, for Messrs. Waters, Vasconcellos and Lackman, an initial public offering and provided that such change in control constitutes a change in control for purposes of Section 409A of the Code. For Messrs. Paulin and Jonsohn, a change in control shall include a “public offering,” which generally means an underwritten initial public offering and sale, registered under the Securities Act, of shares of The Hillman Company’s common stock.

Option Vesting

All time-based options held by the NEOs will vest upon the occurrence of a change in control subject to the optionee’soptionee's continued employment by Hillman through the consummation of such change in control.

Subject to the optionee’soptionee's continuous employment by Hillman through the consummation of a change in control, 33%100% of the performance-based options will vest if the CCMP stockholders receive proceeds resulting in an MOImultiple on investment of at least 2.0, an additional 33% will vest with an MOI of at least 2.5, and the remaining 33% will vest with an MOI of at least 3.0.

2.0.

Estimated Payments Upon Termination of Employment or Change in Control

The table below shows the severance payments and benefits that each NEO would receive upon (1) death, disability, or non-renewal by executive, (2) termination without cause, resignation with good reason, or non-renewal by the Company, (3) termination without cause, resignation with good reason, or non-renewal by the Company within 90 days of a change in control or (4) a change in control, regardless of termination. The amounts are calculated as if the date of termination (and change in control where applicable) were December 31, 2014.30, 2017. For purposes of the table, the cost of continuing health care, life, and disability insurance coverage is based on the current Company cost for the level of such coverage elected by the executive.

Name

 Death,
Disability, or
non-renewal by
Executive ($)		  Termination without
cause, resignation
with good reason, or
non-renewal by the
Company ($)		  Termination without cause,
resignation with good
reason, or non-renewal by
the Company within 90 days
of a change in control ($)		  Change in
Control
(regardless of
termination)
(1) ($)		 

James P. Waters

  0    946,709    934,247    0  

Anthony A. Vasconcellos

  0    357,116    343,955    0  

Richard C. Paulin(2)

  0    818,542    815,527    0  

Jeffrey Jonsohn(2)

  0    487,983    487,780    0  

Robert J. Lackman

  0    360,881    347,538    0  



Name
Death,
Disability, or
non-renewal by
Executive
 
Termination without
cause, resignation
with good reason, or
non-renewal by the
Company
 
Termination without cause,
resignation with good
reason, or non-renewal by
the Company within 90 days
of a change in control
 
Change in
Control
(regardless of
termination)(1)
Gregory J. Gluchowski, Jr.$—
 $1,300,000
 $1,300,000
 $1,332,730
Robert O. Kraft—
 415,000
 415,000
 474,000
Douglas D. Roberts83,517
 416,361
 412,276
 278,214
Scott C. Ride(2)
131,527
 461,518
 460,343
 417,120
Todd M. Spangler103,458
 445,774
 439,608
 417,322
(1)Represents the cash-out value of unvested options as of December 31, 2014,30, 2017, at the fair market value of the Company’sCompany's common stock ($1,000)1,158) less the exercise price assuming that the MOI thresholds were met or exceeded. Note that, in the absence of an actual transaction, it is not possible to determine whether the thresholds would in fact actually be met.
(2)For Messrs. Paulin and Jonsohn, all 2013Mr. Ride's payout amounts were converted from Canadian dollars to U.S. dollars using a December 31, 2013the year-end exchange rate of 1.06361.2545 Canadian dollars per U.S. dollardollar.
(3)Mr. Leonard resigned effective August 11, 2017 and all 2014received no compensation upon his termination. Mr. Paulin retired effective April 30, 2017. Mr. Paulin received severance of approximately $825,713 upon his resignation. His severance included twenty four months of his base salary, a termination bonus, his prorated bonus for fiscal year 2017, accrued but unused vacation and twenty four months of health benefit coverage. Mr. Paulin's payout amounts were converted from Canadian dollars to U.S. dollars using a December 31, 2014the year-end exchange rate of 1.16011.2545 Canadian dollars per U.S. dollar.


