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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2003
OR
[ ] 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 333-100351
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TRIMAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2687639
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
39400 WOODWARD AVENUE, SUITE 130
BLOOMFIELD HILLS, MICHIGAN 48304
(Address of principal executive offices, including zip code)
(248) 631-5400
(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 [X] No [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12 6-2 of the Exchange Act). Yes [ ] No [X].
As of May 13, 2003, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 20,000,000 shares.
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TRIMAS CORPORATION
INDEX
PAGE NO.
--------
Part I. Financial Information
Forward Looking Statements 1
Item 1. Financial Statements
Consolidated Balance Sheet - March 30, 2003
and December 31, 2002 2
Consolidated Statement of Operations for the
Three Months Ended March 30, 2003 and March 31, 2002 3
Consolidated Statement of Cash Flows for the
Three Months Ended March 30, 2003 and March 31, 2002 4
Consolidated Statement of Shareholders' Equity
for the Three Months Ended March 30, 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosure about Market Risk 34
Item 4. Controls and Procedures 34
Part II. Other Information, Signature and Certifications 35
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements about our financial
condition, results of operations and business. You can find many of these
statements by looking for words such as "may," "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.
Risks and uncertainties that could cause actual results to vary
materially from those anticipated in the forward-looking statements included in
this report include general economic conditions in the markets in which we
operate and industry-based factors such as:
o General Economic Conditions - our business depends upon general
economic conditions and we serve some customers in highly cyclical
industries.
o Acquisition Strategy - if we are unable to identify attractive
acquisition candidates, successfully integrate our acquired operations
or realize the intended benefits of our acquisitions, our business
strategy and financial condition and results would be negatively
affected.
o Labor Stoppages - we may be subject to work stoppages at our facilities
or our customers may be subjected to work stoppages.
o Product Liability and Warranty Claims - we may incur material losses
and costs as a result of product liability and warranty claims, as well
as legacy liability issues.
o Environmental Matters - we may be materially and adversely affected by
compliance obligations and liabilities under environmental laws and
regulations.
o Raw Material and Other Costs - increases in our raw material, labor, or
energy costs or the loss of a substantial number of our suppliers could
adversely affect us.
o Competition - we operate in competitive industries and may experience
increased competition.
o Changing Technology - our products are typically highly engineered or
customer-driven and, as such, we are subject to risks associated with
changing technology and manufacturing techniques.
o Dependence on Key Individuals and Relationships - we depend on the
services of key individuals and relationships.
o Control by Principal Stockholder - we are controlled by Heartland,
whose interests in our business may be different than those of our
other investors.
o Substantial Leverage and Debt Service - we have substantial debt,
interest and lease payment requirements that may restrict our future
operations and impair our ability to meet our obligations.
o Substantial Restrictions and Covenants - restrictions in our credit
facility and under the indenture governing our notes.
In addition, factors more specific to us could cause actual results to
vary materially from those anticipated in the forward-looking statements
included in this report, such as substantial leverage, limitations imposed by
our debt instruments, our ability to identify attractive and other strategic
acquisition opportunities and our ability to successfully separate from
Metaldyne Corporation and to successfully integrate acquired businesses
including actions we have identified as providing cost-saving opportunities.
We disclose important factors that could cause our actual results to
differ materially from our expectations under "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
attributable 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 conditions,
results of operations and ability to make payments on the notes.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIMAS CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 30, 2003 AND DECEMBER 31, 2002
(UNAUDITED - DOLLARS IN THOUSANDS)
MARCH 30, DECEMBER 31,
2003 2002
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 30,660 $ 100,440
Receivables........................................................... 88,490 95,580
Inventories........................................................... 122,260 91,410
Deferred income taxes................................................. 18,740 18,290
Prepaid expenses and other current assets ............................ 12,110 9,810
-------------- -------------
Total current assets ............................................... 272,260 315,530
Property and equipment, net ............................................ 207,860 234,990
Excess of cost over net assets of acquired companies ................... 619,150 511,840
Other intangibles....................................................... 361,690 286,270
Other assets............................................................ 64,820 62,140
-------------- -------------
Total assets ....................................................... $ 1,525,780 $ 1,410,770
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities, long-term debt.................................... $ 10,640 $ 2,990
Accounts payable...................................................... 80,030 54,480
Accrued liabilities................................................... 83,590 63,140
Due to Metaldyne...................................................... 11,790 9,960
-------------- -------------
Total current liabilities .......................................... 186,050 130,570
Long-term debt ......................................................... 707,910 693,190
Deferred income taxes .................................................. 187,270 155,920
Other long-term liabilities ............................................ 21,940 31,080
Due to Metaldyne........................................................ 7,230 11,960
-------------- -------------
Total liabilities .................................................. 1,110,400 1,022,720
-------------- -------------
Commitment and contingencies (Note 11).................................. -- --
Preferred stock $0.01 par: Authorized 100,000,000 shares; Issued and
outstanding: None................................................... -- --
Common stock, $0.01 par: Authorized 400,000,000 shares; Issued and
outstanding 20,750,000 and 19,250,000 shares, respectively.......... 210 190
Paid-in capital......................................................... 418,110 387,500
Retained deficit........................................................ (14,260) (6,940)
Accumulated other comprehensive income.................................. 11,320 7,300
-------------- -------------
Total shareholders' equity......................................... 415,380 388,050
-------------- -------------
Total liabilities and shareholders' equity......................... $ 1,525,780 $ 1,410,770
============== =============
The accompanying notes are an integral part of these financial statements.
2
TRIMAS CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 30, 2003 AND MARCH 31, 2002
(UNAUDITED - IN THOUSANDS)
THREE MONTHS ENDED MARCH
---------------------------------
2003 2002
CONSOLIDATED COMBINED
------------- -------------
Net sales......................................................................... $ 213,780 $ 190,940
Cost of sales..................................................................... (162,120) (135,380)
------------- -------------
Gross profit.................................................................... 51,660 55,560
Selling, general and administrative expenses...................................... (35,320) (31,310)
------------- -------------
Operating profit................................................................ 16,340 24,250
------------- -------------
Other income (expense), net:
Interest expense................................................................ (16,040) (17,400)
Other, net.................................................................... (12,400) (1,390)
------------- -------------
Other expense, net .......................................................... (28,440) (18,790)
------------- -------------
Income (loss) before income tax (expense) credit and cumulative effect
of change in accounting principle.............................................. (12,100) 5,460
Income tax (expense) credit....................................................... 4,780 (1,910)
------------- -------------
Income (loss) before cumulative effect of change in accounting principle.......... (7,320) 3,550
Cumulative effect of change in recognition and measurement of goodwill impairment. -- (36,630)
------------- -------------
Net loss.......................................................................... $ (7,320) $ (33,080)
============= =============
The accompanying notes are an integral part of these financial statements.
3
TRIMAS CORPORATION
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 30, 2003 AND MARCH 31, 2002
(UNAUDITED - IN THOUSANDS)
THREE MONTHS ENDED MARCH
-----------------------------
2003 2002
CONSOLIDATED COMBINED
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $ (7,320) $ (33,080)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities, net of impact of acquisitions:
Cumulative effect of accounting change................................ -- 36,630
Net loss on sales of fixed assets..................................... 12,150 --
Depreciation and amortization......................................... 10,950 11,500
Legacy stock award expense ........................................... 1,270 --
Amortization of debt issue costs...................................... 940 --
Deferred income taxes ................................................ (7,420) 2,200
Net proceeds from accounts receivable securitization.................. 57,430 22,460
Payment to Metaldyne to fund contractual liabilities.................. (4,570) --
Increase in receivables............................................... (26,450) (37,290)
(Increase) decrease in inventories.................................... (1,350) 3,960
(Increase) decrease in prepaid expenses and other assets.............. (2,410) 1,780
Increase in accounts payable and accrued liabilities.................. 13,930 2,000
Other, net............................................................ 1,090 1,030
----------- -----------
Net cash provided by operating activities, net of acquisition impact 48,240 11,190
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................................................... (4,040) (4,600)
Proceeds from sales of fixed assets........................................ 42,120 160
Acquisition of businesses, net of cash acquired............................ (200,750) --
----------- -----------
Net cash used for investing activities.............................. (162,670) (4,440)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock................................. 30,000 --
Proceeds from borrowings on revolving credit facility...................... 191,700 --
Repayments of borrowings on revolving credit facility...................... (176,700) --
Debt issuance costs........................................................ (250) --
Payment on note payable.................................................... (100) --
Net decrease in Metaldyne Corporation net investment and advances.......... -- (13,610)
Increase in debt........................................................... -- 19,730
Payment of debt ........................................................... -- (13,230)
----------- -----------
Net cash provided by (used for) financing activities ............... 44,650 (7,110)
----------- -----------
CASH AND CASH EQUIVALENTS:
Decrease for the period.................................................... (69,780) (360)
At beginning of period..................................................... 100,440 3,780
----------- ---------------
At end of period.................................................... $ 30,660 $ 3,420
=========== ===========
The accompanying notes are an integral part of these financial statements
4
TRIMAS CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 30, 2003
(UNAUDITED - IN THOUSANDS)
ACCUMULATED
OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL DEFICIT INCOME TOTAL
--------- --------- --------- ---------- ---------
Balances, December 31, 2002.............. $ 190 $ 387,500 $ (6,940) $ 7,300 $ 388,050
---------
Comprehensive income (loss):
Net loss............................... -- -- (7,320) -- (7,320)
Foreign currency translation........... -- -- -- 4,020 4,020
---------
Total comprehensive loss............... -- -- -- -- (3,300)
---------
Net proceeds from issuance of
common stock........................... 20 29,980 -- -- 30,000
Net adjustments to reflect settlement
of contractual obligations............. -- 630 -- -- 630
--------- --------- --------- ---------- ---------
Balances, March 30, 2003................. $ 210 $ 418,110 $ (14,260) $ 11,320 $ 415,380
========= ========= ========= ========== =========
The accompanying notes are an integral part of these financial statements.
5
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
1. BASIS OF PRESENTATION
TriMas Corporation ("TriMas" or the "Company") is a global manufacturer
of products for commercial, industrial and consumer markets. During the first
quarter of 2003, the Company re-aligned its operating segments and appointed a
group president for its Fastening Systems group. Prior period segment
information has been revised to conform to the current structure and
presentation. The Company is principally engaged in four segments with diverse
products and market channels. Cequent Transportation Accessories produces
vehicle hitches and receivers, sway controls, weight distribution and fifth
wheel hitches, hitch mounted accessories, roof racks, trailer couplers, winches,
jacks, trailer brakes and lights and other vehicle and trailer accessories and
components that are distributed through independent installers and retail
outlets. Rieke Packaging Systems is a leading source of closures and dispensing
systems for steel and plastic industrial and consumer packaging applications.
