Company Quick10K Filing
Quick10K
Hillman Companies
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-29 Annual: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-09-13 Officers, Other Events, Exhibits
8-K 2019-07-30 Earnings, Exhibits
8-K 2019-07-25 Officers
8-K 2019-06-27 Officers
8-K 2019-05-02 Officers
8-K 2019-03-20 Earnings, Exhibits
8-K 2018-10-01 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-09-04 Regulation FD
8-K 2018-08-28 Regulation FD, Exhibits
8-K 2018-05-31 Enter Agreement, Leave Agreement, Exhibits
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-04-16 Officers, Exhibits
JMDA Jerrick Media Holdings 453
LWLG Lightwave Logic 61
CBDY Target Group 38
APPB Applied Biosciences 29
BICX Biocorrx 11
GRMC Goldrich Mining 3
FTXP Foothills Exploration 2
MFCO Microwave Filter 1
ABCE Abco Energy 0
AEXE AIM Exploration 0
HLM 2019-06-29
Item 2.
Item 3.
Item 4.
Part II
Item 1. - Legal Proceedings.
Item 1A - Risk Factors.
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. - Defaults Upon Senior Securities.
Item 4. - Mine Safety Disclosures.
Item 5. - Other Information.
Item 6. - Exhibits.
EX-31.1 exhibit311-certificati.htm
EX-31.2 exhibit312-certificati.htm
EX-32.1 exhibit321-certificati.htm
EX-32.2 exhibit322-certificati.htm
EX-99.1 exhibit991-q22019.htm

Hillman Companies Earnings 2019-06-29

HLM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2019
Commission file number 1-13293
The Hillman Companies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
23-2874736
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

10590 Hamilton Avenue
 
45231
 
Cincinnati
,
Ohio
 
 
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (513851-4900
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically 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      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
Emerging growth company
 
 
 
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    Yes      No  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Trading symbols
Name of Each Exchange on Which Registered
11.6% Junior Subordinated Debentures
 
None
Preferred Securities Guaranty                
 
None
On August 12, 2019, 5,000 shares of the Registrant’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 symbol HLM.Pr.


Table of Contents
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES

INDEX
 
PART I. FINANCIAL INFORMATION
PAGE
 
 
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


Page 2 

Table of Contents
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands, except per share amounts)


 
June 29,
2019
 
December 29,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
16,953

 
$
28,234

Accounts receivable, net of allowances of $1,097 ($846 - 2018)
125,056

 
110,799

Inventories, net
324,585

 
320,281

Other current assets
7,299

 
18,727

Total current assets
473,893

 
478,041

Property and equipment, net of accumulated depreciation of $149,434 ($131,169 - 2018)
203,037

 
208,279

Goodwill
806,031

 
803,847

Other intangibles, net of accumulated amortization of $202,561 ($176,677 - 2018)
900,273

 
930,525

Operating lease right of use assets
70,854

 

Other assets
10,498

 
10,778

Total assets
$
2,464,586

 
$
2,431,470

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
143,397

 
$
135,059

Current portion of debt and capital leases
11,235

 
10,985

Current portion of operating lease liabilities
11,600

 

Accrued expenses:
 
 
 
Salaries and wages
15,969

 
9,881

Pricing allowances
6,959

 
5,404

Income and other taxes
5,079

 
3,325

Interest
10,217

 
15,423

Other accrued expenses
20,970

 
17,941

Total current liabilities
225,426

 
198,018

Long term debt
1,572,775

 
1,586,084

Deferred income taxes, net
202,739

 
200,696

Operating lease liabilities
61,893

 

Other non-current liabilities
11,422

 
7,565

Total liabilities
$
2,074,255

 
$
1,992,363

Commitments and contingencies (Note 5)

 

Stockholder's Equity:
 
 
 
Preferred stock, $.01 par, 5,000 shares authorized, none issued or outstanding at June 29, 2019 and December 29, 2018

 

Common stock, $.01 par, 5,000 shares authorized, issued and outstanding at June 29, 2019 and December 29, 2018

 

Additional paid-in capital
550,190

 
549,528

(Accumulated deficit) retained earnings
(127,595
)
 
(72,831
)
Accumulated other comprehensive loss
(32,264
)
 
(37,590
)
Total stockholder's equity
390,331

 
439,107

Total liabilities and stockholder's equity
$
2,464,586

 
$
2,431,470

The accompanying notes are an integral part of these condensed consolidated financial statements.