Pay Ratio Disclosure
The following information is a reasonable estimate of the annual total compensation of our employees as relates to the 2017 total compensation of our CEO. Based on the methodology described below, our CEO’s 2017 total compensation was approximately 34 times that of our median employee.
We identified the median employee using our employee population as of December 30, 2017, which included all 3,482 global full-time, part-time, temporary, and seasonal employees employed on that date. We applied an exchange rate as of December 30, 2017 to convert all international currencies into U.S. Dollars.
A variety of pay elements comprise the total compensation of our employees. This includes annual base salary, equity awards, annual cash incentive payments based on company performance, sales or commission incentives, and various field bonuses. The incentive awards an employee is eligible for is based on his or her pay grade and reporting level, and are consistently applied across the organization. Cash incentives, rather than equity, is the primary vehicle of incentive compensation for most of our employees throughout the organization. While all employees earn a base salary, not all receive such cash incentive payments. Furthermore, fewer than 1% of our employees receive equity awards. Consequently, for purposes of applying a consistently-applied compensation metric for determining our median employee, we selected annual base salary as the sole, and most appropriate, compensation element for determining the median employee. We used the annual base salary of our employees as reflected on our human resources systems on December 30, 2017, excluding that of our CEO, in preparing our data set.
Using this methodology we determined that the median employee was a full-time service representative located in Canada with total annual compensation of $32,830, which includes base pay, overtime pay, and bonus pay. With respect to the 2017 total compensation of our CEO, we used the amount reported in the “Total” column of our 2017 Summary Compensation Table included in this filing, $1,113,852. Accordingly, our CEO to Employee Pay Ratio is 34:1.The pay ratio disclosed is a reasonable estimate calculated in a manner consistent with the applicable SEC disclosure rules.
Director Compensation for Fiscal Year 2014

2017



The following table sets forth compensation earned by the Company’sCompany's directors who are not also employees of the Company during the year ended December 31, 2014.

Name

  Fees Earned
or Paid in
Cash ($)		   Option
Awards ($)		   Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)		   Total ($) 

Douglas J. Cahill

   —       —       —       —    

Alberto J. Delgado

   —       —       —       —    

Max W. Hillman, Jr.(1) (2)

   80,000     300,000     —       380,000  

Aaron Jagdfeld (3)

   31,250     300,000     —       331,250  

Jonathan R. Lynch

   —       —       —       —    

Kevin Mailender (4)

   —       —       —       —    

Tyler Wolfram (4)

   —       —       —       —    

Philip K. Woodlief (5)

   —       —       —       —    

Richard F. Zannino

   —       —       —       —    

Maurice P. Andrien, Jr. (2)

   28,000     —       —       28,000  

Robert Caulk (2)

   40,500     —       —       40,500  

David Jones (2)

   37,500     —       —       37,500  

Alan Lacy (2)

   25,000     —       —       25,000  

30, 2017.
Name
Fees Earned
or Paid in
Cash
 
Option
Awards 
 
Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
 Total
Douglas J. Cahill (1)
$—
 $—
 $—
 $—
Max W. Hillman, Jr. (2)
60,000
 —
 —
 60,000
Aaron Jagdfeld (3)
75,000
 —
 —
 75,000
Jonathan R. Lynch (1)
—
 —
 —
 —
Kevin Mailender (4)
—
 —
 —
 —
Joseph M. Scharfenberger, Jr. (1)
—
 —
 —
 —
Tyler Wolfram (4)
—
 —
 —
 —
Philip K. Woodlief (3)
75,000
 —
 —
 75,000
Richard F. Zannino (1)
—
 —
 —
 —
(1)Messrs. Cahill, Lynch, Scharfenberger, and Zannino are employed and compensated by CCMP and were not compensated for their services on the Board during the year ended December 30, 2017.
(2)Mr. Hillman accrued director fees of $25,000 during 2013, but such fees were not paid until 2014. In addition to director fees, Mr. Hillman was entitled to receive consulting fees of $50,000 during 2014, of which $12,500 was not paid until 2015.
(2)Prior to June 30, 2014, Messrs. Hillman, Andrien, and Lacy were each entitled to receive an annual Board fee of $50,000. Messrs. Caulk and Jones were eachis entitled to an annual Board fee of $75,000. Additionally, Messrs. Andrien and Caulk were each entitled to receive $6,000 annually as compensation for serving on the Audit Committee. Effective June 30, 2014, Messrs. Andrien, Caulk, Jones, and Lacy resigned and Mr. Hillman’s annual Board fee was increased to $60,000.
(3)Mr.Messrs. Jagdfeld isand Woodlief are each entitled to an annual Board fee of $60,000 and an annual Audit Committee Fee of $15,000.
(4)Messrs. Wolfram and Mailender are employed and compensated by Oak Hill Capital Management, LLC and were not compensated for their services on the Board during the year ended December 31, 2014.30, 2017.
(5)Mr. Woodlief joined the Board and Audit Committee effective February 10, 2015.