The Fastening Systems group produces a wide range of large and small diameter
standard and custom-designed ferrous, nonferrous and special alloy fasteners and
highly engineered specialty fasteners for the domestic and international
aerospace industry. The Industrial Specialties group produces flame-retardant
facings and jacketing and insulation tapes used in conjunction with fiberglass
insulation, pressure-sensitive specialty tape products, high-pressure and
low-pressure cylinders for the transportation, storage and dispensing of
compressed gases, metallic and nonmetallic industrial gaskets, specialty
precision tools such as center drills, cutters, end mills, reamers, master
gears, gages and punches, specialty engines and service parts and specialty
ordnance components and weapon systems.
Prior to June 6, 2002 and the common stock issuance and related
financing transactions discussed in Note 2 below, the accompanying financial
statements represents the combined assets and liabilities and results of
operations of certain subsidiaries and divisions of subsidiaries of Metaldyne
Corporation ("Metaldyne") which constituted TriMas. The combined financial
statements include all revenues and costs directly attributed to the Company as
well as an estimate of direct and indirect Metaldyne corporate administrative
costs attributed to TriMas, based on a management fee allocation that
approximated 1% of net sales. This allocation of costs is based on estimates
that management believes are reasonable in the circumstances. However, the
charges included herein are not necessarily indicative of the amounts that would
have been reported if the Company had operated as an unaffiliated company.
Subsequent to June 6, 2002, the financial position and results of operations of
the Company and its subsidiaries are presented on a consolidated basis and the
Company will no longer file a consolidated tax return with Metaldyne.
The Company's fiscal year ends on December 31. The Company's fiscal
quarters end on the Sunday nearest March 31, June 30 and September 30. All
quarter references relate to the Company's fiscal year quarters unless otherwise
noted.
The accompanying condensed 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. Certain
prior year items have been reclassified to conform to the current year
presentation. Results of operations for interim periods are not necessarily
indicative of results for the full year. The accompanying consolidated financial
statements and notes thereto should be read in conjunction with the Company's
2002 Annual Report on Form 10-K.
2. RECAPITALIZATION
On June 6, 2002, the Company, Metaldyne and Heartland Industrial
Partners ("Heartland") entered into a stock purchase agreement under which
Heartland and other co-investors invested $265 million in the Company to acquire
approximately 66% of the Company's common stock on a fully diluted basis. To
effect the transactions contemplated by the stock purchase agreement, the
Company also entered into a senior credit facility consisting of a $150 million
revolving credit facility, a $260 million term loan facility and a $125 million
receivables securitization facility, and issued senior subordinated debentures
with a face value of $352.8 million. The Company declared and paid a dividend to
Metaldyne of $840 million in the form of cash, retirement of debt owed by TriMas
to Metaldyne
6
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
or attributed to TriMas under the Metaldyne credit agreement and repurchase of
TriMas originated receivables balances under the Metaldyne receivables facility.
TriMas was released from all obligations under the Metaldyne credit agreement in
connection with the common stock issuance and related financing transactions.
Under the terms of the stock purchase agreement, Metaldyne retained shares of
the Company's common stock valued at $120 million and received a warrant to
purchase 750,000 shares of common stock at par value of $.01 per share, valued
at $15 million. At March 30, 2003, this warrant had not been exercised. The
common stock and warrants were valued based upon the cash equity investment made
by Heartland and the other investors. At March 30, 2003, Metaldyne owned 31.4%
of the Company's common stock on a fully diluted basis.
As Heartland is both the Company's and Metaldyne's controlling
shareholder, this transaction was accounted for as a reorganization of entities
under common control and, accordingly, the Company has not established a new
basis of accounting in its assets or liabilities. Additional adjustments to
paid-in capital related to Metaldyne's investment in the Company may be recorded
in subsequent periods to reflect finalization of certain estimated amounts at
the transaction closing date.
3. ACQUISITIONS
On January 30, 2003, the Company acquired all of the capital stock of
HammerBlow Acquisition Corp. ("HammerBlow"), from 2000 Riverside Capital
Appreciation Fund, L.P., and other stockholders of HammerBlow. The total
consideration paid was $142.3 million (including our previous investment of $9.0
million), subject to a trade working capital adjustment pursuant to the purchase
agreement. Of this amount, $7.2 million, net of the purchase price is deferred,
payable in January 2004. HammerBlow is a manufacturer and distributor of towing,
trailer, and other vehicle accessories throughout North America and the purchase
includes The HammerBlow Corporation, Hidden Hitch, Tekonsha Towing Systems
("Tekonsha") and Sure Pull Towing Systems ("SurePull"). HammerBlow acquired
Tekonsha and SurePull from Dana Corporation on November 21, 2002.
On February 21, 2003, the Company acquired Highland Group Industries
("Highland") from the shareholders and option holders of Highland and FNL
Management Corp. The total consideration paid was $73.1 million, subject to a
trade working capital adjustment pursuant to the purchase agreement. Highland is
a market-leading supplier of cargo management products and a full line supplier
of vehicle protection products, specializing in products that help people safely
load, anchor, secure, tow, carry, trailer, and organize cargo, as well as
protect the vehicle and its cargo area.
The acquisitions of HammerBlow and Highland provide additional
opportunities to leverage new product extensions and innovations in our towing
and trailer products businesses with customers in new markets through enhanced
brand awareness and distribution, particularly in the end consumer retail
channel.
7
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the acquisition dates. The Company is in the
process of evaluating third-party valuations of certain intangible assets and
analyzing costs of integration of these businesses. The allocation of the
purchase price is subject to refinement of these estimates as well as any
changes resulting from finalizing working capital adjustments pursuant to the
terms of the purchase agreements (in thousands):
HAMMERBLOW HIGHLAND TOTAL
---------- ---------- ----------
Current assets ......................... $ 36,300 $ 19,070 $ 55,370
Property and equipment.................. 22,200 5,980 28,180
Other intangible assets................. 54,290 24,700 78,990
Goodwill................................ 69,800 35,160 104,960
Deferred taxes and other................ 2,380 1,280 3,660
---------- ---------- ----------
Total assets acquired.......... 184,970 86,190 271,160
---------- ---------- ----------
Current liabilities..................... 22,200 3,140 25,340
Deferred tax liabilities................ 20,470 9,950 30,420
---------- ---------- ----------
Total liabilities assumed...... 42,670 13,090 55,760
---------- ---------- ----------
Net assets acquired.......................... $ 142,300 $ 73,100 $ 215,400
========== ========== ==========
The estimated fair values of inventories acquired were increased $4.0
million from historical amounts, of which approximately $2.3 million of this
amount was included in cost of sales during the quarter ended March 30, 2003.
Based on preliminary estimates, of the $79.0 million of acquired other
intangible assets, $40.9 million was assigned to Customer Relationships with a
useful life of 15 years, $34.6 million was assigned to Trademarks with a useful
life of 40 years and the remaining $3.5 million was assigned to Technology and
Other with useful lives ranging from 7 - 10 years. The $105.0 million of
goodwill is assigned to the Cequent Transportation Accessories segment.
The results of these acquisitions are included in the March 30, 2003
consolidated financial statements of the Company from the respective dates of
acquisition. The following selected unaudited pro forma combined results of
operations for the Company, HammerBlow and Highland have been prepared assuming
that the acquisitions occurred at the beginning of the respective periods. The
selected unaudited pro forma combined results are based on the historical
information for TriMas and Highland and pro forma combined results of operations
for HammerBlow assuming that the acquisition of Tekonsha and SurePull occurred
at the beginning of the respective periods. The pro forma financial information
is not necessarily indicative of the combined results of operations that would
have been attained had the acquisitions taken place at the beginning of 2003 and
2002, nor are they indicative of future results. The expense associated with the
step-up in basis of inventory has been excluded as it will not be recurring.
The selected unaudited pro forma financial information presented does
not include the adjustments needed to give effect to the recapitalization
described in Note 2.
THREE MONTHS ENDED MARCH
--------------------------------------------------------------------
(IN THOUSANDS) 2003 2002
------------------------------ ------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ---------- ----------
Net sales............................. $ 213,780 $ 230,200 $ 190,940 $ 230,450
----------- ---------- ---------- ----------
Operating profit...................... $ 16,340 $ 21,130 $ 24,250 $ 28,550
----------- ---------- ---------- ----------
Income (loss) before cumulative
effect of accounting change........ $ (7,320) $ (5,080) $ 3,550 $ 5,450
----------- ---------- ---------- ----------
Net income (loss)..................... $ (7,320) $ (5,080) $ (33,080) $ (31,180)
----------- ---------- ---------- ----------
8
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, TriMas adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." This Statement eliminated amortization of goodwill and
certain other intangible assets, but requires at least annual testing for
impairment by comparison of estimated fair value to carrying value. The Company
estimates fair value using the present value of expected future cash flows and
other valuation measures.
The Company completed its transitional impairment test in the second
quarter of 2002, which resulted in a non-cash, after tax charge of $36.6 million
related to the Company's Fastening Systems group. Sales, operating profits and
cash flows for that business were lower than expected beginning in the first
quarter of 2001, and experienced further deterioration during the remainder of
2001 due to the overall economic downturn and cyclical declines in certain
markets for Fastening Systems products. Based on that trend, the earnings and
cash flow forecasts for the next five years were revised resulting in the
goodwill impairment loss. Consistent with the requirements of Statement 142, the
Company recognized this impairment charge as of January 1, 2002 as the
cumulative effect of change in accounting principle. As of December 31, 2002,
the Company's test for impairment indicated that the fair value of goodwill
exceeds the related carrying value.
Changes in the carrying amount of goodwill for the quarter ended March
30, 2003 are as follows (in thousands):
CEQUENT RIEKE
TRANSPORTATION PACKAGING FASTENING INDUSTRIAL
ACCESSORIES SYSTEMS SYSTEMS SPECIALTIES TOTAL
----------- ----------- ---------- ---------- -----------
Balance, December 31, 2002......... $ 226,600 $ 165,230 $ 49,510 $ 70,500 $ 511,840
Goodwill from acquisitions..... 104,960 -- -- 740 105,700
Impact of foreign currency
translation and other....... 900 220 230 260 1,610
----------- ----------- ---------- ---------- -----------
Balance, March 30, 2003............ $ 332,460 $ 165,450 $ 49,740 $ 71,500 $ 619,150
=========== =========== ========== ========== ===========
9
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The gross carrying amounts and accumulated amortization for the
Company's acquired other intangible assets as of March 30, 2003 and December 31,
2002 are summarized below (in thousands):
AS OF MARCH 30, 2003 AS OF DECEMBER 31, 2002
-------------------------------- ---------------------------------
GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
INTANGIBLE CATEGORY BY USEFUL LIFE AMOUNT AMORTIZATION AMOUNT AMORTIZATION
- ---------------------------------- -------------- ------------ -------------- ------------
Customer relationships:
6 - 12 years................ $ 26,500 $ (6,120) $ 26,500 $ (5,460)
15 - 25 years............... 102,900 (6,730) 62,000 (5,630)
40 years.................... 111,580 (6,490) 111,580 (5,790)
------------ ---------- ------------ ----------
Total customer relationships..... 240,980 (19,340) 200,080 (16,880)
------------ ----------- ------------ -----------
Trademark/Trade names:
40 years.................... 89,470 (3,280) 54,390 (2,830)
------------ ---------- ------------ ----------
Technology and other:
5 - 15 years................ 26,000 (6,390) 22,500 (5,670)
18 - 30 years............... 38,190 (3,940) 38,190 (3,510)
------------ ---------- ------------ ----------
Total technology and other....... 64,190 (10,330) 60,690 (9,180)
------------ ---------- ------------ ----------
$ 394,640 $ (32,950) $ 315,160 $ (28,890)
============ ========== ============ ==========
Amortization expense related to intangibles was approximately $4.0
million and $3.5 million for the three months ended March 30, 2003 and March 31,
2002, respectively, and is included in cost of sales in the accompanying
statement of operations. Estimated amortization expense for the next five fiscal
years beginning after December 31, 2002 is as follows: 2003 - $17.7 million;
2004 - $18.1 million; 2005 - $18.0 million; 2006 - $16.6 million; and 2007 -
$15.9 million.
