Back to GetFilings.com
================================================================================
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 JUNE 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
----------------
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) 631-5450
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [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 August 14, 2003, the number of outstanding shares of the Registrant's
common stock, $.01 par value, was 20,000,000 shares.
================================================================================
TRIMAS CORPORATION
INDEX
PAGE NO.
--------
Part I. Financial Information
Forward Looking Statements............................................................................. 1
Item 1. Financial Statements
Balance Sheets - June 30, 2003 and December 31, 2002....................................... 3
Combined Statement of Operations for the Six and Three Months Ended
June 30, 2003 and 2002................................................................... 4
Combined Statement of Cash Flows for the Six Months Ended
June 30, 2003 and 2002................................................................... 5
Statement of Shareholders' Equity for the Six Months Ended
June 30, 2003............................................................................ 6
Notes to Financial Statements.............................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 24
Item 3. Quantitative and Qualitative Disclosure about Market Risk................................. 32
Item 4. Controls and Procedures................................................................... 32
Part II. Other Information and Signature........................................................... 33
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 contained in this
report include general economic conditions in the markets in which we operate
and industry-based and other factors more specific to us 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 including actions
we have identified as providing cost-saving opportunities, 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 International Operations -- a growing portion of our sales may be
derived from international sources, which exposes us to certain risks.
o Goodwill and Intangible Assets -- we have significant goodwill and
intangible assets, and future impairment could have a material
negative impact on our financial condition and results.
o Control by Principal Stockholder -- we are controlled by Heartland
Industrial Partners ("Heartland"), whose interests in our business may
be different than those of our other investors.
1
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 may impact our
ability to implement certain operational and financial strategies.
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 attributed to
us or persons acting on our behalf. When we indicate that an event, condition or
circumstance could or would have an adverse effect on us, we mean to include
effects upon our business, financial and other conditions, results of operations
and ability to make payments on the notes.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIMAS CORPORATION
BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
(UNAUDITED -- DOLLARS IN THOUSANDS)
CONSOLIDATED COMBINED
JUNE 30, DECEMBER 31,
2003 2002
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 22,380 $ 100,440
Receivables.......................................................................... 147,380 97,960
Inventories.......................................................................... 127,270 93,110
Deferred income taxes................................................................ 18,770 18,290
Prepaid expenses and other current assets............................................ 12,130 9,830
------------ ------------
Total current assets............................................................. 327,930 319,630
Property and equipment, net............................................................ 188,340 244,110
Goodwill............................................................................... 637,370 517,060
Other intangibles...................................................................... 358,460 286,270
Other assets........................................................................... 70,430 62,600
------------ ------------
Total assets..................................................................... $ 1,582,530 $ 1,429,670
============ ============
LIABILITIES, SHAREHOLDERS' EQUITY AND METALDYNE
CORPORATION NET INVESTMENT AND ADVANCES
Current liabilities:
Current maturities, long-term debt................................................... $ 11,470 $ 2,990
Accounts payable..................................................................... 95,040 57,400
Accrued liabilities.................................................................. 72,220 63,940
Due to Metaldyne..................................................................... 8,870 9,960
------------ ------------
Total current liabilities........................................................ 187,600 134,290
Long-term debt......................................................................... 765,790 693,190
Deferred income taxes.................................................................. 188,430 155,920
Other long-term liabilities............................................................ 27,290 31,080
Due to Metaldyne....................................................................... 7,090 11,960
------------ ------------
Total liabilities................................................................ 1,176,200 1,026,440
------------ ------------
Commitment and contingencies........................................................... -- --
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
20,000,000 and 19,250,000 shares, respectively....................................... 200 190
Paid-in capital........................................................................ 396,630 387,500
Retained deficit....................................................................... (15,750) (6,940)
Accumulated other comprehensive income................................................. 25,250 7,300
Metaldyne Corporation net investment and advances...................................... -- 15,180
------------ ------------
Total shareholders' equity and Metaldyne Corporation net investment
and advances.................................................................. 406,330 403,230
------------ ------------
Total liabilities, shareholders' equity and Metaldyne Corporation net investment
and advances.................................................................. $ 1,582,530 $ 1,429,670
============ ============
The accompanying notes are an integral part of these financial statements.
3
TRIMAS CORPORATION
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED -- IN THOUSANDS)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ----------- ---------- -----------
Net sales.................................................................$ 468,120 $ 400,990 $ 250,150 $ 205,880
Cost of sales............................................................. (353,230) (290,820) (188,050) (147,790)
---------- ----------- ---------- -----------
Gross profit......................................................... 114,890 110,170 62,100 58,090
Selling, general and administrative expenses.............................. (75,340) (56,490) (39,670) (29,320)
---------- ----------- ---------- -----------
Operating profit..................................................... 39,550 53,680 22,430 28,770
---------- ----------- ---------- -----------
Other income (expense), net:
Interest expense....................................................... (33,150) (33,650) (16,770) (16,010)
Other, net............................................................. (17,870) (3,720) (5,500) (2,290)
---------- ----------- ---------- -----------
Other expense, net................................................... (51,020) (37,370) (22,270) (18,300)
---------- ----------- ---------- -----------
Income (loss) before income tax (expense) credit and cumulative effect
of change in accounting principle....................................... (11,470) 16,310 160 10,470
Income tax (expense) benefit.............................................. 3,030 (5,780) (1,580) (3,740)
---------- ----------- ---------- -----------
Income (loss) before cumulative effect of change in accounting
principle............................................................... (8,440) 10,530 (1,420) 6,730
Cumulative effect of change in recognition and measurement of goodwill
impairment.............................................................. -- (36,630) -- --
---------- ----------- ---------- -----------
Net income (loss).........................................................$ (8,440) $ (26,100) $ (1,420) $ 6,730
========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements.
4
TRIMAS CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
(UNAUDITED -- IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
------------------------------
2003 2002
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $ (8,440) $ (26,100)
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.............................................. 18,120 --
Depreciation and amortization.................................................. 22,860 22,110
Legacy stock award expense..................................................... 2,490 1,720
Amortization of debt issue costs............................................... 1,950 --
Net proceeds from accounts receivable securitization........................... -- 14,560
Repurchase of securitized accounts receivable from Metaldyne................... -- (74,540)
Payment to Metaldyne to fund contractual liabilities........................... (4,780) (8,510)
Increase in receivables........................................................ (25,520) (33,040)
(Increase) decrease in inventories............................................. (4,650) 2,700
(Increase) decrease in prepaid expenses and other assets....................... (4,540) 460
Increase in accounts payable and accrued liabilities........................... 11,030 6,440
Other, net..................................................................... (1,960) (490)
------------ ----------
Net cash provided by (used for) operating activities, net of acquisition impact 6,560 (58,060)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (10,410) (13,710)
Proceeds from sales of fixed assets.............................................. 67,980 --
Acquisition of businesses, net of cash acquired.................................. (205,770) --
------------ ----------
Net cash used for investing activities....................................... (148,200) (13,710)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock....................................... 35,000 259,730
Repurchase of common stock....................................................... (20,000) --
Proceeds from senior credit facility............................................. 75,000 260,000
Repayments of borrowings on senior credit facility............................... (1,450) --
Proceeds from borrowings on revolving credit facility............................ 269,000 --
Repayments of borrowings on revolving credit facility............................ (269,000) --
Debt issuance costs.............................................................. (2,150) (28,310)
Increase (decrease) in Metaldyne Corporation net investment and advances......... (22,710) 18,600
Payments on notes payable........................................................ (250) --
Issuance of note payable......................................................... 140 --
Issuance of senior subordinated debentures....................................... -- 350,000
Repayment of bank debt attributed from Metaldyne................................. -- (440,760)
Dividend to Metaldyne............................................................ -- (338,080)
------------ ----------
Net cash provided by financing activities.................................... 63,580 81,180
------------ ----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period............................................... (78,060) 9,410
At beginning of period........................................................... 100,440 3,780
------------ ----------
At end of period............................................................. $ 22,380 $ 13,190
=========== ==========
The accompanying notes are an integral part of these financial statements.
