TriMas Corporation
TRIMAS CORP (Form: 10-Q, Received: 10/28/2013 14:56:44)
Table of Contents

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 September 30, 2013

Or

o

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from                    to                    .
Commission file number 001-10716
TRIMAS CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
38-2687639
(IRS Employer
Identification No.)
39400 Woodward Avenue, Suite 130
Bloomfield Hills, Michigan 48304
(Address of principal executive offices, including zip code)
(248) 631-5450
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x     No  o .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x     No  o .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o
 
Accelerated filer  x
 
Non-accelerated filer  o
 
Smaller reporting company  o
 
 
 
 
(Do not check if a
smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  x
As of October 28, 2013, the number of outstanding shares of the Registrant's common stock, $0.01 par valu e, was 44,980,746 shares.


Table of Contents

TriMas Corporation
Index
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1

Table of Contents

Forward-Looking Statements
This report contains forward-looking statements (as that term is defined by the federal securities laws) about our financial condition, results of operations and business. You can find many of these statements by looking for words such as "may," "will," "expect," "anticipate," "believe," "estimate" and similar words used in this report.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution readers not to place undue reliance on the statements, which speak only as of the date of this report.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We do not undertake any obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
You should carefully consider the factors discussed in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2012 , which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
We disclose important factors that could cause our actual results to differ materially from our expectations under Part I, Item 2, " Management's Discussion and Analysis of Financial Condition and Results of Operations, " and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other condition, results of operations, prospects and ability to service our debt.


2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements
TriMas Corporation
Consolidated Balance Sheet
(Unaudited—dollars in thousands)


 
September 30,
2013

December 31,
2012
Assets
 

 

Current assets:
 

 

Cash and cash equivalents
 
$
209,350


$
20,580

Receivables, net of reserves of approximately $3.5 million and $3.7 million as of September 30, 2013 and December 31, 2012, respectively
 
201,110


150,390

Inventories
 
249,630


238,020

Deferred income taxes
 
17,690


18,270

Prepaid expenses and other current assets
 
17,960


10,530

Total current assets
 
695,740

 
437,790

Property and equipment, net
 
206,730


185,030

Goodwill
 
290,270


270,940

Other intangibles, net
 
200,310


206,160

Other assets
 
39,270


31,040

Total assets
 
$
1,432,320

 
$
1,130,960

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Current maturities, long-term debt
 
$
21,600


$
14,370

Accounts payable
 
152,460


158,410

Accrued liabilities
 
83,090


74,420

Total current liabilities
 
257,150

 
247,200

Long-term debt
 
458,140


408,070

Deferred income taxes
 
63,310


60,370

Other long-term liabilities
 
80,940


84,960

Total liabilities
 
859,540

 
800,600

Redeemable noncontrolling interests
 
27,960

 
26,780

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: 44,976,263 shares at September 30, 2013 and 39,375,790 shares at December 31, 2012
 
450

 
390

Paid-in capital
 
815,270

 
634,800

Accumulated deficit
 
(302,170
)
 
(370,870
)
Accumulated other comprehensive income
 
31,270

 
39,260

Total shareholders' equity
 
544,820

 
303,580

Total liabilities and shareholders' equity
 
$
1,432,320

 
$
1,130,960



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

3


TriMas Corporation
Consolidated Statement of Income
(Unaudited—dollars in thousands, except for per share amounts)

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2013
 
2012
 
2013
 
2012
Net sales
 
$
355,620

 
$
335,870

 
$
1,071,430

 
$
971,870

Cost of sales
 
(261,470
)
 
(245,730
)
 
(790,570
)
 
(706,930
)
Gross profit
 
94,150

 
90,140

 
280,860

 
264,940

Selling, general and administrative expenses
 
(61,220
)
 
(53,550
)
 
(182,540
)
 
(156,730
)
Net gain on dispositions of property and equipment
 
10,360

 
10

 
10,350

 
330

Operating profit
 
43,290

 
36,600

 
108,670

 
108,540

Other expense, net:
 
 
 
 
 
 
 
 
Interest expense
 
(5,570
)
 
(9,450
)
 
(16,320
)
 
(30,420
)
Debt extinguishment costs
 

 

 

 
(6,560
)
Other income (expense), net
 
2,290

 
140

 
360

 
(2,410
)
Other expense, net
 
(3,280
)
 
(9,310
)
 
(15,960
)
 
(39,390
)
Income from continuing operations before income tax expense
 
40,010

 
27,290

 
92,710

 
69,150

Income tax expense
 
(10,060
)
 
(7,330
)
 
(21,620
)
 
(19,770
)
Income from continuing operations
 
29,950

 
19,960

 
71,090

 
49,380

Income from discontinued operations, net of income tax expense
 

 

 
700

 

Net income
 
29,950

 
19,960

 
71,790

 
49,380

Less: Net income attributable to noncontrolling interests
 
1,320

 
1,290

 
3,090

 
1,560

Net income attributable to TriMas Corporation
 
$
28,630

 
$
18,670

 
$
68,700

 
$
47,820

Basic earnings per share attributable to TriMas Corporation:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.71

 
$
0.48

 
$
1.71

 
$
1.29

Discontinued operations
 

 

 
0.02

 

Net income per share
 
$
0.71

 
$
0.48

 
$
1.73

 
$
1.29

Weighted average common shares—basic
 
40,345,828

 
39,045,282

 
39,668,693

 
36,994,192

Diluted earnings per share attributable to TriMas Corporation:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.70

 
$
0.47

 
$
1.70

 
$
1.28

Discontinued operations
 

 

 
0.02

 

Net income per share
 
$
0.70

 
$
0.47

 
$
1.72

 
$
1.28

Weighted average common shares—diluted
 
40,746,503

 
39,508,503

 
40,029,425

 
37,379,292




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

4

Table of Contents

TriMas Corporation
Consolidated Statement of Comprehensive Income
(Unaudited—dollars in thousands)

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2013
 
2012
 
2013
 
2012
Net income
 
$
29,950

 
$
19,960

 
$
71,790

 
$
49,380

Other comprehensive income:
 
 
 
 
 
 
 
 
Amortization of defined benefit plan deferred (gains) losses (net of tax of $0.1 million and ($0.5) million for the three months ended September 30, 2013 and 2012, and $0.3 million and ($0.4) million for the nine months ended September 30, 2013 and 2012, respectively) (Note 17)
 
210

 
(740
)
 
600

 
(530
)
Foreign currency translation
 
(1,930
)
 
3,040

 
(12,540
)
 
2,680

Net changes in unrealized gain (loss) on derivative instruments (net of tax of ($0.5) million and ($0.1) million, and $2.5 million and ($0.6) million for the three and nine months ended September 30, 2013 and 2012, respectively) (Note 12)
 