5. RESTRUCTURINGS
Following the November 2000 acquisition of Metaldyne by Heartland,
Metaldyne employed a new senior management team for TriMas to reorganize and
restructure the TriMas business units and implement cost savings projects. The
new management team developed and launched six major projects and several
smaller initiatives to consolidate sub-scale business units and redundant plants
and to streamline administrative costs. During the 2003 first quarter, the
Company established a preliminary estimate of integration costs associated with
its acquisitions of HammerBlow and Highland. The reserve amount of $5.2 million
is a preliminary cost estimate of integrating manufacturing, sourcing,
distribution and back office activities into our existing operating cost
structure. No costs were incurred and charged to this reserve during the quarter
ended March 30, 2003.
10
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table summarizes the purchase accounting adjustments established
to reflect these actions and subsequent related activity (in thousands):
OTHER
SEVERANCE CLOSURE COSTS TOTAL
---------- ------------- ----------
Reserve at December 31, 2002............... $ 4,590 $ 2,480 $ 7,070
Cash................................... (1,290) (210) (1,500)
Non-cash............................... -- -- --
Accrued integration costs.............. 3,000 2,200 5,200
---------- ---------- ----------
Reserve at March 30, 2003.................. $ 6,300 $ 4,470 $ 10,770
========== ========== ==========
Approximately 580 jobs have been or will be eliminated as a result of
these restructuring actions of which approximately 540 were eliminated as of
March 30, 2003. Cequent Transportation Accessories consolidated an acquired
trailer products manufacturing plant into an existing manufacturing facility,
and reduced the towing products regional warehouse service centers from eleven
to five facilities by closing or selling six related properties in 2001. In
2002, the electrical products manufacturing facility in Indiana was closed and
consolidated into an existing low cost contract manufacturing plant in Mexico.
In addition, two duplicate, sub-scale manufacturing facilities, each with its
own separate master distribution warehouse were consolidated into a single
existing third facility, with one master warehouse on the same property. These
actions have resulted in the elimination of approximately 385 positions through
March 30, 2003. Rieke Packaging Systems has rationalized back office and
manufacturing operations. Through March 30, 2003, approximately 55 positions
have been eliminated. Fastening Systems has adopted a multi-step plan for the
industrial fasteners product line to consolidate five sub-scale manufacturing
plants into three plants. The actions approved as part of the original
restructuring plan have been completed. Through March 30, 2003, Fastening
Systems has eliminated approximately 100 positions related to these activities.
6. ACCOUNTS RECEIVABLE SECURITIZATION
As part of the 2002 financing transactions, TriMas established a
receivables securitization facility and organized TSPC, Inc. ("TSPC"), a
wholly-owned subsidiary, to sell trade accounts receivable of substantially all
domestic business operations. TSPC from time to time may sell an undivided
fractional ownership interest in the pool of receivables up to approximately
$125 million to a third party multi-seller receivables funding company. The net
proceeds of sale are less than the face amount of accounts receivable sold by an
amount that approximates the purchaser's financing costs, which amounted to a
total of $0.3 million for the three months ended March 30, 2003. These amounts
are included in other expense, net in the Company's consolidated statement of
operations. At March 30, 2003, the Company's funding under the facility was
$57.4 million with an additional $4.8 million available but not utilized. When
the Company sells its receivables to TSPC, it retains a subordinated interest in
the receivables sold. The retained interest is included in accounts receivable
in the accompanying balance sheet and approximated $42.8 million at March 30,
2003. At December 31, 2002, no receivables were sold under this arrangement. The
discount rate at March 30, 2003 was 2.36%. The usage fee under the facility is
1.5%. In addition, the Company is required to pay a fee of 0.5% on the unused
portion of the facility. This facility expires in June 2005.
11
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Prior to June 6, 2002, TriMas sold certain of its accounts receivable
to MTSPC, Inc. ("MTSPC"), a wholly owned subsidiary of Metaldyne. MTSPC sold an
undivided fractional ownership interest in the pool of receivables to a third
party multi-seller funding company. The information that follows represented
TriMas' attributed portion of receivables sold to MTSPC. The net proceeds of
sales were less than the face amount of accounts receivable sold by an amount
that approximates the purchaser's financing costs, which amounted to a total of
$0.9 million for the three months ended March 31, 2002. This amount is included
in other expense, net in the Company's combined statement of operations. At
March 31, 2002, the Company's funding under this arrangement was $82.3 million.
7. INVENTORIES
Inventories by component are as follows (in thousands):
MARCH 30, DECEMBER 31,
2003 2002
--------- ---------
Finished goods....................................... $ 61,220 $ 50,220
Work in process...................................... 17,860 12,860
Raw materials........................................ 43,180 28,330
--------- ---------
Total inventories ................................... $ 122,260 $ 91,410
========= =========
8. PROPERTY AND EQUIPMENT, NET
Property and equipment by component are as follows (in thousands):
MARCH 30, DECEMBER 31,
2003 2002
--------- ---------
Land and land improvements........................... $ 5,140 $ 8,810
Buildings ........................................... 61,310 46,100
Machinery and equipment ............................. 187,730 226,380
--------- ---------
254,180 281,290
Less: Accumulated depreciation ..................... 46,320 46,300
--------- ---------
Property and equipment, net ......................... $ 207,860 $ 234,990
========= =========
12
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. LONG-TERM DEBT
The Company's long-term debt at March 30, 2003, net of the unamortized
discount of $2.6 million and unamortized premium of $0.8 million from face value
of the Company's 9 7/8% senior subordinated notes, is as follows (in thousands):
MARCH 30, 2003 DECEMBER 31,
2003 2002
---------- ----------
Senior term loan ............................................. $ 258,750 $ 259,375
Revolver loan ............................................... 15,000 --
9?% senior subordinated notes, due June 2012 ("Notes")........ 435,975 435,975
Other......................................................... 8,825 830
---------- ----------
718,550 696,180
Less: Current maturities..................................... 10,640 2,990
---------- ----------
Long-term debt................................................ $ 707,910 $ 693,190
========== ==========
The Company's credit facility ("Credit Facility") with a group of banks
consists of a $260 million senior term loan which matures December 31, 2009 and
is payable in quarterly installments of $0.625 million which began on December
31, 2002. The Credit Facility also includes a senior revolving credit facility
with a total principal commitment of $150 million, including up to $100 million
for one or more permitted acquisitions, which matures December 31, 2007. The
Credit Facility allows the Company to issue letters of credit, not to exceed $40
million in aggregate, against revolving credit facility commitments. The Company
had letters of credit of approximately $23.7 and $23.5 million issued and
outstanding at March 30, 2003 and December 31, 2002, respectively.
Borrowings under the Credit Facility bear interest at the Company's
option at either a base rate used by JPMorgan Chase Bank, plus an applicable
margin, or a Eurodollar rate on deposits for one, two, three or six month
periods (or nine or twelve month periods if, at the time of the borrowing, all
lenders agree to make such a duration available), plus an applicable margin. The
applicable margin on borrowings is subject to change, depending on the Company's
Leverage Ratio, as defined, and is 1.75% on base rate loans and 2.75% on
Eurodollar loans at March 30, 2003. The effective interest rate on Credit
Facility borrowings was 4.42% at March 30, 2003 and 4.44% at December 31, 2002.
The bank debt is an obligation of subsidiaries of the Company. Although
the credit agreement does not restrict the Company's subsidiaries from making
distributions to it in respect of the exchange 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, approximately $849.8 million at March 30, 2003, are presented in
the consolidating financial information in Note 17. The Credit Facility contains
negative and affirmative covenants and other requirements affecting the Company
and its 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 greater than $75 million if sold
at fair market value, 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 Credit Facility also requires the Company and its subsidiaries to meet
13
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 ratio (EBITDA over cash interest expense, as defined)
and a capital expenditures covenant. The Company was in compliance with its
covenants at March 30, 2003.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future senior debt of
TriMas, including amounts outstanding under the Credit Facility. The Notes are
pari passu in right of payment with all existing and future unsecured senior
subordinated indebtedness of TriMas and are unconditionally guaranteed by all of
the Company's domestic subsidiaries that are direct borrowers under the Credit
Facility. Interest on the Notes accrues at the rate of 9?% per annum and is
payable semi-annually in arrears on June 15 and December 15, commencing December
15, 2002. The Notes indenture contains negative and affirmative covenants and
other requirements that are comparable to those contained in the Credit
Facility. At March 30, 2003, the Company was in compliance with all such
covenant requirements.
The Company has net unamortized debt issuance costs related to the
Credit Facility and Notes of $29.8 million and $30.5 million at March 30, 2003
and December 31, 2002, respectively. These amounts are included in other assets
in the accompanying consolidated balance sheet. Debt issuance costs and the
discount and premium on the Notes are amortized using the interest method over
the term of the Credit Facility and Notes, respectively.
The Company paid cash for interest of approximately $3.8 million for
the quarter ended March 30, 2003. For the quarter ended March 31, 2002, interest
expense allocated to TriMas was paid by Metaldyne.
Future maturities of the face value of long-term debt at March 30, 2003
are as follows (in thousands):
YEAR ENDING DECEMBER 31:
2003 .................................... $ 10,640
2004 .................................... 2,830
2005 .................................... 2,500
2006 .................................... 2,500
2007..................................... 17,500
Thereafter .............................. 684,650
-------------
Total ................................... $ 720,620
=============
10. LEASES
TriMas leases certain equipment and plant facilities under
non-cancelable operating leases. Rental expense for TriMas totaled approximately
$2.6 million and $1.2 million in the quarter ended March 30, 2003 and March 31,
2002, respectively.
In the first quarter 2003, the Company entered into sale-leaseback
arrangements with third-party lenders for certain machinery and equipment and
facilities used by the Company. These leases are accounted for as operating
leases. The Company has an eight year lease term with respect to machinery and
equipment which requires annual lease payments of approximately $4.4 million.
The Company has a fifteen year lease term with respect to its leaseback of two
facilities which require annual lease payments of approximately $0.9 million.
The proceeds from these transactions were applied against outstanding balances
under the Company's revolving credit facility. In connection with these
sale-leaseback transactions the Company recorded net book value losses of
approximately $12.0 million, which is included in other, net in the accompanying
statement of operations.