5
TRIMAS CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY AND
METALDYNE CORPORATION NET INVESTMENT AND ADVANCES
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED -- IN THOUSANDS)
ACCUMULATED
NET OTHER
INVESTMENT COMMON PAID-IN RETAINED COMPREHENSIVE
AND ADVANCES STOCK CAPITAL DEFICIT INCOME TOTAL
------------ ----- ------- ------- ------ -----
Combined Balances, December 31, 2002.. $ 15,180 $ 190 $ 387,500 $ (6,940) $ 7,300 $ 403,230
------------ --------- ------------ ------------ -------------- ------------
Comprehensive income (loss):
Net income (loss)................... 370 -- -- (8,810) -- (8,440)
Foreign currency translation........ -- -- -- -- 17,950 17,950
------------ --------- ------------ ------------ -------------- ------------
Total comprehensive income
(loss)....................... 370 -- -- (8,810) 17,950 9,510
------------
Net proceeds from issuance of --
common stock........................ 20 34,980 -- -- 35,000
Repurchase of common stock............ (10) (19,990) (20,000)
Net change in Metaldyne Corporation
net investments in advances......... 670 -- -- -- -- 670
Payment to Metaldyne Corporation to
acquire fasteners business.......... (22,710) -- -- -- -- (22,710)
Excess of amount paid for fasteners
business over net assets acquired... 6,490 -- (6,490) -- -- --
Net adjustments to reflect --
settlement of contractual
obligations......................... -- 630 -- -- 630
------------ --------- ------------ ------------ -------------- ------------
Consolidated Balances, June 30, 2003.. $ -- $ 200 $ 396,630 $ (15,750) $ 25,250 $ 406,330
============ ========= ============ ============ ============== ============
The accompanying notes are an integral part of these financial statements.
6
TRIMAS CORPORATION
NOTES TO 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. 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 used in
automotive and industrial applications, and highly engineered specialty
fasteners for the global 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.
On May 9, 2003, the Company acquired a fasteners manufacturing business
("Fittings") from Metaldyne Corporation ("Metaldyne") for approximately $22.7
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. Because the Company and Metaldyne are under common control, this
transaction was accounted for as a reorganization of entities under common
control and, accordingly, the Company did not establish a new basis of
accounting in the assets or liabilities of Fittings. The Company's reported
results from prior periods have been restated to include the financial results
of Fittings.
Prior to June 6, 2002 and the common stock issuance related financing
transactions discussed in Note 2, the accompanying financial statements
represented the combined assets and liabilities and results of operations of
certain subsidiaries and divisions of subsidiaries of Metaldyne which comprised
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.
The accompanying 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 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 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. 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
7
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
shares of common stock at par value of $.01 per share, valued at $15 million. At
June 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 June 30, 2003, Metaldyne owned 27.7% of the Company's
common stock on a fully diluted basis.
As Heartland is both the Company's and Metaldyne's controlling shareholder,
the June 6, 2002 and related transactions were 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 $145.2 million (including our previous investment of $9.0
million). Of this amount, $7.2 million, net of the purchase price, was deferred
and is 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 $73.5 million. Highland is a
market-leading supplier of cargo management products and a full line supplier of
vehicle protection products, specializing in products that help people safely
load, anchor, secure, tow, carry, trailer, and organize cargo, as well as
protect the vehicle and its cargo area.
The acquisitions of HammerBlow and Highland provide additional
opportunities to leverage new product extensions and innovations in our towing
and trailer products businesses with customers in new markets through enhanced
brand awareness and distribution, particularly in the end consumer retail
channel.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the acquisition dates. The Company is in the
process of obtaining finalized third-party valuations of certain intangible
assets and determining costs of restructuring plans associated with these
businesses. The allocation of the purchase price is subject to refinement of
these estimates and consists of the following (in thousands):
HAMMERBLOW HIGHLAND TOTAL
------------ ------------ -------------
Current assets.......................................$ 36,300 $ 18,770 $ 55,070
Property and equipment............................... 22,200 5,980 28,180
Other intangible assets.............................. 54,290 24,700 78,990
Goodwill............................................. 72,330 35,900 108,230
Deferred taxes and other............................. 2,380 1,280 3,660
------------ ------------ -------------
Total assets acquired.......................... 187,500 86,630 274,130
------------ ------------ -------------
Current liabilities.................................. 21,780 3,140 24,920
Deferred tax liabilities............................. 20,470 9,950 30,420
------------ ------------ -------------
Total liabilities assumed...................... 42,250 13,090 55,340
------------ ------------ -------------
Net assets acquired............................$ 145,250 $ 73,540 $ 218,740
============ ============ =============
8
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The estimated fair values of inventories acquired were increased $4.0
million from historical amounts, of which approximately $1.6 million and $2.3
million of this amount was included in cost of sales during the quarters ended
June 30, 2003 and March 30, 2003, respectively. 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 $108.2 million of goodwill is assigned to the Cequent
Transportation Accessories segment.
The results of these acquisitions are included in the Company's June 30,
2003 financial statements 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 is not a recurring
expense.
SIX MONTHS ENDED JUNE
----------------------------------------------------------
(IN THOUSANDS) 2003 2002
----------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------- -------------- ------------- -----------
Net sales.................................. $ 468,120 $ 484,540 $ 400,990 $ 485,570
------------- -------------- ------------- -----------
Operating profit........................... 39,550 44,330 53,680 66,500
------------- -------------- ------------- -----------
Income (loss) before cumulative effect of
accounting change........................ (8,440) (6,200) 10,530 16,680
------------- -------------- ------------- -----------
Net loss................................... $ (8,440) $ (6,200) $ (26,100) $ (19,950)
------------- -------------- ------------- -----------
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the six months ended June
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 $ 54,730 $ 70,500 $ 517,060
Goodwill from acquisitions....... 108,900 -- -- 750 109,650
Impact of foreign currency
translation and other........ 6,670 3,130 230 630 10,660
--------------- ------------- ------------- ------------- -------------
BALANCE, JUNE 30, 2003............$ 342,170 $ 168,360 $ 54,960 $ 71,880 $ 637,370
=============== ============= ============= ============= =============
9
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The gross carrying amounts and accumulated amortization for the Company's
acquired other intangible assets as of June 30, 2003 and December 31, 2002 are
summarized below (in thousands):
AS OF JUNE 30, 2003 AS OF DECEMBER 31, 2002
----------------------------- -------------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
INTANGIBLE CATEGORY BY USEFUL LIFE AMOUNT AMORTIZATION AMOUNT AMORTIZATION
----------------------------------------------- ------------ --------------- -------------- ---------------
Customer relationships:
6 - 12 years..................................$ 26,500 $ (6,780) $ 26,500 $ (5,460)
15 - 25 years................................. 103,850 (8,080) 62,000 (5,630)
40 years...................................... 111,580 (7,180) 111,580 (5,790)
------------ --------------- -------------- ---------------
Total customer relationships.................... 241,930 (22,040) 200,080 (16,880)
------------ --------------- -------------- ---------------
Trademark/Trade names:
40 years...................................... 89,510 (3,840) 54,390 (2,830)
Technology and other:
5 - 15 years.................................. 26,490 (7,280) 22,500 (5,670)
18 - 30 years................................. 38,070 (4,380) 38,190 (3,510)
------------ --------------- -------------- ---------------
Total technology and other...................... 64,560 (11,660) 60,690 (9,180)
------------ --------------- -------------- ---------------
$ 396,000 $ (37,540) $ 315,160 $ (28,890)
============ =============== ============== ===============
Amortization expense related to intangibles was approximately $8.7 million
and $7.0 million for the six months ended June 30, 2003 and 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 -- $17.8 million; 2004 -- $18.2 million;
2005 -- $18.1 million; 2006 -- $16.6 million; and 2007 -- $15.9 million.