Page 3 

Table of Contents
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
(dollars in thousands)



 
Thirteen Weeks Ended
June 29, 2019
 
Thirteen Weeks Ended
June 30, 2018
 
Twenty-six Weeks Ended
June 29, 2019
 
Twenty-six Weeks Ended
June 30, 2018
Net sales
$
324,628

 
$
246,154

 
$
612,287

 
$
453,749

Cost of sales (exclusive of depreciation and amortization shown separately below)
181,309

 
134,027

 
347,230

 
243,617

Selling, general and administrative expenses
96,883

 
78,797

 
188,718

 
149,873

Depreciation
16,655

 
9,535

 
32,471

 
18,477

Amortization
14,684

 
9,712

 
29,449

 
19,435

Management fees to related party
125

 
134

 
256

 
262

Other expense (income)
8,215

 
578

 
8,254

 
(403
)
Income from operations
6,757

 
13,371

 
5,909

 
22,488

Interest expense, net
26,064

 
14,361

 
52,627

 
27,932

Interest expense on junior subordinated debentures
3,152

 
3,152

 
6,304

 
6,304

Refinancing charges

 
8,542

 

 
8,542

Investment income on trust common securities
(94
)
 
(94
)
 
(189
)
 
(189
)
Loss before income taxes
(22,365
)
 
(12,590
)
 
(52,833
)
 
(20,101
)
Income tax (benefit) expense
(2,869
)
 
941

 
1,931

 
3,747

Net loss
$
(19,496
)
 
$
(13,531
)
 
$
(54,764
)
 
$
(23,848
)
Net loss from above
$
(19,496
)
 
$
(13,531
)
 
$
(54,764
)
 
$
(23,848
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
2,547

 
(3,643
)
 
5,326

 
(6,682
)
Total other comprehensive income (loss)
2,547

 
(3,643
)
 
5,326

 
(6,682
)
Comprehensive loss
$
(16,949
)
 
$
(17,174
)
 
$
(49,438
)
 
$
(30,530
)

The accompanying notes are an integral part of these condensed consolidated financial statements.



Page 4 

Table of Contents
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)

 
Twenty-six Weeks Ended
June 29, 2019
 
Twenty-six Weeks Ended
June 30, 2018
Cash flows from operating activities:
 
 
 
Net loss
$
(54,764
)
 
$
(23,848
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
61,920

 
37,912

Deferred income taxes
1,326

 
3,847

Deferred financing and original issue discount amortization
1,859

 
1,142

Stock-based compensation expense
662

 
992

Loss on debt restructuring

 
8,542

Asset impairment
6,800

 

(Gain) loss on disposal of property and equipment
(121
)
 
53

Other non-cash interest and change in value of interest rate swap
2,902

 
(1,418
)
Changes in operating items:
 
 
 
Accounts receivable
(13,394
)
 
(17,687
)
Inventories
(2,000
)
 
(33,069
)
Other assets
9,485

 
(5
)
Accounts payable
7,540

 
46,237

Other accrued liabilities
2,558

 
(6,828
)
Net cash provided by operating activities
24,773

 
15,870

Cash flows from investing activities:
 
 
 
Capital expenditures
(27,771
)
 
(40,065
)
Proceeds from sale of property and equipment
7,612

 

Net cash used for investing activities
(20,159
)
 
(40,065
)
Cash flows from financing activities:
 
 
 
Repayments of senior term loans
(7,956
)
 
(530,750
)
Borrowings on senior term loans

 
530,000

Financing fees

 
(11,752
)
Borrowings on revolving credit loans
12,500

 
92,000

Repayments of revolving credit loans
(20,200
)
 
(54,500
)
Principal payments under finance and capitalized lease obligations
(283
)
 
(73
)
Proceeds from exercise of stock options

 
200

Net cash (used for) provided by financing activities
(15,939
)
 
25,125

Effect of exchange rate changes on cash
44

 
(208
)
Net (decrease) increase in cash and cash equivalents
(11,281
)
 
722

Cash and cash equivalents at beginning of period
28,234

 
9,937

Cash and cash equivalents at end of period
$
16,953

 
$
10,659

Supplemental disclosure of cash flow information:
 
 
 
Interest paid on junior subordinated debentures, net
$
6,115

 
$
6,115

Interest paid
54,072

 
24,364

Income taxes paid
400

 
632


The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 5 

Table of Contents
THE HILLMAN COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(dollars in thousands)

 
 
Common Stock
 
Additional Paid-in-capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated Other Comprehensive Loss
 
Total Stockholders Equity
Twenty-six weeks ended June 29, 2019
 
 
 
 
 
 
 
 
 
 
Balance at December 29, 2018
 
$

 
$
549,528

 
$
(72,831
)
 
$
(37,590
)
 
$
439,107

Net Loss
 

 

 
(35,268
)
 

 
(35,268
)
Stock-based compensation
 

 
361

 

 

 
361

Change in cumulative foreign currency translation adjustment 
 

 

 

 
2,779

 
2,779

Balance at March 30, 2019
 
$

 
$
549,889

 
$
(108,099
)
 
$
(34,811
)
 
$
406,979

Net Loss
 

 

 
(19,496
)
 

 
(19,496
)
Stock-based compensation
 

 
301

 

 

