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Quarter Report: 2010 March (Form 10-Q)
TRIMAS CORP - Quarter Report: 2010 March (Form 10-Q)
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TABLE OF CONTENTS
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
|
|
|
| (Mark One) |
|
|
ý |
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended March 31, 2010 |
Or |
o |
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period
from to .
|
Commission file number 001-10716
TRIMAS CORPORATION
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
(State or other jurisdiction of
incorporation or organization) |
|
38-2687639
(IRS Employer
Identification No.) |
39400 Woodward Avenue, Suite 130
Bloomfield Hills, Michigan 48304
(Address of principal executive offices, including zip code)
(248) 631-5450
(Registrant's telephone number, including area code)
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 ý No o
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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer o |
|
Accelerated filer ý |
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Non-accelerated filer o
(Do not check if a
smaller reporting company) |
|
Smaller reporting company o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No ý
As of April 30, 2010, the number of outstanding shares of the Registrant's common stock, $.01 par value, was 34,008,016 shares.
Table of Contents
TriMas Corporation
Index
1
Table of Contents
Forward-Looking Statements
This report contains forward-looking statements (as that term is defined by the federal securities laws) about our financial condition,
results of operations and business. You can find many of these statements by looking for words such as "may," "will," "expect," "anticipate," "believe," "estimate" and similar words used in this
report.
These
forward-looking statements are subject to numerous assumptions, risks and uncertainties. Because the statements are subject to risks and uncertainties, actual results may differ
materially from those expressed or implied by the forward-looking statements. We caution readers not to place undue reliance on the statements, which speak only as of the date of this report.
The
cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may
issue. We do not undertake any obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or
circumstances after the date of this report or to reflect the occurrence of unanticipated events.
You
should carefully consider the factors discussed in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended
December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only
risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial
position and results of operations or cash flows.
We
disclose important factors that could cause our actual results to differ materially from our expectations under Part I, Item 2., "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report. These cautionary statements qualify all forward-looking statements
attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business,
financial and other condition, results of operations, prospects and ability to service our debt.
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TriMas Corporation
Consolidated Balance Sheet
(Unaudited—dollars in thousands)
|
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|
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|
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|
March 31,
2010 |
|
December 31,
2009 |
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| |
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|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
|
$ |
6,630 |
|
$ |
9,480 |
|
| |
Receivables, net of reserves of approximately $5.7 million as of March 31, 2010 and December 31, 2009 |
|
|
128,650 |
|
|
93,380 |
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| |
Inventories |
|
|
135,730 |
|
|
141,840 |
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| |
Deferred income taxes |
|
|
24,320 |
|
|
24,320 |
|
| |
Prepaid expenses and other current assets |
|
|
6,420 |
|
|
6,500 |
|
| |
Assets of discontinued operations held for sale |
|
|
4,070 |
|
|
4,250 |
|
| |
|
|
|
|
|
| |
|
Total current assets |
|
|
305,820 |
|
|
279,770 |
|
Property and equipment, net |
|
|
157,430 |
|
|
162,220 |
|
Goodwill |
|
|
194,120 |
|
|
196,330 |
|
Other intangibles, net |
|
|
161,410 |
|
|
164,080 |
|
Other assets |
|
|
23,170 |
|
|
23,380 |
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| |
|
|
|
|
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| |
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Total assets |
|
$ |
841,950 |
|
$ |
825,780 |
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| |
|
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| |
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Liabilities and Shareholders' Equity |
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Current liabilities: |
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|
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| |
Current maturities, long-term debt |
|
$ |
12,720 |
|
$ |
16,190 |
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| |
Accounts payable |
|
|
103,150 |
|
|
92,840 |
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| |
Accrued liabilities |
|
|
63,670 |
|
|
65,750 |
|
| |
Liabilities of discontinued operations |
|
|
1,040 |
|
|
1,070 |
|
| |
|
|
|
|
|
| |
|
Total current liabilities |
|
|
180,580 |
|
|
175,850 |
|
Long-term debt |
|
|
505,800 |
|
|
498,360 |
|
Deferred income taxes |
|
|
43,790 |
|
|
42,590 |
|
Other long-term liabilities |
|
|
46,190 |
|
|
47,000 |
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| |
|
|
|
|
|
| |
|
Total liabilities |
|
|
776,360 |
|
|
763,800 |
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| |
|
|
|
|
|
Preferred stock $0.01 par: Authorized 100,000,000 shares; |
|
|
|
|
|
|
|
| |
Issued and outstanding: None |
|
|
— |
|
|
— |
|
Common stock, $0.01 par: Authorized 400,000,000 shares; |
|
|
|
|
|
|
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| |
Issued and outstanding 34,010,616 shares at March 31, 2010 and 33,895,503 shares at December 31, 2009 |
|
|
340 |
|
|
330 |
|
Paid-in capital |
|
|
529,020 |
|
|
528,370 |
|
Accumulated deficit |
|
|
(504,950 |
) |
|
(510,380 |
) |
Accumulated other comprehensive income |
|
|
41,180 |
|
|
43,660 |
|
| |
|
|
|
|
|
| |
|
Total shareholders' equity |
|
|
65,590 |
|
|
61,980 |
|
| |
|
|
|
|
|
| |
|
Total liabilities and shareholders' equity |
|
$ |
841,950 |
|
$ |
825,780 |
|
| |
|
|
|
|
|
The
accompanying notes are an integral part of these financial statements.
3
Table of Contents
TriMas Corporation
Consolidated Statement of Operations
(Unaudited—dollars in thousands, except for share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, |
|
|
|
2010 |
|
2009 |
|
Net sales |
|
$ |
220,060 |
|
$ |
201,720 |
|
Cost of sales |
|
|
(157,000 |
) |
|
(155,260 |
) |
| |
|
|
|
|
|
| |
Gross profit |
|
|
63,060 |
|
|
46,460 |
|
Selling, general and administrative expenses |
|
|
(37,700 |
) |
|
(41,300 |
) |
Gain (loss) on dispositions of property and equipment |
|
|
(310 |
) |
|
40 |
|
| |
|
|
|
|
|
| |
Operating profit |
|
|
25,050 |
|
|
5,200 |
|
| |
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
| |
Interest expense |
|
|
(14,140 |
) |
|
(12,480 |
) |
| |
Gain on extinguishment of debt |
|
|
— |
|
|
15,310 |
|
| |
Other, net |
|
|
(510 |
) |
|
(700 |
) |
| |
|
|
|
|
|
| |
|
Other income (expense), net |
|
|
(14,650 |
) |
|
2,130 |
|
| |
|
|
|
|
|
Income from continuing operations before income tax expense |
|
|
10,400 |
|
|
7,330 |
|
Income tax expense |
|
|
(4,650 |
) |
|
(2,710 |
) |
| |
|
|
|
|
|
Income from continuing operations |
|
|
5,750 |
|
|
4,620 |
|
Loss from discontinued operations, net of income tax benefit |
|
|
(320 |
) |
|
(8,300 |
) |
| |
|
|
|
|
|
Net income (loss) |
|
$ |
5,430 |
|
$ |
(3,680 |
) |
| |
|
|
|
|
|
Earnings per share—basic: |
|
|
|
|
|
|
|
| |
|
Continuing operations |
|
$ |
0.17 |
|
$ |
0.14 |
|
| |
|
Discontinued operations, net of income tax benefit |
|
|
(0.01 |
) |
|
(0.25 |
) |
| |
|
|
|
|
|
| |
|
Net income (loss) per share |
|
$ |
0.16 |
|
$ |
(0.11 |
) |
| |
|
|
|
|
|
Weighted average common shares—basic |
|
|
33,569,677 |
|
|
33,459,502 |
|
| |
|
|
|
|
|
Earnings per share—diluted: |
|
|
|
|
|
|
|
| |
|
Continuing operations |
|
$ |
0.17 |
|
$ |
0.14 |
|
| |
|
Discontinued operations, net of income tax benefit |
|
|
(0.01 |
) |
|
(0.25 |
) |
| |
|
|
|
|
|
| |
|
Net income (loss) per share |
|
$ |
0.16 |
|
$ |
(0.11 |
) |
| |
|
|
|
|
|
Weighted average common shares—diluted |
|
|
34,314,020 |
|
|
33,487,526 |
|
| |
|
|
|
|
|
The
accompanying notes are an integral part of these financial statements.
4
Table of Contents
TriMas Corporation
Consolidated Statement of Cash Flows
(Unaudited—dollars in thousands)
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|
Three months ended
March 31, |
|
|
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2010 |
|
2009 |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5,430 |
|
$ |
(3,680 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities, net of acquisition impact: |
|
|
|
|
|
|
|
| |
(Gain) loss on dispositions of property and equipment |
|
|
310 |
|
|
(50 |
) |
| |
Depreciation |
|
|
6,020 |
|
|
8,110 |
|
| |
Amortization of intangible assets |
|
|
3,590 |
|
|
3,650 |
|
| |
Amortization of debt issue costs |
|
|
730 |
|
|
610 |
|
| |
Deferred income taxes |
|
|
(380 |
) |
|
(2,740 |
) |
| |
Gain on extinguishment of debt |
|
|
— |
|
|
(15,310 |
) |
| |
Non-cash compensation expense |
|
|
480 |
|
|
30 |
|
| |
Net proceeds from (reductions in) sale of receivables and receivables securitization |
|
|
3,830 |
|
|
(6,130 |
) |
| |
Increase in receivables |
|
|
(38,960 |
) |
|
(2,630 |
) |
| |
Decrease in inventories |
|
|
6,060 |
|
|
18,090 |
|
| |
Decrease in prepaid expenses and other assets |
|
|
270 |
|
|
1,660 |
|
| |
Increase in accounts payable and accrued liabilities |
|
|
7,910 |
|
|
1,180 |
|
| |
Other, net |
|
|
620 |
|
|
(990 |
) |
| |
|
|
|
|
|
| |
|
Net cash provided by (used for) operating activities, net of acquisition impact |
|
|
(4,090 |
) |
|
1,800 |
|
| |
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
| |
Capital expenditures |
|
|
(2,590 |
) |
|
(3,280 |
) |
| |
Net proceeds from disposition of businesses and other assets |
|
|
30 |
|
|
20,680 |
|
| |
|
|
|
|
|
| |
|
Net cash provided by (used for) investing activities |
|
|
(2,560 |
) |
|
17,400 |
|
| |
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
| |
Repayments of borrowings on term loan facilities |
|
|
(650 |
) |
|
(770 |
) |
| |
Proceeds from borrowings on revolving credit facilities |
|
|
134,940 |
|
|
272,900 |
|
| |
Repayments of borrowings on revolving credit facilities |
|
|
(130,670 |
) |
|
(274,680 |
) |
| |
Retirement of senior subordinated notes |
|
|
— |
|
|
(16,020 |
) |
| |
Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations |
|
|
(160 |
) |
|
— |
|
| |
Proceeds from exercise of stock options |
|
|
60 |
|
|
— |
|
| |
Excess tax benefits from stock based compensation |
|
|
280 |
|
|
— |
|
| |
|
|
|
|
|
| |
|
Net cash provided by (used for) financing activities |
|
|
3,800 |
|
|
(18,570 |
) |
| |
|
|
|
|
|
Cash and Cash Equivalents: |
|
|
|
|
|
|
|
| |
Increase (decrease) for the period |
|
|
(2,850 |
) |
|
630 |
|
| |
|
At beginning of period |
|
|
9,480 |
|
|
3,910 |
|
| |
|
|
|
|
|
| |
|
At end of period |
|
$ |
6,630 |
|
$ |
4,540 |
|
| |
|
|
|
|
|
| |
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
| |
|
Cash paid for interest |
|
$ |
5,250 |
|
$ |
4,770 |
|
| |
|
|
|
|
|
| |
|
Cash paid for taxes |
|
$ |
1,250 |
|
$ |
2,440 |
|
| |
|
|
|
|
|
The
accompanying notes are an integral part of these financial statements.
5
Table of Contents
TriMas Corporation
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 2010
(Unaudited—dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
Paid-in
Capital |
|
Accumulated
Deficit |
|
Accumulated
Other
Comprehensive
Income |
|
Total |
|
Balances, December 31, 2009 |
|
$ |
330 |
|
$ |
528,370 |
|
$ |
(510,380 |
) |
$ |
43,660 |
|
$ |
61,980 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income |
|
|
— |
|
|
— |
|
|
5,430 |
|
|
— |
|
|
5,430 |
|
| |
Foreign currency translation |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,890 |
) |
|
(2,890 |
) |
| |
Amortization of unrealized loss on interest rate swaps (Note 9) |
|
|
— |
|
|
— |
|
|
— |
|
|
410 |
|
|
410 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,950 |
|
Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations |
|
|
|
|
|
(160 |
) |
|
— |
|
|
— |
|
|
(160 |
) |
Stock option exercises and restricted stock vestings |
|
|
10 |
|
|
50 |
|
|
— |
|
|
— |
|
|
60 |
|
Excess tax benefits from stock based compensation |
|
|
|
|
|
280 |
|
|
— |
|
|
— |
|
|
280 |
|
Non-cash compensation expense |
|
|
— |
|
|
480 |
|
|
— |
|
|
— |
|
|
480 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2010 |
|
$ |
340 |
|
$ |
529,020 |
|
$ |
(504,950 |
) |
$ |
41,180 |
|
$ |
65,590 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial statements.
6
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, is a global manufacturer and distributor of products for commercial, industrial and consumer markets.
The Company is principally engaged in five reportable segments with diverse products and market channels: Packaging, Energy, Aerospace & Defense, Engineered Components and Cequent. See
Note 11, "Segment Information," for further information on each of the Company's reportable segments.
The
accompanying consolidated financial statements include the accounts of the Company and its subsidiaries and in the opinion of management, contain all adjustments, including
adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Results of operations for interim periods are not necessarily
indicative of results for the full year. Certain prior year amounts have been reclassified to conform with the current year presentation. The accompanying consolidated financial statements and notes
thereto should be read in conjunction with the Company's 2009 Annual Report on Form 10-K.
2. Discontinued Operations and Assets Held for Sale
During the fourth quarter of 2009, the Company committed to a plan to exit its medical device line of business which was part of the Engineered Components operating segment. In
connection with the exit plan, the Company recorded impairment and other charges during the fourth quarter of 2009 to reduce the value of the net assets in this line of business to net realizable
value. Management believes this estimate of net realizable value remains reasonable as of March 31, 2010.
During
the fourth quarter of 2008, the Company entered into a binding agreement to sell certain assets within its specialty laminates, jacketings and insulation tapes line of business,
which was part of the Packaging operating segment. The sale was completed in February 2009 for cash proceeds of approximately $21.0 million. The Company's manufacturing facility is subject to a
lease agreement expiring in 2024 that was not assumed by the purchaser of the business. During first quarter 2009, upon the cease use date of the facility, the Company recorded a pre-tax
charge of approximately $10.7 million for future lease obligations on the facility, net of estimated sublease recoveries.
During
the fourth quarter of 2007, the Company committed to a plan to sell its property management line of business. The sale was completed in April 2010. Refer to Note 16,
"Subsequent Events," for further disclosure regarding the sale.
The
results of the aforementioned businesses are reported as discontinued operations for all periods presented. Results of discontinued operations are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, |
|
|
|
2010 |
|
2009 |
|
|
|
(dollars in thousands)
|
|
Net sales |
|
$ |
530 |
|
$ |
9,120 |
|
| |
|
|
|
|
|
Loss from discontinued operations before income tax benefit |
|
$ |
(500 |
) |
$ |
(13,500 |
) |
Income tax benefit |
|
|
180 |
|
|
5,200 |
|
| |
|
|
|
|
|
| |
Loss from discontinued operations, net of income tax benefit |
|
$ |
(320 |
) |
$ |
(8,300 |
) |
| |
|
|
|
|
|
7
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. Discontinued Operations and Assets Held for Sale (Continued)
Assets
and liabilities of the discontinued operations held for sale are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2010 |
|
December 31,
2009 |
|
|
|
(dollars in thousands)
|
|
Receivables, net |
|
$ |
30 |
|
$ |
200 |
|
Property and equipment, net |
|
|
4,040 |
|
|
4,050 |
|
| |
|
|
|
|
|
| |
Total assets |
|
$ |
4,070 |
|
$ |
4,250 |
|
| |
|
|
|
|
|
Accounts payable |
|
$ |
40 |
|
$ |
150 |
|
Accrued liabilities and other |
|
|
1,000 |
|
|
920 |
|
| |
|
|
|
|
|
| |
Total liabilities |
|
$ |
1,040 |
|
$ |
1,070 |
|
| |
|
|
|
|
|
3. Mosinee Plant Closure
In March 2009, the Company announced plans to close its manufacturing facility in Mosinee, Wisconsin, moving production and distribution functions from Mosinee to lower-cost
manufacturing facilities or to third-party sourcing partners. As of December 31, 2009, the Company completed the move and ceased operations in Mosinee. Upon the cease use date of the facility,
the Company recorded a pre-tax charge within its Cequent segment of approximately $5.3 million for future lease obligations on the facility net of estimated lease recoveries. Also
during 2009, the Company recorded a pre-tax charge within its Cequent segment of approximately $1.8 million, of which $1.6 million was recorded in the three months ended
March 31, 2009, primarily related to cash costs for severance benefits for approximately 160 employees to be involuntarily terminated as part of the closure. As of March 31, 2010, the
Company had paid approximately $1.6 million of severance benefits, with the remaining $0.2 million expected to be paid by the end of 2010.
In
addition, the Company recorded approximately $2.6 million of accelerated depreciation expense during 2009 as a result of shortening the expected lives on certain machinery and
equipment assets that the Company no longer utilizes following the closure, of which $0.5 million was recorded in the first quarter of 2009.
4. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the three months ended March 31, 2010 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging |
|
Energy |
|
Aerospace &
Defense |
|
Engineered
Components |
|
Cequent |
|
Total |
|
|
|
(dollars in thousands)
|
|
Balance, December 31, 2009 |
|
$ |
115,460 |
|
$ |
39,740 |
|
$ |
41,130 |
|
$ |
— |
|
$ |
— |
|
$ |
196,330 |
|
| |
Foreign currency translation |
|
|
(2,410 |
) |
|
200 |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,210 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 |
|
$ |
113,050 |
|
$ |
39,940 |
|
$ |
41,130 |
|
$ |
— |
|
$ |
— |
|
$ |
194,120 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
4. Goodwill and Other Intangible Assets (Continued)
The
gross carrying amounts and accumulated amortization of the Company's other intangibles as of March 31, 2010 and December 31, 2009 are summarized below. The Company
amortizes these assets over periods ranging from 1 to 30 years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010 |
|
As of December 31, 2009 |
|
Intangible Category by Useful Life
|
|
Gross Carrying
Amount |
|
Accumulated
Amortization |
|
Gross Carrying
Amount |
|
Accumulated
Amortization |
|
|
|
(dollars in thousands)
|
|
Customer relationships: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
5 - 12 years |
|
$ |
24,750 |
|
$ |
(18,860 |
) |
$ |
24,710 |
|
$ |
(18,290 |
) |
| |
15 - 25 years |
|
|
154,610 |
|
|
(63,300 |
) |
|
154,610 |
|
|
(61,250 |
) |
| |
|
|
|
|
|
|
|
|
|
Total customer relationships |
|
|
179,360 |
|
|
(82,160 |
) |
|
179,320 |
|
|
(79,540 |
) |
| |
|
|
|
|
|
|
|
|
|
Technology and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1 - 15 years |
|
|
26,660 |
|
|
(22,630 |
) |
|
25,800 |
|
|
(22,060 |
) |
| |
17 - 30 years |
|
|
42,200 |
|
|
(17,150 |
) |
|
42,120 |
|
|
(16,640 |
) |
| |
|
|
|
|
|
|
|
|
|
Total technology and other |
|
|
68,860 |
|
|
(39,780 |
) |
|
67,920 |
|
|
(38,700 |
) |
| |
|
|
|
|
|
|
|
|
|
Trademark/Trade names (indefinite life) |
|
|
35,130 |
|
|
— |
|
|
35,080 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
$ |
283,350 |
|
$ |
(121,940 |
) |
$ |
282,320 |
|
$ |
(118,240 |
) |
| |
|
|
|
|
|
|
|
|
|
Amortization
expense related to technology and other intangibles was approximately $1.0 million for each of the three month periods ended March 31, 2010 and 2009. These
amounts are included in cost of sales in the accompanying consolidated statement of operations. Amortization expense related to customer relationship intangibles was approximately $2.6 million
for each of the three month periods ended March 31, 2010 and 2009. These amounts are included in selling, general and administrative expenses in the accompanying consolidated statement of
operations.
5. Receivables Facility
On December 29, 2009, the Company entered into a new three year accounts receivable facility through TSPC, Inc. ("TSPC"), a wholly-owned subsidiary, to sell trade accounts
receivable of substantially all of the Company's domestic business operations. Under this facility, TSPC, from time to time, may sell an undivided fractional ownership interest in the pool of
receivables up to approximately $75.0 million to a third party multi-seller receivables funding company. The Company did not have any amounts outstanding under the facility as of
March 31, 2010 or December 31, 2009, but had $51.7 million and $32.1 million, respectively, available but not utilized. The net amount financed under the facility is less
than the face amount of accounts receivable by an amount that approximates the purchaser's financing costs. As of March 31, 2010, the cost of funds under this facility consisted of a
3-month London Interbank Offered Rates ("LIBOR")-based rate plus a usage fee of 3.25% and a fee on the unused portion of the facility of 0.75%. Aggregate costs incurred under this facility
were $0.3 million for the three months ended March 31, 2010 and are included in interest expense in the accompanying consolidated statement of operations. The facility expires on
December 29, 2012.
The
cost of funds fees incurred are determined by calculating the estimated present value of the receivables sold compared to their carrying amount. The estimated present value factor is
based on
9
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
5. Receivables Facility (Continued)
historical
collection experience and a discount rate based on a 3 month LIBOR-based rate plus the usage fee discussed above and is computed in accordance with the terms of the securitization
agreement. As of March 31 2010, the costs of funds under the facility was based on an average liquidation period of the portfolio of approximately 1.6 months and an average discount rate
of 1.5%.
Through
December 28, 2009, TriMas was party to a 364-day accounts receivable facility through TSPC. Under this facility, TSPC, from time to time, was able to sell an
undivided fractional ownership interest in the pool of receivables up to approximately $55.0 million to a third party multi-seller receivables funding company. The net proceeds of the sale of
receivables were less than the face amount of the accounts receivable sold by an amount that approximated the purchaser's financing costs. As of March 31, 2009, the cost of funds under this
facility consisted of a commercial paper-based
rate plus the usage fee of 4.5% and a fee on the unused portion of the facility of 2.25%. In addition, the Company completed its annual renewal of this facility in February 2009, incurring
approximately $0.4 million. Aggregate costs incurred under this facility, including renewal costs, were $0.7 million for the three months ended March 31, 2009. Such amounts are
included in other expense, net in the accompanying consolidated statement of operations.
In
addition, the Company from time to time may sell an undivided interest in accounts receivable under factoring arrangements at three of its European subsidiaries. As of
March 31, 2010 and December 31, 2009, the Company's funding under these arrangements was approximately $3.8 million and $4.5 million, respectively. Sales of the European
subsidiaries' accounts receivable were sold at a discount from face value of approximately 1.5% and 1.8%, at March 31, 2010 and 2009, respectively. Costs associated with these transactions were
approximately $0.1 million for each of the three month periods ended March 31, 2010 and 2009, respectively, and are included in other expense, net in the accompanying consolidated
statement of operations.
6. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2010 |
|
December 31,
2009 |
|
|
|
(dollars in thousands)
|
|
Finished goods |
|
$ |
90,420 |
|
$ |
95,420 |
|
Work in process |
|
|
16,090 |
|
|
16,270 |
|
Raw materials |
|
|
29,220 |
|
|
30,150 |
|
| |
|
|
|
|
|
| |
Total inventories |
|
$ |
135,730 |
|
$ |
141,840 |
|
| |
|
|
|
|
|
10
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
7. Property and Equipment, Net
Property and equipment, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2010 |
|
December 31,
2009 |
|
|
|
(dollars in thousands)
|
|
Land and land improvements |
|
$ |
2,140 |
|
$ |
2,380 |
|
Buildings |
|
|
44,500 |
|
|
44,810 |
|
Machinery and equipment |
|
|
276,630 |
|
|
283,710 |
|
| |
|
|
|
|
|
|
|
|
323,270 |
|
|
330,900 |
|
Less: Accumulated depreciation |
|
|
165,840 |
|
|
168,680 |
|
| |
|
|
|
|
|
| |
Property and equipment, net |
|
$ |
157,430 |
|
$ |
162,220 |
|
| |
|
|
|
|
|
Depreciation
expense was approximately $6.0 million and $6.5 million for the three months ended March 31, 2010 and 2009, respectively, of which $5.3 million
and $5.7 million, respectively, is included in cost of sales in the accompanying statement of operations, and $0.7 million and $0.8 million, respectively, is included in selling,
general and administrative expenses in the accompanying statement of operations.
In
the first quarter of 2009, in connection with the closure of the Mosinee facility (see Note 3), the Company recorded accelerated depreciation expense of approximately
$0.5 million, which is included in the $5.7 million of depreciation expense recorded in cost of sales. This charge related to shortening the expected useful lives on certain machinery
and equipment.
8. Long-term Debt
The Company's long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2010 |
|
December 31,
2009 |
|
|
|
(dollars in thousands)
|
|
U.S. bank debt |
|
$ |
264,080 |
|
$ |
256,680 |
|
Non-U.S. bank debt and other |
|
|
9,350 |
|
|
12,890 |
|
93/4% senior secured notes, due December 2017 |
|
|
245,090 |
|
|
244,980 |
|
| |
|
|
|
|
|
|
|
|
518,520 |
|
|
514,550 |
|
Less: Current maturities, long-term debt |
|
|
12,720 |
|
|
16,190 |
|
| |
|
|
|
|
|
| |
Long-term debt |
|
$ |
505,800 |
|
$ |
498,360 |
|
| |
|
|
|
|
|
11
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
8. Long-term Debt (Continued)
U.S. Bank Debt
The Company is a party to a credit facility consisting of a $83.0 million revolving credit facility, a $60.0 million
deposit-linked supplemental revolving credit facility and a $252.2 million term loan facility (collectively, the "Credit Facility"). Under the Credit Facility, the Company is also able to issue
letters of credit, not to exceed $65.0 million in aggregate, against its revolving credit facility commitments. At March 31, 2010 and December 31, 2009, the Company had letters of
credit of approximately $31.0 million and $31.2 million, respectively, issued and outstanding. The weighted average interest rate on borrowings under the Credit Facility was 5.6% and
3.9% at March 31, 2010 and December 31, 2009, respectively.
At
March 31, 2010 and December 31, 2009, the Company had $13.2 million and $5.1 million, respectively, outstanding under its supplemental revolving credit
facility and had an additional $98.8 million and $101.7 million, respectively, potentially available after giving effect to approximately $31.0 million and $31.2 million,
respectively, of letters of credit issued and outstanding. However, including availability under its accounts receivable facility and after consideration of leverage restrictions contained in the
Credit Facility, the Company had $150.5 million and $114.3 million, respectively of capacity available to it for general corporate purposes under its revolving credit and accounts
receivable facilities.
The
bank debt is an obligation of the Company and its subsidiaries. Although the terms of the Credit Facility do not restrict the Company's subsidiaries from making distributions to it
in respect of its 93/4% senior secured notes, it does contain certain other limitations on the distribution of funds from TriMas Company LLC, the principal subsidiary, to the
Company. The restricted net assets of the guarantor subsidiaries of approximately $283.6 million and $270.4 million at March 31, 2010 and December 31, 2009, respectively,
are presented in the financial information in Note 17, "Supplemental Guarantor Condensed Consolidating Financial Information." The Credit
Facility also contains various negative and affirmative covenants and other requirements affecting the Company and its subsidiaries. The Company was in compliance with its covenants at
March 31, 2010.
The
Company's term loan facility traded at approximately 98.0% and 95.5% of par value as of March 31, 2010 and December 31, 2009, respectively.
Non-U.S. Bank Debt
In the United Kingdom, the Company's subsidiary is party to a revolving debt agreement which is secured by a letter of credit under the
Credit Facility. At March 31, 2010, the balance outstanding under this arrangement was $0.7 million at an interest rate of 2.5%. At
December 31, 2009, the balance outstanding under this agreement was approximately $0.8 million at an interest rate of 2.5%.
In
Australia, the Company's subsidiary is party to a debt agreement which matures December 31, 2010 and is secured by substantially all the assets of the subsidiary. At
March 31, 2010, the balance outstanding under this agreement was $8.3 million at an interest rate of 6.8%. At December 31, 2009, the balance outstanding under this agreement was
approximately $11.7 million at an interest rate of approximately 6.6%.
12
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
8. Long-term Debt (Continued)
Notes
During the fourth quarter of 2009, the Company issued $250.0 million principal amount of 93/4% senior secured
notes due 2017 ("Senior Notes") at a discount of $5.0 million. The net proceeds of the offering, approximately $239.7 million, together with $29.3 million of cash on hand, were
used to repurchase $256.5 million principal amount of the Company's 97/8% senior subordinated notes due 2012 ("Sub Notes"), for tender costs and expenses related thereto, and to
pay fees and expenses related to the Senior Notes.
During
the first quarter of 2009, the Company utilized approximately $16.0 million of cash on hand to retire $31.8 million of face value of the Sub Notes, resulting in a
net gain of approximately $15.3 million after considering non-cash debt extinguishment costs of $0.5 million.
The
Notes indenture contains negative and affirmative covenants and other requirements that are comparable to those contained in the Credit Facility. At March 31, 2010, the
Company was in compliance with all such covenant requirements.
The
Company's Senior Notes traded at approximately 103.0% and 98.5% of par value as of March 31, 2010 and December 31, 2009, respectively.
9. Derivative Instruments
The Company is party to interest rate swaps to fix the variable LIBOR-based portion on $200.0 million notional amount of the Company's term loan facility. Upon inception, the
interest rate swaps were designated as cash flow hedges; however, upon the Company's amendment and restatement of its credit facilities in the fourth quarter of 2009, the Company determined that these
interest rate swaps were no longer effective due to the imposition of a LIBOR floor in the determination of the variable interest rate on the term loan facility. In February 2010, the Company amended
the interest rate swaps to include a LIBOR floor similar to the term loan facility; however, the amended interest rate swaps have not be designated as hedging instruments. For the three months ended
March 31, 2010, approximately $0.4 million of unrealized loss from accumulated other comprehensive income incurred while the interest rate swaps were effective was amortized into
earnings as interest expense. Over the next 12 months, the Company expects approximately $1.2 million of unrealized loss in accumulated other comprehensive income incurred while the
interest rate swaps were effective to be amortized into earnings as interest expense.
As
of December 31, 2009, the Company held a foreign exchange forward contract with a notional value of 55.5 million Mexican pesos and a foreign exchange forward contract
with a notional value of £6.5 million. These contracts expired during the first quarter of 2010 and were not designated as hedging instruments.
13
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
9. Derivative Instruments (Continued)
As
of March 31, 2010 and December 31, 2009, the fair value carrying amounts of the Company's derivative instruments not designated as hedging instruments are recorded as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
Liability Derivatives |
|
|
|
Balance Sheet Caption |
|
March 31,
2010 |
|
December 31,
2009 |
|
March 31,
2010 |
|
December 31,
2009 |
|
|
|
|
|
(dollars in thousands)
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest rate contracts |
|
Accrued liabilities |
|
$ |
— |
|
$ |
— |
|
$ |
2,510 |
|
$ |
1,700 |
|
| |
Interest rate contracts |
|
Other long-term liabilities |
|
|
— |
|
|
— |
|
|
580 |
|
|
660 |
|
| |
Foreign currency forward contracts |
|
Accrued liabilities |
|
|
— |
|
|
— |
|
|
— |
|
|
150 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
|
|
$ |
— |
|
$ |
— |
|
$ |
3,090 |
|
$ |
2,510 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
The
effect of derivative instruments on the consolidated statement of operations for the three months ended March 31, 2010 and 2009, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss
Reclassifed from
AOCI in to
Earnings |
|
|
|
Amount of Loss
Recognized in AOCI
on Derivatives
(Effective Portion,
net of tax) |
|
|
|
|
|
|
|
Three months
ended March 31, |
|
|
|
Location of Loss
Reclassified from
AOCI into Earnings
(Effective Portion) |
|
|
|
As of
March 31,
2010 |
|
As of
December 31
2009 |
|
|
|
2010 |
|
2009 |
|
|
|
(dollars in thousands)
|
|
|
|
(dollars in thousands)
|
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest rate contracts |
|
$ |
(1,250 |
) |
$ |
(1,660 |
) |
Interest expense |
|
$ |
(410 |
) |
$ |
(390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain
(Loss) Recognized in
Earnings on
Derivatives |
|
|
|
|
Three months
ended March 31, |
|
|
|
|
Location of Gain
(Loss) Recognized in
Earnings on
Derivative |
|
|
2010 |
|
2009 |
|
|
(dollars in thousands)
|
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
| |
Interest rate contracts |
|
$ |
(1,450 |
) |
$ |
— |
|
Interest expense |
| |
Foreign exchange contracts |
|
$ |
50 |
|
$ |
— |
|
Other expense, net |
Valuation
of the interest rate swaps and foreign currency forward contracts are based on the income approach which uses observable inputs such as interest rate yield curves and forward
currency exchange rates. Fair value measurements and the fair value hierarch level for the Company's assets and
14
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
9. Derivative Instruments (Continued)
liabilities
measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009, are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
Description
|
|
Frequency |
|
Asset /
(Liability) |
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) |
|
Significant Other
Observable Inputs
(Level 2) |
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
|
|
|
(dollars in thousands)
|
|
Interest rate swaps |
|
Recurring |
|
$ |
(3,090 |
) |
$ |
— |
|
$ |
(3,090 |
) |
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
Description
|
|
Frequency |
|
Asset /
(Liability) |
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) |
|
Significant Other
Observable Inputs
(Level 2) |
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
|
|
|
(dollars in thousands)
|
|
Interest rate swaps |
|
Recurring |
|
$ |
(2,360 |
) |
$ |
— |
|
$ |
(2,360 |
) |
$ |
— |
|
Foreign currency forward contracts |
|
Recurring |
|
|
(150 |
) |
|
— |
|
|
(150 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,510 |
) |
$ |
— |
|
$ |
(2,510 |
) |
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
10. Commitments and Contingencies
A civil suit was filed in the United States District Court for the Central District of California in December 1988 by the United States of America and the State of California against
more than 180 defendants, including TriMas, for alleged release into the environment of hazardous substances disposed of at the Operating Industries, Inc. site in California. This site served
for many years as a depository for municipal and industrial waste. The plaintiffs have requested, among other things, that the defendants clean up the contamination at that site. Consent decrees have
been entered into by the plaintiffs and a group of the defendants, including TriMas, providing that the consenting parties perform certain remedial work at the site and reimburse the plaintiffs for
certain past costs incurred by the plaintiffs at the site. The Company estimates that its share of the clean-up costs will not exceed $500,000, for which the Company has insurance
proceeds. Plaintiffs had sought other relief such as damages arising out of claims for negligence, trespass, public and private nuisance, and other causes of action, but the consent decree governs the
remedy. Based upon the Company's present knowledge and subject to future legal and factual developments, the Company does not believe that this matter will have a material adverse effect on its
financial position, results of operations or cash flows.
As
of March 31, 2010, the Company was a party to approximately 989 pending cases involving an aggregate of approximately 8,044 claimants alleging personal injury from exposure to
asbestos containing materials formerly used in gaskets (both encapsulated and otherwise) manufactured or distributed by certain of the Company's subsidiaries for use primarily in the petrochemical
refining and exploration industries. The following chart summarizes the number of claimants, number of claims filed, number of claims dismissed, number of claims settled, the average settlement amount
per claim
15
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. Commitments and Contingencies (Continued)
and
the total defense costs, exclusive of amounts reimbursed under the Company's primary insurance, at the applicable date and for the applicable periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims
pending at
beginning of
period |
|
Claims filed
during
period |
|
Claims
dismissed
during
period |
|
Claims
settled
during
period |
|
Average
settlement
amount per
claim during
period |
|
Total defense
costs during
period |
|
Fiscal year ended December 31, 2009 |
|
|
7,524 |
|
|
586 |
|
|
254 |
|
|
40 |
|
$ |
4,644 |
|
$ |
2,652,000 |
|
Three months ended March 31, 2010 |
|
|
7,816 |
|
|
359 |
|
|
118 |
|
|
13 |
|
$ |
5,673 |
|
$ |
684,000 |
|
In
addition, the Company acquired various companies to distribute its products that had distributed gaskets of other manufacturers prior to acquisition. The Company believes that many of
its pending cases relate to locations at which none of its gaskets were distributed or used.