5. RESTRUCTURINGS
During the second quarter of 2003, in conjunction with the acquisition of
Fittings, the Company adopted a plan to close one additional manufacturing
facility within its Fastening Systems group and consolidate those operations
into the remaining three manufacturing facilities. This action will result in
the elimination of approximately 160 positions, of which approximately 30 have
been eliminated as of June 30, 2003. The plan is expected to be completed in
2004. The Company has recorded charges of approximately $2.0 million related to
the consolidation, of which approximately $0.9 million relates to the
curtailment of a defined benefit pension plan for certain union-hourly employees
and $1.1 million relates to a reserve for severance obligations. As of June 30,
2003, costs of approximately $0.3 million had been charged against this reserve.
Also during the second quarter of 2003, the Company adopted a plan to
centralize certain gasket applications in its Industrial Specialties group
within a single facility. In addition, the group will rationalize the back
office general and administrative support within its branch service centers.
This action will result in the elimination of approximately 40 positions, of
which approximately 30 have been eliminated as of June 30, 2003. The plan is
expected to be completed in 2004. The Company has established a reserve for
severance obligations of approximately $1.0 million in connection with this
plan. As of June 30, 2003, costs of approximately $0.1 had been charged against
this reserve.
During the first quarter of 2003, the Company established a preliminary
estimate of restructuring costs associated with its acquisitions of HammerBlow
and Highland of $5.2 million, of which approximately $2.2 million related to
facility closure costs and $3.0 million related to severance obligations. No
costs were charged against this reserve during the six months ended June 30,
2003.
10
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
The following table summarizes the purchase accounting adjustments
established to reflect the November 2000 actions and subsequent related activity
(in thousands):
CLOSURE
SEVERANCE COSTS TOTAL
------------ ------------ ---------
Reserve at December 31, 2002....................................... $ 4,590 $ 2,480 $ 7,070
Cash............................................................. (2,320) (350) (2,670)
Non-cash......................................................... -- -- --
------------ ------------ ---------
Reserve at June 30, 2003........................................... $ 2,270 $ 2,130 $ 4,400
============ ============ =========
Approximately 580 jobs have been or will be eliminated as a result of these
restructuring actions. To date, approximately 405, 55 and 100 have been
eliminated in the Cequent Transportation Accessories, Rieke Packaging Systems
and Fastening Systems groups, respectively, as of June 30, 2003, and the Company
expects the remaining actions to be completed in 2004.
6. ACCOUNTS RECEIVABLE SECURITIZATION
As part of the June 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. Prior to June 2002, TriMas sold certain of its
accounts receivable to MTSPC, Inc. ("MTSPC"), a wholly owned subsidiary of
Metaldyne. 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 $0.8
million and $0.9 million for the six months ended June 30, 2003 and 2002,
respectively. At June 30, 2003 and December 31, 2002, no receivables were sold
under this arrangement and the Company had $61.6 million available but not
utilized as of the balance sheet date. The discount rate at June 30, 2003 was
2.27%. 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.
7. INVENTORIES
Inventories consist of following components (in thousands):
DECEMBER 31,
JUNE 30, 2003 2002
--------------- ---------------
Finished goods....................................................... $ 63,880 $ 51,160
Work in process...................................................... 20,010 13,460
Raw materials........................................................ 43,380 28,490
------------- -------------
Total inventories.................................................... $ 127,270 $ 93,110
============= =============
8. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following components (in thousands):
11
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
DECEMBER 31,
JUNE 30, 2003 2002
--------------- ---------------
Land and land improvements........................................... $ 5,210 $ 8,810
Buildings............................................................ 60,000 46,100
Machinery and equipment.............................................. 176,700 237,180
------------- -------------
241,910 292,090
Less: Accumulated depreciation...................................... 53,570 47,980
------------- -------------
Property and equipment, net.......................................... $ 188,340 $ 244,110
============= =============
9. LONG-TERM DEBT
The Company's long-term debt at June 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):
DECEMBER 31,
JUNE 30, 2003 2002
--------------- ---------------
Senior term loan..................................................... $ 332,930 $ 259,375
9 7/8% senior subordinated notes, due June 2012 ("Notes")............ 436,010 435,975
Other................................................................ 8,320 830
------------- -------------
777,260 696,180
Less: Current maturities............................................ 11,470 2,990
------------- -------------
Long-term debt....................................................... $ 765,790 $ 693,190
============= =============
On June 6, 2003, the Company amended and restated its credit facility
("Credit Facility") to modify certain financial covenants, increase the term
loan facility from $260 million to $335 million and reduce the incremental term
loan capacity by $75 million to $125 million. The Credit Facility, as amended,
provides for this uncommitted $125 million incremental term loan facility for
one or more permitted acquisitions. In connection with the amendment and
restatement, the Company capitalized debt issuance costs of approximately $1.9
million, which will be amortized using the effective interest method over the
life of the Credit Facility.
The amended and restated Credit Facility consists of a $335 million senior
term loan which matures December 31, 2009 and is payable in quarterly
installments of $0.8 million. 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
$23.8 and $23.5 million issued and outstanding at June 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 2.25% on base rate loans and 3.25% on Eurodollar loans
at June 30, 2003. The effective interest rate on Credit Facility borrowings was
4.47% at June 30, 2003 and 4.44% at December 31, 2002.
12
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 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 June 30, 2003.
The Notes indenture contains negative and affirmative covenants and other
requirements that are comparable to those contained in the Credit Facility. At
June 30, 2003, the Company was in compliance with all such covenant
requirements.
The Company paid cash for interest of approximately $29.7 million for the
six months ended June 30, 2003. For the six months ended June 30, 2002, interest
expense allocated to TriMas was paid by Metaldyne.
10. LEASES
TriMas leases certain equipment and plant facilities under non-cancelable
operating leases. Rental expense totaled approximately $6.9 million and $1.2
million in the six months ended June 30, 2003 and 2002, respectively.
In the first and second quarters of 2003, the Company entered into
sale-leaseback arrangements with third-party lenders for certain of its
machinery and equipment and facilities. 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
$8.4 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 losses
of approximately $18.1 million, which is included in other, net in the
accompanying statement of operations.