 
301

Change in cumulative foreign currency translation adjustment 
 

 

 

 
2,547

 
2,547

Balance at June 29, 2019
 
$

 
$
550,190

 
$
(127,595
)
 
$
(32,264
)
 
$
390,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twenty-six weeks ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
Balance at December 30, 2017
 
$

 
$
551,518

 
$
2,422

 
$
(26,537
)
 
$
527,403

Net Loss
 

 

 
(10,317
)
 

 
(10,317
)
Stock-based compensation
 

 
487

 

 

 
487

Change in cumulative foreign currency translation adjustment 
 

 

 

 
(3,039
)
 
(3,039
)
Cumulative effect of change in accounting principles
 

 

 
(7,852
)
 

 
(7,852
)
Other
 

 
15

 
(4
)
 

 
11

Balance at March 31, 2018
 
$

 
$
552,020

 
$
(15,751
)
 
$
(29,576
)
 
$
506,693

Net Loss
 

 

 
(13,531
)
 

 
(13,531
)
Stock-based compensation
 

 
505

 

 

 
505

Proceeds from exercise of stock options
 

 
200

 

 

 
200

Change in cumulative foreign currency translation adjustment 
 

 

 

 
(3,643
)
 
(3,643
)
Other
 

 
(10
)
 

 

 
(10
)
Balance at June 30, 2018
 
$

 
$
552,715

 
$
(29,282
)
 
$
(33,219
)
 
$
490,214

 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.


Page 6 

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

 

1. Basis of Presentation:
The accompanying unaudited financial statements include the condensed consolidated accounts of The Hillman Companies, Inc. and its wholly-owned subsidiaries (collectively “Hillman” or the “Company”) for the twenty-six weeks ended June 29, 2019. Unless the context requires otherwise, references to "Hillman," "we," "us," "our," or "our Company" refer to The Hillman Companies, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The Hillman Companies, Inc. is a wholly-owned subsidiary of HMAN Intermediate II Holdings Corp., and a wholly-owned subsidiary of HMAN Group Holdings Inc. (“Holdco”).

The accompanying unaudited condensed consolidated financial statements present information in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X. Accordingly, they do not include all information or footnotes required by U.S. generally accepted accounting principles for complete financial statements. Operating results for the twenty-six weeks ended June 29, 2019 do not necessarily indicate the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report filed on Form 10-K for the year ended December 29, 2018.

2. Summary of Significant Accounting Policies:
The significant accounting policies should be read in conjunction with the significant accounting policies included in the Form 10-K for the year ended December 29, 2018.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses for the reporting periods. Actual results may differ from these estimates.

Revenue Recognition:
Revenue is recognized when control of goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue.
The Company offers a variety of sales incentives to its customers primarily in the form of discounts, 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 and rebates are included in the determination of net sales.
The Company also establishes reserves for customer returns and allowances. The reserve is established based on historical rates of returns and allowances. The reserve is adjusted quarterly based on actual experience. Returns and allowances are included in the determination of net sales.

Page 7 

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

The following table displays our disaggregated revenue by product category.

 
Thirteen weeks ended June 29, 2019
 
Fastening
Solutions
 
Home and Access Solutions
 
Consumer Connected Solutions
 
Personal Protective Solutions
 
Total Revenue
United States
125,368

 
67,511

 
28,299

 
60,239

 
281,417

Canada
31,107

 
6,938

 
432

 
1,458

 
39,935

Other
2,246

 
214

 

 
816

 
3,276

Consolidated
158,721

 
74,663

 
28,731

 
62,513

 
324,628

 
 
 
 
 
 
 
 
 
 
 
Thirteen weeks ended June 30, 2018
 
Fastening
Solutions
 
Home and Access Solutions
 
Consumer Connected Solutions
 
Personal Protective Solutions
 
Total Revenue
United States
121,591

 
64,836

 
15,129

 

 
201,556

Canada
35,834

 
6,730

 
2

 

 
42,566

Other
1,769

 
263

 

 

 
2,032

Consolidated
159,194

 
71,829

 
15,131

 

 
246,154



 
Twenty-six weeks ended June 29, 2019
 
Fastening
Solutions
 
Home and Access Solutions
 
Consumer Connected Solutions
 
Personal Protective Solutions
 
Total Revenue
United States
228,243

 
130,195

 
55,686

 
122,395

 
536,519

Canada
54,806

 
11,894

 
794

 
2,424

 
69,918

Other
3,860

 
469

 

 
1,521

 
5,850

Consolidated
286,909

 
142,558

 
56,480

 
126,340

 
612,287

 
 
 
 
 
 
 
 
 
 
 
Twenty-six weeks ended June 30, 2018
 
Fastening
Solutions
 
Home and Access Solutions
 
Consumer Connected Solutions
 
Personal Protective Solutions
 
Total Revenue
United States
220,032

 
125,532

 
31,224

 