The
Company may be subjected to significant additional asbestos-related claims in the future, the cost of settling cases in which product identification can be made may increase, and the
Company may be subjected to further claims in respect of the former activities of its acquired gasket distributors. The Company is unable to make a meaningful statement concerning the monetary claims
made in the asbestos cases given that, among other things, claims may be initially made in some jurisdictions without specifying the amount sought or by simply stating the requisite or maximum
permissible monetary relief, and may be amended to alter the amount sought. The large majority of claims do not specify the amount sought. Of the 8,044 claims pending at March 31, 2010, 82 set
forth specific amounts of damages (other than those stating the statutory minimum or maximum). 60 of the 82 claims sought between $1.0 million and $5.0 million in total damages (which
includes compensatory and punitive damages), 18 sought between $5.0 million and $10.0 million in total damages (which includes compensatory and punitive damages) and 4 sought over
$10.0 million (which includes compensatory and punitive damages). Solely with respect to compensatory damages, 62 of the 82 claims sought between $250,000 and $600,000, 16 sought between
$1.0 million and $5.0 million and 4 sought over $5.0 million. Solely with respect to punitive damages, 60 of the 82 claims sought between $1.0 million and
$2.5 million, 17 sought between $2.5 million and $5.0 million and 5 sought over $5.0 million. In addition, relatively few of the claims have reached the discovery stage and
even fewer claims have gone past the discovery stage.
Total
settlement costs (exclusive of defense costs) for all such cases, some of which were filed over 20 years ago, have been approximately $5.5 million. All relief sought
in the asbestos cases is monetary in nature. To date, approximately 50% of the Company's costs related to settlement and defense of asbestos litigation have been covered by its primary insurance.
Effective February 14, 2006, the Company entered into a coverage-in-place agreement with its first level excess carriers regarding the coverage to be provided to the
Company for asbestos-related claims when the primary insurance is exhausted. The coverage-in-place agreement makes asbestos defense costs and indemnity coverage available to
the Company that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. Nonetheless, there may be a period prior to the commencement of
coverage under this agreement and following exhaustion of the Company's primary
16
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. Commitments and Contingencies (Continued)
insurance
coverage during which the Company would be solely responsible for defense costs and indemnity payments, the duration of which would be subject to the scope of damage awards and settlements
paid.
Based
on the settlements made to date and the number of claims dismissed or withdrawn for lack of product identification, the Company believes that the relief sought (when specified)
does not bear a reasonable relationship to its potential liability. Based upon the Company's experience to date and other available information (including the availability of excess insurance), the
Company does not
believe that these cases will have a material adverse effect on its financial position and results of operations or cash flows.
The
Company is subject to other claims and litigation in the ordinary course of business, but does not believe that any such claim or litigation will have a material adverse effect on
its financial position and results of operations or cash flows.
11. Segment Information
TriMas' reportable operating segments are business units that provide unique products and services. Each operating segment is independently managed, requires different technology and
marketing strategies and has separate financial information evaluated regularly by the Company's chief operating decision maker in determining resource allocation and assessing performance. TriMas
groups its operating segments into five reportable segments, described below. Within these operating segments, there are no individual products or product families for which reported revenues
accounted for more than 10% of the Company's consolidated revenues.
Packaging—Steel and plastic closure caps, drum enclosures, rings and levers, and dispensing systems for industrial and consumer markets.
Energy—Natural gas engines, compressors, gas production equipment and chemical pumps engineered at well sites for the oil and gas industry as well as
metallic and non-metallic industrial sealant products and fasteners for the petroleum refining, petrochemical and other industrial markets.
Aerospace & Defense—Highly engineered specialty fasteners and screws for the commercial and military aerospace industries and military
munitions components for the defense industry.
Engineered Components—High-pressure and low-pressure cylinders for the transportation, storage and dispensing of compressed
gases, specialty fittings for the automotive industry, precision cutting instruments for the medical industry and specialty precision tools such as center drills, cutters, end mills and countersinks
for the industrial metal-working market.
Cequent—Custom-engineered towing, trailering and electrical products including trailer couplers, winches, jacks, trailer brakes and brake control
solutions, lighting accessories and roof racks for the recreational vehicle, agricultural/utility, marine, automotive and commercial trailer markets, functional vehicle accessories and cargo
management solutions including vehicle hitches and receivers, sway controls, weight distribution and fifth- wheel hitches, hitch-mounted accessories, and other accessory components.
17
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
11. Segment Information (Continued)
The
Company's management uses Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") as a primary indicator of financial operating performance and as
a measure of cash generating capability. Adjusted EBITDA is defined as net income (loss) before cumulative effect of accounting change and before interest, taxes, depreciation, amortization, debt
extinguishment costs, non-cash asset and goodwill impairment charges and write-offs and non-cash losses on sale-leaseback of property and equipment.
Segment
activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, |
|
|
|
2010 |
|
2009 |
|
|
|
(dollars in thousands)
|
|
Net Sales |
|
|
|
|
|
|
|
Packaging |
|
$ |
43,600 |
|
$ |
30,250 |
|
Energy |
|
|
43,890 |
|
|
40,270 |
|
Aerospace & Defense |
|
|
17,080 |
|
|
22,200 |
|
Engineered Components |
|
|
18,910 |
|
|
18,550 |
|
Cequent |
|
|
96,580 |
|
|
90,450 |
|
| |
|
|
|
|
|
| |
Total |
|
$ |
220,060 |
|
$ |
201,720 |
|
| |
|
|
|
|
|
Operating Profit |
|
|
|
|
|
|
|
Packaging |
|
$ |
11,860 |
|
$ |
5,400 |
|
Energy |
|
|
5,180 |
|
|
3,520 |
|
Aerospace & Defense |
|
|
3,860 |
|
|
6,810 |
|
Engineered Components |
|
|
1,810 |
|
|
380 |
|
Cequent |
|
|
8,120 |
|
|
(3,350 |
) |
Corporate expenses |
|
|
(5,780 |
) |
|
(7,560 |
) |
| |
|
|
|
|
|
| |
Total |
|
$ |
25,050 |
|
$ |
5,200 |
|
| |
|
|
|
|
|
Adjusted EBITDA |
|
|
|
|
|
|
|
Packaging |
|
$ |
14,920 |
|
$ |
8,640 |
|
Energy |
|
|
5,900 |
|
|
4,280 |
|
Aerospace & Defense |
|
|
4,520 |
|
|
7,410 |
|
Engineered Components |
|
|
2,570 |
|
|
1,120 |
|
Cequent |
|
|
12,120 |
|
|
1,340 |
|
Corporate (expenses) income |
|
|
(5,900 |
) |
|
7,630 |
|
| |
|
|
|
|
|
| |
Subtotal from continuing operations |
|
|
34,130 |
|
|
30,420 |
|
Discontinued operations |
|
|
(330 |
) |
|
(11,790 |
) |
| |
|
|
|
|
|
| |
Total company |
|
$ |
33,800 |
|
$ |
18,630 |
|
| |
|
|
|
|
|
18
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
11. Segment Information (Continued)
The
following is a reconciliation of the Company's net income (loss) to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, |
|
|
|
2010 |
|
2009 |
|
|
|
(dollars in thousands)
|
|
Net income (loss) |
|
$ |
5,430 |
|
$ |
(3,680 |
) |
| |
Income tax expense (benefit) |
|
|
4,470 |
|
|
(2,490 |
) |
| |
Interest expense |
|
|
14,290 |
|
|
12,530 |
|
| |
Debt extinguishment costs |
|
|
— |
|
|
510 |
|
| |
Depreciation and amortization |
|
|
9,610 |
|
|
11,760 |
|
| |
|
|
|
|
|
Adjusted EBITDA, total company |
|
$ |
33,800 |
|
$ |
18,630 |
|
| |
Adjusted EBITDA, discontinued operations |
|
|
(330 |
) |
|
(11,790 |
) |
| |
|
|
|
|
|
Adjusted EBITDA, continuing operations |
|
$ |
34,130 |
|
$ |
30,420 |
|
| |
|
|
|
|
|
12. Equity Awards
The Company maintains two long-term equity incentive plans, the TriMas Corporation 2006 Long Term Equity Incentive Plan (the "2006 Plan") and the 2002 Long Term Equity
Incentive Plan (the "2002 Plan"). See below for details of awards by plan.
2006 Plan
Information related to stock options at March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Stock Options |
|
Weighted Average
Option Price |
|
Average
Remaining
Contractual Life
(Years) |
|
Aggregate
Intrinsic Value |
|
Outstanding at January 1, 2010 |
|
|
554,000 |
|
$ |
1.14 |
|
|
|
|
|
|
|
| |
Granted |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
| |
Exercised |
|
|
(10,666 |
) |
|
1.01 |
|
|
|
|
|
|
|
| |
Cancelled |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
543,334 |
|
$ |
1.15 |
|
|
8.9 |
|
$ |
2,903,470 |
|
| |
|
|
|
|
|
|
|
|
|
As
of March 31, 2010, 173,998 stock options were exercisable under the 2006 Plan. In addition, the fair value of options which vested during the three month periods ended
March 31, 2010 and 2009 was $0.1 million and $0, respectively. As of March 31, 2010, there was approximately $0.1 million of unrecognized compensation cost related to stock
options that is expected to be recorded over a weighted-average period of 1.5 years.
19
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
12. Equity Awards (Continued)
Information
related to restricted shares at March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Unvested
Restricted
Shares |
|
Weighted Average
Grant Date Fair
Value |
|
Average
Remaining
Contractual Life
(Years) |
|
Aggregate
Intrinsic Value |
|
Outstanding at January 1, 2010 |
|
|
251,937 |
|
$ |
5.99 |
|
|
|
|
|
|
|
| |
Granted |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
| |
Vested |
|
|
(131,810 |
) |
|
5.20 |
|
|
|
|
|
|
|
| |
Cancelled |
|
|
(1,770 |
) |
|
8.48 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
118,357 |
|
$ |
6.84 |
|
|
0.9 |
|
$ |
768,140 |
|
| |
|
|
|
|
|
|
|
|
|
As
of March 31, 2010, there was approximately $0.3 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a
weighted-average period of 0.9 years.
The
Company recognized approximately $0.3 million and $0.02 million of stock-based compensation expense related to the 2006 Plan during the three months ended
March 31, 2010 and 2009, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying statement of operations.
2002 Plan
During the first quarter of 2010, the Company granted 97,870 stock options to certain key employees, each of which may be used to
purchase one share of the Company's common stock. These stock options have a ten year life, vest ratably over three years from date of grant, have an exercise price of $6.09 and had a weighted-average
fair value at grant date of $2.60. The fair value of these options at the grant date was estimated using the Black-Scholes option pricing model using the following weighted-average assumptions:
expected life of 6 years, risk-free interest rate of 2.7% and expected volatility of 40%.
Information
related to stock options at March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options |
|
Weighted Average
Option Price |
|
Average
Remaining
Contractual Life
(Years) |
|
Aggregate
Intrinsic Value |
|
Outstanding at January 1, 2010 |
|
|
1,285,344 |
|
$ |
13.45 |
|
|
|
|
|
|
|
| |
Granted |
|
|
97,870 |
|
|
6.09 |
|
|
|
|
|
|
|
| |
Exercised |
|
|
(47,455 |
) |
|
1.01 |
|
|
|
|
|
|
|
| |
Cancelled |
|
|
(28,125 |
) |
|
1.01 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
1,307,634 |
|
$ |
13.62 |
|
|
6.2 |
|
$ |
2,424,870 |
|
| |
|
|
|
|
|
|
|
|
|
As
of March 31, 2010, 844,164 stock options were exercisable under the 2002 Plan. In addition, the fair value of options which vested during each of the three month periods ended
March 31, 2010 and 2009 was $0.1 million. As of March 31, 2010, there was approximately $0.3 million of unrecognized
20
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
12. Equity Awards (Continued)
compensation
cost related to stock options that is expected to be recorded over a weighted-average period of 1.4 years.
During
the first quarter of 2010, the Company granted 78,090 restricted shares of common stock to certain employees. These restricted shares are subject only to a service condition,
vesting ratably over three years so long as the employee remains with the Company.
Information
related to restricted shares at March 31, 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Unvested
Restricted
Shares |
|
Weighted Average
Grant Date Fair
Value |
|
Average
Remaining
Contractual Life
(Years) |
|
Aggregate
Intrinsic Value |
|
Outstanding at January 1, 2010 |
|
|
126,950 |
|
$ |
5.20 |
|
|
|
|
|
|
|
| |
Granted |
|
|
78,090 |
|
|
6.09 |
|
|
|
|
|
|
|
| |
Vested |
|
|
(82,960 |
) |
|
5.20 |
|
|
|
|
|
|
|
| |
Cancelled |
|
|
(190 |
) |
|
5.20 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010 |
|
|
121,890 |
|
$ |
5.77 |
|
|
2.2 |
|
$ |
791,070 |
|
| |
|
|
|
|
|
|
|
|
|
As
of March 31, 2010, there was approximately $0.6 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a
weighted-average period of 1.7 years.
The
Company recognized approximately $0.2 million and $0.02 million of stock-based compensation expense related to the 2002 Plan during the three months ended
March 31, 2010 and 2009, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying statement of operations.
13. Earnings per Share
Net earnings are divided by the weighted average number of shares outstanding during the year to calculate basic earnings per share. Diluted earnings (loss) per share are calculated to
give effect to stock options and other stock-based awards. The calculation of diluted earnings per share included 217,083 and 28,024 restricted shares for the three months ended March 31, 2010
and 2009, respectively. The calculation of diluted earnings (loss) per share also included 527,260 options to purchase shares of common stock for the three months ended March 31, 2010. Options
to purchase 2,050,194 shares of common stock were outstanding at March 31, 2009, but were not included in the calculation of diluted earnings (loss) per share because to do so would have been
anti-dilutive.
14. Defined Benefit Plans
Net periodic pension and postretirement benefit costs for the Company's defined benefit pension plans and postretirement benefit plans cover foreign employees, union hourly employees and
certain
21
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
14. Defined Benefit Plans (Continued)
salaried
employees. The components of net periodic pension and postretirement benefit costs for the three months ended March 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Other
Postretirement
Benefits |
|
|
|
Three Months
Ended
March 31, |
|
Three Months
Ended
March 31, |
|
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
|
|
(dollars in
thousands)
|
|
(dollars in
thousands)
|
|
Service costs |
|
$ |
150 |
|
$ |
130 |
|
$ |
— |
|
$ |
— |
|
Interest costs |
|
|
400 |
|
|
390 |
|
|
20 |
|
|
30 |
|
Expected return on plan assets |
|
|
(400 |
) |
|
(380 |
) |
|
— |
|
|
— |
|
Amortization of prior service cost |
|
|
— |
|
|
— |
|
|
(70 |
) |
|
(70 |
) |
Amortization of net loss |
|
|
110 |
|
|
80 |
|
|
(10 |
) |
|
(10 |
) |
| |
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
260 |
|
$ |
220 |
|
$ |
(60 |
) |
$ |
(50 |
) |
| |
|
|
|
|
|
|
|
|
|
The
Company contributed approximately $0.4 million to its defined benefit pension plans during the three months ended March 31, 2010. The Company expects to contribute
approximately $1.9 million to its defined benefit pension plans for the full year 2010.
15. New Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") issued amended guidance related to the transfer of financial assets. The new guidance, listed under Accounting Standards
Codification ("ASC") Topic 860, "Transfers and Servicing," requires more information about transfers of financial assets, including securitization transactions, and where companies have continuing
exposure to the risk related to transferred financial assets. ASC Topic 860 eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets
and requires additional disclosure. Under the Company's current domestic receivables facility, an undivided fractional ownership interest in a pool of receivables is sold to a third party with
recourse. This guidance, effective January 1, 2010, eliminated the off-balance sheet treatment for such facilities. Therefore, upon adoption of this guidance, amounts outstanding
under the facility are classified as receivables and debt in the Company's balance sheet, and related costs are classified as interest expense rather than other expense, net. As of March 31,
2010 and December 31, 2009, there were no amounts outstanding under the Company's receivables facility.
In
June 2009, the FASB issued amended guidance related to consolidation of variable interest entities. The new guidance, listed under ASC Topic 810, "Consolidation," changes how a
reporting entity determines when a variable interest entity should be consolidated. It also requires additional disclosures about its involvement with variable interest entities and any significant
changes in risk exposure due to that involvement. There was no significant impact to the Company's consolidated financial statements as a result of the Company's adoption of this guidance during the
first quarter of 2010.
22
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
16. Subsequent Events
On April 6, 2010, the Company completed the sale of its property management line of business for cash proceeds of approximately $13 million. In connection with this sale,
the Company expects to recognize a pre-tax gain on sale of approximately $10 million. The April 2010 gain on sale and prior period results of operations of the property management
line of business will be and/or are included in discontinued operations in this Form 10-Q.
On
April 30, 2010, the Company's Norris Cylinder subsidiary entered into an asset purchase agreement (the "Asset Purchase Agreement") with Taylor-Wharton International, LLC
("TWI") and its subsidiary, TW Cylinders LLC, to purchase certain assets related to TWI's high and low-pressure cylinder business for the purchase price of $11 million, payable in cash at
closing. The purchase price is subject to a net working capital adjustment, if any, to be determined at closing. The Asset Purchase Agreement contains customary representations, warranties, covenants
and indemnities. As TWI and certain of its affiliates had filed bankruptcy petitions and motions for voluntary Chapter 11 reorganization under the United States Bankruptcy Code, the Asset
Purchase Agreement is subject to the approval of the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Should the Asset Purchase Agreement be approved by the
Bankruptcy Court, the Company plans to complete the acquisition pursuant to Section 363 of the U.S. Bankruptcy Code. The foregoing summary of the Asset
Purchase Agreement and the transactions contemplated thereby is qualified in its entirety by the terms of the Asset Purchase Agreement, a copy of which is filed as an exhibit to this Report on Form
10-Q.