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 a subsidiary of 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. Additionally,
TriMas and approximately 60 other entities including the State were 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 issued an order
dismissing all plaintiffs in the action. A final judgment dismissing the matter
without any recovery by plaintiffs was entered by the court on July 23, 2003.
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 the contamination at
that site. Consent decrees have
13
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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. We estimate that the Company's share of the clean-up will not
exceed $450,000, for which the Company has received insurance proceeds.
As of August 8, 2003, the Company is party to approximately 612 pending
cases involving approximately 30,427 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. The
Company does not have significant primary insurance to cover its settlement and
defense costs. The Company believes that there may be excess insurance policies
of former owners available to it that the Company is in the process of
reconstructing, but such insurance may not be available. 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, the Company 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 the Company
may be subjected to further claims in respect of 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 April 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 31.4% to approximately 27.7% on a fully diluted basis.
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 $15.9 million and $21.9 million as of June 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,
internal audit, tax, legal and other general corporate services and remittance
of certain third-party charges on TriMas' behalf.
14
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Heartland Industrial Partners
The Company is party to an advisory services agreement with Heartland at an
annual fee of $4.0 million plus expenses. During the six months ended June 30,
2003, the Company incurred $2.3 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. SEGMENT INFORMATION
TriMas' reportable operating segments are business units that provide
unique products and services. Each operating segment is independently managed,
requires different technology and marketing strategies and has separate
financial information evaluated regularly by the Company's chief operating
decision maker in determining resource allocation and assessing performance.
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, specialized fittings and
cold-headed parts used in automotive and industrial applications, 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.
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 be fully paid in January 2004.
15
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Segment activity is as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2003 2002 2003 2002
------------ ----------- ------------ -----------
NET SALES
Cequent Transportation Accessories.......................... $125,960 $ 87,820 $224,850 $163,230
Rieke Packaging Systems..................................... 33,090 28,050 63,360 54,680
Fastening Systems........................................... 36,520 39,080 71,500 77,160
Industrial Specialties...................................... 54,580 50,930 108,410 105,920
------------ ----------- ------------ -----------
Total....................................................... $250,150 $205,880 $468,120 $400,990
============ =========== ============ ===========
OPERATING PROFIT
Cequent Transportation Accessories.......................... $ 14,950 $ 14,420 $ 23,080 $ 25,990
Rieke Packaging Systems..................................... 8,750 7,850 16,330 14,830
Fastening Systems........................................... (720) 3,670 480 6,120
Industrial Specialties...................................... 5,470 6,350 11,630 13,010
Corporate expenses and management fees...................... (4,800) (2,600) (9,480) (4,550)
Legacy stock award expense.................................. (1,220) (920) (2,490) (1,720)
------------ ----------- ------------ -----------
Total....................................................... $ 22,430 $ 28,770 $ 39,550 $ 53,680
============ =========== ============ ===========
EBITDA
Cequent Transportation Accessories.......................... $ 19,690 $ 18,510 $ 32,100 $ 33,520
Rieke Packaging Systems..................................... 10,980 10,220 20,830 19,620
Fastening Systems........................................... 1,790 6,390 5,190 11,870
Industrial Specialties...................................... 7,660 7,200 16,040 16,540
Corporate expenses and management fees...................... (4,730) (2,110) (9,260) (4,040)
Legacy stock award expense.................................. (1,220) (920) (2,490) (1,720)
------------ ----------- ------------ -----------
Total...................................................... $ 34,170 $ 39,290 $ 62,410 $ 75,790
============ =========== ============ ===========
14. IMPACT OF NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB') issued
FASB Interpretation ("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 adoption of this
statement did not have any effect on the Company's results of operations or
financial condition.
In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity." SFAS No. 150 provides guidance
for how a company should classify and measure certain financial instruments that
have characteristics of both liabilities and equity. SFAS No. 150 is effective
immediately for any qualifying financial instruments issued after May 31, 2003
and becomes effective for existing issuance in the third quarter of 2003. The
Company does not believe the adoption of SFAS No. 150 will have a material
impact on its financial condition or results of operations.
16
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
15. SUBSEQUENT EVENT
On July 21, 2003, the Company launched an exchange offer for its $85
million aggregate principal amount of 9 7/8% senior subordinated notes due 2012
for a like amount of outstanding 9 7/8% senior subordinated notes due 2012. The
exchange offer is scheduled to expire on August 20, 2003. The exchange offer
will not raise new cash proceeds for the Company and was made in accordance with
contractual commitments under the registration rights agreement dated December
10, 2002.
16. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING AND CONSOLIDATING FINANCIAL
INFORMATION
Under an indenture dated June 6, 2002, TriMas Corporation, the parent
company ("Parent"), issued 9 7/8% 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
subsequent to June 30, 2002 is included in the Guarantor Subsidiary column of
the accompanying consolidating financial information. In addition, the results
of Fittings are included with the results of the Guarantor Subsidiaries for each
of the periods in which supplemental guarantor financial information is
presented.
17
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
AS OF JUNE 30, 2003 (UNAUDITED)
------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------- --------------
ASSETS
Current assets:
Cash and cash equivalents.................... $ -- $ 17,210 $ 5,170 $ -- $ 22,380
Receivables, trade........................... -- 92,420 136,810 (81,850) 147,380
Receivables, intercompany.................... -- 3,090 2,660 (5,750) --
Inventories.................................. -- 108,180 19,090 -- 127,270
Deferred income taxes........................ -- 18,470 300 -- 18,770
Prepaid expenses and other current assets.... -- 10,380 1,750 -- 12,130
----------- ----------- ----------- ------------- --------------
Total current assets....................... -- 249,750 165,780 (87,600) 327,930
Investments in subsidiaries.................... 870,410 191,270 -- (1,061,680) --
Property and equipment, net.................... -- 148,000 40,340 -- 188,340
Excess of cost over net assets of acquired
companies.................................... -- 537,350 100,020 -- 637,370
Other intangibles and other assets............. 17,330 393,630 17,930 -- 428,890
----------- ----------- ----------- ------------- --------------
Total assets............................... $ 887,740 $ 1,520,000 $ 324,070 $ (1,149,280) $ 1,582,530
=========== =========== =========== ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities, long-term debt........... $ -- $ 11,470 $ -- $ -- $ 11,470
Accounts payable, trade...................... -- 75,350 19,690 -- 95,040
Accounts payable, intercompany............... -- 2,650 3,100 (5,750) --
Accrued liabilities.......................... 2,040 59,940 10,240 -- 72,220