 
376,788

Canada
60,331

 
12,815

 
6

 

 
73,152

Other
3,347

 
462

 

 

 
3,809

Consolidated
283,710

 
138,809

 
31,230

 

 
453,749



Fastening solutions revenues consist primarily of the delivery of fasteners, anchors, and specialty products as well as in-store merchandising services for the related product category.
Home and access solutions revenues consist primarily of the delivery of keys and key accessories, builders' hardware, wall hanging, threaded rod products, letters, numbers, and signs ("LNS") as well as in-store merchandising services for the related product categories and access to our proprietary key duplicating equipment.
Consumer connected solutions revenues consist primarily of sales of keys and identification tags through self-service key duplicating machines and engraving kiosks.
Personal protective solutions revenues consist primarily of the delivery of personal protective equipment such as gloves, soft sided tool storage, and eye-wear as well as in-store merchandising services for the related product category.
The Company’s performance obligations under its arrangements with customers are providing products, in-store merchandising services, and access to key duplicating and engraving equipment. Generally, the price of the merchandising services and the access to the key duplicating and engraving equipment is included in the price of the related products. Control of products is transferred at the point in time when the customer accepts the goods. Judgment was required in applying the new revenue

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

standard in determining the time at which to recognize revenue for the in-store services and the access to key duplicating and engraving equipment. The Company’s obligation to provide in-store service and access to key duplicating and engraving equipment is satisfied when control of the related products is transferred. Therefore, consistent with the practice prior to the adoption of ASC 606, the entire amount of consideration related to the sale of products, in-store merchandising services, and access to key duplicating and engraving equipment is recognized upon the customer’s acceptance of the products. The revenues for all performance obligations are recognized upon the customer's acceptance of the products.
The costs to obtain a contract are insignificant, and generally contract terms do not extend beyond one year. Therefore, these costs are expensed as incurred. Freight and shipping costs and the cost of our in-store merchandising services teams are recognized in selling, general, and administrative expense when control over products is transferred to the customer.
The Company used the practical expedient regarding the existence of a significant financing component as payments are due in less than one year after delivery of the products.
Long Lived Assets:
The Company evaluates its 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 thirteen and twenty-six weeks ended June 29, 2019, the Company recorded an impairment loss of $6,800 related to the loss on the disposal of its FastKey self-service key duplicating kiosks and related assets. No such impairment charges were recorded in the thirteen and twenty-six weeks ended June 30, 2018.

3. Recent Accounting Pronouncements:

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Subsequently, in July 2018 the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements and ASU 2018-10, Codification Improvements to Topic 842, Leases Effective December 30, 2018, the Company adopted the comprehensive new lease standard issued by the FASB. The most significant impact was the recognition of right-of-use ("ROU") assets and liabilities for operating leases and finance leases applicable to lessees. The Company elected to utilize the transition guidance within the new standard which allows the Company to carry forward its historical lease classification(s). Operating and finance lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The Company elected to not separate lease and non-lease components for all classes of underlying assets in which it is the lessee and made an accounting policy election to not account for leases within an initial term of 12 months or less on the Condensed Consolidated Balance Sheet. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such option. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term. As of December 30, 2018, Company recorded an Operating ROU Asset of $76,737 and a Finance ROU Asset of $680 within our Condensed Consolidated Balance Sheet. Short-term and long-term operating lease liabilities were recorded as $12,579 and $66,703, respectively. Short-term and long-term finance lease liabilities were determined to be $442 and $524 respectively. The adoption of this guidance did not have an impact on net income. See Note 11 - Leases of the Notes to the Condensed Consolidated Financial Statement for full lease disclosures.

In June 2016, the FASB issued ASU No. 2016-13, 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 financial instruments held at the reporting 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 credit 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, 2019, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this ASU on its Condensed Consolidated Financial Statements.



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

4. Acquisitions

Minute Key Holdings, Inc.

On August 10, 2018, the Company completed the acquisition of Minute Key Holdings, Inc. (“MinuteKey”), an innovative leader in self-service key duplicating kiosks for a total consideration reflecting an enterprise value of $156,289.  MinuteKey is headquartered in Boulder, Colorado and has operations in the United States and Canada. MinuteKey is included in the Company's United States and Canada reportable segments.