17. Supplemental Guarantor Condensed Consolidating Financial Information
Under an indenture dated December 29, 2009, TriMas Corporation, the parent company ("Parent"), issued 93/4% senior secured notes due 2017 in a total principal
amount of $250.0 million (face value). The net proceeds of the offering were used, together with other available cash, to repurchase the Company's outstanding 97/8% senior
subordinated notes due 2012 pursuant to a cash tender offer. The outstanding Senior Notes are guaranteed by substantially all of the Company's domestic subsidiaries ("Guarantor Subsidiaries"). All of
the Guarantor Subsidiaries are 100% owned by the Parent and their guarantee is full, unconditional, joint and several. The Company's non-domestic subsidiaries and TSPC, Inc. have
not guaranteed the Senior Notes ("Non-Guarantor Subsidiaries"). The Guarantor Subsidiaries have also guaranteed amounts outstanding under the Company's Credit Facility.
The
accompanying supplemental guarantor condensed, consolidating financial information is presented using the equity method of accounting for all periods presented. Under this method,
investments in subsidiaries are recorded at cost and adjusted for the Company's share in the subsidiaries' cumulative results of operations, capital contributions and distributions and other changes
in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.
23
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
17. Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Supplemental Guarantor
Condensed Financial Statements
Consolidating Balance Sheet
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
Parent |
|
Guarantor |
|
Non-
Guarantor |
|
Eliminations |
|
Consolidated Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
|
$ |
— |
|
$ |
140 |
|
$ |
6,490 |
|
$ |
— |
|
$ |
6,630 |
|
| |
Trade receivables, net |
|
|
— |
|
|
108,200 |
|
|
20,450 |
|
|
— |
|
|
128,650 |
|
| |
Receivables, intercompany |
|
|
— |
|
|
— |
|
|
3,510 |
|
|
(3,510 |
) |
|
— |
|
| |
Inventories |
|
|
— |
|
|
112,130 |
|
|
23,600 |
|
|
— |
|
|
135,730 |
|
| |
Deferred income taxes |
|
|
5,400 |
|
|
23,430 |
|
|
890 |
|
|
(5,400 |
) |
|
24,320 |
|
| |
Prepaid expenses and other current assets |
|
|
— |
|
|
4,960 |
|
|
1,460 |
|
|
— |
|
|
6,420 |
|
| |
Assets of discontinued operations held for sale |
|
|
— |
|
|
4,070 |
|
|
— |
|
|
— |
|
|
4,070 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current assets |
|
|
5,400 |
|
|
252,930 |
|
|
56,400 |
|
|
(8,910 |
) |
|
305,820 |
|
Investments in subsidiaries |
|
|
283,560 |
|
|
107,050 |
|
|
— |
|
|
(390,610 |
) |
|
— |
|
Property and equipment, net |
|
|
— |
|
|
113,160 |
|
|
44,270 |
|
|
— |
|
|
157,430 |
|
Goodwill |
|
|
— |
|
|
148,220 |
|
|
45,900 |
|
|
— |
|
|
194,120 |
|
Intangibles and other assets |
|
|
27,940 |
|
|
172,610 |
|
|
5,630 |
|
|
(21,600 |
) |
|
184,580 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total assets |
|
$ |
316,900 |
|
$ |
793,970 |
|
$ |
152,200 |
|
$ |
(421,120 |
) |
$ |
841,950 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current maturities, long-term debt |
|
$ |
— |
|
$ |
3,730 |
|
$ |
8,990 |
|
$ |
— |
|
$ |
12,720 |
|
| |
Accounts payable, trade |
|
|
— |
|
|
82,750 |
|
|
20,400 |
|
|
— |
|
|
103,150 |
|
| |
Accounts payable, intercompany |
|
|
— |
|
|
3,510 |
|
|
— |
|
|
(3,510 |
) |
|
— |
|
| |
Accrued liabilities |
|
|
6,220 |
|
|
48,610 |
|
|
8,840 |
|
|
— |
|
|
63,670 |
|
| |
Liabilities of discontinued operations |
|
|
— |
|
|
1,040 |
|
|
— |
|
|
— |
|
|
1,040 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current liabilities |
|
|
6,220 |
|
|
139,640 |
|
|
38,230 |
|
|
(3,510 |
) |
|
180,580 |
|
Long-term debt |
|
|
245,090 |
|
|
260,710 |
|
|
— |
|
|
— |
|
|
505,800 |
|
Deferred income taxes |
|
|
— |
|
|
66,340 |
|
|
4,450 |
|
|
(27,000 |
) |
|
43,790 |
|
Other long-term liabilities |
|
|
— |
|
|
43,720 |
|
|
2,470 |
|
|
— |
|
|
46,190 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities |
|
|
251,310 |
|
|
510,410 |
|
|
45,150 |
|
|
(30,510 |
) |
|
776,360 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total shareholders' equity |
|
|
65,590 |
|
|
283,560 |
|
|
107,050 |
|
|
(390,610 |
) |
|
65,590 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities and shareholders' equity |
|
$ |
316,900 |
|
$ |
793,970 |
|
$ |
152,200 |
|
$ |
(421,120 |
) |
$ |
841,950 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
24
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
17. Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Supplemental Guarantor
Condensed Financial Statements
Consolidating Balance Sheet
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Parent |
|
Guarantor |
|
Non-
Guarantor |
|
Eliminations |
|
Consolidated
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
|
$ |
— |
|
$ |
300 |
|
$ |
9,180 |
|
$ |
— |
|
$ |
9,480 |
|
| |
Trade receivables, net |
|
|
— |
|
|
76,720 |
|
|
16,660 |
|
|
— |
|
|
93,380 |
|
| |
Receivables, intercompany |
|
|
— |
|
|
— |
|
|
3,550 |
|
|
(3,550 |
) |
|
— |
|
| |
Inventories |
|
|
— |
|
|
117,850 |
|
|
23,990 |
|
|
— |
|
|
141,840 |
|
| |
Deferred income taxes |
|
|
5,400 |
|
|
23,450 |
|
|
870 |
|
|
(5,400 |
) |
|
24,320 |
|
| |
Prepaid expenses and other current assets |
|
|
80 |
|
|
4,820 |
|
|
1,600 |
|
|
— |
|
|
6,500 |
|
| |
Assets of discontinued operations held for sale |
|
|
— |
|
|
4,250 |
|
|
— |
|
|
— |
|
|
4,250 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current assets |
|
|
5,480 |
|
|
227,390 |
|
|
55,850 |
|
|
(8,950 |
) |
|
279,770 |
|
Investments in subsidiaries |
|
|
270,370 |
|
|
107,170 |
|
|
— |
|
|
(377,540 |
) |
|
— |
|
Property and equipment, net |
|
|
— |
|
|
115,380 |
|
|
46,840 |
|
|
— |
|
|
162,220 |
|
Goodwill |
|
|
— |
|
|
148,220 |
|
|
48,110 |
|
|
— |
|
|
196,330 |
|
Intangibles and other assets |
|
|
31,240 |
|
|
175,190 |
|
|
5,720 |
|
|
(24,690 |
) |
|
187,460 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total assets |
|
$ |
307,090 |
|
$ |
773,350 |
|
$ |
156,520 |
|
$ |
(411,180 |
) |
$ |
825,780 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current maturities, long-term debt |
|
$ |
— |
|
$ |
3,670 |
|
$ |
12,520 |
|
$ |
— |
|
$ |
16,190 |
|
| |
Accounts payable, trade |
|
|
— |
|
|
73,980 |
|
|
18,860 |
|
|
— |
|
|
92,840 |
|
| |
Accounts payable, intercompany |
|
|
— |
|
|
3,550 |
|
|
— |
|
|
(3,550 |
) |
|
— |
|
| |
Accrued liabilities |
|
|
130 |
|
|
56,000 |
|
|
9,620 |
|
|
— |
|
|
65,750 |
|
| |
Liabilities of discontinued operations |
|
|
— |
|
|
1,070 |
|
|
— |
|
|
— |
|
|
1,070 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current liabilities |
|
|
130 |
|
|
138,270 |
|
|
41,000 |
|
|
(3,550 |
) |
|
175,850 |
|
Long-term debt |
|
|
244,980 |
|
|
253,380 |
|
|
— |
|
|
— |
|
|
498,360 |
|
Deferred income taxes |
|
|
— |
|
|
66,920 |
|
|
5,760 |
|
|
(30,090 |
) |
|
42,590 |
|
Other long-term liabilities |
|
|
— |
|
|
44,410 |
|
|
2,590 |
|
|
— |
|
|
47,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities |
|
|
245,110 |
|
|
502,980 |
|
|
49,350 |
|
|
(33,640 |
) |
|
763,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total shareholders' equity |
|
|
61,980 |
|
|
270,370 |
|
|
107,170 |
|
|
(377,540 |
) |
|
61,980 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total liabilities and shareholders' equity |
|
$ |
307,090 |
|
$ |
773,350 |
|
$ |
156,520 |
|
$ |
(411,180 |
) |
$ |
825,780 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
25
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
17. Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Supplemental Guarantor
Condensed Financial Statements
Consolidating Statement of Operations
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
Parent |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
|
Net sales |
|
$ |
— |
|
$ |
167,840 |
|
$ |
59,880 |
|
$ |
(7,660 |
) |
$ |
220,060 |
|
Cost of sales |
|
|
— |
|
|
(119,900 |
) |
|
(44,760 |
) |
|
7,660 |
|
|
(157,000 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Gross profit |
|
|
— |
|
|
47,940 |
|
|
15,120 |
|
|
— |
|
|
63,060 |
|
Selling, general and administrative expenses |
|
|
— |
|
|
(32,220 |
) |
|
(5,480 |
) |
|
— |
|
|
(37,700 |
) |
Loss on dispositions of property and equipment |
|
|
— |
|
|
(70 |
) |
|
(240 |
) |
|
— |
|
|
(310 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Operating profit |
|
|
— |
|
|
15,650 |
|
|
9,400 |
|
|
— |
|
|
25,050 |
|
Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense |
|
|
(6,480 |
) |
|
(7,010 |
) |
|
(650 |
) |
|
— |
|
|
(14,140 |
) |
| |
Other, net |
|
|
— |
|
|
(180 |
) |
|
(330 |
) |
|
— |
|
|
(510 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (expense) benefit and equity in net income of subsidiaries |
|
|
(6,480 |
) |
|
8,460 |
|
|
8,420 |
|
|
— |
|
|
10,400 |
|
Income tax (expense) benefit |
|
|
2,270 |
|
|
(4,580 |
) |
|
(2,340 |
) |
|
— |
|
|
(4,650 |
) |
Equity in net income of subsidiaries |
|
|
9,640 |
|
|
6,080 |
|
|
— |
|
|
(15,720 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
5,430 |
|
|
9,960 |
|
|
6,080 |
|
|
(15,720 |
) |
|
5,750 |
|
Loss from discontinued operations |
|
|
— |
|
|
(320 |
) |
|
— |
|
|
— |
|
|
(320 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,430 |
|
$ |
9,640 |
|
$ |
6,080 |
|
$ |
(15,720 |
) |
$ |
5,430 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
Parent |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
|
Net sales |
|
$ |
— |
|
$ |
167,520 |
|
$ |
39,550 |
|
$ |
(5,350 |
) |
$ |
201,720 |
|
Cost of sales |
|
|
— |
|
|
(128,330 |
) |
|
(32,280 |
) |
|
5,350 |
|
|
(155,260 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Gross profit |
|
|
— |
|
|
39,190 |
|
|
7,270 |
|
|
— |
|
|
46,460 |
|
Selling, general and administrative expenses |
|
|
— |
|
|
(36,540 |
) |
|
(4,760 |
) |
|
— |
|
|
(41,300 |
) |
Gain on dispositions of property and equipment |
|
|
— |
|
|
30 |
|
|
10 |
|
|
— |
|
|
40 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
Operating profit |
|
|
— |
|
|
2,680 |
|
|
2,520 |
|
|
— |
|
|
5,200 |
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense |
|
|
(8,340 |
) |
|
(3,900 |
) |
|
(240 |
) |
|
— |
|
|
(12,480 |
) |
| |
Gain on extinguishment of debt |
|
|
15,310 |
|
|
— |
|
|
— |
|
|
— |
|
|
15,310 |
|
| |
Other, net |
|
|
— |
|
|
(150 |
) |
|
(550 |
) |
|
— |
|
|
(700 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (expense) benefit and equity in net income (loss) of subsidiaries |
|
|
6,970 |
|
|
(1,370 |
) |
|
1,730 |
|
|
— |
|
|
7,330 |
|
Income tax (expense) benefit |
|
|
(2,610 |
) |
|
530 |
|
|
(630 |
) |
|
— |
|
|
(2,710 |
) |
Equity in net income (loss) of subsidiaries |
|
|
(8,040 |
) |
|
1,100 |
|
|
— |
|
|
6,940 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(3,680 |
) |
|
260 |
|
|
1,100 |
|
|
6,940 |
|
|
4,620 |
|
Loss from discontinued operations |
|
|
— |
|
|
(8,300 |
) |
|
— |
|
|
— |
|
|
(8,300 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(3,680 |
) |
$ |
(8,040 |
) |
$ |
1,100 |
|
$ |
6,940 |
|
$ |
(3,680 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
26
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
17. Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Supplemental Guarantor
Condensed Financial Statements
Consolidating Statement of Cash Flows
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
Parent |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided by (used for) operating activities |
|
$ |
(1,100 |
) |
$ |
(8,990 |
) |
$ |
6,000 |
|
$ |
— |
|
$ |
(4,090 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures |
|
|
— |
|
|
(2,130 |
) |
|
(460 |
) |
|
— |
|
|
(2,590 |
) |
| |
Net proceeds from disposition of businesses and other assets |
|
|
— |
|
|
30 |
|
|
— |
|
|
— |
|
|
30 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used for investing activities |
|
|
— |
|
|
(2,100 |
) |
|
(460 |
) |
|
— |
|
|
(2,560 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repayments of borrowings on term loan facilities |
|
|
— |
|
|
(650 |
) |
|
— |
|
|
— |
|
|
(650 |
) |
| |
Proceeds from borrowings on revolving credit facilities |
|
|
— |
|
|
133,450 |
|
|
1,490 |
|
|
— |
|
|
134,940 |
|
| |
Repayments of borrowings on revolving credit facilities |
|
|
— |
|
|
(125,400 |
) |
|
(5,270 |
) |
|
— |
|
|
(130,670 |
) |
| |
Shares surrended upon vesting of options and restricted stock awards to cover tax obligations |
|
|
(160 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(160 |
) |
| |
Proceeds from exercise of stock options |
|
|
60 |
|
|
— |
|
|
— |
|
|
— |
|
|
60 |
|
| |
Excess tax benefits from stock based compensation |
|
|
— |
|
|
280 |
|
|
— |
|
|
— |
|
|
280 |
|
| |
Intercompany transfers (to) from subsidiaries |
|
|
1,200 |
|
|
3,250 |
|
|
(4,450 |
) |
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by (used for) financing activities |
|
|
1,100 |
|
|
10,930 |
|
|
(8,230 |
) |
|
— |
|
|
3,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Decrease for the period |
|
|
— |
|
|
(160 |
) |
|
(2,690 |
) |
|
— |
|
|
(2,850 |
) |
| |
|
At beginning of period |
|
|
— |
|
|
300 |
|
|
9,180 |
|
|
— |
|
|
9,480 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
At end of period |
|
$ |
— |
|
$ |
140 |
|
$ |
6,490 |
|
$ |
— |
|
$ |
6,630 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
27
Table of Contents
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
17. Supplemental Guarantor Condensed Consolidating Financial Information (Continued)
Supplemental Guarantor
Condensed Financial Statements
Consolidating Statement of Cash Flows
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
Parent |
|
Guarantor |
|
Non-Guarantor |
|
Eliminations |
|
Total |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net cash provided by (used for) operating activities |
|
$ |
— |
|
$ |
(1,710 |
) |
$ |
3,510 |
|
$ |
— |
|
$ |
1,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures |
|
|
— |
|
|
(2,930 |
) |
|
(350 |
) |
|
— |
|
|
(3,280 |
) |
| |
Net proceeds from disposition of businesses and other assets |
|
|
— |
|
|
20,640 |
|
|
40 |
|
|
— |
|
|
20,680 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided by (used for) investing activities |
|
|
— |
|
|
17,710 |
|
|
(310 |
) |
|
— |
|
|
17,400 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repayments of borrowings on senior credit facilities |
|
|
— |
|
|
(650 |
) |
|
(120 |
) |
|
— |
|
|
(770 |
) |
| |
Proceeds from borrowings on revolving credit facilities |
|
|
— |
|
|
272,900 |
|
|
— |
|
|
— |
|
|
272,900 |
|
| |
Repayments of borrowings on revolving credit facilities |
|
|
— |
|
|
(273,800 |
) |
|
(880 |
) |
|
— |
|
|
(274,680 |
) |
| |
Retirement of senior subordinated notes |
|
|
(16,020 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(16,020 |
) |
| |
Intercompany transfers (to) from subsidiaries |
|
|
16,020 |
|
|
(14,440 |
) |
|
(1,580 |
) |
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash used for financing activities |
|
|
— |
|
|
(15,990 |
) |
|
(2,580 |
) |
|
— |
|
|
(18,570 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Increase for the period |
|
|
— |
|
|
10 |
|
|
620 |
|
|
— |
|
|
630 |
|
| |
|
At beginning of period |
|
|
— |
|
|
340 |
|
|
3,570 |
|
|
— |
|
|
3,910 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
At end of period |
|
$ |
— |
|
$ |
350 |
|
$ |
4,190 |
|
$ |
— |
|
$ |
4,540 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
28
Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition contains forward-looking statements regarding
industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the
risks and uncertainties described under the heading "Forward Looking Statements," at the beginning of this report. Our actual results may differ materially from those contained in or implied by any
forward-looking statements. You should read the following discussion together with the Company's reports on file with the Securities and Exchange Commission.
Introduction
We are an industrial manufacturer and distributor of highly engineered products serving focused markets in a diverse range of
commercial, industrial and consumer applications. We have five reportable segments: Packaging, Energy, Aerospace & Defense, Engineered Components and Cequent. In reviewing our financial
results, consideration should be given to certain critical events, particularly our acquisitions and consolidation, integration and restructuring efforts in several of our business operations.