14
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Minimum payments for operating leases having initial or remaining
non-cancelable lease terms in excess of one year at March 30, 2003 are
summarized below (in thousands):
YEAR ENDING DECEMBER 31:
2003 ...................................... $ 11,960
2004 ...................................... 12,910
2005 ...................................... 12,410
2006 ...................................... 11,790
2007 ...................................... 11,520
Thereafter................................. 74,640
------------
Total...................................... $ 135,230
============
In the first quarter 2002, as part of financing arranged by Metaldyne
and Heartland, the Company entered into sale-leaseback arrangements with a
third-party lender for certain facilities utilized by the Company. The 20 year
lease term continues until 2022 and requires annual lease payments of
approximately $2.5 million per year. The proceeds from these transactions were
applied against the Metaldyne Corporation net investment and advance balance.
Because Metaldyne provided the third-party lender with a guarantee of the
Company's lease obligations, these lease arrangements were accounted for as
capitalized leases and lease obligations approximating $19 million at March 31,
2002 and were recorded in long-term debt.
As a result of the recapitalization and related financing transactions
completed during the second quarter of 2002, Metaldyne no longer guarantees the
Company's lease obligations with the third party lender. Subsequent to June 6,
2002, the Company accounts for these lease transactions as operating leases.
During the quarter ended June 30, 2002, the Company eliminated the capitalized
lease obligation and related capitalized lease assets.
11. COMMITMENTS AND CONTINGENCIES
A civil suit was filed in the United States District Court for the
Central District of California in April 1983 by the United States of America and
the State of California under the Federal Superfund law against over 30
defendants, including the Company, for alleged release into the environment of
hazardous substances disposed of at the Stringfellow Disposal Site in
California. The plaintiffs have requested, among other things, that the
defendants clean up the contamination at that site. A consent decree has been
entered into by the plaintiffs and the defendants, including us, providing that
the consenting parties perform partial remediation at the site. The State of
California has agreed to take over clean-up of the site, as well as
responsibility for governmental entities' past response costs. The defendants
are negotiating a Consent Decree with the United States, which will dismiss the
defendants from the case subject only to the failure of the State of California
to perform under its Consent Decree with the defendants. Additionally, TriMas
and approximately 60 other entities including the State are defendants in a
toxic tort suit brought in the Superior Court of the State of California in May
1998 by various persons residing in the area of the site and seeking damages for
alleged personal injuries claimed to arise from exposure to contaminants from
the site. During the discovery stage, the Judge of the Superior Court of the
State of California issued an order dismissing all plaintiffs in the action.
Plaintiffs have an opportunity to appeal. Based upon the Company's present
knowledge, the Company does not believe the ultimate outcome of these matters
will have a material adverse effect on its consolidated financial statements and
future results of operations.
Another 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 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 contamination at
that site. Consent decrees have been entered into by the plaintiffs and a group
of 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.
15
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
As of May 12, 2003, the Company is party to approximately 581 pending
cases involving approximately 25,352 claimants alleging personal injury from
exposure to asbestos containing materials formerly used in gaskets (both
encapsulated and otherwise) manufactured or distributed by certain of our
subsidiaries for use in the petrochemical refining and exploration industries.
The Company manufactured three types of gaskets and has ceased the use of
asbestos in its products. The Company believes that many of the pending cases
relate to locations at which none of our gaskets were distributed or used. In
addition, TriMas acquired various companies to distribute the Company's products
and also had distributed gaskets of other manufacturers prior to acquisition.
Total settlement costs (exclusive of defense costs) for all such cases, some of
which were filed over 12 years ago, have been approximately $2.3 million. Based
upon the Company's experience to date and other available information, the
Company does not believe that these cases will have a material adverse effect on
its financial condition or future results of operations. However, there can be
no assurance that the Company will not be subjected to significant additional
claims in the future, that the cost of settling cases in which product
identification can be made will not increase or that the Company will not be
subjected to further claims with respect to the former activities of its
acquired gasket distributors.
The Company has provided reserves based upon its present knowledge and,
subject to future legal and factual developments, does not believe that the
ultimate outcome of any of these litigations will have a material adverse effect
on its consolidated financial position and future results of operations and cash
flow. However, there can be no assurance that future legal and factual
developments will not result in a material adverse impact on our financial
condition and future results of operations.
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 the Company's financial position or results of
operations.
12. RELATED PARTIES
Metaldyne Corporation
Prior to June 6, 2002, the Company was wholly-owned by Metaldyne and
participated in joint activities including employee benefits programs, legal,
treasury, information technology and other general corporate activities.
In connection with the common stock issuance and related financing
transactions, TriMas assumed certain liabilities and obligations of Metaldyne,
mainly comprised of contractual obligations to former TriMas employees, tax
related matters, benefit plan liabilities and reimbursements to Metaldyne for
normal course payments to be made on TriMas' behalf. The amount of these
liabilities and obligations were $19.0 million and $21.9 million as of March 30,
2003 and December 31, 2002, respectively. These amounts are payable at various
dates over the next two years and are included in Due to Metaldyne in the
accompanying consolidated balance sheets.
The Company is also party to a corporate services agreement with
Metaldyne. Under the terms of the agreement, TriMas pays Metaldyne an annual
services fee of $2.5 million in exchange for human resources, information
technology, treasury, audit, internal audit, tax, legal and other general
corporate services and remittance of certain third-party charges on TriMas'
behalf.
Prior to the June 6, 2002 transactions, TriMas was charged a management
fee by Metaldyne for various corporate support staff and administrative
services. Such fees approximated one percent of net sales and amounted to $1.9
million in the three months ended March 31, 2002.
Certain of TriMas' employee benefit plans and insurance coverages are
administered by Metaldyne. These costs as well as other costs incurred on
TriMas' behalf were charged directly to TriMas.
TriMas was also charged interest expense at various rates on the debt
attributed to TriMas from Metaldyne and on the outstanding net investment and
advances balance with Metaldyne. These charges aggregated $17.4 million in the
quarter ended March 31, 2002.
16
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Heartland Industrial Partners
In connection with the common stock issuance and related financing
transactions in June 2002, the Company entered into an advisory services
agreement with Heartland at an annual fee of $4.0 million plus expenses. During
the quarter ended March 30, 2003, Heartland was paid $1.2 million in connection
with this agreement and this amount is included in selling, general and
administrative expense in the accompanying consolidated statement of operations.
Also in the quarter ended March 30, 2003, TriMas paid Heartland
approximately $2.1 million in advisory services in connection with the
acquisitions of HammerBlow and Highland. Such fees have been capitalized as
transaction costs as a component of total consideration paid and allocated to
the fair value of assets acquired and liabilities assumed in the respective
acquisitions.
13. STOCK OPTIONS AND AWARDS
In 2001, a new Metaldyne Long Term Equity Incentive Plan (the "Plan")
was adopted, which provides for the issuance of equity-based incentives in
various forms. During 2001, Metaldyne granted stock options for 2,855,000 shares
at a price of $16.90 per share to key employees of Metaldyne, of which 336,763
were granted to TriMas employees. Of this amount, 81,640 options have vested and
the remaining 255,123 options were canceled in connection with the June 6, 2002
transactions. These options have a ten year option period from the date of
grant. The ability to exercise the options is limited in the circumstances of a
public offering whereby the shares are required to be held and exercised after
the lapse of certain time periods.
In connection with the stock purchase agreement on June 6, 2002, each
vested option in the Plan will be converted into an option to purchase TriMas
common stock. TriMas created the 2002 Long-Term Equity Incentive Plan during
2002, which allows issuance of equity-based incentives in various forms. No
options for TriMas common stock have been granted as of March 30, 2003.
14. SEGMENT INFORMATION
TriMas' reportable operating segments are business units, each
providing their own 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. During the first quarter of 2003, the Company re-aligned its
operating segments and appointed a group president for its Fastening Systems
group. Prior period segment information has been revised to conform to the
current structure and presentation. TriMas has four operating segments involving
the manufacture and sale of the following products:
CEQUENT TRANSPORTATION ACCESSORIES - Vehicle hitches and receivers,
sway controls, weight distribution and 5th wheel hitches, hitch mounted
accessories, roof racks, trailer couplers, winches, jacks, trailer brakes and
lights and other vehicle and trailer accessories.
RIEKE PACKAGING SYSTEMS - Closures and dispensing systems for steel and
plastic industrial and consumer packaging applications.
FASTENING SYSTEMS - Large and small diameter standard and
custom-designed ferrous, nonferrous and special alloy fasteners, and highly
engineered specialty fasteners for the domestic and international aerospace
industry.
INDUSTRIAL SPECIALTIES - Flame-retardant facings and jacketing and
insulation tapes used in conjunction with fiberglass insulation,
pressure-sensitive specialty tape products, high-pressure and low-pressure
cylinders for the transportation, storage and dispensing of compressed gases,
metallic and nonmetallic industrial gaskets, specialty precision tools such as
center drills, cutters, end mills, reamers, master gears, gages and punches,
specialty engines and service parts and specialty ordnance components and weapon
systems.
17
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company uses Earnings (Operating Profit) Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") as an indicator of operating
performance and as a measure of cash generating capabilities. EBITDA is one of
the primary measures used by management to evaluate performance. Legacy stock
award expense represents a contractual obligation from the November 2000
acquisition which will run off completely in 2003.
Segment activity is as follows (in thousands):
THREE MONTHS ENDED MARCH
-------------------------------
2003 2002
------------ ------------
NET SALES
Cequent Transportation Accessories.............................. $ 98,890 $ 75,410
Rieke Packaging Systems......................................... 30,270 26,630
Fastening Systems............................................... 30,790 33,910
Industrial Specialties.......................................... 53,830 54,990
------------ ------------
Total .......................................................... $ 213,780 $ 190,940
============ ============
OPERATING PROFIT
Cequent Transportation Accessories.............................. $ 8,130 $ 11,570
Rieke Packaging Systems......................................... 7,580 6,980
Fastening Systems............................................... 380 1,740
Industrial Specialties.......................................... 6,160 6,650
Corporate expenses and management fees.......................... (4,640) (1,890)
Legacy stock award expense...................................... (1,270) (800)
------------ ------------
Total .......................................................... $ 16,340 $ 24,250
============ ============
EBITDA
Cequent Transportation Accessories.............................. $ 12,410 $ 15,010
Rieke Packaging Systems......................................... 9,590 9,400
Fastening Systems............................................... 2,450 4,690
Industrial Specialties.......................................... 8,380 9,340
Corporate expenses and management fees.......................... (4,270) (1,890)
Legacy stock award expense...................................... (1,270) (800)
------------ ------------
Total........................................................... $ 27,290 $ 35,750
============ ============
15. IMPACT OF NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2003, the Company adopted Statement of Financial
Accounting Standard ("SFAS") SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 requires that an existing legal obligation associated
with the retirement of a tangible long-lived asset be recognized as a liability
when incurred and the amount of the liability be initially measured at fair
value. The adoption of SFAS 143 did not have an impact on the Company's
financial condition or results of operations.