(800
)
 
(80
)
 
3,950

 
(1,000
)
Total other comprehensive income (loss)
 
(2,520
)
 
2,220

 
(7,990
)
 
1,150

Total comprehensive income
 
27,430

 
22,180

 
63,800

 
50,530

Less: Net income attributable to noncontrolling interests
 
1,320

 
1,290

 
3,090

 
1,560

Total comprehensive income attributable to TriMas Corporation
 
$
26,110

 
$
20,890

 
$
60,710

 
$
48,970





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



5



TriMas Corporation
Consolidated Statement of Cash Flows
(Unaudited—dollars in thousands)
 
 
Nine months ended
September 30,
 
 
2013
 
2012
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
71,790

 
$
49,380

Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition impact:
 

 

Gain on dispositions of property and equipment
 
(10,350
)
 
(330
)
Bargain purchase gain
 
(2,880
)
 

Depreciation
 
22,190

 
18,990

Amortization of intangible assets
 
14,420

 
14,460

Amortization of debt issue costs
 
1,310

 
2,240

Deferred income taxes
 
(3,180
)
 
(3,480
)
Debt extinguishment costs
 

 
6,560

Non-cash compensation expense
 
7,110

 
6,640

Excess tax benefits from stock based compensation
 
(1,280
)
 
(2,310
)
Increase in receivables
 
(48,560
)
 
(38,750
)
(Increase) decrease in inventories
 
1,800

 
(31,440
)
Increase in prepaid expenses and other assets
 
(7,100
)
 
(600
)
Decrease in accounts payable and accrued liabilities
 
(4,280
)
 
(6,130
)
Other, net
 
290

 
170

Net cash provided by operating activities, net of acquisition impact
 
41,280

 
15,400

Cash Flows from Investing Activities:
 

 

Capital expenditures
 
(35,150
)
 
(36,440
)
Acquisition of businesses, net of cash acquired
 
(56,000
)
 
(84,600
)
Net proceeds from disposition of assets
 
10,720

 
2,950

Net cash used for investing activities
 
(80,430
)
 
(118,090
)
Cash Flows from Financing Activities:
 

 

Proceeds from sale of common stock in connection with the Company's equity offering, net of issuance costs
 
174,720

 
79,040

Proceeds from borrowings on term loan facilities
 
150,090

 
140,370

Repayments of borrowings on term loan facilities
 
(151,710
)
 
(130,850
)
Proceeds from borrowings on revolving credit and accounts receivable facilities
 
632,740

 
555,300

Repayments of borrowings on revolving credit and accounts receivable facilities
 
(575,730
)
 
(555,300
)
Repurchase of 9¾% senior secured notes
 

 
(50,000
)
Senior secured notes redemption premium and debt financing fees
 

 
(4,880
)
Distributions to noncontrolling interests
 
(1,910
)
 
(820
)
Proceeds from contingent consideration related to disposition of businesses
 
1,030

 

Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations
 
(3,930
)
 
(990
)
Proceeds from exercise of stock options
 
1,340

 
5,680

Excess tax benefits from stock based compensation
 
1,280

 
2,310

Net cash provided by financing activities
 
227,920

 
39,860

Cash and Cash Equivalents:
 

 

Increase (decrease) for the period
 
188,770

 
(62,830
)
At beginning of period
 
20,580

 
88,920

At end of period
 
$
209,350

 
$
26,090

Supplemental disclosure of cash flow information:
 

 

Cash paid for interest
 
$
12,610

 
$
20,990

Cash paid for taxes
 
$
29,880

 
$
23,000

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

6

Table of Contents

TriMas Corporation
Consolidated Statement of Shareholders' Equity
Nine Months Ended September 30, 2013
(Unaudited—dollars in thousands)

 
 
Common
Stock
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Balances, December 31, 2012
 
$
390

 
$
634,800

 
$
(370,870
)
 
$
39,260

 
$
303,580

Net income attributable to TriMas Corporation
 

 

 
68,700

 

 
68,700

Other comprehensive loss
 

 

 

 
(7,990
)
 
(7,990
)
Net proceeds from equity offering of common stock (Note 3)
 
50

 
174,670

 

 

 
174,720

Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations
 

 
(3,930
)
 

 

 
(3,930
)
Stock option exercises and restricted stock vestings
 
10

 
1,340

 

 

 
1,350

Excess tax benefits from stock based compensation
 

 
1,280

 

 

 
1,280

Non-cash compensation expense
 

 
7,110

 

 

 
7,110

Balances, September 30, 2013
 
$
450

 
$
815,270

 
$
(302,170
)
 
$
31,270

 
$
544,820




















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


7

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1. Basis of Presentation
TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, is a global manufacturer and distributor of products for commercial, industrial and consumer markets. The Company is principally engaged in the following reportable segments with diverse products and market channels: Packaging, Energy, Aerospace & Defense, Engineered Components, Cequent Asia Pacific Europe Africa ("Cequent APEA") and Cequent Americas. The Company renamed its former "Cequent Asia Pacific" reportable segment "Cequent APEA" effective in the second quarter of 2013 following the Company's recent acquisitions to more appropriately reflect the expanding geography covered by the businesses in this reportable segment. See Note  14 , "Segment Information," for further information on each of the Company's reportable segments.
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries and in the opinion of management, contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Results of operations for interim periods are not necessarily indicative of results for the full year. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company's 2012 Annual Report on Form 10-K.
2 . New Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-5, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity" ("ASU 2013-5"). ASU 2013-5 requires a reporting entity that either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity, to release any cumulative translation adjustment into net income. ASU 2013-5 is effective for fiscal years beginning after December 15, 2013, with early adoption permitted. The Company applied the provisions of ASU 2013-5 to the sale of its business in Italy within the Packaging reportable segment. See Note 4 , "Facility Closure and Sale of Business," for further details.
3. Equity Offering
In September 2013, the Company issued 5,175,000 shares of its common stock via a public offering at a price of $35.40 per share. Net proceeds from the offering, after deducting underwriting discounts, commissions and offering expenses of approximately $8.5 million , totaled approximately $174.7 million . The net proceeds will be used for general corporate purposes, including future acquisitions, capital expenditures and working capital requirements.
4 . Facility Closure and Sale of Business
Facility Closure
In November 2012, the Company announced plans to close its manufacturing facility in Goshen, Indiana, moving production currently in Goshen to lower-cost manufacturing facilities during 2013, and recorded a charge, primarily for severance benefits, of approximately $1.2 million related to the termination of approximately 70 salaried employees that were involuntarily terminated. In the first quarter of 2013, upon completion of negotiations pursuant to a collective bargaining agreement, the Company recorded a charge, primarily for severance benefits of approximately $3.8 million , which is included in cost of sales in the accompanying consolidated statement of income, for its approximately 350 union hourly workers to be involuntarily terminated. As of September 30, 2013 , the Company had paid approximately $1.0 million of the total hourly and salaried severance benefits, with the remainder to be paid by mid 2014.
In addition, the Company expects to record approximately $1.6 million of accelerated depreciation expense between the facility closure announcement date and the closure date as a result of shortening the expected useful lives on certain machinery, equipment and leasehold improvement assets that the Company no longer will utilize following the facility closure. The Company recorded approximately $0.5 million and $1.2 million of such accelerated depreciation expense for the three and nine months ended September 30, 2013 , respectively.