Key Factors and Risks Affecting our Reported Results. Our businesses and results of operations depend upon general economic
conditions and we serve
some customers in cyclical industries that are highly competitive and themselves adversely impacted by unfavorable economic conditions. During the fourth quarter of 2008, worldwide credit markets and
global economic conditions deteriorated significantly, resulting in declines in demand for the Company's products and services. These conditions persisted throughout 2009, resulting in reductions in
sales and earnings from comparable prior periods across all of our reportable segments except Packaging. We have experienced generally higher levels of economic activity during the first quarter of
2010, which is one of the significant factors helping to generate year-over-year increases in revenue and earnings in all of our reportable segments except Aerospace &
Defense. We expect that, although we've benefitted from some economic recovery in the first quarter of 2010, revenue and earnings will continue to trend below historical levels until the still
unfavorable economic conditions improve.
Critical
factors affecting our ability to succeed include: our ability to successfully pursue organic growth through product development, cross-selling and extending
product-line offerings, and our ability to quickly and cost-effectively introduce new products; our ability to acquire and integrate companies or products that will supplement
existing product lines, add new distribution channels, expand our geographic coverage or enable us to better absorb overhead costs; our ability to manage our cost structure more efficiently through
improved supply base management, internal sourcing and/or purchasing of materials, selective outsourcing and/or purchasing of support functions, working capital management, and greater leverage of our
administrative and overhead functions. If we are unable to do any of the foregoing successfully, our financial condition and results of operations could be materially and adversely impacted.
There
is some seasonality in the businesses within our Cequent reportable segment, where sales of towing and trailering products are generally stronger in the second and third quarters,
as trailer original equipment manufacturers ("OEMs"), distributors and retailers acquire product for the spring and summer selling seasons. No other reportable segment experiences significant seasonal
fluctuation in its businesses. We do not consider sales order backlog to be a material factor in our business. A growing portion of our sales may be derived from international sources, which exposes
us to certain risks, including currency risks.
The
demand for some of our products, particularly in the Cequent segment, is heavily influenced by consumer sentiment. We experienced decreases in sales and earnings in 2008 and 2009 as
a result of the general economic downturn, including an uncertain credit market and interest rate environment
29
Table of Contents
and
rising energy costs, among other things. While we are experiencing sales increases in certain of our Cequent businesses in 2010 as compared to 2009 as the economic conditions have begun to
improve, we expect the current end market conditions in the Cequent segment will continue to remain weak and/or decline until the U.S. economy recovers from existing recessionary forces, employment
levels increase and consumer credit availability improves, thereby increasing consumer discretionary spending.
We
are sensitive to price movements in our raw materials supply base. Our largest material purchases are for steel, copper, aluminum, polyethylene and other resins and energy.
Historically, we have experienced increasing costs of steel and resin and have worked with our suppliers to manage cost pressures and disruptions in supply. We have also initiated pricing programs to
pass increased steel, copper, aluminum and resin costs to customers. Although we may experience delays in our ability to implement price increases, we generally are able to recover such increased
costs. Although there have been no significant disruptions in the supply of steel since 2005, we may experience disruptions in supply in the future and we may not be able to pass along higher costs
associated with such disruptions to our customers in the form of price increases. We will continue to take actions as necessary to manage risks associated with increasing steel or other raw material
costs. However, such increased costs may adversely impact our earnings.
We
report shipping and handling expenses, associated with certain businesses within our Cequent segment, for its sales distribution network, as an element of selling, general and
administrative expenses in our consolidated statement of operations. As such, gross margins for the Cequent segment may not be comparable to other companies which include all costs related to their
distribution network in cost of sales.
We
have substantial debt, interest and lease payment requirements that may restrict our future operations and impair our ability to meet our obligations and, in a rising interest rate
environment, our performance may be adversely affected by our degree of leverage.
Recent Consolidation, Integration and Restructuring Activities. During the past several years, we have undertaken significant
consolidation,
integration and other cost-savings programs to enhance our efficiency and achieve cost reduction opportunities which exist in our businesses. In addition to major consolidation projects,
there have also been a series of ongoing initiatives to eliminate duplicative and excess manufacturing and distribution facilities, sales forces, and back office and other support functions in order
to continue to optimize our cost structure in response to competitor actions and market conditions.
In
the fourth quarter of 2008, in response to the deteriorating recent economic conditions, we announced and accelerated our Profit Improvement Plan, which included further consolidation
of distribution and manufacturing activities, continued integration of certain business activities, movement of production to lower-cost environments and expansion of strategic sourcing
initiatives. We have also implemented reductions in salaried headcount and in fixed and variable spending to better align the fixed cost structure of these operating segments with the reality of our
current market environment and to maintain or improve operating margins. We have implemented commercial actions to protect and gain market share through continued introduction of new and innovative
products and by providing superior delivery and service to our customers. Further, we also have pricing initiatives in place to recover inflationary cost increases and we are continuing actions to
leverage our businesses' strong brand names. During 2009, the Company realized savings of approximately $32 million resulting from the actions taken as a part of the Profit Improvement Plan.
These implemented actions were a significant driver of maintaining our gross profit margin in 2009 despite a 20% reduction in sales as compared to 2008, and should facilitate further margin expansion
in 2010 should our revenues continue to increase.
The
most significant element of our Profit Improvement Plan implemented during the first quarter of 2009 was the restructuring of our legacy towing, trailering and electrical businesses
within our
30
Table of Contents
Cequent
reportable segment into one business, rationalizing facilities and the management team. This restructuring plan included the announcement and start of the closure process of the Mosinee, WI
manufacturing facility, which ceased operations in the fourth quarter of 2009. We incurred approximately $3.3 million of costs in the first quarter of 2009 associated with this initiative.
There
were no significant charges recorded in the first quarter of 2010 related to further implementation of our Profit Improvement Plan initiatives.
Key Indicators of Performance. In evaluating our business, our management considers Adjusted EBITDA as a key indicator of
financial operating
performance and as a measure of cash generating capability. We define Adjusted EBITDA as net income (loss) before cumulative effect of accounting change, interest, taxes, depreciation, amortization,
debt extinguishment costs, non-cash asset and goodwill impairment charges and write-offs and non-cash losses on sale-leaseback of property and
equipment. In evaluating Adjusted EBITDA, our management deems it important to consider the quality of our underlying earnings by separately identifying certain costs undertaken to improve our
results, such as costs related to consolidating facilities and businesses in an effort to eliminate duplicative costs or achieve efficiencies, costs related to integrating acquisitions and
restructuring costs related to expense reduction efforts. Although we may undertake new consolidation, restructuring and integration efforts in the future as a result of our acquisition activity, our
management separately considers these costs in evaluating underlying business performance. Caution must be exercised in considering these items as they include substantially (but
not necessarily entirely) cash costs and there can be no assurance that we will ultimately realize the benefits of these efforts. Moreover, even if the anticipated benefits are realized, they may be
offset by other business performance or general economic issues.
Management
believes that consideration of Adjusted EBITDA together with a careful review of our results reported under GAAP is the best way to analyze our ability to service and/or incur
indebtedness, as we are a highly leveraged company. We use Adjusted EBITDA as a key performance measure because we believe it facilitates operating performance comparisons from period to period and
company to company by excluding potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in
effective tax rates or net operating losses), and the impact of purchase accounting as well as depreciation and amortization expense. Because Adjusted EBITDA facilitates internal comparisons of our
historical operating performance on a more consistent basis, we also use Adjusted EBITDA for business planning purposes, in measuring our performance relative to that of our competitors and in
evaluating acquisition opportunities.
In
addition, we believe Adjusted EBITDA and similar measures are widely used by investors, securities analysts, ratings agencies and other interested parties as a measure of financial
performance and debt-service capabilities. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of
our results as reported under GAAP. Some of these limitations are:
- •
- it does not reflect our cash expenditures for capital equipment or other contractual commitments;
- •
- although depreciation, amortization and asset impairment charges and write-offs are non-cash
charges, the assets being depreciated, amortized or written off may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements;
- •
- it does not reflect changes in, or cash requirements for, our working capital needs;
- •
- it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal
payments on our indebtedness;
31
Table of Contents
- •
- it does not reflect certain tax payments that may represent a reduction in cash available to us;
- •
- it includes amounts resulting from matters we consider not to be indicative of underlying performance of our fundamental
business operations, as discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and
- •
- other companies, including companies in our industry, may calculate these measures differently and as the number of
differences in the way two different companies calculate these measures increases, the degree of their usefulness as a comparative measure correspondingly decreases.
Because
of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our Company. We compensate for these
limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally. We carefully review our operating profit margins (operating profit as a percentage of net sales) at
a segment level, which are discussed in detail in our year-to-year comparison of operating results.
The
following is a reconciliation of our net income (loss) to Adjusted EBITDA and cash flows provided by (used for) operating activities for the three months ended March 31, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
March 31, |
|
|
|
2010 |
|
2009 |
|
|
|
(dollars in thousands)
|
|
Net income (loss) |
|
$ |
5,430 |
|
$ |
(3,680 |
) |
| |
Income tax expense (benefit) |
|
|
4,470 |
|
|
(2,490 |
) |
| |
Interest expense |
|
|
14,290 |
|
|
12,530 |
|
| |
Debt extinguishment costs |
|
|
— |
|
|
510 |
|
| |
Depreciation and amortization |
|
|
9,610 |
|
|
11,760 |
|
| |
|
|
|
|
|
Adjusted EBITDA, total company |
|
$ |
33,800 |
|
$ |
18,630 |
|
| |
Interest paid |
|
|
(5,250 |
) |
|
(4,770 |
) |
| |
Taxes paid |
|
|
(1,250 |
) |
|
(2,440 |
) |
| |
(Gain) loss on dispositions of property and equipment |
|
|
310 |
|
|
(50 |
) |
| |
Gain on extinguishment of debt |
|
|
— |
|
|
(15,820 |
) |
| |
Receivables sales and securitization, net |
|
|
3,830 |
|
|
(6,130 |
) |
| |
Net change in working capital |
|
|
(35,530 |
) |
|
12,380 |
|
| |
|
|
|
|
|
Cash flows provided by (used for) operating activities |
|
$ |
(4,090 |
) |
$ |
1,800 |
|
| |
|
|
|
|
|
The
following table details certain items relating to our consolidation, restructuring and integration efforts that are included in the determination of net income (loss) under GAAP and
are not added
32
Table of Contents
back
to net income (loss) in determining Adjusted EBITDA, but that we would consider in evaluating the quality of our Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
Three months
ended
March 31, |
|
|
|
2010 |
|
2009 |
|
|
|
(dollars in
thousands)
|
|
Severance and business unit restructuring costs(a) |
|
$ |
— |
|
$ |
6,260 |
|
Gross gain on extinguishment of debt(b) |
|
|
— |
|
|
(15,820 |
) |
| |
|
|
|
|
|
|
|
$ |
— |
|
$ |
(9,560 |
) |
| |
|
|
|
|
|
- (a)
- Principally
employee severance costs associated with business unit restructuring and other cost reduction activities.
- (b)
- Gains
recognized in connection with the extinguishment of our senior subordinated notes due 2012, excluding debt extinguishment costs.
33
Table of Contents
The following table summarizes financial information for our five current reportable segments for the three months ended
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2010 |
|
As a Percentage
of Net Sales |
|
2009 |
|
As a Percentage
of Net Sales |
|
|
|
(dollars in thousands)
|
|
Net Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging |
|
$ |
43,600 |
|
|
19.8 |
% |
$ |
30,250 |
|
|
15.0 |
% |
Energy |
|
|
43,890 |
|
|
19.9 |
% |
|
40,270 |
|
|
20.0 |
% |
Aerospace & Defense |
|
|
17,080 |
|
|
7.8 |
% |
|
22,200 |
|
|
11.0 |
% |
Engineered Components |
|
|
18,910 |
|
|
8.6 |
% |
|
18,550 |
|
|
9.2 |
% |
Cequent |
|
|
96,580 |
|
|
43.9 |
% |
|
90,450 |
|
|
44.8 |
% |
| |
|
|
|
|
|
|
|
|
|
| |
Total |
|
$ |
220,060 |
|
|
100.0 |
% |
$ |
201,720 |
|
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging |
|
$ |
16,930 |
|
|
38.8 |
% |
$ |
10,090 |
|
|
33.4 |
% |
Energy |
|
|
11,580 |
|
|
26.4 |
% |
|
9,970 |
|
|
24.8 |
% |
Aerospace & Defense |
|
|
7,140 |
|
|
41.8 |
% |
|
9,100 |
|
|
41.0 |
% |
Engineered Components |
|
|
3,500 |
|
|
18.5 |
% |
|
2,200 |
|
|
11.9 |
% |
Cequent |
|
|
23,910 |
|
|
24.8 |
% |
|
15,100 |
|
|
16.7 |
% |
| |
|
|
|
|
|
|
|
|
|
| |
Total |
|
$ |
63,060 |
|
|
28.7 |
% |
$ |
46,460 |
|
|
23.0 |
% |
| |
|
|
|
|
|
|
|
|
|
Selling, General and Administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging |
|
$ |
4,810 |
|
|
11.0 |
% |
$ |
4,750 |
|
|
15.7 |
% |
Energy |
|
|
6,360 |
|
|
14.5 |
% |
|
6,440 |
|
|
16.0 |
% |
Aerospace & Defense |
|
|
3,280 |
|
|
19.2 |
% |
|
2,280 |
|
|
10.3 |
% |
Engineered Components |
|
|
1,680 |
|
|
8.9 |
% |
|
1,820 |
|
|
9.8 |
% |
Cequent |
|
|
15,790 |
|
|
16.3 |
% |
|
18,450 |
|
|
20.4 |
% |
Corporate expenses |
|
|
5,780 |
|
|
N/A |
|
|
7,560 |
|
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total |
|
$ |
37,700 |
|
|
17.1 |
% |
$ |
41,300 |
|
|
20.5 |
% |
| |
|
|
|
|
|
|
|
|
|
Operating Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging |
|
$ |
11,860 |
|
|
27.2 |
% |
$ |
5,400 |
|
|
17.9 |
% |
Energy |
|
|
5,180 |
|
|
11.8 |
% |
|
3,520 |
|
|
8.7 |
% |
Aerospace & Defense |
|
|
3,860 |
|
|
22.6 |
% |
|
6,810 |
|
|
30.7 |
% |
Engineered Components |
|
|
1,810 |
|
|
9.6 |
% |
|
380 |
|
|
2.0 |
% |
Cequent |
|
|
8,120 |
|
|
8.4 |
% |
|
(3,350 |
) |
|
-3.7 |
% |
Corporate expenses |
|
|
(5,780 |
) |
|
N/A |
|
|
(7,560 |
) |
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total |
|
$ |
25,050 |
|
|
11.4 |
% |
$ |
5,200 |
|
|
2.6 |
% |
| |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Packaging |
|
$ |
14,920 |
|
|
34.2 |
% |
$ |
8,640 |
|
|
28.6 |
% |
Energy |
|
|
5,900 |
|
|
13.4 |
% |
|
4,280 |
|
|
10.6 |
% |
Aerospace & Defense |
|
|
4,520 |
|
|
26.5 |
% |
|
7,410 |
|
|
33.4 |
% |
Engineered Components |
|
|
2,570 |
|
|
13.6 |
% |
|
1,120 |
|
|
6.0 |
% |
Cequent |
|
|
12,120 |
|
|
12.5 |
% |
|
1,340 |
|
|
1.5 |
% |
Corporate (expenses) income |
|
|
(5,900 |
) |
|
N/A |
|
|
7,630 |
|
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
| |
Subtotal from continuing operations |
|
|
34,130 |
|
|
15.5 |
% |
|
30,420 |
|
|
15.1 |
% |
| |
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
(330 |
) |
|
N/A |
|
|
(11,790 |
) |
|
N/A |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total company |
|
$ |
33,800 |
|
|
15.4 |
% |
$ |
18,630 |
|
|
9.2 |
% |
| |
|
|
|
|
|
|
|
|
|
34
Table of Contents
Results of Operations
The principal factors impacting us during the three months ended March 31, 2010 compared with the three months ended
March 31, 2009, were:
- •
- costs incurred and savings realized related to our Profit Improvement Plan, primarily in our Packaging and Cequent
segments;
- •
- the impact of an upturn in economic conditions in the first quarter of 2010 as compared to the global economic recession
in the first quarter of 2009, contributing to increased net sales in four of our five reportable segments;
- •
- decreases in the value of the U.S. dollar as compared to the currencies in other countries where we operate; and
- •
- gains on extinguishment of debt in the first quarter of 2009 resulting from the repurchase of our 97/8%
senior subordinated notes at prices below their face value.
Three Months Ended March 31, 2010 Compared with Three Months Ended March 31, 2009
Overall, net sales increased approximately $18.4 million, or approximately 9.1%, for the three months ended March 31,
2010, as compared with the three months ended March 31, 2009. During the first quarter of 2010, net sales increased in each of our five reportable segments except Aerospace & Defense,
generally due to higher sales volumes resulting from the upturn in economic conditions as compared to the global economic recession we experienced in the first quarter of 2009. In addition, net sales
were favorably impacted by approximately $6.6 million as a result of currency exchange, as our reported results in U.S. dollars were positively impacted by stronger foreign currencies.
Gross
profit margin (gross profit as a percentage of sales) approximated 28.7% and 23.0% for the three months ended March 31, 2010 and 2009, respectively. The increase in profit
margin is attributed primarily to the realization of savings resulting from our cost reduction and alternate sourcing initiatives implemented in connection with our Profit Improvement Plan, with the
largest impact experienced in our Packaging and Cequent segments.
Operating
profit margin (operating profit as a percentage of sales) approximated 11.4% and 2.6% for the three months ended March 31, 2010 and 2009, respectively. Operating profit
increased approximately $19.9 million, or 381.7%, to $25.1 million for the three months ended March 31, 2010, from $5.2 million for the three months ended March 31,
2009, primarily as a result of higher sales volumes, higher gross profits resulting from savings realized in connection with our Profit Improvement Plan and reduced selling, general and administrative
expenses, as our businesses were able to hold or reduce their spending levels year-over-year despite the increase in sales levels.