Directors do not receive any perquisites or other personal benefits from the Company.

Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of the Board of the Company are Mr. Zannino and Mr. Cahill. None of these committee members were officers or employees of the Company during fiscal year 2017, were formerly Company officers or had any relationship otherwise requiring disclosure. There were no interlocks or insider participation between any member of the Board or compensation committee and any member of the Board or compensation committee of another company.

Item 12 – Security Ownership of Certain Beneficial Owners and Management.

Management and Related Stockholder Matters.

All of the outstanding shares of capital stock of Hillman Group are owned by Hillman Investment Company, all of whose shares are owned by The Hillman Companies, Inc. All of the outstanding shares of capital stock of The Hillman Companies, Inc. are owned by HMAN Intermediate II Holdings Corp. (“HMAN Intermediate II”). All of the outstanding shares of capital stock of HMAN Intermediate II are owned by HMAN Intermediate Holdings Corp. (“HMAN Intermediate”). All of the outstanding shares of capital stock of HMAN Intermediate are owned by HMAN Group Holdings Inc. (“Holdco”). All of the outstanding shares of capital stock of Holdco are owned by CCMP Capital Investors III, L.P., CCMP Co-Invest III A, L.P., CCMP Capital Investors III (Employee), L.P., Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P., OHCP III HC RO, L.P., and officers, directors, and former employees of the Company. The following table sets forth information as of the close of business on December 31, 201430, 2017 as to the share ownership of Holdco by the directors, executive officers, and holders of 5% or more of the shares of Holdco.

   Shares Beneficially Owned 

Name and Address of Beneficial Owners(1)

  Number   Percentage (%) (2) 

CCMP Capital Investors III, L.P. (3)

   316,171.2265     58.127  

CCMP Co-Invest III A, L.P. (3)

   101,400.0000     18.642  

Oak Hill Capital Partners III, L.P. (4)

   86,716.6350     15.943  

Douglas J. Cahill

   —       —    

Alberto J. Delgado

   —       —    

Max W. Hillman, Jr. (5)

   1,000.0000     *  

Aaron Jagdfeld

   1,000.0000     *  

Jonathan R. Lynch

   —       —    

Kevin M. Mailender

   —       —    

James P. Waters

   2,550.0000     *  

Tyler J. Wolfram

   —       —    

Philip K. Woodlief

   —       —    

Richard F. Zannino

   —       —    

Anthony A. Vasconcellos (6)

   540.0000     *  

Richard C. Paulin

   1,200.0000     *  

Jeffrey Jonsohn

   —       —    

Robert J. Lackman

   430.0000     *  

All Directors and Executive Officers as a Group (14 persons)

   6,720.000     1.235  



 Shares Beneficially Owned
Name and Address of Beneficial Owners(1)
Number 
Percentage (%) (2)
CCMP Capital Investors III, L.P. (3)
316,171.2265
 57.866%
CCMP Co-Invest III A, L.P. (3)
101,400.0000
 18.558%
Oak Hill Capital Partners III, L.P. (4)
86,716.6350
 15.871%
Douglas J. Cahill—
 —
Gregory J. Gluchowski, Jr.2,000.0000
 *
Max W. Hillman, Jr. (5)
1,000.0000
 *
Aaron Jagdfeld1,000.0000
 *
Jeffrey S. Leonard500.0000
 *
Robert O. Kraft (6)
500.0000
 *
Jonathan R. Lynch—
 —
Kevin M. Mailender—
 —
Richard C. Paulin1,200.0000
 *
Scott C. Ride—
 —
Douglas D. Roberts500.0000
 *
Joseph M. Scharfenberger, Jr.—
 —
Todd M. Spangler470.0000
 *
Tyler J. Wolfram—
 —
Philip K. Woodlief—
 —
Richard F. Zannino—
 —
All Directors and Executive Officers as a Group (16 persons)7,170.000
 1.312%
*    Less than 1%
*Less than 1%
(1)Unless otherwise noted, the business address of each beneficial owner is c/o The Hillman Group, Inc., 10590 Hamilton Avenue, Cincinnati, Ohio 45231-1764.
(2)Based on 543,929546,389 shares outstanding as of December 31, 2014.30, 2017.
(3)The business address of CCMP Capital Investors III, L.P., CCMP Co-Invest III A, L.P., and CCMP Capital Investors III (Employee), L.P. (collectively, the “CCMP Partnerships”) is 245277 Park Avenue, 16th27th Floor, New York, New York 10167.10172. CCMP Capital GP, LLC, is the general partner of CCMP Capital, LP which is the sole member of CCMP Capital Associates III GP, LLC, which is the sole general partner of CCMP Capital Associates III, L.P., which is the sole general partner of CCMP Capital Investors III, L.P. and CCMP Capital Investors III (Employee), L.P. CCMP Capital, LLCLP is the sole member of CCMP Co-Invest III A GP, LLC, which is the sole general partner of CCMP Co-Invest III A, L.P. CCMP Capital GP, LLC exercises voting and dispositive control over the shares held by each of the CCMP Partnerships. TheVoting and disposition decisions at CCMP Capital GP with respect to such shares are made by a committee, the members of the board designated by the CCMP Partnershipswhich are Greg Brenneman, Timothy Walsh, Christopher Behrens, Douglas J. Cahill, Alberto J. Delgado, Jonathan R. Lynch, Joseph Scharfenberger and Richard F. Zannino. Each of these individuals disclaims beneficial ownership of the shares owned by the CCMP Partnerships.

