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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED 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
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TRIMAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2687639
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
39400 WOODWARD AVENUE, SUITE 130
BLOOMFIELD HILLS, MICHIGAN 48304
(Address of principal executive offices, including zip code)
(248) 631-5450
(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.
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TRIMAS CORPORATION
INDEX
PAGE NO.
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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 r