Effective January 1, 2003, the Company adopted SFAS 146, "Accounting
for Costs Associated with Exit or Disposal Activities." The provisions of SFAS
146 are to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan.
Effective December 31, 2002, the Company adopted Financial Accounting
Standards Board ("FASB") Interpretation ("FIN") No. 45, "Guarantors Accounting
and Disclosure Requirements for Guarantees, Including
18
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies the disclosure
requirements for certain guarantees. In addition, for guarantees issued or
modified after December 31, 2002, FIN 45 requires guarantors to record a
liability at fair value for certain guarantees at the time of issuance of the
guarantee. The Company offers limited warranty protection on certain of its
products covering defects in material and workmanship. The specific terms and
conditions vary depending on the product sold, but generally are in effect for
one to three years following the date of sale. Warranty reserves are recorded
based upon historical and anticipated warranty claims. The Company monitors the
adequacy of its warranty reserves on an ongoing basis and records adjustments to
the reserves as required. The adoption of this statement did not have a material
effect on the Company's results of operations or financial condition.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51." FIN 46 requires primary
beneficiaries in a variable interest entity to consolidate the entity even if
the primary beneficiary does not have a majority voting interest. This
consolidation requirement is effective immediately for any variable interest
entity created on or after January 31, 2003, and after June 30, 2003 for
entities created before January 31, 2003. In addition, FIN 46 requires
disclosure of information regarding guarantees or loss exposures related to a
variable interest entity created prior to January 31, 2003 in financial
statements issued after January 31, 2003. The Company is currently reviewing
activity with potential variable interest entities, including lessors under
certain of the Company's operating lease agreements to determine the impact of
FIN 46. It is possible this pronouncement could require us to consolidate any
variable interest entities for which we are the primary beneficiary. However,
the Company does not believe the adoption of FIN 46 will have a material impact
on its financial condition or results of operations.
16. SUBSEQUENT EVENTS
On April 2, 2003, TriMas repurchased one million shares of its common
stock from Metaldyne at $20 per share, the same price as it was valued on June
6, 2002. This sale decreased Metaldyne's ownership percentage in TriMas from
approximately 31% to approximately 28% on a fully diluted basis.
On May 9, 2003, the Company completed the acquisition of an automotive
manufacturing business from Metaldyne for approximately $24.0 million on a
debt-free basis. The acquired business is a leading manufacturer of specialized
fittings and cold-headed parts used in automotive and industrial applications.
The transaction was funded by a combination of borrowings under the Company's
revolving credit facility and a cash equity contribution by Heartland. The
acquired business had 2002 revenues of approximately $16.7 million.
17. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING AND CONSOLIDATING FINANCIAL
INFORMATION
Under an indenture dated June 6, 2002, TriMas Corporation, the parent
company ("Parent"), issued 9?% Senior Subordinated Notes due 2012 in a total
principal amount of $437.8 million (face value). These 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 Notes
("Non-Guarantor Subsidiaries"). The Guarantor Subsidiaries have also guaranteed
amounts outstanding under the Company's Credit Facility.
The accompanying supplemental guarantor condensed, combining or
consolidating financial information is presented on 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.
Prior to June 6, 2002, the Parent held equity investments directly in
certain of the Company's wholly-owned Non-Guarantor Subsidiaries, and equity in
these investees is included in the Parent column of the accompanying condensed
combining financial information for all periods presented. Subsequent to June 6,
2002, all investments in non-domestic subsidiaries are held directly at TriMas
Company LLC, a wholly-owned subsidiary of TriMas Corporation and Guarantor
Subsidiary, and equity in non-domestic subsidiary investees for all periods
19
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
subsequent to June 30, 2002 is included in the Guarantor Subsidiary column of
the accompanying consolidating financial information.
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF MARCH 30, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .... $ -- $ 25,730 $ 4,930 $ -- $ 30,660
Receivables, trade............ 60 62,510 25,920 -- 88,490
Receivables, intercompany..... -- 3,130 1,040 (4,170) --
Inventories................... -- 103,220 19,040 -- 122,260
Deferred income taxes......... -- 18,470 270 -- 18,740
Prepaid expenses and other
current assets.............. -- 10,930 1,180 -- 12,110
----------- ----------- ----------- ----------- -----------
Total current assets ..... 60 223,990 52,380 (4,170) 272,260
Investments in subsidiaries...... 847,000 153,060 -- (1,000,060) --
Property and equipment, net...... -- 170,280 37,580 -- 207,860
Excess of cost over net assets of
acquired companies ........... -- 527,970 91,180 -- 619,150
Other intangibles and other assets. 17,580 391,900 17,030 -- 426,510
----------- ----------- ----------- ----------- -----------
Total assets ............. $ 864,640 $ 1,467,200 $ 198,170 $(1,004,230) $ 1,525,780
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities,
long-term debt............ $ -- $ 10,640 $ -- $ -- $ 10,640
Accounts payable, trade....... 50 56,960 23,020 -- 80,030
Accounts payable, intercompany -- 1,040 3,130 (4,170) --
Accrued liabilities........... 13,230 62,820 7,540 -- 83,590
Due to Metaldyne.............. -- 11,790 -- -- 11,790
----------- ----------- ----------- ----------- -----------
Total current liabilities .. 13,280 143,250 33,690 (4,170) 186,050
Long-term debt .................. 435,980 271,930 -- -- 707,910
Deferred income taxes............ -- 176,100 11,170 -- 187,270
Other long-term liabilities...... -- 21,690 250 -- 21,940
Due to Metaldyne................. -- 7,230 -- -- 7,230
----------- ----------- ----------- ----------- -----------
Total liabilities .......... 449,260 620,200 45,110 (4,170) 1,110,400
Total shareholders' equity.. 415,380 847,000 153,060 (1,000,060) 415,380
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders'equity....... $ 864,640 $ 1,467,200 $ 198,170 $(1,004,230) $ 1,525,780
=========== =========== =========== =========== ===========
20
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents....... $ -- $ 86,570 $ 13,870 $ -- $ 100,440
Receivables, trade.............. 60 77,760 17,760 -- 95,580
Receivables, intercompany....... -- 6,030 6,120 (12,150) --
Inventories..................... -- 79,720 11,690 -- 91,410
Deferred income taxes........... -- 18,290 -- -- 18,290
Prepaid expenses and other
current assets................ -- 8,900 910 -- 9,810
----------- ----------- ----------- ----------- -----------
Total current assets ....... 60 277,270 50,350 (12,150) 315,530
Investment in subsidiaries......... 808,620 128,830 -- (937,450) --
Property and equipment, net........ -- 204,130 30,860 -- 234,990
Excess of cost over net assets of
acquired companies ............. -- 437,590 74,250 -- 511,840
Other intangibles and other assets. 17,710 327,470 3,230 -- 348,410
----------- ----------- ----------- ----------- -----------
Total assets ............... $ 826,390 $ 1,375,290 $ 158,690 $ (949,600) $ 1,410,770
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities,
long-term debt................ $ -- $ 2,990 $ -- $ -- $ 2,990
Accounts payable, trade......... 440 40,090 13,950 -- 54,480
Accounts payable, intercompany.. -- 6,120 6,030 (12,150) --
Accrued liabilities............. 1,950 56,970 4,220 -- 63,140
Due to Metaldyne................ -- 9,960 -- -- 9,960
----------- ----------- ----------- ----------- -----------
Total current liabilities .. 2,390 116,130 24,200 (12,150) 130,570
Long-term debt .................... 435,950 257,240 -- -- 693,190
Deferred income taxes.............. -- 150,560 5,360 -- 155,920
Other long-term liabilities........ -- 30,780 300 -- 31,080
Due to Metaldyne................... -- 11,960 -- -- 11,960
----------- ----------- ----------- ----------- -----------
Total liabilities .......... 438,340 566,670 29,860 (12,150) 1,022,720
Total shareholders' equity.. 388,050 808,620 128,830 (937,450) 388,050
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity...... $ 826,390 $ 1,375,290 $ 158,690 $ (949,600) $ 1,410,770
=========== =========== =========== =========== ===========
21
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
FOR THE THREE MONTHS ENDED MARCH 30, 2003 (UNAUDITED)
--------------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
---------- ---------- ------------- ------------ ------------
Net sales ........................ $ -- $ 186,080 $ 33,730 $ (6,030) $ 213,780
Cost of sales .................. -- (144,670) (23,480) 6,030 (162,120)
---------- ---------- ---------- ---------- ----------
Gross profit ............... -- 41,410 10,250 -- 51,660
Selling, general and
administrative expenses........ (20) (29,250) (6,050) -- (35,320)
---------- ---------- ---------- ---------- ----------
Operating profit............ (20) 12,160 4,200 -- 16,340
Other income (expense), net:
Interest expense .............. (11,810) (4,220) (10) -- (16,040)
Other, net .................... (70) (11,900) (430) -- (12,400)
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax
(expense) credit and equity in
net income of subsidiaries..... (11,900) (3,960) 3,760 -- (12,100)
Income tax (expense) credit....... -- 6,360 (1,580) -- 4,780
Equity in net income (loss) of
subsidiaries................... 4,580 2,180 -- (6,760) --
---------- ---------- ---------- ---------- ----------
Net income (loss) ................ $ (7,320) $ 4,580 $ 2,180 $ (6,760) $ (7,320)
========== ========== ========== ========== ==========
22
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLMENTAL GUARANTOR CONDENSED COMBINED
FINANCIAL STATEMENTS
COMBINED STATEMENT OF OPERATIONS
(In thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
COMBINEDD
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ----------- ------------ -----------
Net sales ........................ $ -- $ 170,540 $ 24,500 $ (4,100) $ 190,940
Cost of sales .................. -- (122,970) (16,510) 4,100 (135,380)
----------- ----------- ----------- ----------- -----------
Gross profit ............... -- 47,570 7,990 -- 55,560
Selling, general and
administrative expenses...... -- (27,570) (3,740) -- (31,310)
----------- ----------- ----------- ----------- -----------
Operating profit............ -- 20,000 4,250 -- 24,250
Other income (expense), net:
Interest expense .............. -- (17,300) (100) -- (17,400)
Other, net .................... -- (970) (420) -- (1,390)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes
(credit) and equity in net
income (loss) of subsidiaries.. -- 1,730 3,730 -- 5,460
Income taxes (expense) credit..... -- (560) (1,350) -- (1,910)
Equity in net income (loss) of
subsidiaries................... (33,080) 870 -- 32,210 --
----------- ----------- ----------- ----------- -----------
Income (loss) before cumulative
effect of change in accounting
principle...................... (33,080) 2,040 2,380 32,210 3,550
Cumulative effect of change in
accounting principle........... -- (36,630) -- -- (36,630)
----------- ----------- ----------- ----------- -----------
Net income (loss)........... $ (33,080) $ (34,590) $ 2,380 $ 32,210 $ (33,080)
=========== =========== =========== =========== ===========
23
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
FOR THE THREE MONTHS ENDED MARCH 30, 2003 (UNAUDITED)
------------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTOR GUARANTOR ELIMINATIONS TOTAL
------- --------- --------- ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating
activities, net of acquisition $ 250 $ 25,350 $ 22,640 $ -- $ 48,240
------- --------- --------- --------- ---------
impact...........................