(4)The business address of Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P., and OHCP III HC RO, L.P. (collectively, the “Oak Hill Funds”) is 201 Main Street, Suite 1018, Fort Worth, Texas 76102.263 Tresser Blvd, 15th floor, Stamford, CT 06901. OHCP MGP III, Ltd. is the sole general partner of OHCP MGP Partners III, L.P., which is the sole general partner of OHCP GenPar III, L.P., which is the sole general partner of each of the Oak Hill Funds. OHCP MGP III, Ltd. exercises voting and dispositive control over the shares held by each of the Oak Hill Funds. Investment and voting decisions with regard to the shares of Holdco’sHoldco's common stock owned by the Oak Hill Funds are made by an Investment Committee of the board of directors of OHCP MGP III, Ltd. The members of the board are J. Taylor Crandall Steven B. Gruber, and DenisTyler J. Nayden.Wolfram. Each of these individuals disclaims beneficial ownership of the shares owned by the Oak Hill Funds.
(5)All shares are held by the Max William Hillman 2012 Spousal GST Trust.
(6)AllDuring the year ended December 30, 2017, Robert Kraft purchased 500 shares were repurchased byof Holdco effective January 16, 2015.stock.


Item 13 – Certain Relationships and Related Transactions.



The SuccessorCompany has recorded aggregate management fee charges and expenses from the Oak Hill Funds and CCMP of $276 thousand$519,000 for the year ended December 30, 2017, $550,000 for the year ended December 31, 2016, and $630,000 for the six month period ended December 31, 2014. The Predecessor2015.
We recorded aggregate management fee charges and expensesproceeds from the Oak Hill Fundssale of $15 thousandHoldco stock to members of management and the Board of Directors of $500,000 for the six month periodyear ended June 29, 2014, $77 thousandDecember 30, 2017, $500,000 for the year ended December 31, 2013,2016, and $155 thousand$400,000 the year ended December 31, 2015. We recorded the purchase of Holdco stock from a former member of management of $540,000 for the year ended December 31, 2012.

2015.

Gregory Mann and Gabrielle Mann are employed by the All Points subsidiary of Hillman. All PointsHillman leases an industrial warehouse and office facility from companies under the control of the Manns (the “Mann Lease”). The Company engaged a real estate broker to ensure the terms of the Mann Lease were at market. The transaction was approved by the Company’s Board of Directors.Manns. The Company has recorded rental expense for the lease of this facility on an arm’sarm's length basis. In the six month period ended December 31, 2014 the Successor’s rentalRental expense for the lease of this facility was $146 thousand. In the six month period ended June 29, 2014 the Predecessor’s rental expense$353,000 for the lease of this facility was $165 thousand. The Predecessor’s rental expenseyear ended December 30, 2017, $343,000 for the lease of this facility was $311 thousand for the yearsyear ended December 31, 20132016, and 2012.

In connection with$311,000 for the Paulin Acquisition, theyear ended December 31, 2015.