8

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The Company's manufacturing facility in Goshen is subject to a lease agreement expiring in 2022. Upon the cease-use date of the facility, the Company expects to record a pre-tax charge within its Cequent Americas reportable segment in the range of $4.0 million to $5.0 million for its estimate of future lease obligations.
Sale of Business
On August 5, 2013, the Company announced the sale of its business in Italy within the Packaging reportable segment for cash of approximately $10.3 million , with the final sale price remaining subject to a working capital adjustment, if any, which is expected to be completed by the end of the first quarter of 2014. As a result, the Company recorded a pre-tax gain of approximately $10.5 million , of which $7.9 million related to the release of historical currency translation adjustments into income, as proscribed under ASU 2013-5. See Note 2 , "New Accounting Pronouncements," for further details.
5 . Discontinued Operations
During the fourth quarter of 2011, the Company sold its precision tool cutting and specialty fittings lines of business, both of which were part of the Engineered Components reportable segment. The purchase agreement included up to $2.5 million of contingent consideration based on achievement of certain levels of financial performance in 2012 and 2013 . During the second quarter of 2013, the Company was paid approximately $1.0 million of a possible $1.3 million as payout for the 2012 financial performance criteria. This amount is included in the income from discontinued operations in the accompanying consolidated statement of income.
6 . Acquisitions
During the first nine months of 2013, the Company completed acquisitions for an aggregate amount of approximately $56 million , net of cash acquired. Of these acquisitions, the most significant included Martinic Engineering, Inc. ("Martinic") within the Company's Aerospace & Defense reportable segment, Wulfrun Specialised Fasteners Limited ("Wulfrun") within the Company's Energy reportable segment and C.P. Witter Limited ("Witter") and the towing technology and business assets of AL-KO GmbH("AL-KO"), both within the Company's Cequent APEA reportable segment. Martinic is a manufacturer of highly-engineered, precision machined, complex parts for commercial and military aerospace applications, including auxiliary power units, as well as electrical, hydraulic and pneumatic systems located in the United States and generated approximately $13 million in revenue for the twelve months ended December 31, 2012. Wulfrun is a manufacturer and distributor of specialty bolting and CNC machined components for use in critical oil and gas, pipeline and power generation applications located in the United Kingdom and generated approximately $10 million in revenue for the twelve months ended December 31, 2012. Also located in the United Kingdom, Witter is a manufacturer of highly-engineered towbars and accessories which are distributed through a wide network of commercial dealers, and generated approximately $20 million in revenue for the twelve months ended March 31, 2013. The Company also completed the acquisition of the towing technology and business assets of AL-KO, located in both Germany and Finland. The acquired assets generated approximately $16 million of revenue for the twelve months ended June 30, 2013. The fair value of the AL-KO net assets acquired exceeded the purchase price, resulting in a bargain purchase gain of approximately $2.9 million , which is included in other income (expense), net in the accompanying consolidated statement of income for the three and nine months ended September 30, 2013. While the Company has recorded preliminary purchase accounting adjustments for these acquisitions, the Company may refine such amounts as it finalizes these estimates during the requisite one-year measurement periods.
The results of operations of the aforementioned acquisitions are not significant compared to the overall results of operations of the Company.
7 . Arminak & Associates
During the first quarter of 2012, the Company acquired 70% of the membership interests of Arminak & Associates, LLC ("Arminak") for the purchase price of approximately $67.7 million . Arminak is included in the Company's Packaging reportable segment.
The purchase agreement provides the Company an option to purchase, and Arminak's previous owners an option to sell, the remaining 30% noncontrolling interest at specified dates in the future based on a multiple of future earnings, as defined in the purchase agreement. The put and call options become exercisable during the first quarters of 2014, 2015 and 2016.

9

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The combination of a noncontrolling interest and a redemption feature resulted in a redeemable noncontrolling interest, which is classified outside of permanent equity on the accompanying consolidated balance sheet. In order to estimate the fair value of the redeemable noncontrolling interest in Arminak, the Company utilized the Monte Carlo valuation method, using variations of estimated future discounted cash flows given certain significant assumptions including expected revenue growth, minimum and maximum estimated levels of gross profit margin, future expected cash flows, amounts transferred during each put and call exercise period and appropriate discount rates. As these assumptions are not observable in the market, the calculation represents a Level 3 fair value measurement in the fair value hierarchy, as defined. The Company recorded the redeemable noncontrolling interest at fair value at the date of acquisition.
At September 30, 2013 , the estimated fair value of the redeemable noncontrolling interest exceeded the redemption value. Changes in the carrying amount of redeemable noncontrolling interest are summarized as follows:
 
 
Nine months ended
September 30, 2013
 
 
(dollars in thousands)
Beginning balance, December 31, 2012
 
$
26,780

Distributions to noncontrolling interests
 
(1,910
)
Net income attributable to noncontrolling interests
 
$
3,090

Ending balance, September 30, 2013
 
$
27,960

The Company previously presented pro forma net sales and net income attributable to TriMas Corporation as if the business combination occurred as of January 1, 2011. Certain nonrecurring adjustments for acquisition costs incurred and purchase accounting adjustments related to step-up in value and subsequent amortization of inventory were included in the first quarter 2011 pro forma results thereof. Pro forma net sales and net income attributable to TriMas Corporation for the three and nine months ended September 30, 2012 were $335.9 million and $18.7 million , respectively, and $979.9 million and $49.8 million , respectively. The supplemental pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that might have been achieved.
Total acquisition costs incurred by the Company in connection with its purchase of Arminak, primarily related to third-party legal, accounting and tax diligence fees, were approximately $1.3 million , of which approximately $1.0 million was incurred during the first quarter of 2012. These costs are recorded in selling, general and administrative expenses in the accompanying consolidated statement of income.
8 . Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended September 30, 2013 are summarized as follows:
 
Packaging
 
Energy
 
Aerospace & Defense
 
Engineered Components
 
Cequent APEA
 
Cequent Americas
 
Total
 
(dollars in thousands)
Balance, December 31, 2012
$
158,980

 
$
64,210

 
$
41,130

 
$
3,180

 
$

 
$
3,440

 
$
270,940

Goodwill from acquisitions

 
14,280

 
8,420

 

 

 

 
22,700

Goodwill associated with sold businesses
(2,060
)
 

 

 

 

 

 
(2,060
)
Foreign currency translation
410

 
(1,450
)
 

 

 

 
(270
)
 
(1,310
)
Balance, September 30, 2013
$
157,330

 
$
77,040

 
$
49,550

 
$
3,180

 
$

 
$
3,170

 
$
290,270




10

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The gross carrying amounts and accumulated amortization of the Company's other intangibles as of September 30, 2013 and December 31, 2012 are summarized below. The Company amortizes these assets over periods ranging from 1 to 30  years.
 