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. -- (3,430) (610) -- (4,040)
Proceeds from sales of fixed assets.. -- 42,120 -- -- 42,120
Acquisition of businesses, net of cash
acquired........................... -- (169,780) (30,970) -- (200,750)
------- --------- ---------- --------- ---------
Net cash used for investing activities -- (131,090) (31,580) -- (162,670)
------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock....................... -- 30,000 -- -- 30,000
Proceeds from revolving credit facility -- 191,700 -- -- 191,700
Repayments of credit facility -- (176,700) -- -- (176,700)
borrowings.........................
Debt issuance costs.................. (250) -- -- -- (250)
Payment of note payable.............. -- (100) -- -- (100)
----------- ------------- ------------- ---------------- --------------
Net cash provided by (used for)
financing activities............... (250) 44,900 -- -- 44,650
------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS:
Increase for the period.............. -- (60,840) (8,940) -- (69,780)
At beginning of period............... -- 86,570 13,870 -- 100,440
------- --------- --------- --------- ---------
At end of period............... $ -- $ 25,730 $ 4,930 $ -- $ 30,660
======= ========= ========= ========= =========
24
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
(UNAUDITED)
SUPPLMENTAL GUARANTOR CONDENSED COMBINED
FINANCIAL STATEMENTS
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
---------- ----------- ------------- ------------- -------------
OPERATING ACTIVITIES:
Net cash provided by (used for)
operating activities........... $ -- $ 1,490 $ 9,700 $ -- $ 11,190
---------- ----------- ---------- ------------- -------------
FINANCING ACTIVITIES:
Increase in debt................... -- 19,730 -- -- 19,730
Payment of debt.................... -- (13,230) -- -- (13,230)
Decrease in Metaldyne Corporation net
investment and advances......... -- (5,640) (7,970) -- (13,610)
---------- ----------- ---------- ------------- -------------
Net cash provided by (used for)
financing activities............ -- 860 (7,970) -- (7,110)
---------- ----------- ---------- ------------- -------------
INVESTING ACTIVITIES:
Capital expenditures............... -- (3,640) (960) -- (4,600)
Proceeds from sale of fixed assets. -- 150 10 -- 160
---------- ----------- ---------- ------------- -------------
Net cash used for investing activities
-- (3,490) (950) -- (4,440)
---------- ----------- ---------- ------------- -------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period. -- (1,140) 780 -- (360)
At beginning of period............. -- 1,940 1,840 -- 3,780
---------- ----------- ---------- ------------- -------------
At end of period................... $ -- $ 800 $ 2,620 $ -- $ 3,420
========== =========== ========== ============= =============
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
We are an industrial manufacturer of highly engineered products serving
niche markets in a diverse range of commercial, industrial and consumer
applications. Effective January 1, 2003, TriMas has reorganized its business
operations by creating a Fastening Systems segment from our industrial fasteners
businesses that were previously part of Industrial Specialties. As a result,
prior period financial information has been reclassified to conform to this
change. We have four operating groups or segments: Cequent Transportation
Accessories, Rieke Packaging Systems, Fastening Systems and Industrial
Specialties.
RECENT COST SAVINGS INITIATIVES
In 2001, under new senior management, we initiated a detailed
consolidation and cost savings program to address certain inefficiencies that
resulted from our historical acquisitions and the inability to fully integrate
these businesses. The plan involves a number of major projects and other smaller
initiatives to eliminate duplicative and excess manufacturing and distribution
facilities, sales forces, and back office and other support functions. We expect
to achieve approximately $25.0 million in cumulative annual savings for
completed actions by the second quarter of 2003. The total net cash cost for
these savings is expected to be $18.1 million, of which approximately $17.9
million was spent by the end of the first quarter ended March 30, 2003; these
figures are net of discontinued property sold or to be sold. The key elements
and status of the plans are summarized below:
General:
o A 10% headcount reduction in aggregate across all groups as various
overlapping networks of distribution, sales, back office and other
functions are consolidated and certain plants are closed and consolidated
into other facilities; and
o For our numerous retirement plans and incentive compensation and service
award plans that were the legacy of many acquisitions, we have developed
a comprehensive plan with an outside consultant to harmonize the
programs, eliminate excess overhead and remove inequities between the
programs. Effective January 1, 2003, these actions have been completed;
we expect annual savings from these actions to be approximately $1.5
million, as compared to our 2001 costs.
Cequent Transportation Accessories:
o In 2001, we consolidated an acquired trailer products manufacturing plant
into an existing high performance facility, and reduced the towing
products regional warehouse service center footprint from eleven to five
facilities by closing or selling six related properties. In 2002, our
electrical products manufacturing facility in Indiana was closed and
consolidated into an existing low cost contract manufacturing plant in
Mexico. In addition, as part of an integration and consolidation plan
that was executed in the second half of 2002, two duplicate, sub-scale
manufacturing facilities, each with its own separate master distribution
warehouse, were consolidated into a single, approximately 350,000
square-foot manufacturing and warehouse facility in Goshen, Indiana. We
expect to finalize these actions, including receipt of proceeds from real
estate disposals of the closed facilities, during 2003.
Fastening Systems Group:
o We have adopted a multi-step plan for our industrial fasteners product
businesses to consolidate five sub-scale manufacturing plants into three
remaining plants. The plant closures have been completed at December 31,
2002. We will continue to rationalize the manufacturing capabilities
among the three remaining plants in 2003.
o As previously announced, the Company has acquired an automotive fasteners
business from Metaldyne Corporation in May 2003. This business will be
included in our Fastening Systems group and we expect it to positively
impact the rationalization of the manufacturing capabilities of our
industrial fasteners business. We are currently assessing the cost and
timing of changes to our existing rationalization and capital investment
plans.
o In 2003, we will also continue to rationalize the back office and general
and administrative support within the industrial fasteners facilities.
26
Industrial Specialties Group:
o We are centralizing manufacturing of some gasket products within a single
facility and rationalizing the back office general and administrative
support within our branch service centers; and
o We will be consolidating two facilities which manufacture
pressure-sensitive tape and insulation products into a single facility
and engaging in a capital expenditure program to modernize and provide
expansion room for certain projected product growth. These actions are
expected to commence during the fourth quarter of 2003.
SEGMENT INFORMATION
The following table summarizes financial information for our four operating
segments.
SUPPLEMENTAL FINANCIAL ANALYSIS
THREE MONTHS ENDED
-----------------------------
MARCH 30, MARCH 31,
2003 2002
----------- ----------
(IN THOUSANDS)
NET SALES:
Cequent Transportation Accessories...................... $ 98,890 $ 75,410
Rieke Packaging Systems................................. 30,270 26,630
Fastening Systems....................................... 30,790 33,910
Industrial Specialties.................................. 53,830 54,990
--------- ----------
Total.......................................... $ 213,780 $ 190,940
========= ==========
OPERATING PROFIT:
Cequent Transportation Accessories...................... $ 8,130 $ 11,570
Rieke Packaging Systems................................. 7,580 6,980
Fastening Systems....................................... 380 1,740
Industrial Specialties.................................. 6,160 6,650
Management fee and other
corporate expenses (1).......................... (4,640) (1,890)
Legacy stock award expense (2).................... (1,270) (800)
--------- ----------
Total.................................... $ 16,340 $ 24,250
========== ==========
CAPITAL EXPENDITURES:
Cequent Transportation Accessories...................... $ 1,300 $ 920
Rieke Packaging Systems................................. 1,740 1,730
Fastening Systems....................................... 490 840
Industrial Specialties.................................. 440 1,110
Corporate......................................... 70 --
---------- ----------
Total.................................... $ 4,040 $ 4,600
========== ==========
- ----------------------------------------
(1) The increase in management fee and other corporate expenses in 2003
resulted from $1.3 million of incremental employment and operating
costs for the establishment of a corporate office (previously
considered part of the Metaldyne management fee) and $1.2 million of
management fees and expenses paid to Heartland.
(2) Legacy stock award expense represents a contractual obligation from the
November 2000 acquisition of Metaldyne by Heartland. TriMas assumed a
portion of this liability in connection with the separation and
recapitalization of the Company in June 2002.
27
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 2003 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2002
Including $27.1 million in sales from entities acquired during the
period, net sales for the three months ended March 30, 2003 increased by
approximately 12.0% compared to the three months ended March 31, 2002. Excluding
the impact of acquisitions, net sales decreased 2.2%. Net sales for Cequent
Transportation Accessories increased 31.1%. This increase was due to the $27.1
million impact from the acquisitions of HammerBlow and Highland. Excluding the
impact of acquisitions, Cequent Transportation Accessories sales decreased 4.8%
due to weakness in demand in the overall market for towing and trailer
accessories, principally in the RV and marine markets and retail distribution
through mass merchandisers and independent retail outlets. Rieke Packaging
Systems net sales increased 13.7% primarily due to the benefit of sales of new
products. Fastening Systems net sales decreased 9.2%, as we have continued to
see weakness in demand for our fastener products in the general distribution and
aerospace channels. Industrial Specialties net sales decreased 2.1%. The
reduction in sales in the Industrial Specialties group was primarily due to
reduced demand for our specialty gasket products provided to the energy and
petrochemical sectors, as well as, timing differences in revenue recognition for
our defense related products.
Operating profit margins approximated 7.6% and 12.7% for the three
months ended March 30, 2003 and March 31, 2002, respectively. Excluding the
impact of acquisitions, the operating profit margin for the three months ended
March 30, 2003 approximated 8.1%. Operating profit for the three months ended
March 30, 2003 was $16.3 million, a decrease of $7.9 million compared to the
three months ended March 31, 2002. Excluding the $1.2 million favorable impact
from acquisitions, operating profit decreased $9.1 million. This reduction in
operating profit is partially attributable to $5.4 million of incremental costs
and operational inefficiencies primarily incurred in connection with
restructuring activities within our Cequent Transportation Accessories and
Fastening Systems groups and $1.1 million of incremental charges related to
severance, move and other restructuring costs. The costs related to Cequent
Transportation Accessories resulted from the start-up of our Goshen, Indiana
manufacturing facility, the expansion of operations in Reynosa, Mexico, and the
closure of our Elkhart, Indiana and Canton, Michigan manufacturing facilities.
We have finalized these closures in the second quarter of 2003. Additionally,
there is $1.3 million of incremental lease costs, $.5 million of incremental
legacy stock award expense (this expense will run off completely in 2003), $1.3
million of incremental costs associated with our separation from Metaldyne (such
costs include incremental employment and operating costs), and $1.2 million of
management fees and expenses paid to Heartland included in the first quarter
results for 2003. These costs have been offset by $1.6 million of reduced
depreciation and amortization expense primarily attributable to our use of
leasing.