The Company entered intohas three leases for five properties containing industrial warehouse, manufacturing plant, and office facilities on February 19, 2013.in Canada. The owners of the properties under one lease are relatives of Richard Paulin, who iswas employed by The Hillman Group Canada ULC until his retirement effective April 30, 2017, and the owner of the properties under the other two leases is a company which is owned by Richard Paulin and certain of his relatives. The Company has recorded rental expense for the three leases on an arm’sarm's length basis. In the six month period ended December 31, 2014 the Successor’sThe Company's rental expense for these facilities was $371 thousand. In$663,000 for the six month periodyear ended June 29, 2014 the Predecessor’s rental expense for these facilities was $375 thousand. The Predecessor’s rental expense for these facilities was $687 thousandDecember 30, 2017, $621,000 for the year ended December 31, 2013.

2016, and $645,000 for the year ended December 31, 2015.

The Company’sCompany's Code of Business Conduct and Ethics addresses the approval of related party transactions including transactions between the Company and our officers, directors, and employees. The Company does not allow officers, directors, and employees to give preferences in business dealings based upon personal financial considerations. Officers, directors, and employees are also not permitted to own a financial interest in or hold any employment or managerial position with a competing firm or one that seeks to do or does business with the Company without prior approval of the Board of Directors of the Company. In addition, the Company’sCompany's code prohibits officers, directors, and employees from receiving or giving loans, gifts, or benefits to any supplier, customer, or competitor unless specifically permitted in the Company’sCompany's code. Such expenditures or gifts must be reported to, and approved by, a supervisor. Compliance review and reporting procedures for violations of the Company rules are also listed in the ethics code.

Director Independence
As disclosed in “Item 10 - Directors, Executive Officers and Corporate Governance,” Mr. Jagdfield and Mr. Woodlief would be considered independent for our Board of Directors and for our Audit Committee and Mr. Zannino and Mr. Cahill would be considered independent for our Compensation Committee, based upon the listing standards of the NYSE AMEX.

Item 14 – Principal Accounting Fees and Services.

Audit Fees

Audit fees consist of fees for professional services rendered for the audit of the Company’sCompany's consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided in connection with statutory and regulatory filings. The aggregate fees of KPMG LLP for the 20142017 audit were approximately $714,780$580,000 and the 20132016 audit fees were approximately $755,000.

$555,000.

Audit Related Fees

Audit related fees are fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’sCompany's consolidated financial statements and are not under “Audit Fees.”

In the year ended December 30, 2017 fees for audit related services were $60,000 for accounting consultations. There were no audit related fees billed by KPMG LLP in 2014 or 2013.

2016.



Tax Fees

Tax fees consist of fees billed for professional services for tax compliance, tax advice, and tax planning. There were no tax fees billed by KPMG LLP in 20142017 or 2013.

2016.

All Other Fees

No other services were rendered by KPMG LLP for 20142017 or 2013.

2016.

The Audit Committee’sCommittee's policy is to pre-approve all audit and permissible non-audit services provided by KPMG LLP on a case-by-case basis, and any pre-approval is detailed as to the particular service or category of service and is generally subject to a specific budget. These services may include audit services, audit related services, tax services, and other related services. KPMG LLP and the Company’sCompany's management are required to periodically report to the Audit Committee regarding the extent of services provided by KPMG LLP in accordance with this pre-approval policy, and the fees for the services performed to date. In accordance with its policies and procedures, the Audit Committee pre-approved 100% of the audit and non-audit services performed by KPMG LLP for the years ended December 30, 2017 and December 31, 2014 and 2013.

2016.


PART IV

Item 15 – Exhibits, and Financial Statement Schedules.

(a) Documents Filed as a Part of the Report:

1.Financial Statements.

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.

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.Exhibits, Including Those Incorporated by Reference.