 
As of September 30, 2013
 
As of December 31, 2012
Intangible Category by Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
 
 
(dollars in thousands)
Finite-lived intangible assets:
 

 

 

 

   Customer relationships, 5 – 12 years
 
$
87,210

 
$
(34,380
)
 
$
85,740

 
$
(30,080
)
   Customer relationships, 15 – 25 years
 
154,610

 
(92,130
)
 
154,610

 
(85,960
)
Total customer relationships
 
241,820

 
(126,510
)
 
240,350

 
(116,040
)
   Technology and other, 1 – 15 years
 
38,070

 
(28,270
)
 
37,130

 
(26,320
)
   Technology and other, 17 – 30 years
 
44,350

 
(24,750
)
 
43,800

 
(23,070
)
Total technology and other
 
82,420

 
(53,020
)
 
80,930

 
(49,390
)
Indefinite-lived intangible assets:
 

 

 

 

 Trademark/Trade names
 
55,600

 

 
50,310

 

Total other intangible assets
 
$
379,840

 
$
(179,530
)
 
$
371,590

 
$
(165,430
)
Amortization expense related to intangible assets as included in the accompanying consolidated statement of income is summarized as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(dollars in thousands)
Technology and other, included in cost of sales
 
$
1,200

 
$
1,270

 
$
3,610

 
$
3,620

Customer relationships, included in selling, general and administrative expenses
 
3,000

 
4,000

 
10,810

 
10,840

Total amortization expense
 
$
4,200

 
$
5,270

 
$
14,420

 
$
14,460

9 . Inventories
Inventories consist of the following components:
 
 
September 30,
2013
 
December 31,
2012
 
 
(dollars in thousands)
Finished goods
 
$
154,940

 
$
159,550

Work in process
 
29,060

 
29,270

Raw materials
 
65,630

 
49,200

Total inventories
 
$
249,630

 
$
238,020


11

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

10 . Property and Equipment, Net
Property and equipment consists of the following components:
 
 
September 30,
2013
 
December 31,
2012
 
 
(dollars in thousands)
Land and land improvements
 
$
5,860

 
$
6,410

Buildings
 
65,190

 
59,610

Machinery and equipment
 
359,410

 
332,040

 
 
430,460

 
398,060

Less: Accumulated depreciation
 
223,730

 
213,030

Property and equipment, net
 
$
206,730

 
$
185,030

Depreciation expense as included in the accompanying consolidated statement of income is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(dollars in thousands)
Depreciation expense, included in cost of sales
 
$
6,440

 
$
5,400

 
$
18,910

 
$
16,420

Depreciation expense, included in selling, general and administrative expense
 
1,190

 
900

 
3,280

 
2,570

Total depreciation expense
 
$
7,630

 
$
6,300

 
$
22,190

 
$
18,990

11 . Long-term Debt
The Company's long-term debt consists of the following:
 
 
September 30,
2013
 
December 31,
2012
 
 
(dollars in thousands)
Credit Agreement
 
$
413,720

 
$
399,500

Receivables facility and other
 
66,020

 
22,940

 
 
479,740

 
422,440

Less: Current maturities, long-term debt
 
21,600

 
14,370

Long-term debt
 
$
458,140

 
$
408,070

Credit Agreement
The Company is a party to a credit agreement consisting of a $250.0 million senior secured revolving credit facility, which matures in October 2017 and is subject to interest at London Interbank Offered Rates ("LIBOR") plus 2.00% , a $200.0 million senior secured term loan A facility, which matures in October 2017 and is subject to interest at LIBOR plus 2.00% and a $200.0 million senior secured term loan B facility, which matures in October 2019 and is subject to interest at LIBOR plus 2.75% (subject to a 1.00% LIBOR floor) (collectively, the "Credit Agreement").
During the second quarter of 2013 , the Company amended the portion of its Credit Agreement related to the $250.0 million senior secured revolving credit facility to permit revolving borrowing denominated in specified foreign currencies ("Foreign Currency Loans"), subject to a $75.0 million sub limit. Under this amendment, Foreign Currency Loans are available at rates equivalent to those previously established under the Credit Agreement, for the applicable interest period.