Selling, general and administrative costs were approximately $35.3
million, or 16.5% as a percentage of net sales, for the three months ended March
30, 2003 as compared with $31.3 million, or 16.4% as a percentage of net sales,
for the three months ended March 31, 2002. The increase is primarily due to the
$4.9 million impact of acquisitions and increased costs associated with our
separation from Metaldyne. Such costs principally include $1.3 million of
incremental employment and operating costs for the establishment of a corporate
office (previously considered part of the Metaldyne management fee) and $1.2
million of management fees and expenses paid to Heartland. These additional
costs have been offset by reduced costs from our cost reduction activities.
Other expense, net was $28.4 million for the three months ended March
30, 2003, a $9.6 million increase over the $18.8 million of expense for the
three months ended March 31, 2002. The Company recorded a $12.2 million loss,
net from the sale and disposition of fixed assets in the first quarter of 2003.
This loss was primarily from the sale and leaseback of certain manufacturing
equipment and facilities during the first quarter. In connection with these
sale-leaseback transactions, the Company received $36.2 million of net proceeds
which were used to pay down amounts outstanding under our revolving credit
facility. The Company also received proceeds of approximately $5.9 million from
the sale of certain facilities and equipment, and used these proceeds to pay
down amounts outstanding under our revolving credit facility. The $1.4 million
reduction in interest expense was primarily due to a reduction in total
indebtedness resulting from the recapitalization of the Company in June 2002.
Net loss for the three months ended March 30, 2003 was $7.3 million as compared
to a net loss of $33.1 million for the three months ended March 31, 2002. The
results for the three months ended March 31, 2002 include a charge of $36.6
million for the cumulative effect on prior years of a change in recognition and
measurement of goodwill impairment.
28
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the three months ended March
30, 2003 was approximately $48.2 million as compared with approximately $11.2
million for the three months ended March 31, 2002. The $37.1 million difference
is due principally to net proceeds received from the accounts receivable
securitization programs. Capital expenditures were approximately $4.0 million
for the quarter ended March 30, 2003, as compared with approximately $4.6
million for the comparable period in 2002.
Our credit facility includes a $150 million revolving credit facility
and a $260 million term loan facility. Up to $100 million of our revolving
credit facility is available to be used and kept outstanding for one or more
permitted acquisitions. The credit facility also provides for an uncommitted
$200 million incremental term loan facility for one or more permitted
acquisitions. Our revolving credit balances will fluctuate daily based upon our
working capital and other ordinary course needs. Availability under our
revolving credit facility depends upon, among other things, compliance with the
financial covenants in our credit facility. Our other important source of
liquidity is our $125 million accounts receivable financing arrangement, under
which we have the ability to sell eligible accounts receivable to a third-party
multi-seller receivables funding company. At March 30, 2003, the Company had
received net proceeds of $57.4 million under the accounts receivable facility
with an additional $4.8 million available, but not utilized. At March 30, 2003,
the Company could incur $33.3 million of additional senior indebtedness under
our revolving credit facility and/or our accounts receivables facility to fund
operations and up to $116.1 million to fund acquisitions, subject to certain
limitations.
Our amortization requirements of the term loan are: $0.6 million due at
the end of each calendar quarter beginning with the fourth quarter of 2002
through June 30, 2009, $118.1 million due on September 30, 2009 and $125.0
million due on December 31, 2009 in the final year of the seven and one-half
year life of the term loan. If we secure commitments for and utilize our $200
million of incremental term loan capacity, it will likely mature after the term
loan and be similarly back-ended in its amortization, although we cannot be
certain.
In early 2003, the Company completed the acquisition of HammerBlow
Acquisition Corp. ("HammerBlow") and Highland Group Industries ("Highland"). The
Company made an initial $9.0 million investment in HammerBlow in November 2002.
The incremental combined acquisition price for HammerBlow and Highland of
approximately $206.4 million (before realization of proceeds from completed
asset sales) was funded with $63.3 million of net proceeds from the issuance of
our senior subordinated notes, $30.0 million of cash equity received from
Heartland, the issuance of a $7.5 million deferred note payable, and the balance
satisfied with borrowings under our revolving credit agreement and accounts
receivable securitization facility.
On May 9, 2003, the Company completed the acquisition of an automotive
manufacturing business from Metaldyne for approximately $24.0 million on a
debt-free basis. The acquired business is a leading manufacturer of specialized
fittings and cold-headed parts used in automotive and industrial applications.
The transaction was funded by a combination of borrowings under the Company's
revolving credit facility and a cash equity contribution by Heartland. The
acquired business had 2002 revenues of approximately $16.7 million.
We have other cash commitments related to leases. We have engaged in a
number of sale-leaseback transactions. In January 2002, we entered into lease
transactions with respect to nine real properties for gross proceeds of
approximately $20.9 million, which were used to repay advances from Metaldyne.
Metaldyne guaranteed all of the leases which resulted in the leases being
accounted for as capital leases. In connection with the transactions, Metaldyne
was released from its guarantee. Letters of credit with a face amount of
approximately $13.3 million were subsequently issued under our credit facility
with respect to our obligations under these leasing transactions. As a result of
the removal of the Metaldyne guarantee, we account for these lease transactions
as operating leases and we eliminated the capitalized lease obligation and
related capitalized lease assets previously recorded. Annualized rent expense
related to these lease transactions is approximately $2.5 million. During the
year ended December 31, 2002, we entered into operating leases for three
additional facilities. Annual rent expense related to these lease transactions
is approximately $1.5 million. During the fourth quarter we also entered into
sale-leaseback transactions with respect to certain manufacturing equipment. We
realized proceeds of approximately $5.7 million. Annual rent expense related to
these transactions is approximately $0.9 million. On March 26, 2003, the Company
completed a sale and subsequent lease back of certain personal property with
General Electric Capital Corporation that resulted in net cash proceeds of
approximately $28.4 million. The proceeds will be used for general corporate
purposes. Annual rent expense related to these lease transactions is expected to
approximate $4.4 million. In March, 2003 we completed the sales and subsequent
leaseback with respect to two real properties for gross proceeds of
approximately $7.8 million. Annual rent expense related to these transactions is
expected to be $.8 million. We expect to continue to utilize leasing as a
financing strategy in the
29
future to meet capital expenditure needs and to reduce debt levels.
In addition to the foregoing contractual commitments, we have also
agreed to assume certain obligations resulting from the November 2000
acquisition of Metaldyne by Heartland. At that time, Metaldyne made restricted
stock grants to employees with terms that allow eligible employees to elect to
receive cash at stipulated amounts in lieu of shares as the restricted stock
grants vest. We have agreed to be responsible for the cash costs of those
elections to the extent they relate to our current and former employees or
allocable to current and former Metaldyne corporate level employees in
accordance with the agreement. Under these arrangements, the approximate
stipulated dollar value of the shares for which we are responsible that have
vested or will vest, are as follows: $4.2 million on January 14, 2002, $7.6
million on January 14, 2003 and $8.1 million on January 14, 2004. To the extent
that cash elections are not made, the employees will be entitled to retain their
shares in Metaldyne, but we may decide at any time to work with Metaldyne to
replace all or a portion of the restricted stock grants and related obligations
at Metaldyne with new restricted stock grants and similar obligations.
Based on our capital structure and the geographic areas in which we
operate, we are subject to market risk due to changes in interest rates and
fluctuations in the value of foreign currencies. We do not currently use
derivative financial instruments to manage these risks.
Our exposure to interest rate risk results from the floating rates on
our $260.0 million senior term loan and our $150 million revolving credit
facility (under which we had $259.4 million and $15.0 million, respectively,
outstanding at March 30, 2003). Borrowings under our credit facility bear
interest, at various rates, as more fully described in Note 11 to our December
31, 2002 audited financial statements. Based on current amounts outstanding, a
1% increase or decrease in the per annum interest rate for the term loan and
revolving credit facility would change interest expense by $2.7 million
annually.
We conduct business in several locations throughout the world and are
consequently exposed to market risk from changes in the value of foreign
currencies. The functional currencies of our foreign subsidiaries are generally
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.
As a result of the financing transactions entered into on June 6, 2002,
the additional issuance of $85 million aggregate principal amount of senior
subordinated notes, and recent acquisitions, we are highly leveraged. In
addition to normal capital expenditures, we may incur significant amounts of
additional debt and further burden cash flow in pursuit of our internal growth
and acquisition strategies.
The terms of our credit facility require the Company and its
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 ratio (EBITDA over cash
interest expense, as defined) and a capital expenditures covenant, the most
restrictive of which is the leverage ratio. Our permitted leverage ratio was
5.25 to 1.00 at March 30, 2003. The permitted leverage ratio becomes more
restrictive in future periods, declining to 4.50 to 1.00 at December 31, 2003,
3.75 to 1.00 at December 31, 2004 and 3.25 to 1.00 at December 31, 2005 and
thereafter.
We believe that our liquidity and capital resources, including
anticipated cash flows from operations, will be sufficient to meet debt service,
capital expenditure and other short-term and long-term obligations needs for the
foreseeable future, but we are subject to unforeseeable events and risks.
OFF-BALANCE SHEET ARRANGEMENTS
In connection with the transactions, we entered into an agreement to
sell, on an ongoing basis, the trade accounts receivable of certain business
operations to a wholly-owned, bankruptcy-remote, special purpose subsidiary,
TSPC, Inc. ("TSPC"). TSPC, subject to certain conditions, may from time to time
sell an undivided fractional ownership interest in the pool of domestic
receivables, up to approximately $125 million, to a third party multi-seller
receivables funding company, or conduit. Upon sale to TSPC, the Company retains
a subordinated interest in the receivables. Under the terms of the agreement,
new receivables can be added to the pool as collections reduce previously sold
receivables. The facility is anticipated to be an important source of liquidity
in 2003 and subsequent years. At March 30, 2003, we had received net proceeds of
$57.4 million under this facility.
The facility will be subject to customary termination events,
including, but not limited to, breach of representations or
30
warranties, the existence of any event that materially adversely affects the
collectibility of receivables or performance by a seller and certain events of
bankruptcy or insolvency. The proceeds of sale are less than the face amount of
accounts receivable sold by an amount that approximates the purchaser's
financing costs. The agreement expires on June 6, 2005. If we are unable to
renew or replace this facility, it could materially adversely affect our
liquidity.
CASH OBLIGATIONS
Under various agreements, we will be obligated to make future cash
payments in fixed amounts. These include payments under our long-term debt
agreements, rent payments required under operating lease agreements for 15
facilities and certain capital equipment, severance obligations related to our
cost savings plans and our allocable share of certain compensation and benefit
obligations due to Metaldyne. The following table summarizes our expected fixed
cash obligations over various future periods related to these items.
PAYMENTS DUE BY PERIODS (IN MILLIONS)
-------------------------------------------------------------------------
LESS THAN 1 - 3 4 - 5 AFTER
TOTAL ONE YEAR YEARS YEARS 5 YEARS
-------- -------- -------- -------- --------
Contractual cash obligations:
Long-term debt.............. $ 720.5 $ 10.6 $ 7.8 $ 5.0 $ 697.1
Lease obligations........... 134.1 13.2 37.0 22.1 61.8
Restricted stock obligations 8.1 8.1 -- -- --
Severance................... 9.3 4.1 1.2 0.6 3.4
-------- -------- -------- -------- --------
Total contractual obligations.. $ 872.0 $ 36.0 $ 46.0 $ 27.7 $ 762.3
======== ======== ======== ======== ========
As of March 30, 2003, we are contingently liable for stand-by letters
of credit totaling $23.7 million issued on our behalf by financial institutions
under our revolving credit facility. These letters of credit are used for a
variety of purposes, including certain operating leases and meeting various
states' requirements in order to self-insure workers' compensation claims,
including incurred but not reported claims.