3.     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

Agreement and Plan of Merger, dated May 16, 2014 (14)((incorporated by reference to the Company’s Current Report on Form 8-K filed on May 29, 2014 - Exhibit 2.1)
3.1

 3.1Second Amended and Restated By-Laws of The Hillman Companies, Inc. (effective as of May 23, 2013). (13) (Exhibit(incorporated by reference to the Company’s Current Report on Form 8-K filed on May 30, 2013 - Exhibit 3.1)
3.2

 3.2Second Amended and Restated Certificate of Incorporation of The Hillman Companies, Inc. as of May 28, 2010. (5)  (Exhibit(incorporated by reference to the Company’s Current Report on Form 8-K filed on June 4, 2010 - Exhibit 3.1)
  3.3Certificate of Incorporation of The Hillman Group, Inc., as amended. (7) (Exhibit 3.1)
  3.4By-Laws of The Hillman Group, Inc. (7) (Exhibit 3.2)
  3.5Certificate of Incorporation of Hillman Investment Company, as amended. (7) (Exhibit 3.5)
  3.6By-Laws of Hillman Investment Company. (7) (Exhibit 3.6)
  3.7Certificate of Incorporation of SunSub C Inc., as amended. (7) (Exhibit 3.7)
  3.8By-Laws of SunSub C Inc. (7) (Exhibit 3.8)
  3.9Articles of Incorporation of All Points Industries, Inc. (7) (Exhibit 3.9)
  3.10By-Laws of All Points Industries, Inc. (7) (Exhibit 3.10)
  3.11Amended and Restated Certificate of Incorporation of Hillman Investment Company. (8) (Exhibit 3.5)
  3.12Certificate of Formation of Hillman Group GP1, LLC. (12) (Exhibit 3.15)
  3.13Limited Liability Company Agreement of Hillman Group GP1, LLC. (12) (Exhibit 3.16)
  3.14Certificate of Formation of Hillman Group GP2, LLC. (12) (Exhibit 3.17)
  3.15Limited Liability Company Agreement of Hillman Group GP2, LLC. (12) (Exhibit 3.18)

  3.16Certificate of Incorporation of Paulin Industries Inc. (12) (Exhibit 3.19)
  3.17By-Laws of Paulin Industries Inc. (12) (Exhibit 3.20)
4.1
Amended and Restated Declaration of Trust. (1) (Exhibit(incorporated by reference to the Company’s Registration Statement No. 333-44733 on Form S-2 - Exhibit 4.1)
4.2
Indenture between The Hillman Companies, Inc. and the Bank of New York. (1) (Exhibit(incorporated by reference to the Company’s Registration Statement No. 333-44733 on Form S-2 - Exhibit 4.2)
4.3
Preferred Securities Guarantee. (1) (Exhibit(incorporated by reference to the Company’s Registration Statement No. 333-44733 on Form S-2 - Exhibit 4.3)
4.4
Rights Agreement between The Hillman Companies, Inc. and the Registrar and Transfer Company. (1) (Exhibit(incorporated by reference to the Company’s Registration Statement No. 333-44733 on Form S-2 - Exhibit 10.5)
4.5

 4.5Amendment No. 1 to the Rights Agreement dated June 18, 2001. (2) (Exhibit(incorporated by reference to the Company’s Annual Report on Form 10-K filed March 29, 2004 - Exhibit 4.6)



4.6

Amendment No. 2 to the Rights Agreement dated February 14, 2004. (2) (Exhibit(incorporated by reference to the Company’s Annual Report on Form 10-K filed March 29, 2004 - Exhibit 4.7)
4.7

 4.7Indenture, dated as of June 30, 2014, among HMAN Finance Sub Corp., HMAN Intermediate Finance Sub Corp., as guarantor and Wells Fargo Bank, National Association, as Trustee. (15) (Exhibit(incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2014 - Exhibit 4.1)
4.8