Adjusted
EBITDA margin from continuing operations (Adjusted EBITDA as a percentage of sales) approximated 15.5% and 15.1% for the three months ended March 31, 2010 and 2009,
respectively. Adjusted EBITDA increased approximately $3.7 million for the three months ended March 31, 2010, as compared to the three months ended March 31, 2009. After
consideration of the $15.8 million gross gain
on extinguishment of debt in the first quarter of 2009 that did not recur in 2010, $0.7 million of costs incurred in connection with our receivables facility in the first quarter of 2009 that
were included in other, net while the $0.3 million of costs incurred in the first quarter of 2010 in connection with the facility are included in interest expense, $0.4 million of losses
on transactions denominated in foreign currencies in the three months ended March 31, 2010 as compared to $0.2 million of gains on transactions denominated in foreign currencies in the
three months ended March 31, 2009 and a decrease in year-over-year depreciation expense of approximately $0.5 million, the change in Adjusted EBITDA is consistent
with the change in operating profit between years.
See
below for a discussion of operating results by segment.
35
Table of Contents
Packaging. Net sales increased approximately $13.4 million, or 44.1%, to $43.6 million in the three months ended
March 31, 2010,
as compared to $30.2 million in the three months ended March 31, 2009. Overall, sales increased approximately $1.3 million due to currency exchange, as our reported results in
U.S. dollars were positively impacted as a result of the weaker U.S. dollar relative to foreign currencies. Sales of our specialty dispensing products and new product introductions increased by
approximately $6.8 million in the three months ended March 31, 2010 compared to the three months ended March 31, 2009, due primarily to increased sales into the personal care
markets, pharmaceuticals and the food industries. Sales of our industrial closures, rings and levers increased by approximately $5.3 million in the three months ended March 31, 2010
compared to the three months ended March 31, 2009, primarily as a result of the moderate general economic recovery.
Packaging's
gross profit increased approximately $6.8 million to $16.9 million, or 38.8% of sales, in the three months ended March 31, 2010, as compared to
$10.1 million, or 33.4% of sales, in the three months ended March 31, 2009. Of the increase in gross profit, approximately $3.9 million relates to the increase in sales volumes
between years. In addition, approximately $0.6 million is as a result of the favorable currency exchange. The remainder of the increase in gross profit, which approximated a 190 basis point
improvement year-over-year, resulted primarily from initiatives implemented in connection with our Profit Improvement Plan, including productivity projects to improve
efficiency and throughput and alternate sourcing or improved internal processing for certain production materials.
Packaging's
selling, general and administrative expenses increased approximately $0.1 million to $4.8 million, or 11.0% of sales, in the three months ended March 31,
2010, as compared to $4.7 million, or 15.7% of sales, in the three months ended March 31, 2009, as Packaging was able to hold its selling,
general and administrative spending at a consistent level despite the significant increase in sales as a result of the fixed cost reductions implemented throughout 2009.
Packaging's
operating profit increased approximately $6.5 million to $11.9 million, or 27.2% of sales, in the three months ended March 31, 2010, as compared to
$5.4 million, or 17.9% of sales, in three months ended March 31, 2009. The increase in operating profit between years is primarily attributed to increased sales volumes, implemented
projects associated with our Profit Improvement Plan and favorable currency exchange.
Packaging's
Adjusted EBITDA increased approximately $6.3 million to $14.9 million, or 34.2% of sales, in the three months ended March 31, 2010, as compared to
$8.6 million, or 28.6% of sales, in the three months ended March 31, 2009, consistent with the change in operating profit between years.
Energy. Net sales for the three months ended March 31, 2010 increased approximately $3.6 million, or 9.0%, to
$43.9 million, as
compared to $40.3 million in the three months ended March 31, 2009. Sales of specialty gaskets and related fastening hardware increased approximately $3.3 million as a result of
increased levels of turn-around activity at petrochemical refineries and increased sales demand from the chemical industry, as customers have begun to perform maintenance work and new
programs deferred from 2009 that require our replacement and specialty gaskets and hardware. Sales within our engine business increased by approximately $0.3 million due to increased sales of
gas processing equipment.
Gross
profit within Energy increased approximately $1.6 million to $11.6 million, or 26.4% of sales, in the three months ended March 31, 2010, as compared to
$10.0 million, or 24.8% of sales, in the three months ended March 31, 2009. Gross profit increased approximately $0.9 million as a result of the increase in sales levels between
years. The remaining increase in gross profit is primarily attributable to increased material margins resulting from successful negotiations with our overseas vendors to reduce the purchase price of
certain commodities and inbound freight rates.
Selling,
general and administrative expenses within Energy remained essentially flat at $6.4 million year-over-year, but decreased as a percent of net
sales from 16.0% for the three months ended
36
Table of Contents
March 31,
2009 to 14.5% for the three months ended March 31, 2010, as the businesses in this segment were able to hold their spending levels constant despite the increase in sales levels
between years.
Overall,
operating profit within Energy increased approximately $1.7 million to $5.2 million, or 11.8% of sales, in the three months ended March 31, 2010, as
compared to $3.5 million, or 8.7% of sales, in the three months ended March 31, 2009, due principally to the leverage gained by higher sales volumes and due to increased material
margins.
Energy's
Adjusted EBITDA increased $1.6 million to $5.9 million, or 13.4% of sales, in the three months ended March 31, 2010, as compared to $4.3 million, or
10.6% of sales, in the three months ended March 31, 2009, consistent with the increase in operating profit between years.
Aerospace & Defense. Net sales for the three months ended March 31, 2010 decreased approximately $5.1 million,
or 23.1%, to
$17.1 million, as compared to $22.2 million in the three months ended March 31, 2009. Sales in our aerospace business decreased approximately $4.2 million, primarily due to
continued lower demand from our distribution customers in response to high inventory levels in the supply chain and consolidation within the distribution segment of the aerospace hardware industry.
Sales in our defense business decreased approximately $0.9 million. Our defense business did not sell any cartridge cases in the first quarter of 2010 due to the ongoing relocation of the
defense facility, which began in the second quarter of 2009, as compared to $3.0 million of cartridge case sales in the first quarter of 2009 in advance of the facility relocation. The decrease
in cartridge case sales was partially offset by increase of approximately $2.1 million in revenue primarily associated with managing the relocation and closure of the defense facility.
Gross
profit within Aerospace & Defense decreased approximately $2.0 million to $7.1 million, or 41.8% of sales, in the three months ended March 31, 2010,
from $9.1 million, or 41.0% of sales, in the three months ended March 31, 2009, due primarily to the decline in sales levels between years. In addition, although our aerospace business
experienced a more favorable product sales mix and slightly better material margins due to cost reductions in the first quarter of 2010 as compared to the first quarter of 2009, this impact was
approximately offset by unfavorable absorption of fixed costs resulting from the decline in sales volumes.
Selling,
general and administrative expenses increased approximately $1.0 million to $3.3 million, or 19.2% of sales, in the three months ended March 31, 2010, as
compared to $2.3 million, or 10.3% of sales, in the three months ended March 31, 2009 due primarily to increased attorney and legal fee costs within our defense business.
Operating
profit within Aerospace & Defense decreased approximately $2.9 million to $3.9 million, or 22.6% of sales, in the three months ended March 31, 2010,
as compared to $6.8 million, or 30.7% of sales, in the three months ended March 31, 2009, primarily due to lower sales volumes and higher selling, general and administrative expenses due
to attorney and legal fees.
Aerospace &
Defense's Adjusted EBITDA decreased approximately $2.9 million to $4.5 million, or 26.5% of sales, in the three months ended March 31, 2010, as
compared to $7.4 million, or 33.4% of sales, in the three months ended March 31, 2009, consistent with the decrease in operating profit between years.
Engineered Components. Net sales for the three months ended March 31, 2010 increased approximately $0.4 million, or
1.9%, to
$18.9 million, as compared to $18.5 million in the three months ended March 31, 2009. Sales within our specialty fittings business increased by approximately $3.0 million,
as our new product offerings for automotive fuel systems increased by approximately $1.9 million and sales of our core tube nut products increased by approximately $1.1 million as a
result of the recent economic upturn. Sales in our precision tool cutting businesses increased by approximately $0.9 million, primarily as a result of the upturn in the domestic economy and
market share gains in our countersink product line. Sales in our industrial cylinder business decreased by
37
Table of Contents
approximately
$3.5 million, primarily due to the global economic recession, as the recent upturn in the economy has not yet manifested in additional sales in this business, and higher inventory
levels at two of its largest customers, who significantly lowered orders in the first quarter of 2010 as compared to the first quarter of 2009.
Gross
profit within Engineered Components increased approximately $1.3 million to $3.5 million, or 18.5% of sales, in the three months ended March 31, 2010, from
$2.2 million, or 11.9% of sales, in the three months ended March 31, 2009. All of the businesses within this segment improved their gross profit margin
year-over-year due to cost reduction and internal productivity efforts implemented in 2009 and the first quarter of 2010 in response to the economic slowdown. In addition,
Engineered Components experienced higher costs in the first quarter of 2009 due to the impact of lower absorption of fixed costs resulting from lower production and/or sales levels in all three
businesses and our industrial cylinder business' sale of higher-cost inventory in excess of their ability to secure price increases.
Selling,
general and administrative expenses decreased approximately $0.1 million to $1.7 million, or 8.9% of sales, in the three months ended March 31, 2010, as
compared to $1.8 million, or 9.8% of sales, in the three months ended March 31, 2009 as Engineered Components was able to hold its selling, general and administrative spending at a
consistent level.
Operating
profit within Engineered Components increased $1.4 million to approximately $1.8 million, in the three months ended March 31, 2010, as compared to
operating profit of $0.4 million in the three months ended March 31, 2009, primarily due to savings realized resulting from cost reduction and productivity projects implemented in the
last twelve months and due to higher costs related to lower absorption of fixed costs and sales of higher-cost inventory, both of which were incurred in the first quarter of 2009 and were
not present in the first quarter of 2010.
Engineered
Components' Adjusted EBITDA increased $1.5 million to $2.6 million, or 13.6% of sales, in the three months ended March 31, 2010, as compared to
$1.1 million, or 6.0% of sales, in the three months ended March 31, 2009, consistent with the increase in operating profit between years.
Cequent. Net sales increased approximately $6.1 million to $96.6 million in the three months ended March 31, 2010,
as compared
to $90.5 million in the three months ended March 31, 2009. Net sales were favorably impacted by approximately $5.0 million of currency exchange, as our reported results in U.S.
dollars were positively impacted as a result of the weaker U.S. dollar relative to foreign currencies. Sales in our retail business decreased $4.2 million, as the continued impact of new
customers added in the second half of 2009 was more than offset by a one-time inventory pipeline fill for new products sold to a significant customer in the first quarter of 2009 for which
there were no similar pipeline fills in the first quarter of 2010. Sales within our performance products business (includes the legacy towing, trailering and electrical businesses) increased by
$1.1 million, due to stabilization of the markets that this business serves resulting from the upturn in the domestic economy and due to new product introductions in both our original equipment
manufacturer and aftermarket businesses. After considering the impact of currency exchange, sales in our Australia/Asia Pacific business increased approximately $4.2 million, due primarily to
continued higher original equipment manufacturer and aftermarket sales resulting from new government stimulus incentives announced during the third quarter of 2009, and continued market share gains.
Cequent's
gross profit increased approximately $8.8 million to $23.9 million, or 24.8% of sales, in the three months ended March 31, 2010, from approximately
$15.1 million, or 16.7% of sales, in the three months ended March 31, 2009. Of this increase, approximately $0.2 million is due to the increased sales volumes between periods and
$1.5 million is due to favorable currency exchange. The most significant reason for the increase is our cost reduction efforts implemented throughout 2009 as a part of our Profit Improvement
Plan to resize the business and its fixed cost structure to recent demand levels, to identify alternate lower-cost foreign-sourced suppliers and to implement productivity
38
Table of Contents
initiatives
to increase manufacturing efficiencies. The largest item within the Profit Improvement Plan was the closure of the Mosinee, WI manufacturing facility, which was completed in the fourth
quarter of 2009. Cequent incurred approximately $0.9 million of costs impacting gross profit in the first quarter of 2009 to implement these actions, for which the benefit was realized in the
first quarter of 2010 with no significant additional implementation costs incurred in 2010.
Selling,
general and administrative expenses decreased approximately $2.7 million to $15.8 million, or 16.3% of sales, in the three months ended March 31, 2010, as
compared to $18.5 million, or 20.4% of sales, in the three months ended March 31, 2009. Total expense decreased by $0.3 million after consideration of approximately
$2.4 million of costs incurred associated with implementing the Profit Improvement Plan in the first quarter of 2009, primarily related to severance charges recorded in connection with the
announcement of the closure of the Mosinee, WI facility. Cequent continues to
monitor and minimize its selling, general and administrative spending levels consistent with the current sales levels.
Cequent's
operating profit increased approximately $11.5 million to approximately $8.1 million, or 8.4% of sales, in the three months ended March 31, 2010, from an
operating loss of $3.4 million, or (3.7)% of net sales, in the three months ended March 31, 2009. The increase in operating profit is due primarily to the cost reductions, alternate
sourcing arrangements and productivity initiatives that have been implemented as part of the Profit Improvement Plan, for which savings are being realized in the first quarter of 2010, and
approximately $3.3 million of costs incurred in the first quarter of 2009 to implement such actions.
Cequent's
Adjusted EBITDA increased approximately $10.8 million to $12.1 million, or 12.5% of sales, for the three months ended March 31, 2010, from
$1.3 million, or 1.5% of sales, for the three months ended March 31, 2009. After consideration of approximately $0.5 million of lower depreciation expense in the three months
ended March 31, 2010 compared with the three months ended March 31, 2009, due primarily to the closure of the Mosinee, WI facility, and $0.1 million of losses on transactions
denominated in foreign currencies as compared to $0.1 million of gains on transactions denominated in foreign currencies, the change in Adjusted EBITDA is consistent with the increase in
operating profit between years.
Corporate Expenses (Income). Corporate expenses (income) included in operating profit and Adjusted EBITDA consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
March 31, |
|
|
|
2010 |
|
2009 |
|
|
|
(in millions)
|
|
Corporate operating expenses |
|
$ |
2.6 |
|
$ |
2.9 |
|
Employee costs and related benefits |
|
|
3.2 |
|
|
4.7 |
|
| |
|
|
|
|
|
| |
Corporate expenses—operating profit |
|
$ |
5.8 |
|
$ |
7.6 |
|
Receivables sales and securitization expenses |
|
|
— |
|
|
0.7 |
|
Gain on extinguishment of debt |
|
|
— |
|
|
(15.8 |
) |
Other, net |
|
|
0.1 |
|
|
(0.1 |
) |
| |
|
|
|
|
|
| |
Corporate expenses (income)—Adjusted EBITDA |
|
$ |
5.9 |
|
$ |
(7.6 |
) |
| |
|
|
|
|
|
Corporate
expenses decreased approximately $1.8 million, to $5.8 million, for the three months ended March 31, 2010, from $7.6 million for the three months
ended March 31, 2009. The decrease between years is primarily attributed to the severance arrangement associated with the termination of our former chief executive officer in January 2009,
which was partially offset by increased short and long-term incentive equity and cash compensation expense. Receivables sales and securitization
39
Table of Contents
expenses
decreased by approximately $0.8 million for the three months ended March 31, 2010 compared with the three months ended March 31, 2009, as new accounting guidance
effective in the first quarter of 2010 requires that we account for the facility similar to our credit facility debt, where amounts outstanding under the facility are classified on the balance sheet
as debt and costs incurred under the facility are classified as interest expense on the statement of operations. In addition, during the first quarter of 2009, we retired approximately
$31.8 million face value of our senior subordinated notes, resulting in a net gain of approximately $15.3 million after considering non-cash debt extinguishment costs of
$0.5 million.
Interest Expense. Interest expense increased approximately $1.6 million, to $14.1 million, for the three months ended
March 31,
2010, as compared to $12.5 million for the three months ended March 31, 2009. The increase is primarily attributable to an unfavorable change in the fair value of our interest rate swaps
of $1.5 million during the first quarter of 2010, $0.3 million of aggregate costs incurred under the receivables facility as of March 31, 2010, previously recorded in other
expense, net and an increase in our effective weighted-average interest rate on variable rate U.S. borrowings to approximately 5.6% during the first quarter of 2010, from approximately 4.1% during the
first quarter of 2009. These increases were partially offset by a decrease in our weighted-average U.S. borrowings to approximately $274.3 million in the three months ended March 31,
2010 from approximately $308.7 million in the three months ended March 31, 2009. In addition, we recorded approximately $1.8 million lower interest expense related to our senior
subordinated notes in 2010 as compared to 2009, due primarily our repurchase of $41.4 million face value of our former senior subordinated notes during the second and third quarters of 2009.
Other Expense, Net. Other expense, net decreased approximately $0.2 million, to $0.5 million for the three months
ended
March 31, 2010, as compared to $0.7 million for the three months ended March 31, 2009. In the first quarter of 2010, we incurred approximately $0.4 million of losses on
transactions denominated in foreign currencies. In the first quarter of 2009, we recognized approximately $0.2 million in gains on transactions denominated in foreign currencies and incurred
$0.7 million of expenses in connection with the both the use and renewal of our receivables facility. There were no other individually significant amounts incurred or changes in amounts
incurred in either of the three month periods ended March 31, 2010 and 2009.
Income Taxes. The effective income tax rates for the three months ended March 31, 2010 and 2009 were 44.7% and 37.0%,
respectively. The
increase in the effective tax rate in the three months ended March 31, 2010 compared to the three months ended March 31, 2009 is related to a tax charge of approximately
$1.0 million due to the impact of certain Subpart F exceptions under U.S. tax legislation that recently expired.
Discontinued Operations. The results of discontinued operations consist of our medical device and property management lines of
business, which are
classified as held for sale for all periods presented, and our specialty laminates, jacketings and insulation tapes line of business, which was sold in February 2009. Our loss from discontinued
operations, net of income tax benefit, was $0.3 million and $8.3 million for the three months ended March 31, 2010 and 2009, respectively. See Note 2,
"Discontinued Operations and Assets Held for Sale," to our consolidated financial statements included in Part I, Item 1 of this report on
Form 10-Q.
Liquidity and Capital Resources
Cash Flows
Cash used for operating activities for the three months ended March 31, 2010 was approximately $4.1 million, as compared
to cash provided by operating activities of $1.8 million for the three months
40
Table of Contents
ended
March 31, 2009. Significant changes in cash flows provided by (used for) operating activities and the reasons for such changes are as follows:
- •
- For the three months ended March 31, 2010, the Company generated $16.8 million of cash, based on the
reported net income from operations of $5.4 million and after considering the effects of non-cash items related to gains/losses on dispositions of property and equipment,
depreciation and amortization, changes in deferred taxes, stock compensation and other non-cash items. For the three months ended March, 31 2009, the Company used $10.4 million in
cash flows based on the reported net loss from operations of $3.7 million and after considering the effects of non-cash impacts related to gains/losses on dispositions of property
and equipment, depreciation and amortization, changes in deferred taxes, debt extinguishments, stock compensation and other non-cash items.