Measurement period adjustments for the thirteen and twenty-six weeks ended June 29, 2019 were immaterial.  See Note 5 - Goodwill and Other Intangible Assets, The following table reconciles the fair value of the acquired assets and assumed liabilities (net of purchase price accounting adjustments) to the total purchase price of the MinuteKey acquisition:
Cash
 
$
1,791

Inventory
 
3,952

Other current assets
 
766

Property and equipment
 
29,888

Goodwill
 
59,237

Customer relationships
 
50,000

Technology
 
19,000

Trade names
 
5,400

Other non-current assets
 
16

Total assets acquired
 
170,050

Less:
 
 
Liabilities assumed
 
(13,761
)
Total purchase price
 
$
156,289



Net sales and operating loss of the acquired business included in the Company's condensed consolidated statement of comprehensive income for thirteen weeks ended June 29, 2019 were approximately $13,592 and $1,020, respectively. Net sales and operating loss for twenty-six weeks ended June 29, 2019 were approximately $25,322 and $2,561, respectively. Unaudited pro forma financial information has not been presented for MinuteKey as the financial results of MinuteKey were insignificant to the financial results of the Company on a standalone basis.
Big Time Products
On October 1, 2018, the Company acquired NB Parent Company, Inc. and its affiliated companies including Big Time Products, LLC and Rooster Products International, Inc. (collectively, "Big Time"), a leading provider of personal protection and work gear products ranging from work gloves, tool belts and jobsite storage for a purchase price of $348,834. Big Time has business operations throughout North America and its financial results reside in the Company's United States, Canada and Mexico reportable segments.

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

The Company is in the process of obtaining additional information necessary to finalize the valuation of the assets acquired and liabilities assumed including income tax related amounts. Therefore, the preliminary fair values set forth below are subject to adjustment as additional information is obtained and the valuations are completed. Measurement period adjustments for the thirteen and twenty-six weeks ended June 29, 2019 were immaterial.  See Note 5 - Goodwill and Other Intangible Assets, The following table reconciles the preliminary fair value of the acquired assets and assumed liabilities (net of purchase price accounting adjustments) to the total purchase price of the Big Time acquisition:
Cash
 
$
2,507

Accounts receivable
 
41,039

Inventory
 
42,303

Other current assets
 
1,623

Property and equipment
 
3,703

Goodwill
 
127,296

Customer relationships
 
189,000

Trade names
 
21,000

Other non-current assets
 
159

Total assets acquired
 
428,630

Less:
 
 
Liabilities assumed
 
(79,796
)
Total purchase price
 
$
348,834


The amount of net sales and operating income from Big Time included in the Company's condensed consolidated statement of comprehensive income for thirteen weeks ended June 29, 2019 was approximately $62,513 and $6,520, respectively. Net sales and operating income from Big Time for twenty-six weeks ended June 29, 2019 was approximately $126,340 and $12,295, respectively. The following table provides unaudited pro forma results of the combined entities of Hillman and Big Time Products, had the acquisition occurred at the beginning of fiscal 2018:
 
(Unaudited)
Fiscal Period Ended
 
Thirteen weeks ended June 29, 2019
 
Thirteen weeks ended June 30, 2018
 
Twenty-six weeks ended June 29, 2019
 
Twenty-six weeks ended June 30, 2018
Net revenues
324,628

 
304,834

 
612,287

 
565,641

Net loss
(19,496
)
 
(16,020
)
 
(54,764
)
 
(29,342
)


The pro forma results are based on assumptions that the Company believes are reasonable under certain circumstances. The pro forma results presented are not intended to be indicative of results that may occur in the future. The underlying pro forma information includes historical results of the Company, the Company's financing arrangements related to the Big Time acquisition, and certain purchase price accounting adjustments, including amortization of acquired intangibles.


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

5. Goodwill and Other Intangible Assets:
Goodwill amounts by operating segment are summarized as follows: 
 
Goodwill at
 
Acquisitions
 
Dispositions
 
Other (1)
 
Goodwill at
 
December 29, 2018
 
 
June 29, 2019
United States
$
772,213

 
$

 
$

 
$
921

 
$
773,134

Canada
27,938

 

 

 
1,176

 
29,114

Other
3,696

 

 

 
87

 
3,783

Total
$
803,847

 
$

 
$

 
$
2,184

 
$
806,031

 
(1)
These amounts relate to adjustments resulting from fluctuations in foreign currency exchange rates and adjustments to the opening balance sheet for the acquisitions of MinuteKey and Big Time Products. These acquisitions were completed in the third and fourth quarters of 2018, respectively.
Other intangibles, net, as of June 29, 2019 and December 29, 2018 consist of the following: 
 
Estimated
Useful Life
(Years)
 
June 29, 2019
 
December 29, 2018
Customer relationships
13-20
 
$
941,197

 
$
939,880

Trademarks - Indefinite
Indefinite
 
85,500

 
85,228

Trademarks - Other
5-15
 
26,700

 
26,700

Technology and patents
7-12
 
49,437

 
55,394

Intangible assets, gross
 
 
1,102,834

 
1,107,202

Less: Accumulated amortization
 
 
202,561

 
176,677

Other intangibles, net
 
 
$
900,273

 
$
930,525


The amortization expense for amortizable assets including the adjustments resulting from fluctuations in foreign currency exchange rates was $14,684 and $29,449 for the thirteen and twenty-six weeks ended June 29, 2019, respectively. Amortization expense for the thirteen and twenty-six weeks ended June 30, 2018 was $9,712 and $19,435, respectively.