12

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The Credit Agreement provides incremental term loan and/or revolving credit facility commitments in an amount not to exceed the greater of $300 million and an amount such that, after giving effect to the making of such commitments and the incurrence of any other indebtedness substantially simultaneously with the making of such commitments, the senior secured net leverage ratio, as defined, is no greater than 2.50 to 1.00, as defined. The terms and conditions of any incremental term loan and/or revolving credit facility commitments must be no more favorable than the existing credit facility.
Under the Credit Agreement, if, on or prior to October 11, 2013, the Company prepays all or any portion of the term loan B facility using a new term loan facility with lower interest rate margins, then the Company will be required to pay a premium equal to 1% of the aggregate principal amount prepaid. In addition, beginning with the fiscal year ended December 31, 2013 (payable in 2014), the Company may be required to prepay a portion of its term loan A and term loan B facilities in an amount equal to a percentage of the Company's excess cash flow, as defined, which such percentage will be based on the Company's leverage ratio, as defined. For 2012, the Company prepaid $5.0 million of its former term loan B facility under the excess cash flow provision of the previous credit agreement.
The Company is also able to issue letters of credit, not to exceed $75.0 million in aggregate, against its revolving credit facility commitments. At September 30, 2013 and December 31, 2012 , the Company had letters of credit of approximately $23.7 million and $23.3 million , respectively, issued and outstanding.
At September 30, 2013 , the Company had $20.7 million outstanding under its revolving credit facility and had $205.6 million potentially available after giving effect to approximately $23.7 million of letters of credit issued and outstanding. At December 31, 2012 , the Company had no amounts outstanding under its revolving credit facility and had $226.7 million , potentially available after giving effect to approximately $23.3 million of letters of credit issued and outstanding. However, including availability under its accounts receivable facility and after consideration of leverage restrictions contained in the Credit Agreement, the Company had $206.6 million and $230.5 million at September 30, 2013 and December 31, 2012 , respectively, of borrowing capacity available to it for general corporate purposes.
The debt under the Credit Agreement is an obligation of the Company and certain of its domestic subsidiaries and is secured by substantially all of the assets of such parties. Borrowings under the $75.0 million foreign currency sub limit of the $250.0 million senior secured revolving credit facility are secured by a pledge of the assets of the foreign subsidiary borrowers that are a party to the agreement.  The terms of the Credit Agreement contain certain limitations on the distribution of funds from TriMas Company LLC, the Company's principal subsidiary. The terms of the Credit Agreement 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) and an interest expense coverage ratio (consolidated EBITDA, as defined, over cash interest expense, as defined). The Company was in compliance with its covenants at September 30, 2013 .
As of September 30, 2013 and December 31, 2012 , the Company's term loan A facility traded at approximately 98.5% and 99.3% of par value, respectively, and the Company's term loan B facility traded at approximately 100.0% and 99.9% of par value, respectively. The valuations of the term loans were determined based on Level 2 inputs under the fair value hierarchy, as defined.
Receivables Facility
The Company is a party to an accounts receivable facility through TSPC, Inc. ("TSPC"), a wholly-owned subsidiary, to sell trade accounts receivable of substantially all of the Company's domestic business operations. Under this facility, TSPC, from time to time, may sell an undivided fractional ownership interest in the pool of receivables up to approximately $105.0 million to a third party multi-seller receivables funding company. The net amount financed under the facility is less than the face amount of accounts receivable by an amount that approximates the purchaser's financing costs. The cost of funds under this facility consisted of a 3-month LIBOR-based rate plus a usage fee of 1.20% and 1.50% as of September 30, 2013 and 2012 , respectively, and a fee on the unused portion of the facility of 0.40% and 0.45% as of September 30, 2013 and 2012 , respectively.
The Company had $55.0 million and $18.0 million outstanding under the facility as of September 30, 2013 and December 31, 2012 , respectively, and $36.0 million and $51.9 million , respectively, available but not utilized. Aggregate costs incurred under the facility were $0.4 million and $0.3 million for the three months ended September 30, 2013 and 2012 , respectively, and $1.1 million and $0.8 million for the nine months ended September 30, 2013 and 2012 , respectively, and are included in interest expense in the accompanying consolidated statement of income. The facility expires on October 12, 2017.

13

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The cost of funds fees incurred are determined by calculating the estimated present value of the receivables sold compared to their carrying amount. The estimated present value factor is based on historical collection experience and a discount rate based on a 3-month LIBOR-based rate plus the usage fee discussed above and is computed in accordance with the terms of the securitization agreement. As of September 30, 2013 , the cost of funds under the facility was based on an average liquidation period of the portfolio of approximately 1.6 months and an average discount rate of 1.8% .
Other Bank Debt
The Company's Australian subsidiary is party to a debt agreement which matures on December 31, 2013 and is secured by substantially all the assets of the subsidiary. At September 30, 2013 and December 31, 2012 , the balance outstanding under this agreement was approximately $8.4 million and $4.8 million , respectively, at an average interest rate of 2.6% and 3.2% , respectively.
12 . Derivative Instruments
In December 2012, the Company entered into interest rate swap agreements to fix the LIBOR-based variable portion of the interest rates on its term loan facilities. The term loan A swap agreement fixes the LIBOR-based variable portion of the interest rate, beginning February 2013, on a total of $175.0 million notional amount at 0.74% and expires on October 11, 2017. The term loan B swap agreement fixes the LIBOR-based variable portion of the interest rate, beginning February 2015, on a total of $150.0 million notional amount at 2.05% and expires on October 11, 2019. The Company has designated both swap agreements as cash flow hedges.
In March 2012, the Company entered into an interest rate swap agreement to fix the LIBOR-based variable portion of the interest rate on a total of $100.0 million notional amount of its previous term loan B facility. The swap agreement fixed the LIBOR-based variable portion of the interest rate at 1.80% through June 2016. At inception, the Company formally designated this swap agreement as a cash flow hedge. However, upon the Company's amendment and restatement of its credit agreement during the fourth quarter of 2012, the Company determined that the interest rate swap was no longer expected to be an effective economic hedge and terminated the interest rate swap and repaid the obligation.
As of September 30, 2013 and December 31, 2012 , the fair value carrying amount of the Company's interest rate swaps are recorded as follows:
 
 
 
 
Asset / (Liability) Derivatives
 
 
Balance Sheet Caption
 
September 30,
2013
 
December 31,
2012
 
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
Interest rate swap
 
Other assets
 
$
5,240

 
$

Interest rate swap
 
Accrued liabilities
 
(500
)
 
(530
)
Interest rate swap
 
Other long-term liabilities
 

 
(690
)
Total derivatives designated as hedging instruments
 
 
 
$
4,740

 
$
(1,220
)

14

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

The following tables summarize the income (loss) recognized in accumulated other comprehensive income ("AOCI"), the amounts reclassified from AOCI into earnings and the amounts recognized directly into earnings for the three and nine months ended September 30, 2013 and 2012 :
 
Amount of Income (Loss) Recognized
in AOCI on Derivative
(Effective Portion, net of tax)
 
 
 
Amount of Loss Reclassified from
AOCI into Earnings
 
 
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
As of September 30, 2013
 
As of December 31, 2012
 
Location of Loss Reclassified from AOCI into Earnings (Effective Portion)
 
2013
 
2012
 
2013
 
2012
 
(dollars in thousands)
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
2,930

 
$
(760
)
 
Interest expense
 
$
(240
)
 
$
(140
)
 
$
(560
)
 
$
(250
)
Over the next 12 months , the Company expects to reclassify approximately $0.5 million of pre-tax deferred losses from AOCI to interest expense as the related interest payments for the designated interest rate swaps are funded.
 
 
 
 
Amount of Loss Recognized in Earnings
on Derivatives
 
 
Location of Loss
Recognized in Earnings on
Derivatives
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
(dollars in thousands)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest expense
 
$
(140
)
 
$

 
$
(410
)
 
$

Valuations of the interest rate swap were based on the income approach, which uses observable inputs such as interest rate yield curves and forward currency exchange rates. Fair value measurements and the fair value hierarchy level for the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 are shown below.  
 