- •
- For the three months ended March 31, 2010, activity related to receivables sales resulted in net proceeds of
approximately $3.8 million. For the three months ended March 31, 2009, activity related to the sale of receivables and use of our receivables facility resulted in a net cash use of
approximately $6.1 million, as we reduced amounts outstanding under the facility relative to December 31, 2008. During the first three months of 2009, we relied primarily on our
revolving credit facility as the principal source of funding our working capital requirements and ordinary course needs, as it was our lowest cost source of borrowings.
- •
- Increases in receivables resulted in a use of cash of approximately $39.0 million and $2.6 million for the
three months ended March 31, 2010 and 2009, respectively, primarily due to the increase in sales in the first quarter of 2010 and a heavier mix toward sales to foreign customers, who typically
have longer terms for payment. Our accounts receivable past-due aging has not changed significantly year-over-year.
- •
- For the three months ended March 31, 2010 and 2009, we reduced our investment in inventory consistent with our
management strategy to improve inventory turns and to better align inventory levels with end market demand, which resulted in a cash source of approximately $6.1 million and
$18.1 million, respectively.
- •
- For the three months ended March 31, 2010 and 2009, accounts payable and accrued liabilities resulted in a net
source of cash of approximately $7.9 million and $1.2 million, respectively. The increase in accounts payable and accrued liabilities as of March 31, 2010 is primarily a result of
increased production activity in the first quarter of 2010 compared with the fourth quarter of 2009 due to the upturn in economic activity.
- •
- Management of prepaid expenses and other assets resulted in a source of cash of approximately $0.3 million and
$1.7 million for the three months ended March 31, 2010 and 2009, respectively, primarily as a result of ongoing initiatives to reduce the relative level of investment in manufacturing
supplies, spare parts and tooling assets.
Net
cash used for investing activities for the three months ended March 31, 2010 was approximately $2.6 million, as compared to net cash provided by investing activities of
$17.4 million for the three months ended March 31, 2009. During the first three months of 2010, our investing activities related primarily to capital expenditures, which remained below
historical levels due to the lower sales levels given the economic downturn. During the first three months of 2009, we generated approximately $20.7 million of cash from business and asset
dispositions, primarily related to the sale of our specialty laminates, jacketings and insulation tapes line of business. We also incurred approximately $3.3 million in capital expenditures to
support our growth initiatives.
Net
cash provided by financing activities for the three months ended March 31, 2010 was approximately $3.8 million, as compared to net cash used for financing activities of
approximately $18.6 million for the three months ended March 31, 2009. During the first quarter of 2010, we
41
Table of Contents
increased
our amounts outstanding on our revolving credit facility by approximately $4.3 million. During the first quarter of 2009, we used approximately $16.0 million of available cash
to retire $31.8 million face value of our previous 97/8% senior subordinated notes via open market purchases. In addition we decreased amounts outstanding on our revolving
credit facilities during the first three months of 2009 by approximately $1.8 million.
Our Debt and Other Commitments
During the fourth quarter of 2009, the Company amended and restated its credit facilities. Prior to the amendment and restatement, the
credit facilities consisted of a $90.0 million revolving credit facility, a $60.0 million deposit-linked supplemental revolving credit facility and a $260.0 million term loan
facility. Under the amended and restated credit facilities, the revolving credit facility was reduced to $83.0 million, while the supplemental revolving credit facility and term loan facility
remained at $60.0 million and $252.2 million, respectively (collectively, the Amended and Restated Credit Agreement or "ARCA"). Under the ARCA, the Company extended the maturity of
$70.0 million of its revolving credit facility until December 15, 2013, and the maturity of $226.3 million of its term loan until December 15, 2015. The maturity date of
$8.0 million of its revolving credit facility and the $60.0 million deposit-linked supplemental revolving credit facility remained at August 2, 2011, and the maturity date of
$25.9 million of its term loan remained at August 2, 2013. At March 31, 2010, approximately $250.9 million was outstanding on the term loan and $13.2 million was
outstanding on the revolving credit facilities. Under the ARCA, up to $25.0 million of our revolving credit facility in the
aggregate is available in 2010 to be used for one or more permitted acquisitions subject to certain conditions and other outstanding borrowings and issued letters of credit.
Amounts
drawn under our revolving credit facilities fluctuate daily based upon our working capital and other ordinary course needs. Availability under our revolving credit facilities
depends upon, among other things, compliance with our credit agreement's financial covenants. Our credit facilities contain negative and affirmative covenants and other requirements affecting us and
our subsidiaries, including among others: restrictions on incurrence of debt (except for permitted acquisitions and subordinated indebtedness), liens, mergers, investments, loans, advances, guarantee
obligations, acquisitions, asset dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted junior payments, stock repurchases, transactions with
affiliates, restrictive agreements and amendments to charters, by-laws, and other material documents. The terms of our credit agreement require us and our subsidiaries to meet certain
restrictive financial covenants and ratios computed quarterly, including a leverage ratio (total consolidated indebtedness plus outstanding amounts under the accounts receivable securitization
facility over consolidated EBITDA, as defined), interest expense coverage ratio (consolidated EBITDA, as defined, over cash interest expense, as defined) and a capital expenditures covenant. The most
restrictive of these financial covenants are the leverage ratio and interest expense coverage ratio. Our permitted leverage ratio under the ARCA is 5.00 to 1.00 for January 1, 2010 to
March 31, 2010, 5.25 to 1.00 for April 1, 2010 to June 30, 2010, 5.00 to 1.00 for July 1, 2010 to December 31, 2010, 4.75 to 1.00 for January 1, 2011 to
June 30, 2011, 4.50 to 1.00 for July 1, 2011 to September 30, 2011, 4.25 to 1.00 for October 1, 2011 to September 30, 2012, 4.00 to 1.00 for October 1, 2012
to June 30, 2013 and 3.50 to 1.00 from July 1, 2013 and thereafter. Our actual leverage ratio was 3.69 to 1.00 at March 31, 2010. Our permitted interest expense coverage ratio
under the ARCA is 2.30 to 1.00 for January 1, 2010 to March 31, 2010, 2.15 to 1.00 for April 1, 2010 to June 30, 2010, 2.00 to 1.00 for July 1, 2010 to
June 30, 2011, 2.25 to 1.00 for July 1, 2011 to June 30, 2012, 2.40 to 1.00 for July 1, 2012 to December 31, 2012, 2.50 to 1.00 for January 1, 2013 to
September 30, 2013 and 2.75 to 1.00 for October 1, 2013 and thereafter. Our actual interest expense coverage ratio was 3.07 to 1.00 at March 31, 2010. At March 31, 2010, we
were in compliance with our financial covenants.
42
Table of Contents
The following is a reconciliation of net income (loss), as reported, which is a GAAP measure of our operating results, to Consolidated Bank EBITDA, as defined in
our credit agreement, for the twelve months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2009 |
|
Less:
Three Months
Ended
March 31, 2009 |
|
Add:
Three Months
Ended
March 31, 2010 |
|
Twelve Months
Ended
March 31, 2010 |
|
|
|
(dollars in thousands)
|
|
Net income (loss), as reported |
|
$ |
(220 |
) |
$ |
(3,680 |
) |
$ |
5,430 |
|
$ |
8,890 |
|
Bank stipulated adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense, net (as defined) |
|
|
45,720 |
|
|
12,530 |
|
|
14,290 |
|
|
47,480 |
|
| |
Income tax expense (benefit)(1) |
|
|
(520 |
) |
|
(2,490 |
) |
|
4,470 |
|
|
6,440 |
|
| |
Depreciation and amortization |
|
|
43,940 |
|
|
11,760 |
|
|
9,610 |
|
|
41,790 |
|
| |
Extraordinary non-cash charges(2) |
|
|
3,270 |
|
|
— |
|
|
— |
|
|
3,270 |
|
| |
Monitoring fees(3) |
|
|
2,890 |
|
|
— |
|
|
— |
|
|
2,890 |
|
| |
Interest equivalent costs(4) |
|
|
1,530 |
|
|
570 |
|
|
— |
|
|
960 |
|
| |
Non-cash compensation expense |
|
|
1,370 |
|
|
30 |
|
|
480 |
|
|
1,820 |
|
| |
Other non-cash expenses or losses |
|
|
3,570 |
|
|
420 |
|
|
830 |
|
|
3,980 |
|
| |
Non-recurring expenses or costs for cost savings projects(6) |
|
|
10,940 |
|
|
3,500 |
|
|
— |
|
|
7,440 |
|
| |
Debt extinguishment costs(7) |
|
|
11,400 |
|
|
510 |
|
|
— |
|
|
10,890 |
|
| |
Negative EBITDA from discontinued operations(8) |
|
|
3,720 |
|
|
100 |
|
|
440 |
|
|
4,060 |
|
| |
Permitted dispositions(9) |
|
|
12,130 |
|
|
11,520 |
|
|
(110 |
) |
|
500 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Consolidated Bank EBITDA, as defined |
|
$ |
139,740 |
|
$ |
34,770 |
|
$ |
35,440 |
|
$ |
140,410 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
(dollars in
thousands)
|
|
Total long-term debt |
|
$ |
518,520 |
|
Aggregate funding under the receivables securitization facility |
|
|
— |
|
| |
|
|
|
Total Consolidated Indebtedness, as defined |
|
$ |
518,520 |
|
| |
|
|
|
Consolidated Bank EBITDA, as defined |
|
$ |
140,410 |
|
| |
|
|
|
Actual leverage ratio |
|
|
3.69 |
x |
| |
|
|
|
Covenant requirement |
|
|
5.00 |
x |
| |
|
|
|
43
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2009 |
|
Less:
Three Months
Ended
March 31, 2009 |
|
Add:
Three Months
Ended
March 31, 2010 |
|
Twelve Months
Ended
March 31, 2010 |
|
|
|
(dollars in thousands)
|
|
Interest expense, as reported |
|
$ |
45,720 |
|
$ |
12,530 |
|
$ |
14,290 |
|
$ |
47,480 |
|
Bank stipulated adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest equivalent costs from receivables financing |
|
|
1,530 |
|
|
570 |
|
|
— |
|
|
960 |
|
| |
Interest income |
|
|
(310 |
) |
|
(100 |
) |
|
(90 |
) |
|
(300 |
) |
| |
Non-cash amounts attributable to amortization of financing costs |
|
|
(2,240 |
) |
|
(610 |
) |
|
(720 |
) |
|
(2,350 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Total Consolidated Cash Interest Expense, as defined |
|
$ |
44,700 |
|
$ |
12,390 |
|
$ |
13,480 |
|
$ |
45,790 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
(dollars in
thousands)
|
|
Consolidated Bank EBITDA, as defined |
|
$ |
140,410 |
|
Total Consolidated Cash Interest Expense, as defined |
|
|
45,790 |
|
| |
|
|
|
Actual interest expense ratio |
|
|
3.07 |
x |
| |
|
|
|
Covenant requirement |
|
|
2.30 |
x |
| |
|
|
|
- (1)
- Amount
includes tax expense (benefits) associated with discontinued operations.
- (2)
- Non-cash
charges associated with tangible and intangible asset impairments, including goodwill.
- (3)
- Represents
management fees and expenses paid to Heartland and/or its affiliates pursuant to the Heartland Advisory Agreement.
- (4)
- Interest-equivalent
costs associated with the Company's receivables securitization facility.
- (5)
- Non-cash
expenses resulting from the grant of restricted shares of common stock and common stock options.
- (6)
- Non-recurring
costs and expenses relating to cost savings projects, including restructuring and severance expenses, not to exceed $32,000,000 in
the aggregate, subsequent to October 1, 2009.
- (7)
- Costs
incurred in connection with amending and restating our credit facilities, issuance of our 93/4% senior secured notes and the retirement
of our 97/8% senior subordinated notes.
- (8)
- Not
to exceed $10,000,000 in any fiscal year.
- (9)
- EBITDA
from permitted dispositions, as defined.
Two
of our international businesses are also parties to loan agreements with banks, denominated in their local currencies.
In
the United Kingdom, we are party to a revolving debt agreement with a bank in the amount of £1.0 million, At March 31, 2010 the balance outstanding under
this agreement, which is secured by a letter of credit under our credit facilities, was approximately $0.7 million at an interest rate of 2.5%.
In
Australia, we are party to a debt agreement with a bank in the amount of $23.0 million Australian dollars which expires December 31, 2010. At March 31, 2010, the
balance outstanding under this agreement was approximately $8.3 million at an interest rate of 6.8%. Borrowings under this arrangement are secured by substantially all the assets of our local
business which is also subject to
44
Table of Contents
financial
and reporting covenants. Financial covenants include a capital adequacy ratio (tangible net worth over total tangible assets) and an interest coverage ratio (EBIT over gross interest cost)
and we were in compliance with such covenants at March 31, 2010. In addition to the financial covenants there are other financial restrictions such as: restrictions on dividend payments, U.S.
parent loan repayments, negative pledge and undertakings with respect to related entities.
Another
important source of liquidity is our $75.0 million accounts receivable facility, under which we have the ability to sell eligible accounts receivable to a third-party
multi-seller receivables funding company. As of March 31, 2010, we had no amounts funded under the facility with $51.7 million available but not utilized.
At
March 31, 2010, our available revolving credit capacity of $143.0 million under our credit facility was reduced by approximately $31.0 million of letters of
credit outstanding as of that date. The letters of credit are used for a variety of purposes, including support of certain operating lease agreements, vendor payment terms and other subsidiary
operating activities, and to meet various states' requirements to self-insure workers' compensation claims, including incurred but not reported claims. After consideration of outstanding
letters of credit and $13.2 million outstanding under our supplemental revolving credit facility at March 31, 2010, we had $98.8 million of revolving credit capacity available, in
addition to $51.7 million of available liquidity under our accounts receivable facility discussed above. However, after consideration of our leverage covenant, we had aggregate available
funding under our revolving credit and accounts receivable facilities of $150.5 million at March 31, 2010.
Our
available revolving credit capacity under our credit facility, after consideration of approximately $31.0 million in letters of credit outstanding related thereto, is
approximately $112.0 million, while our available liquidity under our accounts receivable securitization facility ranges from $30 million to $55 million, depending on the level of
our receivables outstanding at a given point in time during the year. We rely upon our cash flow from operations and available liquidity under our revolving credit and accounts receivable facilities
to fund our debt service obligations and other contractual commitments, working capital and capital expenditure requirements. Generally, we use available liquidity under these facilities to fund
capital expenditures and daily working capital requirements during the first half of the year, as we experience some seasonality in our Cequent operating segment. Sales of towing and trailering
products within this segment are generally stronger in the second and third quarters, as original equipment manufacturers (OEMs), distributors and retailers acquire product for the spring and summer
selling seasons. None of our other operating segments experience any significant seasonal fluctuations in their respective businesses. During the second half of the year, the investment in working
capital is reduced and amounts outstanding under our credit and securitization facilities are paid down. At the end of each quarter, we generally use cash on hand to pay down amounts outstanding under
our revolving credit and accounts receivable facilities.
Cash
management related to our revolving credit and accounts receivable facilities is centralized. We monitor our cash position and available liquidity on a daily basis and forecast our
cash needs on a weekly basis within the current quarter and on a monthly basis outside the current quarter over the remainder of the year. Our business and related cash forecasts are updated monthly.
Given aggregate available funding under our revolving credit and accounts receivable facilities of $150.5 million at March 31, 2010, after consideration of the aforementioned leverage
restrictions, and based on forecasted cash sources and requirements inherent in our business plans, we believe that our liquidity and capital resources, including anticipated cash flows from
operations, will be sufficient to meet our debt service, capital expenditure and other short-term and long-term obligation needs for the foreseeable future.
45
Table of Contents
We
also have $250.0 million (face value) 93/4% senior secured notes ("Senior Notes") outstanding at March 31, 2010, due 2017. Interest on the Senior Notes
accrues at the rate of 9.75% per annum and is payable semi-annually in arrears on June 15 and December 15.
The
Senior Notes are general senior secured obligations of the Company and are pari passu in right of payment with all existing and future indebtedness of the Company that is not
subordinated in right of payment to the Senior Notes.
Prior
to December 15, 2012, the Company may redeem up to 35% of the principal amount of Senior Notes at a redemption price equal to 109.750% of the principal amount, plus accrued
and unpaid interest to the applicable redemption date plus additional interest, if any, with the net cash proceeds of one or more equity offerings, provided that at least 65% of the original principal
amount of Senior Notes issued remains outstanding after such redemption, and provided further that each such redemption occurs within 90 days of the date of closing of each such equity
offering.
Principal
payments required under our amended and restated credit facility term loan are: $0.7 million due each calendar quarter through September 30, 2015;
$24.9 million due August 2, 2013 relative to term loan amounts not extended, and; $211.7 million due on December 15, 2015.
Our
credit facility is guaranteed on a senior secured basis by us and all of our domestic subsidiaries, other than our special purpose receivables subsidiary, on a joint and several
basis. In addition, our obligations and the guarantees thereof are secured by substantially all the assets of us and the guarantors.
Our
exposure to interest rate risk results from variable rates under our credit facility. Borrowings under our credit facility bear interest at various rates some of which are subject to
a 2% LIBOR-floor.
At
March 31, 2010, 1-Month LIBOR approximated 0.25%. Based on our variable rate-based borrowings outstanding at March 31, 2010, and after
consideration of the 2% LIBOR-floor applicable to $53.1 million of our supplemental revolving credit facility and $225.2 million of our term loan, a 1% increase in the per annum interest
rate for borrowings under our U.S. and foreign credit facilities would increase our interest expense by approximately $0.3 million annually. The impact of a further decrease in LIBOR on our
annual interest expense would not be material.
We
have other cash commitments related to leases. We account for these lease transactions as operating leases and annual rent expense for continuing operations related thereto
approximated 14.7 million. We expect to continue to utilize leasing as a financing strategy in the future to meet capital expenditure needs and to reduce debt levels.