 4.8First Supplemental Indenture, dated as of June 30, 2014, among The Hillman Group, Inc. and certain guarantors party thereto, and Wells Fargo Bank, National Association, as Trustee. (15) (Exhibit(incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2014 - Exhibit 4.2)
10.1
10.1
The Hillman Companies, Inc. Nonqualified Deferred Compensation Plan (amended and restated). (3) (Exhibit(incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 15, 2004 - Exhibit - 10.1)
10.2
10.2
First Amendment to The Hillman Companies, Inc. Nonqualified Deferred Compensation Plan. (3) (Exhibit(incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 15, 2004 - Exhibit - 10.2)
10.3
10.3
Supply Agreement dated January 5, 2006 between The SteelWorks Corporation and The Hillman Group, Inc. (4) (Exhibit(incorporated by reference to the Company’s Current Report on Form 8-K filed on January 11, 2006 - Exhibit 10.2)
10.4
10.4
Executive Letter Agreement, dated as of April 21, 2010, between The Hillman Group, Inc. and James P. Waters. (6) (Exhibit 10.7)
10.5Development Alliance Agreement, dated as of March 10, 2011, by and among KeyWorks-KeyExpress, LLC, The Hillman Group, Inc and the persons identified as Members on the signature pages thereto. (9) (Exhibit(incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2011 - Exhibit - 10.5)
10.5
10.6
Employment Agreement, dated as of October 11 , 2011 and effective as of October 5, 2011, by and between The Hillman Group, Inc. and Anthony A. Vasconcellos. (10) (Exhibit 10.37)
10.7Form of Employment Agreement, by and between The Hillman Group, Inc. and Robert J. Lackman. (11) (Exhibit 10.50)
10.8Amended and Restated Employment Agreement by and between The Hillman Group, Inc. and James P. Waters dated May 23, 2013. (13) (Exhibit 10.1)
10.92014 Equity Incentive Plan. (15) (Exhibit(incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2014 - Exhibit - 10.2)
10.6
10.10
Credit Agreement, dated as of June 30, 2014, by and among HMAN Finance Sub Corp., to be merged with and into The Hillman Group, Inc., Hillman Investment Company, HMAN Intermediate Finance Sub Corp., to be merged with and into The Hillman Companies Inc., the subsidiaries of the borrower from time to time party thereto, the financial institutions party thereto as lenders and Barclays Bank plc, as administrative agent for such lenders. (15) (Exhibit(incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2014 - Exhibit - 10.1)

10.7

10.11Form of 2014 Equity Incentive Plan Award Agreements. (16) (Exhibit 10.2)(incorporated by reference to the Company’s Current Report on Form 8-K filed on December 4, 2014 - Exhibit10.2)
10.8
10.12
General Release, dated as of January 8, 2015, by and between The Hillman Companies, Inc. and Anthony A. Vasconcellos. (17) (Exhibit 10.1)
10.13Employment Agreement between Jeffrey S. Leonard and The Hillman Group, Inc. dated March 4, 2015 (18) (Exhibit(incorporated by reference to the Company’s Current Report on Form 8-K filed on March 4, 2015 - Exhibit 10.1)
10.9

Employment Agreement between Greg Gluchowski and The Hillman Group, Inc. dated August 18, 2015 (incorporated by reference to the Company’s Current Report on Form 8-K filed on August 18, 2015 - Exhibit 10.1)

10.14

10.10

LetterEmployment Agreement between Jeffrey JonsohnRobert Kraft and The Hillman Group, Inc. dated October 2, 2017 (incorporated by reference to the Company’s Current Report on Form 8-K filed on October 6, 2017 - Exhibit 10.1)
10.11

Employment Agreement between Scott Ride and The Hillman Group Canada ULCULC. dated February 26, 2015 (18) (Exhibit 10.2)December 2, 2014 (incorporated by reference to the Company’s Current Report on Form 8-K filed on May 4, 2017 - Exhibit 10.5)
10.12
10.15
General Release* Amendment to Employment Agreement between Robert J. LackmanScott Ride and The Hillman Companies,Group Canada ULC. dated June 10, 2015
10.13

* Employment Agreement between Todd Spangler and The Hillman Group, Inc. dated February 27, 2015 (18) (Exhibit 10.3)June 18, 2012
10.14

* Amendment to Employment Agreement between Todd Spangler and the Hillman Group, Inc. dated June 10, 2015
12.1
10.15

* Employment Agreement between Douglas Roberts and The Hillman Group, Inc. dated May 14, 2012
10.16

* Amendment to Employment Agreement between Doug Roberts and the Hillman Group, Inc. dated June 10, 2015
12.1

* Computation of Ratio of Income to Fixed Charges.
21.1
21.1
* Subsidiaries. (As of December 31, 2014)30, 2017)
31.1
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
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
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
32.2
* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1
99.1
* Supplemental Consolidating Guarantor and Non-Guarantor Financial Information.Information for The Hillman Companies, Inc.



101

The following financial information from the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2014,30, 2017, filed with the SEC on March 27, 2015,30, 2017, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets as of December 31, 201430, 2017 and December 31, 2013,2016, (ii) Consolidated Statements of Comprehensive Loss for the year ended December 31, 2014,30, 2017, the year ended December 31, 20132016 and the year ended December 31, 2012,2015, (iii) Consolidated Statements of Cash Flows for the year ended December 31, 2014,30, 2017, the year ended December 31, 20132016 and the year ended December 31, 2012,2015, (iv) Consolidated Statement of Stockholders’Stockholders' Equity for the year ended December 31, 2014,30, 2017, the year ended December 31, 20132016 and the year ended December 31, 2012,2015, and (v) Notes to Consolidated Financial Statements.