CRITICAL ACCOUNTING POLICIES
The following discussion of accounting policies is intended to
supplement the accounting policies presented in Note 3 to our 2002 audited
financial statements. The expenses and accrued liabilities or allowances related
to certain of these policies are based on our best estimates at the time of
original entry in our accounting records. Adjustments are recorded when actual
experience differs from the expected experience underlying the estimates. We
make frequent comparisons of actual versus expected experience to mitigate the
likelihood of material adjustments.
Accounting Basis for Transactions. Prior to June 6, 2002, we were owned
by Metaldyne. On November 28, 2000, Metaldyne was acquired by an investor group
led by Heartland. The pre-acquisition basis of accounting for periods prior to
November 28, 2000 is reflected on the historical basis of accounting and all
periods subsequent to November 28, 2000 are reflected on a purchase accounting
basis and are therefore not comparable. On June 6, 2002, Metaldyne issued
approximately 66% of our fully diluted common stock to an investor group led by
Heartland. As a result of the transactions, we did not establish a new basis of
accounting as Heartland is our and Metaldyne's controlling shareholder and the
transactions were accounted for as a reorganization of entities under common
control. Our combined financial information includes allocations and estimates
of direct and indirect Metaldyne corporate administrative costs attributable to
us, which are deemed by management to be reasonable but are not necessarily
reflective of those costs to us on an ongoing basis.
Receivables. Receivables are presented net of allowances for doubtful
accounts. We monitor our exposure for credit losses and maintain adequate
allowances for doubtful accounts. We do not believe that significant credit risk
exists. Trade accounts receivable of substantially all domestic business
operations may be sold, on an ongoing basis, to TSPC, Inc., a wholly owned
subsidiary of the Company.
31
Depreciation and Amortization. Depreciation is computed principally
using the straight-line method over the estimated useful lives of the assets.
Annual depreciation rates are as follows: buildings and buildings/land
improvements, 2.5% to 10% and machinery and equipment, 6.7% to 33.3%.
Capitalized debt issuance costs are amortized over the underlying terms of the
related debt securities. Customer relationship intangibles are amortized over
periods ranging from 6-40 years, trademarks/trade names are amortized over a
40-year period, while technology and other intangibles are amortized over
periods ranging from 5-30 years.
Excess of Cost over Net Assets of Acquired Companies and Other
Intangibles. The Company tests goodwill for impairment on an annual basis,
unless a change in business conditions occurs which requires a more frequent
evaluation, by comparison of estimated fair value to carrying value. In
assessing the recoverability of goodwill, the Company estimates fair value using
the present value of expected future cash flows and other valuation measures.
The Company also tests its other intangibles for impairment on an annual basis,
or more frequently if events or changes in circumstances indicate that their
carrying amount may not be recoverable. The factors considered by management in
performing this assessment include current operating results, business
prospects, market trends, potential product obsolescence, competitive activities
and other economic factors.
Pension and Postretirement Benefits Other than Pensions. Annual net
periodic expense and benefit liabilities under our defined benefit plans are
determined on an actuarial basis. Assumptions used in the actuarial calculations
have a significant impact on plan obligations and expense. Each September, we
review the actual experience compared to the more significant assumptions used
and make adjustments to the assumptions, if warranted. The healthcare trend
rates are reviewed with the actuaries based upon the results of their review of
claims experience. Discount rates are based upon an expected benefit payments
duration analysis and the equivalent average yield rate for high-quality
fixed-income investments. Pension benefits are funded through deposits with
trustees and the expected long-term rate of return on fund assets is based upon
actual historical returns modified for known changes in the market and any
expected change in investment policy. Postretirement benefits are not funded and
our policy is to pay these benefits as they become due. Certain accounting
guidance, including the guidance applicable to pensions, does not require
immediate recognition or the effects of a deviation between actual and assumed
experience or the revision of an estimate. This approach allows the favorable
and unfavorable effects that fall within an acceptable range to be netted.
32
Other Loss Reserves. We have numerous other loss exposures, such as
environmental claims, product liability, litigation, recoverability of deferred
income tax benefits, and accounts receivable. Establishing loss reserves for
these matters requires the use of estimates and judgment in regard to risk
exposure and ultimate liability. We estimate losses under the programs using
consistent and appropriate methods; however, changes to our assumptions could
materially affect our recorded liabilities for loss. Where available, we utilize
published credit ratings for our debtors to assist us in determining the amount
of required reserves.
33
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 exchange rates. We are also subject to interest risk as
it relates to long-term debt. See Item 2, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for details about our primary
market risks, and the objectives and strategies used to manage these risks.
ITEM 4. CONTROLS AND PROCEDURES
-----------------------
Within the 90-day period prior to the date of this report, an
evaluation was carried out, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act
of 1934. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective, subject to the limitations below, to ensure that information required
to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
The Company, including its CEO and CFO, does not expect that the
Company's disclosure and internal controls and procedures will prevent or detect
all error and all fraud. A control system, no matter how well conceived or
operated, can provide only reasonably, not absolute, assurance that the
objectives of a control system are met.
34
PART II. OTHER INFORMATION
TRIMAS CORPORATION
ITEM 1. LEGAL PROCEEDINGS.
A civil suit was filed in the United States District Court for the
Central District of California in April 1983 by the United States of America and
the State of California under the Federal Superfund law against over 30
defendants, including a subsidiary of ours, for alleged release into the
environment of hazardous substances disposed of at the Stringfellow Disposal
Site in California. The plaintiffs have requested, among other things, that the
defendants clean up the contamination at that site. A consent decree has been
entered into by the plaintiffs and the defendants, including us, providing that
the consenting parties perform partial remediation at the site. The State of
California has agreed to take over clean-up of the site, as well as
responsibility for governmental entities' past response costs. We estimate that
we will have no share of the clean-up expense at this site. The plaintiffs had
sought other relief such as reimbursement of response costs and injunctive
relief from the defendants under CERCLA and other similar state law theories,
but the consent decree governs the remedy. The defendants are negotiating a
Consent Decree with the United States, which will dismiss the defendants from
the case subject only to the failure of the State of California to perform under
its consent decree with the defendants. Additionally, we and approximately 60
other entities including the State are defendants in a toxic tort suit brought
in the Superior Court of the State of California in May 1998 by various persons
residing in the area of the site and seeking damages for alleged personal
injuries claimed to arise from exposure to contaminants from the site. The
Superior Court of the State of California has issued an order dismissing all
plaintiffs in the action. Plaintiffs have an opportunity to appeal. Another
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 against more than 180 defendants, including us, 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 us, 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. We estimate that our share of the clean-up will not
exceed $150,000, for which the Company has insurance proceeds. Plaintiff 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. While based upon our present knowledge and
subject to future legal and factual developments, we do not believe that any of
these litigations will have a material adverse effect on our consolidated
financial position, results of operations or cash flow, future legal and factual
developments may result in materially adverse expenditures.
As of May 12, 2003, we were a party to approximately 581 pending cases
involving an aggregate of approximately 25,352 claimants alleging personal
injury from exposure to asbestos containing materials formerly used in gaskets
(both encapsulated and otherwise) manufactured or distributed by certain of our
subsidiaries for use in the petrochemical refining and exploration industries.
In addition, we acquired various companies to distribute our products that had
distributed gaskets of other manufacturers prior to acquisition. We believe that
many of our pending cases relate to locations at which none of our gaskets were
distributed or used. Total settlement costs (exclusive of defense costs) for all
such cases, some of which were filed over 12 years ago, have been approximately
$2.3 million. We do not have significant primary insurance to cover our
settlement and defense costs. We believe that there may be excess insurance
policies of former owners available to us that we are in the process of
reconstructing, but they may not be available. Based upon our experience to date
and other available information, we do not believe that these cases will have a
material adverse effect on our financial condition or future results of
operations. However, we may be subjected to significant additional claims in the
future, the cost of settling cases in which product identification can be made
may increase, and we may be subjected to further claims in respect of the former
activities of our acquired gasket distributors.
We are subject to other claims and litigation in the ordinary course of
our business, but do not believe that any such claim or litigation will have a
material adverse effect on our financial position or results of operations.
35
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None of our securities, which were not registered under the Securities Act,
have been issued or sold by us since December 31, 2002 except as follows:
1. On January 30, 2003, we issued 700,000 shares of common stock to
Heartland at a price of $20.00 per share or an aggregate price of $14,000,000.
2. On February 21, 2003, we issued 800,000 shares of common stock to
Heartland at a price of $20.00 per share or an aggregate price of $16,000,000.
The issuance of the securities described above was exempt from registration
under the Securities Act in reliance on Section 4(2) of such Securities Act as
transactions by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access to
information about us at the time of their investment decision.
ITEMS 3, 4 AND 5.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
Exhibit 10.1 Amendment No. 1 to Corporate Services Agreement.
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(B) REPORTS ON FORM 8-K:
The Company issued a report on Form 8-K dated February 25, 2003,
announcing the acquisition of Highland Group Industries
("Highland") pursuant to a Purchase Agreement (the "Purchase
Agreement") dated as of February 21, 2003, by and among TriMas
Company LLC, a subsidiary of the Company, the shareholders and
option holders of Highland (the "Sellers") and FNL Management
Corp. as Sellers' Representative.
The Company issued a report on Form 8-K/A dated February 25, 2003,
and filed audited financial statements as of December 31, 2002,
and 2001 and for the three years then ended, and pro forma
financial information for the required periods.
36
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: May 14, 2003 BY: /s/ Todd R. Peters
-------------------------------------
Todd R. Peters
Chief Financial Officer and Chief
Accounting Officer
37
CERTIFICATION OF GRANT H. BEARD PURSUANT TO
RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-Q FOR THE QUARTER ENDED MARCH 30, 2003
OF TRIMAS CORPORATION
I, Grant H. Beard, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TRIMAS
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 BY: /s/ Grant H. Beard
------------------------------
Grant H. Beard
President and Chief Executive
Officer
38
CERTIFICATION OF TODD R. PETERS PURSUANT TO
RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-Q FOR THE QUARTER ENDED MARCH 30, 2003
OF TRIMAS CORPORATION
I, Todd R. Peters, certify that:
1. I have reviewed this quarterly report on Form 10-Q of TRIMAS
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 BY: /s/ Todd R. Peters
---------------------------------
Todd R. Peters
Chief Financial Officer and Chief
Accounting Officer
39
TRIMAS CORPORATION
EXHIBIT INDEX
EXHIBIT
Exhibit 10.1 Amendment No. 1 to Corporate Services Agreement.
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
40