The Company tests goodwill and indefinite-lived intangible assets for impairment annually. Impairment is also tested when events or changes in circumstances indicate that the carrying values of the assets may be greater than their fair values. During the thirteen and twenty-six weeks ended June 29, 2019 and the thirteen and twenty-six weeks ended June 30, 2018, the Company did not adjust goodwill to fair values as a result of any impairment analyses. In the thirteen and twenty-six weeks ended June 29, 2019, the Company recorded an impairment charge of $2,125 related to the loss on the disposal of our FastKey self-service key duplicating kiosks and related intangible assets. There were no such impairment charges taken in the thirteen and twenty-six weeks ended June 30, 2018.


6. Commitments and Contingencies:

The Company self-insures its product liability, automotive, 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 $60,000. 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 by the Company's management 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 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 $1,943 recorded for such risks is adequate as of June 29, 2019.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

As of June 29, 2019, the Company has provided certain vendors and insurers letters of credit aggregating $11,736 related to our product purchases and insurance coverage for product liability, workers’ compensation, and general liability.

The Company self-insures group health claims up to an annual stop loss limit of $250 per participant. 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 $2,379 recorded for such risks is adequate as of June 29, 2019.

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 selected for review. The Company accrues for the duty expense once it is determined to be probable and the amount can be reasonably estimated. On March 16, 2018, the Department published updated results, which were finalized upon the completion of review of appeals in April 2018. 
Based on the final results, our liability was reduced to $2,146 at March 31, 2018 from $6,274 at December 30, 2017. The Company recorded income of $0 and $4,128 in the thirteen and twenty-six weeks ended June 30, 2018, which is included in Cost of Goods Sold on the Condensed Consolidated Statement of Comprehensive Loss. There were no related charges in the thirteen and twenty-six weeks ended June 29, 2019.

On June 3, 2019, The Hillman Group, Inc. ("Hillman Group") filed a complaint for patent infringement against KeyMe, Inc., a provider of self-service key duplication kiosks, in the United States District Court for the Eastern District of Texas (Marshall Division). Hillman Group’s complaint alleges that KeyMe’s self-named and “Locksmith in a Box” key duplication kiosks infringe U.S. Patent Nos. 8,979,446 and 9,914,179, which are assigned to Hillman Group, and seeks damages and injunctive relief against KeyMe. KeyMe later filed two motions on July 25, 2019, the first seeking to dismiss Hillman Group's complaint under Rule 12(b)(3) of the Federal Rules of Civil Procedure for improper venue, or in the alternative, to move the case from Marshall, Texas to the Southern District of New York. KeyMe’s second motion seeks to transfer the venue of the case from Texas to New York under 28 U.S.C. § 1404. It is not yet possible to assess the impact, if any, that the lawsuit will have on the Company.

In addition, legal proceedings are pending which are either in the ordinary course of business or incidental to the Company'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'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.

7. Related Party Transactions

The Company has recorded aggregate management fee charges and expenses from CCMP Capital Advisors, LLC (“CCMP”), Oak Hill Capital Partners III, L.P., Oak Hill Capital Management Partners III, L.P. and OHCP III HC RO, L.P. (collectively, “Oak Hill Funds”) of $125 and $256 for the thirteen and twenty-six weeks ended June 29, 2019, respectively, and $134 and $262 for the thirteen and twenty-six weeks ended June 30, 2018, respectively.

Gregory Mann and Gabrielle Mann are employed by Hillman. The Company leases an industrial warehouse and office facility from companies under the control of the Manns. The rental expense for the lease of this facility was $88 and $175 for the thirteen and twenty-six weeks ended June 29, 2019, respectively, and $88 and $175 for the thirteen and twenty-six weeks ended June 30, 2018, respectively.

The Hillman Group Canada ULC, a subsidiary of Hillman, entered into three leases for five properties containing an industrial warehouse, manufacturing plant, and office facilities on February 19, 2013. The owners of the properties under one lease are relatives of Richard Paulin, who was 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 rental expense incurred for these leases was $161 and $323 for the thirteen and twenty-six weeks ended June 29, 2019, respectively, and $167 and $337 for the thirteen and twenty-six weeks ended June 30, 2018, respectively.



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

8. Income Taxes:

Accounting Standards Codification 740 (“ASC 740”) requires companies to apply their estimated annual effective tax rate on a year-to-date basis in each interim period. These rates are derived, in part, from expected annual pre-tax income or loss. In the thirteen and twenty-six weeks ended June 29, 2019 and the thirteen and twenty-six weeks ended June 30, 2018, the Company applied an estimated annual effective tax rate to the interim period pre-tax loss to calculate the income tax benefit or provision.