(1)Filed as an exhibit to Registration Statement No. 333-44733 on Form S-2.
(2)Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2003.
(3)Filed as an exhibit to the Quarterly Report on Form 10-Q for the Quarter ended September 30, 2004.
(4)Filed as an exhibit to the Current Report on Form 8-K filed on January 11, 2006.
(5)Filed as an exhibit to the Current Report on Form 8-K filed on June 4, 2010.

(6)Filed as an exhibit to the Quarterly Report on Form 10-Q for the Quarter ended June 30, 2010.
(7)Filed as an exhibit to Registration No. 333-170168 on Form S-4.
(8)Filed as an exhibit to Registration No. 333-175527 on Form S-4.
(9)Filed as an exhibit to the Quarterly Report on Form 10-Q for the Quarter ended June 30, 2011.
(10)Filed as an exhibit to Amendment No. 1 to Registration No. 333- 175527 on Form S-4.
(11)Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2011.
(12)Filed as an exhibit to the Annual Report on Form 10-K for the year ended December 31, 2012.
(13)Filed as an exhibit to the Current Report on Form 8-K filed on May 30, 2013.
(14)Filed as an exhibit to the Current Report on Form 8-K filed on May 19, 2014.
(15)Filed as an exhibit to the Quarterly Report on Form 10-Q for the Quarter ended June 30, 2014.
(16)Filed as an exhibit to the Current Report on Form 8-K filed on December 4, 2014.
(17)Filed as an exhibit to the Current Report on Form 8-K filed on January 9, 2015.
(18)Filed as an exhibit to the Current Report on Form 8-K filed on March 4, 2015.
*Filed herewith.

* Filed herewith




Item 16 – Form 10-K Summary.
None
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 THE HILLMAN COMPANIES, INC.
Date: March 27, 2015  
Dated: March 21, 2018By: 

/s/ Anthony A. Vasconcellos

Robert O. Kraft
 Anthony A. VasconcellosRobert O. Kraft
 Title: Chief Financial Officer and Duly Authorized Officer of the Registrant (Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.



Signature

  

Capacity

Date

/s/ James P. Waters

James P. Waters

Gregory J. Gluchowski, Jr.		  Principal Executive Officer and DirectorMarch 21, 2018
Gregory J. Gluchowski, Jr.
/s/ Robert O. KraftPrincipal Financial OfficerMarch 27, 201521, 2018
Robert O. Kraft

/s/ Nicholas P. Ruffing 

Chief Accounting OfficerMarch 21, 2018
 Nicholas P. Ruffing 
/s/ Douglas J. Cahill

Douglas J. Cahill

  Chairman and DirectorMarch 27, 201521, 2018

/s/ HaroldDouglas J. Wilder

Harold J. Wilder

Cahill		 Principal Accounting Officer March 27, 2015

/s/ Alberto J. Delgado

Alberto J. Delgado

Max W. Hillman, Jr.		  DirectorMarch 27, 201521, 2018

/s/ Max W. Hillman,

Max W. Hillman

Jr.
/s/ Aaron Jagdfeld  DirectorMarch 27, 201521, 2018
Aaron Jagdfeld

/s/ Aaron Jagdfeld

Aaron Jagdfeld

Jonathan R. Lynch		  DirectorMarch 27, 201521, 2018

/s/ Jonathan R. Lynch

Jonathan R. Lynch

/s/ Kevin Mailender  DirectorMarch 27, 201521, 2018
Kevin Mailender

/s/ Kevin Mailender

Kevin Mailender

Joseph M. Scharfenberger, Jr.		  DirectorMarch 27, 2015

21, 2018

Joseph M. Scharfenberger, Jr.

/s/ Tyler J. Wolfram

DirectorMarch 21, 2018
Tyler J. Wolfram

DirectorMarch 27, 2015

/s/ Philip K. Woodlief

DirectorMarch 21, 2018
Philip K. Woodlief

DirectorMarch 27, 2015

/s/ Richard F. Zannino

DirectorMarch 21, 2018
Richard F. Zannino

DirectorMarch 27, 2015

137


87