In
addition to rent expense from continuing operations, we also have approximately $2.3 million in annual future lease obligations related to businesses that have been
discontinued, of which approximately 61% relates to the facility for the former specialty laminates, jacketings and insulation tapes line of business (which extends through 2024), 33% relates to the
Wood Dale facility in the former industrial fastening business (which extends through 2022), and 6% relates to the facility in our medical device line of business (which extends through 2012).
Market Risk
We conduct business in several locations throughout the world and are subject to market risk due to changes in the value of foreign
currencies. We do not currently use derivative financial instruments to manage these risks. The functional currencies of our foreign subsidiaries are the local currency in the country of domicile. We
manage these operating activities at the local level and revenues and costs are generally denominated in local currencies; however, results of operations and assets and liabilities reported in U.S.
dollars will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.
46
Table of Contents
Common Stock
We voluntarily transferred our stock exchange listing in the U.S. from The New York Stock Exchange to The NASDAQ Global
Market® effective August 24, 2009. The company's stock continues to trade under the symbol "TRS."
Credit Rating
We and certain of our outstanding debt obligations are rated by Standard & Poor's and Moody's. On December 19, 2009,
Moody's assigned a rating of Caa1 to our senior secured notes, improved the outlook from negative to stable, and affirmed our corporate family and senior secured credit rating at B3 and B1,
respectively. On December 16, 2009, Standard & Poor's assigned a rating of B- to our senior secured notes, affirmed our credit facilities and corporate credit ratings of BB
and B+ respectively, but maintained a negative outlook. If our credit ratings were to decline, our ability to access certain financial markets may become limited, the perception of us in the view of
our customers, suppliers and security holders may worsen and as a result, we may be adversely affected.
Outlook
We believe the actions completed in 2009 under our Performance Improvement Plan position us for continued profitable future growth and
place us in a better competitive position by enabling strategies focused on reduced cycle times and securing our position as best cost producer. Among our top priorities for 2010 are continuing to
identify and execute on cost savings and productivity initiatives, to grow revenue via new products and expand our core products in non-U.S. markets, to continue to reduce our indebtedness
and increase our available liquidity.
The
combination of the savings realized from the Performance Improvement Plan, our ongoing productivity initiatives and the upturn in economic activity in the first quarter of 2010 has
helped us to grow our earnings levels as compared to the first quarter of 2009. As there is still some degree of uncertainty in the markets that our businesses serve, there are a range of possible
outcomes due to the uncertain financial markets environment, and we can offer no assurances that the economy will continue to improve.
Impact of New Accounting Standards
See Note 15, "New Accounting Pronouncements," included in Part I,
Item 1, "Notes to Unaudited Consolidated Financial Statements," within this Form 10-Q.
Critical Accounting Policies
Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, our
evaluation of business and macroeconomic trends, and information from other outside sources, as appropriate.
During
the quarter ended March 31, 2010, there were no material changes to the items that we disclosed as our critical accounting policies in Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's 2009 Annual Report on
Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, we are exposed to market risk associated with fluctuations in foreign currency exchange rates. We are
also subject to interest risk as it relates to long-term debt. See Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations,"
47
Table of Contents
for
details about our primary market risks, and the objectives and strategies used to manage these risks. Also see Note 8, "Long-term
Debt," in Part I, Item 1, "Notes to Unaudited Consolidated Financial Statements," included within this
Form 10-Q for additional information.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the
reports that the Company files or submits under the Securities and Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures.
As of March 31, 2010, an evaluation was carried out by management, with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) of the
Securities Exchange Act of 1934, (the "Exchange Act")) pursuant to Rule 13a-15 of the Exchange Act. Our disclosure controls and procedures are designed only to provide reasonable
assurance that they will meet their objectives. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2010, the Company's disclosure
controls and procedures are effective to provide reasonable assurance that they would meet their objectives.
There have been no changes in the Company's internal control over financial reporting during the quarter ended March 31, 2010
that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
48
Table of Contents
PART II. OTHER INFORMATION
TRIMAS CORPORATION
Item 1. Legal Proceedings
See Note 10, "Commitments and Contingencies," included in Part I,
Item 1, "Notes to Unaudited Consolidated Financial Statements," within this Form 10-Q.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part 1,
Item 1A., "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2009, which could
materially affect our business, financial condition or future results. There have been no significant changes in our risk factors as disclosed in our 2009 Form 10-K.
The
risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that
we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Reserved.
Item 5. Other Information
Not applicable.
Item 6. Exhibits.
Exhibits Index:
|
|
|
|
| |
3.1 |
(l) |
Fourth Amended and Restated Certificate of Incorporation of TriMas Corporation. |
|
3.2 |
(l) |
Second Amended and Restated By-laws of TriMas Corporation. |
|
4.1 |
(a) |
Indenture relating to the 97/8% senior subordinated notes, dated as of June 6, 2002, by and among TriMas Corporation, each of the Guarantors named therein and The Bank of New York as
Trustee, (including Form of Note as Exhibit). |
|
4.2 |
(c) |
Supplemental Indenture dated as of March 4, 2003. |
|
4.3 |
(d) |
Second Supplemental Indenture dated as of May 9, 2003. |
|
4.4 |
(e) |
Third Supplemental Indenture dated as of August 6, 2003. |
|
4.5 |
(p) |
Fourth Supplemental Indenture dated as of February 28, 2008. |
|
4.6 |
(ad) |
Fifth Supplemental Indenture dated as of January 26, 2009. |
|
4.7 |
(ac) |
Sixth Supplemental Indenture, dated as of December 29, 2009. |
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Table of Contents
|
|
|
|
| |
4.8 |
(ac) |
Indenture relating to the 93/4% senior secured notes dated as of December 29, 2009, among TriMas Corporation, the Guarantors named therein and The Bank of New York Mellon Trust Company, N.A.,
as Trustee. |
|
10.1 |
(a) |
Stock Purchase Agreement dated as of May 17, 2002 by and among Heartland Industrial Partners, L.P., TriMas Corporation and Metaldyne Company LLC. |
|
10.2 |
(a) |
Amended and Restated Shareholders Agreement, dated as of July 19, 2002 by and among TriMas Corporation and Metaldyne Corporation. |
|
10.3 |
(j) |
Amendment No. 1 to Amended and Restated Shareholders Agreement dated as of August 31, 2006. |
|
10.4 |
(i) |
Credit Agreement dated as of June 6, 2002, as amended and restated as of August 2, 2006 among TriMas Corporation, TriMas Company LLC, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral
Agent, and Comerica Bank, as Syndication Agent. |
|
10.5 |
(ab) |
Credit Agreement dated as of June 6, 2002, as amended and restated as of August 2, 2006, as further amended and restated as of December 16, 2009, among TriMas Corporation, TriMas Company LLC,
JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, Comerica Bank, as Syndication Agent and J.P. Morgan Securities Inc., as Lead Arranger and Bookrunner. |
|
10.6 |
(ac) |
Credit Agreement dated as of June 6, 2002, as amended and restated as of August 2, 2006, as further amended and restated as of December 16, 2009, as further amended and restated as of January 13,
2010, among TriMas Corporation, TriMas Company LLC, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, Comerica Bank, as Syndication Agent, and J.P. Morgan Securities Inc., as Lead Arranger and Bookrunner. |
|
10.7 |
(a) |
Receivables Purchase Agreement, dated as of June 6, 2002, by and among TriMas Corporation, the Sellers party thereto and TSPC, Inc., as Purchaser. |
|
10.8 |
(w) |
Amendment No. 1 as of February 13, 2009 to Receivables Purchase Agreement. |
|
10.9 |
(a) |
Receivables Transfer Agreement, dated as of June 6, 2002, by and among TSPC, Inc., as Transferor, TriMas Corporation, individually, as Collection Agent, TriMas Company LLC, individually as Guarantor,
the CP Conduit Purchasers, Committed Purchasers and Funding Agents party thereto, and JPMorgan Chase Bank as Administrative Agent. |
|
10.10 |
(k) |
Amendment dated as of June 3, 2005, to Receivables Transfer Agreement. |
|
10.11 |
(h) |
Amendment dated as of July 5, 2005, to Receivables Transfer Agreement. |
|
10.12 |
(n) |
Amendment dated as of December 31, 2007, to Receivables Transfer Agreement. |
|
10.13 |
(o) |
Amendment dated as of February 22, 2008, to Receivables Transfer Agreement. |
|
10.14 |
(w) |
Amendment dated as of February 13, 2009, to Receivables Transfer Agreement. |
|
10.15 |
(p) |
TriMas Receivables Facility Amended and Restated Fee Letter dated February 22, 2008. |
|
10.16 |
(w) |
TriMas Receivables Facility Amended and Restated Fee Letter dated February 13, 2009. |
|
10.17 |
(ac) |
Amended and Restated Receivables Purchase Agreement, dated as of December 29, 2009, among TriMas Corporation, the Sellers named therein and TSPC, Inc. as Purchaser. |
|
10.18 |
(ac) |
Receivables Transfer Agreement, dated as of December 29, 2009, among TSPC, Inc., as Transferor, TriMas Corporation, as Collection Agent, TriMas Company LLC, as Guarantor, the persons party thereto from
time to time as Purchasers and Wachovia Bank, National Association, as Administrative Agent. |
50
Table of Contents
|
|
|
|
| |
10.19 |
(a) |
Lease Assignment and Assumption Agreement, dated as of June 21, 2002, by and among Heartland Industrial Group, L.L.C., TriMas Company LLC and the Guarantors named therein. |
|
10.20 |
(a) |
TriMas Corporation 2002 Long Term Equity Incentive Plan. |
|
10.21 |
(t) |
First Amendment to the TriMas Corporation 2002 Long Term Equity Incentive Plan. |
|
10.22 |
(t) |
Second Amendment to the TriMas Corporation 2002 Long Term Equity Incentive Plan. |
|
10.23 |
(t) |
Third Amendment to the TriMas Corporation 2002 Long Term Equity Incentive Plan. |
|
10.24 |
(t) |
Fourth Amendment to the TriMas Corporation 2002 Long Term Equity Incentive Plan. |
|
10.25 |
(d) |
Asset Purchase Agreement among TriMas Corporation, Metaldyne Corporation and Metaldyne Company LLC dated May 9, 2003, (including Exhibit A—Form of Sublease Agreement). |
|
10.26 |
(f) |
2003 Form of Stock Option Agreement. |
|
10.27 |
(s) |
2008 Annual Value Creation Program. |
|
10.28 |
(t) |
409A Amendment to TriMas Corporation Annual Value Creation Plan effective September 10, 2008. |
|
10.29 |
(g) |
Form of Indemnification Agreement. |
|
10.30 |
(j) |
Amendment No. 1 to Stock Purchase Agreement, dated as of August 31, 2006 by and among Heartland Industrial Partners, L.P., TriMas Corporation and Metaldyne Corporation. |
|
10.31 |
(s) |
Amendment No. 2 to Stock Purchase Agreement, dated as of November 27, 2006 by and among Heartland Industrial Partners, L.P., TriMas Corporation and Metaldyne Corporation. |
|
10.32 |
(j) |
Advisory Agreement, dated June 6, 2002 between Heartland Industrial Partners, L.P. and TriMas Corporation. |
|
10.33 |
(k) |
First Amendment to Advisory Agreement, dated as of November 1, 2006 between Heartland Industrial Group, L.L.C. and TriMas Corporation. |
|
10.34 |
(k) |
Second Amendment to Advisory Agreement, dated as of November 1, 2006 between Heartland Industrial Group, L.L.C. and TriMas Corporation. |
|
10.35 |
(k) |
Management Rights Agreement. |
|
10.36 |
(aa) |
Executive Severance/Change of Control Policy. |
|
10.37 |
(ag) |
TriMas Corporation 2006 Long Term Equity Incentive Plan Composite Plan Document. |
|
10.38 |
(q) |
Separation Agreement dated April 10, 2008. |
|
10.39 |
(r) |
Letter Agreement dated April 28, 2008. |
|
10.40 |
(s) |
Letter Agreement dated July 1, 2008. |
|
10.41 |
(z) |
ISDA 2002 Master Agreement between JPMorgan Chase Bank, N. A. and TriMas Company LLC dated as of January 29, 2009. |
|
10.42 |
(t) |
Interest Rate Swap Transaction letter Agreement between JPMorgan Chase Bank, N.A. and TriMas Company, LLC effective as of April 29, 2008. |
|
10.43 |
(ad) |
Interest Rate Swap Transaction letter Agreement between JPMorgan Chase Bank, N.A. and TriMas Company, LLC effective as of January 28, 2009. |
51
Table of Contents
|
|
|
|
| |
10.44 |
(ad) |
Interest Rate Swap Transaction letter Agreement between JPMorgan Chase Bank, N.A. and TriMas Company, LLC effective as of October 28, 2009. |
|
10.45 |
(w) |
Asset Purchase Agreement between Lamtec Corporation, Compac Corporation and TriMas Company LLC dated as of December 8, 2008. |
|
10.46 |
(u) |
Offer Letter from TriMas Corporation to David M. Wathen dated as of January 12, 2009. |
|
10.47 |
(v) |
Separation Agreement dated as of January 13, 2009. |
|
10.48 |
(y) |
Separation Agreement dated as of March 5, 2009. |
|
10.49 |
(x) |
TriMas Corporation Long Term Equity Incentive Plan Non-Qualified Stock Option Agreement. |
|
10.50 |
(y) |
2009 TriMas Incentive Compensation Plan. |
|
10.51 |
(af) |
2010 TriMas Incentive Compensation Plan. |
|
10.52 |
(aa) |
Flexible Cash Allowance Policy. |
|
10.53 |
(ad) |
TriMas Corporation 2006 Long Term Equity Incentive Plan Restricted Stock Agreement—2009 Additional Grant. |
|
10.54 |
(ad) |
TriMas Corporation 2006 Long Term Equity Incentive Plan Restricted Stock Agreement—2009 162(m) Conversion Grant. |
|
10.55 |
(ad) |
TriMas Corporation 2002 Long Term Equity Incentive Plan Restricted Stock Agreement—2009 Conversion and Additional Grants. |
|
10.56 |
(ae) |
TriMas Corporation 2002 Long Term Equity Incentive Plan Non-Qualified Stock Option Agreement. |
|
10.57 |
(ae) |
TriMas Corporation 2002 Long Term Equity Incentive Plan Restricted Stock Agreement. |
|
10.58 |
(ae) |
TriMas Corporation 2006 Long Term Equity Incentive Plan Restricted Stock Unit Agreement. |
|
10.59 |
|
Asset Purchase Agreement among TW Cylinders LLC, Taylor-Wharton International LLC and Norris Cylinder Company dated as of April 30, 2010. |
|
31.1 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
- (a)
- Incorporated
by reference to the Exhibits filed with our Registration Statement on Form S-4, filed on October 4, 2002 (File
No. 333-100351).
- (b)
- Incorporated
by reference to the Exhibits filed with Amendment No. 2 to our Registration Statement on Form S-4, filed on
January 28, 2003 (File No. 333-100351).
- (c)
- Incorporated
by reference to the Exhibits filed with our Annual Report on Form 10-K filed March 31, 2003 (File
No. 333-100351).
52
Table of Contents
- (d)
- Incorporated
by reference to the Exhibits filed with our Registration Statement on Form S-4, filed June 9, 2003 (File
No. 333-105950).
- (e)
- Incorporated
by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 14, 2003 (File
No. 333-100351).
- (f)
- Incorporated
by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on November 12, 2003 (File
No. 333-100351).
- (g)
- Incorporated
by reference to the Exhibits filed with Amendment No. 3 to our Registration Statement on Form S-1/A, filed on
June 29, 2004 (File No. 333-113917).
- (h)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on July 6, 2005 (File
No. 333-100351).
- (i)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on August 3, 2006 (File
No. 333-100351).
- (j)
- Incorporated
by reference to the Exhibits filed with Amendment No. 1 to our Registration Statement on Form S-1, filed on
September 19, 2006 (File No. 333-136263).
- (k)
- Incorporated
by reference to the Exhibits filed with Amendment No. 3 to our Registration Statement on Form S-1, filed on
January 18, 2007 (File No. 333-136263).
- (l)
- Incorporated
by reference to the Exhibits filed with our Quarterly Report on Form 10-Q, filed on August 3, 2007 (File
No. 333-100351).
- (m)
- Incorporated
by reference to the Exhibits filed with the Registration Statement on Form S-8, filed on August 31, 2007 (File
No. 333-145815).
- (n)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on January 4, 2008 (File
No. 001-10716).
- (o)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on February 26, 2008 (File
No. 001-10716).
- (p)
- Incorporated
by reference to the Exhibits filed with our Annual Report on Form 10-K filed on March 13, 2008 (File
No. 001-10716).
- (q)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on April 10, 2008 (File
No. 001-10716).
- (r)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on June 2, 2008 (File
No. 001-10716).
- (s)
- Incorporated
by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on August 7, 2008 (File
No. 001-10716).
- (t)
- Incorporated
by reference to the Exhibits filed with our Quarterly Report on Form 10-Q filed on November 10, 2008 (File
No. 001-10716).
- (u)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on January 14, 2009 (File
No. 001-10716).
- (v)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on February 5, 2009 (File
No. 001-10716).
- (w)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on February 17, 2009 (File
No. 001-10716).
53
Table of Contents
- (x)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on March 6, 2009 (File
No. 001-10716).
- (y)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on March 10, 2009 (File
No. 001-10716).
- (z)
- Incorporated
by reference to the Exhibits filed with our Annual Report on Form 10-K filed on March 10, 2009 (File
No. 001-10716).
- (aa)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on December 10, 2009 (File
No. 001-10716).
- (ab)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on December 17, 2009 (File
No. 001-10716).
- (ac)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on January 15, 2010 (File
No. 001-10716).
- (ad)
- Incorporated
by reference to the Exhibits filed with our Annual Report on Form 10-K filed on March 4, 2010 (File
No. 001-10716).
- (ae)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on March 4, 2010 (File
No. 001-10716).
- (af)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on March 15, 2010 (File
No. 001-10716).
- (ag)
- Incorporated
by reference to the Exhibits filed with our Report on Form 8-K filed on March 26, 2010 (File
No. 001-10716).
54
Table of Contents
Signature
Pursuant to the requirements 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.
|
|
|
|
|
| |
|
TRIMAS CORPORATION (Registrant) |
Date: April 30, 2010 |
|
By: |
|
/s/ A. MARK ZEFFIRO
A. Mark Zeffiro
Chief Financial Officer |
55