For the thirteen and twenty-six weeks ended June 29, 2019, the effective income tax rate was 12.8% and (3.7)%, respectively. The Company recorded income tax benefit and income tax provision for the thirteen and twenty-six weeks ended June 29, 2019 of $(2,869) and $1,931, respectively. The effective tax rate for the thirteen and twenty-six weeks ended June 29, 2019 was primarily the result of the IRC Section 163(j) interest limitation. Consistent with prior periods, the primary impact of the effective tax rate differential for the thirteen weeks ended June 29, 2019 was due to the Company recording a valuation allowance on its interest limitation. In addition to the valuation allowance on the interest limitation, the effective income tax rate differed from the federal statutory tax rate for the twenty-six weeks ended June 29, 2019 due to certain non-deductible expenses, Global Intangible Low-Taxed Income ("GILTI"), and state and foreign income taxes.

The effective income tax rate for the thirteen and twenty-six weeks ended June 30, 2018 was (7.5)% and (18.6)%, respectively. The Company recorded income tax provision for the thirteen and twenty-six weeks ended June 30, 2018 of $941 and $3,747, respectively. The negative effective income tax rate for the thirteen and twenty-six weeks ended June 30, 2018 was primarily the result of the new provisions introduced by the Tax Cuts and Jobs Act (the "Tax Act") including the new provision on Global Intangible Low-Taxed Income ("GILTI") and the IRC Section 163(j) interest limitation. The effective income tax rate differed from the federal statutory rate in the thirteen and twenty-six weeks ended June 30, 2018 due to recognizing no benefit on losses in jurisdictions where valuation allowances are recorded against net deferred tax assets, certain non-deductible expenses, and several aspects of the Tax Act.


9. Restructuring

During 2018, the Company initiated plans to restructure the operations of the Canada segment. The restructuring seeks to streamline operations in the greater Toronto area by consolidating facilities, exiting certain lines of business, and rationalizing stock keeping units (“SKUs”). The intended result of the Canada restructuring will be a more streamlined and scalable operation focused on delivering optimal service and a broad offering of products across the Company's core categories. The Company expects to incur increased restructuring related charges and capital expenditures in our Canada segment over the next year as plans are finalized and implemented. Charges incurred in the current year include:
 
 
Thirteen Weeks Ended
June 29, 2019
 
Twenty-six Weeks Ended
June 29, 2019
Facility consolidation (1)
 
 
 
   Labor expense
$
369

 
$
511

   Consulting and legal fees
51

 
116

   Other
552

 
676

Exit of certain lines of business (2)
 
 
 
   Inventory valuation adjustments
116

 
9

   Loss (gain) on disposal of assets
72

 
(397
)
   Other
141

 
322

Total
$
1,301

 
$
1,237



(1)
Facility consolidation includes labor expense related to organizing inventory and equipment in preparation for the facility consolation, consulting and legal fees related to the project, and other expenses. These expenses were included in SG&A on the Condensed Consolidated Statement of Comprehensive Loss.
(2)
As part of the restructuring, the Company is exiting a manufacturing business line. Related charges included gains and losses on disposals of assets, and other expenses, which were included other income and expense, and SG&A on the Condensed Consolidated Statement of Comprehensive Loss, respectively.


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

The following represents the roll forward of restructuring reserves for the current period:
 
 
Balance at December 29, 2018
 
Impact to Earnings
 
Cash Paid
 
Balance at
June 29, 2019
Severance and related
 
$
1,537

 

 
(876
)
 
$
661



10. Long Term Debt:

The following table summarizes the Company’s debt:
 
June 29, 2019
 
December 29, 2018
Revolving loans
$
100,500

 
$
108,200

Senior term loan, due 2025
1,050,306

 
1,058,263

6.375% Senior Notes, due 2022
330,000

 
330,000

11.6% Junior Subordinated Debentures - Preferred
105,443

 
105,443

Junior Subordinated Debentures - Common
3,261

 
3,261

Capital & finance leases
2,133

 
1,213

 
1,591,643

 
1,606,380

(Add) unamortized premium on 11.6% Junior Subordinated Debentures
16,818

 
17,498

(Subtract) unamortized discount on Senior term loan
(8,798
)
 
(9,558
)
(Subtract) current portion of long term debt, capital leases and finance leases
(11,235
)
 
(10,985
)
(Subtract) deferred financing fees
(15,653
)
 
(17,251
)
Total long term debt, net
$
1,572,775

 
$
1,586,084




As of June 29, 2019, there was $1,050,306 outstanding under the 2018 Term Loan. As of June 29, 2019, the Company had $100,500 outstanding under the ABL Revolver along with $11,736 of letters of credit. The Company has approximately $37,764 of available borrowings under the ABL Revolver as a source of liquidity.

Additional information with respect to the fair value of the Company’s fixed rate senior notes and junior subordinated debentures is included in Note 13 - Fair Value Measurements.