Due to Metaldyne............................. -- 8,870 -- -- 8,870
----------- ----------- ----------- ------------- --------------
Total current liabilities ................. $ 2,040 $ 158,280 $ 33,030 $ (5,750) $ 187,600
=========== =========== =========== ============= ==============
Long-term debt................................. $ 436,010 $ 329,780 $ 81,850 $ (81,850) $ 765,790
Deferred income taxes.......................... -- 175,980 12,450 -- 188,430
Other long-term liabilities.................... -- 26,810 480 -- 27,290
Due to Metaldyne............................... -- 7,090 -- -- 7,090
----------- ----------- ----------- ------------- --------------
Total liabilities.......................... 438,050 697,940 127,810 (87,600) 1,176,200
Total shareholders' equity................. 449,690 822,060 196,260 (1,061,680) 406,330
----------- ----------- ----------- ------------- --------------
Total liabilities and shareholders'
equity................................ $ 887,740 $1,520,000 $ 324,070 $ (1,149,280) $ 1,582,530
=========== =========== =========== ============= ==============
18
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED FINANCIAL STATEMENTS
COMBINING BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 2002 (UNAUDITED)
------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------- --------------
ASSETS
Current assets:
Cash and cash equivalents................. $ -- $ 86,570 $ 13,870 $ -- $ 100,440
Receivables, trade........................ 60 80,140 17,760 -- 97,960
Receivables, intercompany................. -- 6,030 6,120 (12,150) --
Inventories............................... -- 81,420 11,690 -- 93,110
Deferred income taxes..................... -- 18,290 -- -- 18,290
Prepaid expenses and other current assets. -- 8,920 910 -- 9,830
----------- ----------- ---------- ------------ -----------
Total current assets.................... 60 281,370 50,350 (12,150) 319,630
Investment in subsidiaries.................. 808,620 128,830 -- (937,450) --
Property and equipment, net................. -- 213,250 30,860 -- 244,110
Excess of cost over net assets of acquired
companies................................. -- 442,810 74,250 -- 517,060
Other intangibles and other assets.......... 17,710 327,930 3,230 -- 348,870
----------- ----------- ---------- ------------ -----------
Total assets............................ $ 826,390 $1,394,190 $ 158,690 $ (949,600) $ 1,429,670
=========== =========== =========== ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities, long-term debt........ $ -- $ 2,990 $ -- $ -- $ 2,990
Accounts payable, trade................... 440 43,010 13,950 -- 57,400
Accounts payable, intercompany............ -- 6,120 6,030 (12,150) --
Accrued liabilities....................... 1,950 57,770 4,220 -- 63,940
Due to Metaldyne.......................... -- 9,960 -- -- 9,960
----------- ----------- ---------- ------------ -----------
Total current liabilities .............. 2,390 119,850 24,200 (12,150) 134,290
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....................... 438,340 570,390 29,860 (12,150) 1,026,440
Total shareholders' equity.............. 388,050 823,800 128,830 (937,450) 403,230
----------- ----------- ---------- ------------ -----------
Total liabilities and shareholders'
equity................................ $ 826,390 $1,394,190 $ 158,690 $ (949,600) $1,429,670
=========== =========== ========== ============= ===========
19
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED FINANCIAL STATEMENTS
COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------- --------------
Net sales................................... $ -- $ 206,420 $ 49,870 $ (6,140) $ 250,150
Cost of sales............................... -- (158,120) (36,070) 6,140 (188,050)
-------- ------------ ----------- ----------- ----------
Gross profit.......................... -- 48,300 13,800 -- 62,100
Selling, general and administrative
expenses.................................. 20 (34,290) (5,400) -- (39,670)
-------- ------------ ----------- ----------- ----------
Operating profit...................... 20 14,010 8,400 -- 22,430
Other income (expense), net:
Interest expense...................... (11,610) (4,350) (810) -- (16,770)
Other, net............................ 70 (4,760) (810) -- (5,500)
-------- ------------ ----------- ----------- ----------
Income (loss) before income tax (expense)
credit and equity in net income of
subsidiaries.............................. (11,520) 4,900 6,780 -- 160
Income tax (expense) credit................. -- 1,300 (2,880) -- (1,580)
Equity in net income (loss) of
subsidiaries.............................. 10,030 3,900 -- (13,930) --
-------- ------------ ----------- ----------- ----------
Income (loss) before cumulative effect of
change in accounting principle............ (1,490) 10,100 3,900 (13,930) (1,420)
Cumulative effect of change in accounting
principle................................. -- -- -- -- --
-------- ------------ ----------- ----------- ----------
Net income (loss)........................... $ (1,490) $ 10,100 $ 3,900 $ (13,930) $ (1,420)
======== ============ =========== =========== ===========
20
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED FINANCIAL STATEMENTS
COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------- --------------
Net sales..................................... $ -- $ 182,060 $ 28,440 $ (4,620) $ 205,880
Cost of sales................................. -- (133,020) (19,390) 4,620 (147,790)
----------- ---------- ------------ ---------- ----------
Gross profit............................ -- 49,040 9,050 -- 58,090
Selling, general and administrative expenses.. -- (25,370) (3,950) -- (29,320)
----------- ---------- ------------ ---------- ----------
Operating profit........................ -- 23,670 5,100 -- 28,770
Other income (expense), net:
Interest expense............................ (2,580) (13,530) 100 -- (16,010)
Other, net.................................. -- (1,150) (1,140) -- (2,290)
----------- ---------- ------------ ---------- ----------
Income (loss) before income taxes (credit)
and equity in net income (loss) of
subsidiaries................................ (2,580) 8,990 4,060 -- 10,470
Income taxes (expense) credit................. 930 (3,220) (1,450) -- (3,740)
Equity in net income (loss) of subsidiaries... 8,000 3,070 -- (11,070) --
----------- ---------- ------------ ---------- ----------
Income (loss) before cumulative effect of
change in accounting principle.............. 6,350 8,840 2,610 (11,070) 6,730
Cumulative effect of change in accounting
principle................................... -- -- -- -- --
----------- ---------- ------------ ---------- ----------
Net income (loss)....................... $ 6,350 $ 8,840 $ 2,610 $ (11,070) $ 6,730
=========== ========== ============ ========== ==========
21
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED FINANCIAL STATEMENTS
COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------- --------------
Net sales................................... $ -- $ 396,690 $ 83,600 $ (12,170) $ 468,120
Cost of sales............................... -- (305,850) (59,550) 12,170 (353,230)
---------- --------- ----------- --------- ----------
Gross profit.......................... -- 90,840 24,050 -- 114,890
Selling, general and administrative expenses -- (63,890) (11,450) -- (75,340)
Operating profit...................... -- 26,950 12,600 -- 39,550
---------- --------- ----------- --------- ----------
Other income (expense), net:
Interest expense...................... (23,420) (8,910) (820) -- (33,150)
Other, net............................ -- (16,630) (1,240) -- (17,870)
---------- --------- ----------- --------- ----------
Income (loss) before income tax (expense)
credit and equity in net income of
subsidiaries.............................. (23,420) 1,410 10,540 -- (11,470)
Income tax (expense) credit................. -- 7,490 (4,460) -- 3,030
Equity in net income (loss) of subsidiaries. 14,610 6,080 -- (20,690) --
---------- --------- ----------- --------- ----------
Income (loss) before cumulative effect of
change in accounting principle............ (8,810) 14,980 6,080 (20,690) (8,440)
Cumulative effect of change in accounting
principle................................. -- -- -- -- --
---------- --------- ----------- --------- ----------
Net income (loss)........................... $ (8,810) $ 14,980 $ 6,080 $ (20,690) $ (8,440)
========== ========= =========== ========= ==========
22
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED FINANCIAL STATEMENTS
COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------- --------------
Net sales..................................... $ -- $ 356,770 $ 52,940 $ (8,720) $ 400,990
Cost of sales................................. -- (263,640) (35,900) 8,720 (290,820)