 
Description
 
Frequency
 
Asset / (Liability)
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
 
 
 
 
 
(dollars in thousands)
September 30, 2013
 
Interest rate swaps
 
Recurring
 
$
4,740

 
$

 
$
4,740

 
$

December 31, 2012
 
Interest rate swaps
 
Recurring
 
$
(1,220
)
 
$

 
$
(1,220
)
 
$



15

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

13 . Commitments and Contingencies
Asbestos
As of September 30, 2013 , the Company was a party to 1,078 pending cases involving an aggregate of 7,950 claimants alleging personal injury from exposure to asbestos containing materials formerly used in gaskets (both encapsulated and otherwise) manufactured or distributed by certain of the Company's subsidiaries for use primarily in the petrochemical refining and exploration industries. The following chart summarizes the number of claimants, number of claims filed, number of claims dismissed, number of claims settled, the average settlement amount per claim and the total defense costs, exclusive of amounts reimbursed under the Company's primary insurance, at the applicable date and for the applicable periods:
 
 
Claims
pending at
beginning of
period
 
Claims filed
during
period
 
Claims
dismissed
during
period
 
Claims
settled
during
period
 
Average
settlement
amount per
claim during
period
 
Total defense
costs during
period
Fiscal Year Ended December 31, 2012
 
8,048

 
367

 
519

 
16

 
$
14,513

 
$
2,650,000

Nine Months Ended September 30, 2013
 
7,880

 
283

 
179

 
34

 
$
2,001

 
$
1,981,000

In addition, the Company acquired various companies to distribute its products that had distributed gaskets of other manufacturers prior to acquisition. The Company believes that many of its pending cases relate to locations at which none of its gaskets were distributed or used.
The Company may be subjected to significant additional asbestos-related claims in the future, the cost of settling cases in which product identification can be made may increase, and the Company may be subjected to further claims in respect of the former activities of its acquired gasket distributors. The Company is unable to make a meaningful statement concerning the monetary claims made in the asbestos cases given that, among other things, claims may be initially made in some jurisdictions without specifying the amount sought or by simply stating the requisite or maximum permissible monetary relief, and may be amended to alter the amount sought. The large majority of claims do not specify the amount sought. Of the 7,950 claims pending at September 30, 2013 , 133 set forth specific amounts of damages (other than those stating the statutory minimum or maximum). Below is a breakdown of the amount sought for those claims seeking specific amounts:
 
 
Compensatory & Punitive
 
Compensatory Only
 
Punitive Only
Range of damages sought (in millions)
 
$0.0 to $5.0
 
$5.0 to $10.0
 
$10.0+
 
$0.0 to $0.6
 
$0.6 to $5.0
 
$5.0+
 
$0.0 to $2.5
 
$2.5 to $5.0
 
$5.0+
Number of claims
 
106
 
17
 
10
 
70
 
51
 
12
 
115
 
14
 
4
In addition, relatively few of the claims have reached the discovery stage and even fewer claims have gone past the discovery stage.
Total settlement costs (exclusive of defense costs) for all asbestos-related cases, some of which were filed over 20 years ago, have been approximately $6.4 million . All relief sought in the asbestos cases is monetary in nature. To date, approximately 40% of the Company's costs related to settlement and defense of asbestos litigation have been covered by its primary insurance. Effective February 14, 2006, the Company entered into a coverage-in-place agreement with its first level excess carriers regarding the coverage to be provided to the Company for asbestos-related claims when the primary insurance is exhausted. The coverage-in-place agreement makes asbestos defense costs and indemnity coverage available to the Company that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. Nonetheless, the Company believes it is likely there will be a period within the next one or two years, prior to the commencement of coverage under this agreement and following exhaustion of the Company's primary insurance coverage, during which the Company will be solely responsible for defense costs and indemnity payments, the duration of which would be subject to the scope of damage awards and settlements paid.

16

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Based on the settlements made to date and the number of claims dismissed or withdrawn for lack of product identification, the Company believes that the relief sought (when specified) does not bear a reasonable relationship to its potential liability. Based upon the Company's experience to date, including the trend in annual defense and settlement costs incurred to date, and other available information (including the availability of excess insurance), the Company does not believe these cases will have a material adverse effect on its financial position and results of operations or cash flows.
Ordinary Course Claims
The Company is subject to other claims and litigation in the ordinary course of business, but does not believe that any such claim or litigation will have a material adverse effect on its financial position and results of operations or cash flows.
14 . Segment Information
TriMas groups its operating segments into reportable segments that provide similar products and services. Each operating segment has discrete financial information evaluated regularly by the Company's chief operating decision maker in determining resource allocation and assessing performance. Within these reportable segments, there are no individual products or product families for which reported net sales accounted for more than 10% of the Company's consolidated net sales. See below for more information regarding the types of products and services provided within each reportable segment:
Packaging – Highly engineered closure and dispensing systems for a range of end markets, including steel and plastic industrial and consumer packaging applications.
Energy – Metallic and non-metallic industrial sealant products and fasteners for the petroleum refining, petrochemical and other industrial markets.
Aerospace & Defense – Highly engineered specialty fasteners and other precision machined products for the commercial and military aerospace industries and military munitions components for the defense industry.
Engineered Components – High-pressure and low-pressure cylinders for the transportation, storage and dispensing of compressed gases, and natural gas engines, compressors, gas production equipment and chemical pumps engineered at well sites for the oil and gas industry.
Cequent APEA & Cequent Americas – Custom-engineered towing, trailering and electrical products including trailer couplers, winches, jacks, trailer brakes and brake control solutions, lighting accessories and roof racks for the recreational vehicle, agricultural/utility, marine, automotive and commercial trailer markets, functional vehicle accessories and cargo management solutions including vehicle hitches and receivers, sway controls, weight distribution and fifth-wheel hitches, hitch-mounted accessories and other accessory components.