11. Leases

Lessee

The Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. The Company leases certain distribution center locations, vehicles, forklifts, computer equipment, and its corporate headquarters with expiration dates through 2032. Certain lease arrangements include escalating rent payments and options to extend the lease term. Expected lease terms include these options to extend or terminate the lease when it is reasonably certain the Company will exercise the option. The Company's leasing arrangements do not contain material residual value guarantees nor material restrictive covenants.


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

The components of operating and finance lease cost for the thirteen and twenty-six weeks ended June 29, 2019 were as follows:

 
 
Thirteen Weeks Ended
June 29, 2019
 
Twenty-six Weeks Ended
June 29, 2019
Operating lease cost
 
$
4,575

 
$
9,298

Short term lease costs
 
742

 
1,975

Variable lease costs
 
352

 
540

Finance lease cost:
 
 
 
 
Amortization of right of use assets
 
143

 
235

Interest on lease liabilities
 
28

 
43




Rent expense is recognized on a straight-line basis over the expected lease term. Rent expense totaled $5,669 and $4,429 in the thirteen weeks ended June 29, 2019 and thirteen weeks ended June 30, 2018, respectively. Rent expense totaled $11,813 and $8,824 in the twenty-six weeks ended June 29, 2019 and twenty-six weeks ended June 30, 2018, respectively. Rent expense includes operating lease cost as well as expense for non-lease components such as common area maintenance, real estate taxes, real estate insurance, variable costs related to our leased vehicles and also short-term rental expenses.

The implicit rate is not determinable in most of the Company’s leases, as such management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of June 29, 2019:

 
 
Operating Leases(1)
 
Finance Leases
Weighted average remaining lease term
 
7.86

 
3.92

Weighted average discount rate
 
6.50
%
 
6.54
%

(1) Upon adoption of the new lease standard, discount rates used for existing operating leases were established on January 1, 2019.

Supplemental balance sheet information related to the Company's finance leases as of June 29, 2019:
 
 
June 29, 2019
Finance lease assets, net, included in property plant and equipment
 
$
1,922

 
 
 
Current portion of long-term debt
 
626

Long-term debt, less current portion
 
1,507

Total principal payable on finance leases
 
2,133



Supplemental cash flow information related to our operating leases was as follows for the twenty-six weeks ended June 29, 2019:

 
 
Twenty-six Weeks Ended
June 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash outflow from operating leases
 
$
9,129

Operating cash outflow from finance leases
 
31

Financing cash outflow from finance leases
 
283




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

Maturities of our lease liabilities for all operating and finance leases are as follows as of June 29, 2019:
 
 
Operating Leases
 
Finance Leases
Less than one year
 
$
15,960

 
$
755

1 to 2 years
 
13,546

 
617

2 to 3 years
 
11,541

 
468

3 to 4 years
 
9,866

 
371

4 to 5 years
 
8,296

 
218

After 5 years
 
34,265

 

Total future minimum rental commitments
 
93,474

 
2,429

Less - amounts representing interest
 
(19,981
)
 
(296
)
Present value of lease liabilities
 
$
73,493

 
$
2,133



As of June 29, 2019, the Company has additional operating leases for warehouse equipment and a new office building being constructed by the Company’s landlord that had not yet commenced with estimated future minimum rental commitments of approximately $21,232.
As of December 29, 2018, minimum lease payments under non-cancellable operating leases by period were expected to be as follows:

 
 
Operating Leases
Less than one year
 
$
17,326

1 to 2 years
 
14,736

2 to 3 years
 
13,305

3 to 4 years
 
12,012

4 to 5 years
 
9,541

After 5 years
 
16,664

Total future minimum rental commitments
 
83,584



Lessor

The Company has certain arrangements for key duplication equipment under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is not material.


12. Derivatives and Hedging:

The Company uses derivative financial instruments to manage our exposures to (1) interest rate fluctuations on our floating rate senior debt and (2) 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 January 8, 2018, the Company entered into a forward Interest Rate Swap Agreement ("2018 Swap 1") with three-year terms for notional amounts of $90,000. The forward start date of the 2018 Swap was September 30, 2018 and the termination date is June 30, 2021. The 2018 Swap 1 has a determined interest rate of 2.3% plus the applicable interest rate margin of 4.0% for an effective rate of 6.3%.
On November 8, 2018, the Company entered into another new forward Interest Rate Swap Agreement ("2018 Swap 2") with three-year terms for $60,000 notional amount. The forward start date of the 2018 Swap 2 was November 30, 2018 and the

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)

termination date is November 30, 2022. The 2018 Swap 2 has an interest rate of 2.4% plus the applicable interest rate margin of 4.0% for an effective rate of 6.4%.
The fair value of the 2018 Swaps were $3,886 as of June 29, 2019. These were reported on the condensed consolidated balance sheet in other non-current liabilities. An increase in other expense was recorded in the statement of comprehensive loss for the unfavorable change of $2,902 in fair value since December 29, 2018.
The fair value of 2018 Swap 1 was $