---------- ---------- --------- --------- ----------
Gross profit............................ -- 93,130 17,040 -- 110,170
Selling, general and administrative expenses.. -- (48,800) (7,690) -- (56,490)
---------- ---------- --------- --------- ----------
Operating profit........................ -- 44,330 9,350 -- 53,680
Other income (expense), net:
Interest expense............................ (2,580) (31,070) -- -- (33,650)
Other, net.................................. -- (2,160) (1,560) -- (3,720)
---------- ---------- --------- --------- ----------
Income (loss) before income taxes (credit) and
equity in net income (loss) of subsidiaries. (2,580) 11,100 7,790 -- 16,310
Income taxes (expense) credit................. 930 (3,910) (2,800) -- (5,780)
Equity in net income (loss) of subsidiaries... (25,080) 3,940 -- 21,140 --
---------- ---------- --------- --------- ----------
Income (loss) before cumulative effect of
change in accounting principle.............. (26,730) 11,130 4,990 21,140 10,530
Cumulative effect of change in accounting
principle................................... -- (36,630) -- -- (36,630)
---------- ---------- --------- --------- ----------
Net income (loss)....................... $ (26,730) $ (25,500) $ 4,990 $ 21,140 $ (26,100)
========== ========== ========= ========= ==========
23
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
-----------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities, net of
acquisition impact..................................... $ 2,150 $ (16,880) $ 21,290 $ -- $ 6,560
-------- ---------- --------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... -- (8,670) (1,740) -- (10,410)
Proceeds from sales of fixed assets........................ -- 67,980 -- -- 67,980
Acquisition of businesses, net of cash acquired............ -- (174,800) (30,970) -- (205,770)
-------- ---------- --------- --------- --------
Net cash used for investing activities................... -- (115,490) (32,710) -- (148,200)
-------- ---------- --------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock................. -- 35,000 -- -- 35,000
Repurchase of common stock................................. -- (20,000) -- -- (20,000)
Proceeds from senior credit facility....................... -- 75,000 -- -- 75,000
Repayments of borrowings on senior credit facility......... -- (1,450) -- -- (1,450)
Proceeds from borrowings on revolving credit facility...... -- 269,000 -- -- 269,000
Repayments of borrowings on revolving credit facility...... -- (269,000) -- -- (269,000)
Debt issuance costs........................................ (2,150) -- -- -- (2,150)
Increase (decrease) in Metaldyne Corporation net
investment and advances................................ -- (22,710) -- -- (22,710)
Payments on notes payable.................................. -- (250) -- -- (250)
Issuance of note payable................................... -- 140 140
Intercompany transfers (to) from subsidiaries............... -- (2,710) 2,710 -- --
-------- ---------- --------- --------- --------
Net cash provided by (used for)
financing activities................................ $ (2,150) $ 63,020 $ 2,710 $ -- $ 63,580
-------- ---------- --------- --------- --------
CASH AND CASH EQUIVALENTS:
Decrease for the period.................................... -- (69,350) (8,710) -- (78,060)
At beginning of period..................................... -- 86,570 13,870 -- 100,440
-------- ---------- --------- --------- --------
At end of period........................................ $ -- $ 17,220 $ 5,160 $ -- $ 22,380
======== ========== ========= ========= ==========
24
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
------------------------------------------------------------------------
COMBINED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
----------- ----------- ------------- ------------- --------------
OPERATING ACTIVITIES:
Net cash provided by operating activities, net
of acquisition impact........................... $ 3,860 $(65,570) $ 3,650 $ -- $ (58,060)
-------- --------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................ -- (10,890) (2,820) -- (13,710)
Proceeds from sales of fixed assets................. -- -- -- -- --
Acquisition of businesses, net of cash acquired..... -- -- -- -- --
-------- --------- --------- --------- ----------
Net cash used for investing activities.......... -- (10,890) (2,820) -- (13,710)
-------- --------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.......... 259,730 -- -- -- 259,730
Repurchase of common stock.......................... -- -- -- -- --
Proceeds from senior credit facility................ 350,000 260,000 -- -- 610,000
Payment of Debt..................................... -- (440,760) -- -- (440,760)
Dividends to Metaldyne.............................. (338,080) -- -- -- (338,080)
Debt issuance costs................................. (15,160) (13,150) -- -- (28,310)
Intercompany transfers (to) from subsidiaries....... (260,790) 260,790 -- -- --
Increase (decrease) in Metaldyne Corporation net
investment and advances......................... 440 13,480 4,680 -- 18,600
-------- --------- --------- --------- ----------
Net cash provided by (used for) financing
activities.............................. $ (3,860) $ 80,360 $ 4,680 $ -- $ 81,180
-------- --------- --------- --------- ----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period................. -- 3,900 5,510 -- 9,410
At beginning of period............................. -- 1,940 1,840 -- 3,780
-------- --------- --------- --------- ----------
At end of period............................... $ -- $ 5,840 $ 7,350 $ -- $ 13,190
======== ========= ========= ========= ==========
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 reorganized its business
operations and formed a Fastening Systems segment consisting of our industrial
fasteners businesses which were previously part of Industrial Specialties. As a
result, prior period financial information has been reclassified to conform to
this presentation. We have four operating groups or segments: Cequent
Transportation Accessories, Rieke Packaging Systems, Fastening Systems and
Industrial Specialties.
SEGMENT INFORMATION
The following table summarizes financial information of our four operating
segments.
SUPPLEMENTAL FINANCIAL ANALYSIS
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2003 2002 2003 2002
------------------------------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
NET SALES:
Cequent Transportation Accessories............... $125,960 $ 87,820 $ 224,850 $ 163,230
Rieke Packaging Systems.......................... 33,090 28,050 63,360 54,680
Fastening Systems................................ 36,520 39,080 71,500 77,160
Industrial Specialties........................... 54,580 50,930 108,410 105,920
---------------- --------------- ------------- ------------
Total.......................................... $250,150 $205,880 $ 468,120 $ 400,990
================ =============== ============= =============
OPERATING PROFIT:
Cequent Transportation Accessories............... $ 14,950 $ 14,420 $ 23,080 $ 25,990
Rieke Packaging Systems.......................... 8,750 7,850 16,330 14,830
Fastening Systems................................ (720) 3,670 480 6,120
Industrial Specialties........................... 5,470 6,350 11,630 13,010
Management fee and other corporate expenses (1).. (4,800) (2,600) (9,480) (4,550)
Legacy stock award expense (2)................... (1,220) (920) (2,490) (1,720)
---------------- --------------- ------------- ------------
Total.......................................... $ 22,430 $ 28,770 $ 39,550 $ 53,680
================ =============== ============= =============
CAPITAL EXPENDITURES:
Cequent Transportation Accessories............... $ 1,830 $ 1,820 $ 3,130 $ 2,740
Rieke Packaging Systems.......................... 2,590 4,140 4,330 5,870
Fastening Systems................................ 1,320 2,180 1,810 3,020
Industrial Specialties........................... 630 970 1,070 2,080
Corporate........................................ -- -- 70 --
---------------- --------------- ------------- ------------
Total.......................................... $ 6,370 $ 9,110 $ 10,410 $ 13,710
================ =============== ============= =============
- --------------
(1) The increase in management fee and other corporate expenses for the
three and six months ended June 30, 2003 is due primarily to $1.2
million and $2.4 million, respectively of incremental employment and
operating costs for the establishment of a corporate office
(previously considered part of the Metaldyne management fee) and $1.1
million and $2.3 million, respectively, of management fees and
expenses due 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.