17

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Segment activity is as follows:
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
 
Packaging
 
$
82,010

 
$
77,240

 
$
235,000

 
$
202,250

Energy
 
47,680

 
45,460

 
161,420

 
143,220

Aerospace & Defense
 
26,540

 
20,810

 
71,250

 
58,000

Engineered Components
 
47,540

 
51,880

 
143,830

 
154,180

Cequent APEA
 
40,950

 
37,480

 
111,330

 
94,230

Cequent Americas
 
110,900

 
103,000

 
348,600

 
319,990

Total
 
$
355,620

 
$
335,870

 
$
1,071,430

 
$
971,870

Operating Profit (Loss)
 
 
 
 
 
 
 
 
Packaging
 
$
31,320

 
$
18,240

 
$
65,550

 
$
44,700

Energy
 
1,450

 
3,780

 
12,530

 
14,520

Aerospace & Defense
 
6,060

 
6,030

 
15,330

 
15,710

Engineered Components
 
2,860

 
6,310

 
14,450

 
22,620

Cequent APEA
 
3,570

 
3,950

 
9,300

 
9,000

Cequent Americas
 
7,440

 
8,430

 
21,030

 
28,090

Corporate expenses
 
(9,410
)
 
(10,140
)
 
(29,520
)
 
(26,100
)
Total
 
$
43,290

 
$
36,600

 
$
108,670

 
$
108,540

15 . Equity Awards
The Company maintains the following long-term equity incentive plans: the 2011 TriMas Corporation Omnibus Incentive Compensation Plan, the TriMas Corporation 2006 Long Term Equity Incentive Plan and the TriMas Corporation 2002 Long Term Equity Incentive Plan (collectively, the "Plans"). The 2002 Long Term Equity Incentive Plan expired in 2012, such that, while existing grants will remain outstanding until exercised, vested or cancelled, no new shares may be issued under the plan. See below for details of awards under the Plans by type.
Stock Options
The Company did not grant any stock options during the nine months ended September 30, 2013 . Information related to stock options at September 30, 2013 is as follows:
 
 
Number of Options
 
Weighted Average Option Price
 
Average  Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Outstanding at January 1, 2013
 
675,665

 
$
15.52

 

 

  Exercised
 
(320,940
)
 
21.25

 

 

  Cancelled
 

 

 

 

  Expired
 

 

 
 
 
 
Outstanding at September 30, 2013
 
354,725

 
$
10.33

 
4.2
 
$
9,569,015


18

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

As of September 30, 2013 , 351,703 stock options were exercisable under the Plans. In addition, during the nine months ended September 30, 2013 , 11,698 stock options vested for which the associated fair value was less than $0.1 million . The fair value of options which vested during the nine months ended September 30, 2012 was $0.4 million .
The Company did not incur significant stock-based compensation expense related to stock options during the nine months ended September 30, 2013 and 2012 .
Restricted Shares
During the nine months ended September 30, 2013 , the Company issued 4,013 shares related to director fee deferrals. The Company allows for its non-employee independent directors to make an annual election to defer all or a portion of their directors fees and to receive the deferred amount in cash or equity. Certain of the Company's directors have elected to defer all or a portion of their directors fees and to receive the amount in Company common stock at a future date.
The Company also awarded multiple restricted stock grants during the first quarter of 2013 . First, the Company granted 29,498 restricted shares of common stock to certain employees which are subject only to a service condition and vest ratably over three years so long as the employee remains with the Company.
The Company awarded 41,480 restr icted shares of co mmon stock to certain employees during the first quarter of 2013 . These shares are subject only to a service condition and vest on the first anniversary date of the award. The awards were made to participants in the Company's short-term incentive compensation plan ("STI"), where all STI participants whose target annual award exceeds $20 thousand receive 80% of the value in earned cash and 20% in the form of a restricted stock award upon finalization of the award amount in the first quarter e ach year following the previous plan year.
The Company awarded 238,808 r estricted shares of common stock to certain Company key employees during the first quarter of 2013 . Half of the restricted shares granted are service-based restricted stock units. These awards vest ratably over three years . The other half of the shares are subject to a performance condition and are earned based upon the achievement of two performance metrics over a period of three calendar years, beginning on January 1, 2013 and ending on December 31, 2015. Of this award, 75% of the awards are earned based upon the Company's earnings per share ("EPS") cumulative average growth rate ("EPS CAGR") over the performance period. The remaining 25% of the grants are earned based upon the Company's cash generation results. Cash generation is defined as the Company's cumulative three year cash flow from operating activities less capital expenditures, as publicly reported by the Company, plus or minus special items that may occur from time-to-time, divided by the Company's three-year income from continuing operations as publicly reported by the Company, plus or minus special items that may occur from time-to-time. Depending on the performance achieved for these two metrics, the amount of shares earned can vary from 30% of the target award to a maximum amount of 200% of the target award for the cash flow metric and 250% of the target award for the EPS CAGR metric. However, if these performance metrics are not achieved, no award will be earned. The performance awards vest on a "cliff" basis at the end of the three-year performance period.
In addition, the Company granted 17,240 restricted shares of common stock to its non-employee independent directors, which vest one year from date of grant so long as the director and/or Company does not terminate his services prior to the vesting date.
During 2012, the Company awarded restricted shares of common stock to certain Company key employees which are performance-based grants. Of this award, 60% are earned based on 2012 EPS growth, and the remaining 40% are earned based on the EPS CAGR for 2012 and 2013. For the 60% of shares subject to the 2012 earnings per share growth metric only, the performance conditions were satisfied, resulting in an attainment level of 175% of target. This resulted in an additional 72,576 share grants during the first quarter of 2013 .

19

Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

Information related to restricted shares at September 30, 2013 is as follows:
 
 
Number of Unvested Restricted Shares
 
Weighted Average Grant Date Fair Value
 
Average Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Outstanding at January 1, 2013
 
636,037

 
$
22.02

 

 

  Granted
 
403,615

 
28.23

 

 

  Vested
 
(352,236
)
 
21.94

 

 

  Cancelled
 
(4,516
)
 
25.73

 

 

Outstanding at September 30, 2013
 
682,900

 
$
25.71

 
1.6
 
$
25,478,499

As of September 30, 2013 , there was approximately $8.2 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a weighted-average period of 1.6 years.
The Company recognized approximately $2.4 million and $2.7 million of stock-based compensation expense related to restricted shares during the three months ended September 30, 2013 and 2012 , respectively, and approximately $7.1 million and $6.2 million for the nine months ended September 30, 2013 and 2012 , respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying statement of income.
16 . Earnings per Share
Net earnings are divided by the weighted average number of shares outstanding during the period to calculate basic earnings per share. Diluted earnings per share are calculated to give effect to stock options and other stock-based awards. The calculation of diluted earnings per share included 231,434 and 289,120 restricted shares for the three months ended September 30, 2013 and 2012 , respectively and 176,667 and 164,163 restricted shares for the nine months ended September 30, 2013 and 2012 , respectively. The calculation of diluted earnings per share also included options to purchase 169,241 and 174,101 shares of common stock for the three months ended September 30, 2013 and 2012 , respectively and 184,065 and 220,937 shares of common stock for the nine months ended September 30, 2013 and 2012 , respectively.