26
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2002
Including $47.4 million in sales from entities acquired during the period,
net sales for the three months ended June 30, 2003 increased approximately 21.5%
compared to the three months ended June 30, 2002. Excluding the impact of
acquisitions, net sales decreased 1.5%. Net sales for Cequent Transportation
Accessories increased 43.4%. This increase was due to the $47.4 million impact
from the acquisitions of HammerBlow and Highland. Excluding the impact of
acquisitions, Cequent Transportation Accessories sales decreased 10.6% 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 17.9% primarily due to the benefit of sales of new products. Fastening
Systems net sales decreased 6.5%, as we have continued to see weakness in demand
for our fastener products in the general distribution and aerospace channels.
Industrial Specialties net sales increased 7.1%. The increase in sales in the
Industrial Specialties group was due to improved demand for our products across
the commercial construction, energy and petrochemical, general industrial and
defense markets.
Operating profit margins approximated 9.0% and 14.0% for the three months
ended June 30, 2003 and June 30, 2002, respectively. Excluding the impact of
acquisitions, the operating profit margin for the three months ended June 30,
2003 approximated 6.9%. Operating profit for the three months ended June 30,
2003 was $22.4 million, a decrease of $6.3 million compared to the three months
ended June 30, 2002. Excluding the $8.4 million favorable impact from
acquisitions, operating profit decreased $14.7 million. This reduction in
operating profit is partially attributed to $5.6 million of incremental costs
and operational inefficiencies incurred primarily in connection with
restructuring activities within our Cequent Transportation Accessories and
Fastening Systems groups and $3.0 million of incremental charges related to
severance, move and other restructuring costs. The costs related to Cequent
Transportation Accessories resulted from the continued ramp-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 finalized these closures in the second quarter of 2003. During
the three months ended June 30, 2003 the Company recognized $1.6 million of
non-recurring costs as a result of the one time step-up in basis of acquired
inventory. Additionally, there is $2.3 million of incremental lease costs, $.3
million of incremental legacy stock award expense (this expense will run off
completely in 2003), $1.2 million of incremental costs associated with our
separation from Metaldyne (such costs include incremental employment and
operating costs), and $1.1 million of management fees and expenses incurred to
Heartland. These costs have been offset by $.5 million of reduced depreciation
and amortization expense primarily attributable to our use of leasing.
Selling, general and administrative costs were approximately $39.7 million,
or 15.9% of net sales, for the three months ended June 30, 2003 as compared with
$29.3 million, or 14.2% of net sales, in the prior year. The increase of $10.4
million is primarily due to the $7.4 million impact of acquired operations and
increased costs associated with our separation from Metaldyne. Such costs
principally include $1.2 million of incremental employment and operating costs
for the establishment of a corporate office (previously considered part of the
Metaldyne management fee) and $1.1 million of management fees and expenses
incurred to Heartland.
Other expense, net was $22.3 million for the three months ended June 30,
2003, a $4.0 million increase over the $18.3 million of expense for the three
months ended June 30, 2002. The Company recorded a $5.6 million loss, net from
the sale and disposition of fixed assets in the second quarter of 2003. This
loss occurred primarily due to the sale and leaseback of certain manufacturing
equipment and facilities during the second quarter. In connection with these
sale-leaseback transactions, the Company received $25.9 million of net proceeds
which were used to pay down amounts outstanding under our revolving credit
facility.
Net loss for the three months ended June 30, 2003 was $1.4 million as
compared to net income of $6.7 million for the three months ended June 30, 2002.
In addition to the items noted above, the net loss for the three months ended
June 30, 2003 was impacted by increased provisions for taxes on foreign income
and state taxes in the U.S.
27
SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2002
Including $74.5 million in sales from entities acquired during the period,
net sales for the six months ended June 30, 2003 increased approximately 16.7%
compared to the six months ended June 30, 2002. Excluding the impact of
acquisitions, net sales decreased 1.8%. Net sales for Cequent Transportation
Accessories increased 37.8%. This increase was due to the $74.5 million impact
from the acquisitions of HammerBlow and Highland. Excluding the impact of
acquisitions, Cequent Transportation Accessories sales decreased 7.9% 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 15.9% primarily due to the benefit of sales of new products. Fastening
Systems net sales decreased 7.3%, as we have continued to see weakness in demand
for our fastener products in the general distribution and aerospace channels.
Industrial Specialties net sales increased 2.3%. The increase in sales in the
Industrial Specialties group was due to improved demand for our products across
the commercial construction, energy and petrochemical, general industrial and
defense markets primarily in the second quarter of 2003.
Operating profit margins approximated 8.4% and 13.4% for the six months
ended June 30, 2003 and June 30, 2002, respectively. Excluding the impact of
acquisitions, the operating profit margin for the six months ended June 30, 2003
approximated 7.6%. Operating profit for the six months ended June 30, 2003 was
$39.6 million, a decrease of $14.1 million compared to the six months ended June
30, 2002. Excluding the $9.6 million favorable impact from acquisitions,
operating profit decreased $23.7 million. This reduction in operating profit is
partially attributed to $8.6 million of incremental costs and operational
inefficiencies incurred primarily in connection with restructuring activities
within our Cequent Transportation Accessories and Fastening Systems groups and
$4.1 million of incremental charges related to severance, move and other
restructuring costs. The costs related to Cequent Transportation Accessories
resulted from the continued ramp-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 finalized
these closures in the second quarter of 2003. During the six months ended June
30, 2003, the Company recognized $3.9 million of non-recurring costs as a result
of the one time step-up in basis of acquired inventory. Additionally, there is
$3.6 million of incremental lease costs, $.8 million of incremental legacy stock
award expense (this expense will run off completely in 2003), $2.4 million of
incremental costs associated with our separation from Metaldyne (such costs
include incremental employment and operating costs), and $2.3 million of
management fees and expenses incurred to Heartland. These costs have been offset
by $2.0 million of reduced depreciation and amortization expense attributed
primarily to our use of leasing.
Selling, general and administrative costs were approximately $75.3 million,
or 16.1% of net sales, for the six months ended June 30, 2003 as compared with
$56.5 million, or 14.1% of net sales, in the prior year. The increase is
primarily due to the impact of acquired operations ($11.6 million) and increased
costs associated with our separation from Metaldyne. Such costs principally
include $2.4 million of incremental employment and operating costs for the
establishment of a corporate office (previously considered part of the Metaldyne
management fee) and $2.3 million of management fees and expenses incurred to
Heartland.
Other expense, net was $51.0 million for the six months ended June 30,
2003, a $13.6 million increase over the $37.4 million of expense for the six
months ended June 30, 2002. The Company recorded a $17.6 million loss, net from
the sale and disposition of fixed assets in the first six months of 2003. This
loss occurred primarily due to the sale and leaseback of certain manufacturing
equipment and facilities entered into in 2003. In connection with these
sale-leaseback transactions, the Company received $62.1 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 $0.5 million
reduction in interest expense was due to lower total indebtedness overall,
resulting from the recapitalization of the Company in June 2002.
Net loss for the six months ended June 30, 2003 was $8.4 million as
compared to a net loss of $26.1 million for the six months ended June 30, 2002.
The results for the six months ended June 30, 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 six months ended June 30,
2003 was approximately $6.6 million as compared to cash used in operating
activities of approximately $58.1 million for the comparable period a year ago.
The primary reason for the difference of $64.7 million was due to the repurchase
of $74.5 million of receivables as a result of exiting Metaldyne' accounts
receivable securitization facility in June 2002, offset by a net increase in
working capital of $10.6 million during the current year. Capital expenditures
were $10.4 million for the six months ended June 30, 2003, as compared with
$13.7 million for the comparable period in 2002.
Our credit facility, as amended and restated on June 6, 2003, includes a
$150 million revolving credit facility and a $335 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, as
amended, also provides for an uncommitted $125 million incremental term loan
facility for one or more permitted acquisitions. Our revolving credit balances
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
securitization facility, under which we have the ability to sell eligible
accounts receivable to a third-party multi-seller receivables funding company.
At June 30, 2003, the Company had no amounts outstanding under the accounts
receivable facility and $61.6 million available, but not utilized. At June 30,
2003, the Company had $22.4 million of available cash and could incur up to
$39.2 million of additional senior indebtedness under our revolving credit
facility and/or accounts receivables facility to fund operations and up to
$161.6 million to fund acquisitions, subject to certain limitations.
Our amortization requirements of the term loan are: $0.8 million due each
calendar quarter ending June 2003 through June 30, 2009, $159.0 million due on
September 30, 2009 and $68.3 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 $125 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 the first quarter of 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 $209.7 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 $22.7 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
sale-leaseback 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 June 2002
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. In March 2003, the Company completed a sale and lease back of certain
personal property that resulted in net cash
29
proceeds of approximately $28.0 million. The proceeds were used to repay
outstanding balances under the Company's revolving credit facility. Annual rent
expense related to this lease transaction will approximate $4.4 million. In
March, 2003 we also completed the sale and subsequent leaseback with respect to
two real properties for gross proceeds of approximately $7.8 million. Annual
rent expense related to these transactions will approximate $0.9 million. In
June 2003, the Company completed another sale and subsequent lease back of
certain personal property that resulted in net cash proceeds of approximately
$25.9 million. The proceeds were used to reduce debt levels. Annual rent expense
related to these lease transactions will approximate $4.0 million. In connection
with the Fittings acquisition, we agreed to sublease from Metaldyne the facility
where the acquired business is currently located. Annual rent expense related to
this sublease is expected to be $0.2 million. We expect to continue to utilize
leasing as a financing strategy in the future to meet capital expenditure needs
and to reduce debt levels.
In addition to 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 $8.5 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
$335.0 million senior term loan and our $150 million revolving credit facility,
under which we had $332.9 million outstanding under the senior term loan and no
amounts outstanding under the revolving credit facility at June 30, 2003.
Borrowings under our credit facility bear interest, at various rates, as more
fully described in Note 9 to the accompanying financial statements as of June
30, 2003. 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 $3.3 million annually.
We conduct business in several locations throughout the world and are
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 such 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 as amended and restated 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 June 30, 2003. The permitted leverage ratio
becomes more restrictive in future periods, declining to 4.75 to 1.00 at
December 31, 2003, 4.00 to 1.00 at December 31, 2004 and 3.25 to 1.00 at
December 31, 2005 and thereafter. The Company was in compliance with its
covenants at June 30, 2003.
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.
30
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 of receivables, 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 June 30, 2003, we had no
amounts outstanding and $61.6 million available under the facility.
The facility is subject to customary termination events, including, but not
limited to, breach of representations or 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 are 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.......................................... $ 779.2 $ 11.4 $ 6.9 $ 6.6 $ 754.3
Lease obligations....................................... 130.9 13.4 29.9 21.0 66.6
Restricted stock obligations............................ 8.5 8.5 -- -- --
Severance............................................... 8.3 3.5 .9 0.6 3.3
-------- ---------- -------- -------- ---------
Total contractual obligations............................. $ 926.9 $ 36.8 $ 37.7 $ 28.2 $ 824.2
======== ========== ======== ======== =========
As of June 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
31
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.
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. Annually, 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.
Other Loss Reserves. We have numerous other loss exposures, such as
environmental claims, product liability, litigation, realizability of deferred
tax assets, 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.
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
32
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
(a) An evaluation was carried out by management with the
participation of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) and Rule
15d-15(e) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) pursuant to Rule 13a-15 of the Exchange Act.
Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, except as described in (b) below, as
of the end of the period covered by this report, our disclosure
controls and procedures are effective to provide reasonable assurance
that information required to be disclosed by the Company in the
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 the Commission's rules and forms.
(b) During the last fiscal quarter to which this report relates,
we have initiated corrective actions to address two material control
weaknesses previously disclosed that have materially improved and are
reasonably likely to materially improve our internal control over
financial reporting.
The material weaknesses identified relate to internal accounting
controls over: (1) the Company's closing, consolidation and financial
monitoring processes, and; (2) use of standardized accounting policies
and procedures appropriate to each business unit's activities. The
corrective actions implemented include hiring additional financial
management staff to: (1) implement closing and consolidation process
improvements, including performance of additional monitoring
activities and more timely preparation of account reconciliations; and
(2) formally document and communicate the application and use of the
Company's critical accounting policies and related procedures to
appropriate business unit financial personnel.
33
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. Additionally, we and approximately 60
other entities including the State were 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. A final judgment dismissing the matter without any
recovery by plaintiffs was entered by the court on July 23, 2003. 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 $450,000, for which we have received insurance proceeds. Plaintiffs had
sought other relief such as damages arising out of claims for negligence,
trespass, public and private nuisance, and other causes of action, but the
consent decree governs the remedy. 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 August 6, 2003, we were a party to approximately 612 pending cases
involving an aggregate of approximately 30,427 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 such insurance 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.
34
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.
3. On May 9, 2003, we issued 250,000 shares of common stock to Heartland
at a price of $20.00 per share or an aggregate amount of $5,000,000.
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 4.1 Third Supplemental Indenture
Exhibit 10.1 Asset Purchase Agreement by and
among TriMas Corporation, Metaldyne
Corporation and Metaldyne Company
LLC, dated May 9, 2003
Exhibit 10.2 Fittings Facility Sublease by and
between Metaldyne Company LLC and
Fittings Products Co., LLC, dated
May 9, 2003.
Exhibit 31.1 Certification pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification pursuant to 18
U.S.C. Section 1350, as adopted
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1 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.
35
On May 7, 2003, the Company filed a report on Form 8-K/A dated February 25,
2003, and filed Highland's 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.
The Company issued a report on Form 8-K dated June 20, 2003, announcing the
appointment of KPMG LLP as the Company's independent accountants, and the
dismissal of PricewaterhouseCoopers LLP, which had previously served in this
capacity. The Company disclosed that in connection with its 2002 audit,
PricewaterhouseCoopers LLP communicated to the Audit Committee and to management
two material weaknesses in the Company's internal control systems relating to:
(1) the Company's closing, consolidation and financial monitoring processes, and
(2) the use of standardized policies and procedures appropriate to each business
unit's activities. The Company also disclosed that and there were no other
reportable events as defined in Regulation S-K Item 304(a)(1)(v) that
PricewaterhouseCoopers LLP advised the Company of during the year ended December
31, 2002.
The Company issued a report on Form 8-K/A dated June 20, 2003, disclosing
that there were no other reportable events, as defined in Regulation S-K Item
304(a)(1)(v), that PricewaterhouseCoopers LLP advised the Company of during the
year ended December 31, 2002 and through June 20, 2003.
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: August 14, 2003 BY: /s/ Todd R. Peters
---------------------------
Todd R. Peters
Chief Financial Officer and
Chief Accounting Officer
36