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TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

17 . Defined Benefit Plans
Net periodic pension and postretirement benefit costs for the Company's defined benefit pension plans and postretirement benefit plans cover certain foreign employees, union hourly employees and salaried employees. The components of net periodic pension and postretirement benefit costs for the three and nine months ended September 30, 2013 and 2012 are as follows:
 
 
Pension Plans
 
Other Postretirement Benefits
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
 
(dollars in thousands)
Service costs
 
$
170

 
$
150

 
$
520

 
$
450

 
$

 
$

 
$

 
$

Interest costs
 
410

 
410

 
1,230

 
1,210

 
10

 
20

 
30

 
40

Expected return on plan assets
 
(460
)
 
(430
)
 
(1,380
)
 
(1,280
)
 

 

 

 

Amortization of prior service cost
 

 

 
10

 
10

 

 
(70
)
 

 
(200
)
Settlement/curtailment (gain)
 

 

 

 

 

 
(1,490
)
 

 
(1,490
)
Amortization of net (gain)/loss
 
320

 
260

 
960

 
790

 
(20
)
 
(20
)
 
(60
)
 
(60
)
Net periodic benefit cost
 
$
440

 
$
390

 
$
1,340

 
$
1,180

 
$
(10
)
 
$
(1,560
)
 
$
(30
)
 
$
(1,710
)
During the third quarter of 2012, the Company recognized previously deferred gains associated with one of the Company's postretirement benefit plans of approximately $1.5 million as a result of not having any remaining eligible participants. This benefit is included in selling, general and administrative expenses in the accompanying consolidated statement of income.
The Company contributed approximately $0.7 million and $2.6 million to its defined benefit pension plans during the three and nine months ended September 30, 2013 , respectively. The Company expects to contribute approximately $3.0 million to its defined benefit pension plans for the full year 2013 .
18 . Other Comprehensive Income
Changes in AOCI by component for the nine months ended September 30, 2013 are summarized as follows:
 
 
Defined Benefit Plans
 
 Derivative Instruments
 
Foreign Currency Translation
 
Total
 
 
(dollars in thousands)
Balance, December 31, 2012
 
$
(12,440
)
 
$
(1,680
)
 
$
53,380

 
$
39,260

Net unrealized gains (losses) arising during the period
 
600

 
3,340

 
(4,630
)
 
(690
)
Less: Net realized gains (losses) reclassified to net income
 

 
(610
)
 
7,910

 
7,300

Net current-period change
 
600

 
3,950

 
(12,540
)
 
(7,990
)
Balance, September 30, 2013
 
$
(11,840
)
 
$
2,270

 
$
40,840

 
$
31,270

During the nine months ended September 30, 2013 , the Company reclassified $0.6 million (net of income tax benefit of $0.4 million ) from AOCI into interest expense. See Note 12 , "Derivative Instruments," for additional details. The Company also reclassified approximately $7.9 million from AOCI into net income related to the sale of a business during the nine months ended September 30, 2013 . See Note 4 , "Facility Closure and Sale of Business," for further details. No other amounts were reclassified out of AOCI and into the consolidated statement of income during the nine months ended September 30, 2013 .

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TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)

19 . Subsequent Events
Debt Refinance
In October 2013, the Company entered into new senior secured credit facilities, pursuant to which the Company was able to reduce interest rates, extend maturities and increase its available liquidity compared to the existing Credit Agreement. Below is a summary of the key terms of the new facilities:
Instrument
 
Amount
($ in millions)
 
Maturity Date
 
Initial Interest Rate
Senior Secured Revolving Credit facility
 
$
575.0

 
10/16/2018
 
LIBOR plus 1.625%
Senior Secured Term Loan A facility
 
$
175.0

 
10/16/2018
 
LIBOR plus 1.625%
The Company used the proceeds from borrowings under the new facilities to repay all outstanding amounts under the existing Credit Agreement.
Acquisition
In October 2013, the Company acquired the stock of Mac Fasteners, Inc. ("Mac Fasteners") for the cash purchase price of approximately $34 million , plus the potential for up to approximately $6 million of contingent consideration, payable based on attainment of certain future operating results. The purchase price remains subject to the finalization of a net working capital adjustment, if any, which is expected to be completed by the end of the first quarter of 2014. Mac Fasteners is in the business of manufacturing and distribution of stainless steel aerospace fasteners, globally utilized by OEMs, aftermarket repair companies, and commercial and military aircraft producers. Mac Fasteners generated approximately $17.5 million in revenue for the twelve months ended September 30, 2013 and will be included in the Company's Aerospace & Defense reportable segment.






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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition contains forward-looking statements regarding industry outlook and our expectations regarding the performance of our business. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under the heading "Forward-Looking Statements," at the beginning of this report. Our actual results may differ materially from those contained in or implied by any forward-looking statements. You should read the following discussion together with the Company's reports on file with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2012.
Introduction
We are a global manufacturer and distributor of products for commercial, industrial and consumer markets. We are principally engaged in six reportable segments: Packaging, Energy, Aerospace & Defense, Engineered Components, Cequent APEA and Cequent Americas.
Key Factors and Risks Affecting Our Reported Results.    Our businesses and results of operations depend upon general economic conditions and we serve some customers in cyclical industries that are highly competitive and themselves significantly impacted by changes in economic conditions. Over the past few years, global economic conditions have cycled through significant changes, and, while still choppy, have somewhat stabilized over the past year, albeit with little or no economic growth. This stabilization, along with our acquisitions, market share gains and new product introductions, has contributed to our year-over-year net sales increases in five of our six reportable segments.
Over the past two years, we executed on our growth strategies via bolt-on acquisitions and geographic expansion within our existing platforms, primarily within our Packaging, Energy and Cequent APEA reportable segments. We have also proceeded with footprint consolidation projects within our Cequent reportable segments, moving toward more efficient facilities and lower cost country production. While our growth strategies, particularly in Packaging and Energy, have helped to significantly increase our net sales levels and set the foundation for continued growth, and our Cequent footprint projects will yield more effective and efficient manufacturing capability and flexibility while also reducing costs, our earnings margins have declined from historical levels as we incur costs to pursue and integrate these endeavors. Our reportable segment margins have declined at the onset of our recent acquisitions and new branch location openings due to acquisition/setup and diligence costs, purchase accounting adjustments (inventory revaluations and higher depreciation and amortization expense), integration costs, costs to do business in new markets (primarily for new branches, where we make pricing decisions to penetrate new markets and do not yet have the volume leverage) and from acquiring companies with historically lower margins than our legacy businesses. For the Cequent businesses, duplicative costs from multiple facilities, manufacturing inefficiencies associated with the start-up of new facilities and move costs have significantly impacted margins. While these endeavors have significantly impacted margins, we believe that the margins in these businesses will moderate to historical levels over time as we integrate them into our businesses and capitalize on productivity initiatives and volume efficiencies, and Cequent margins will further improve once the facilities are fully operational.
Critical factors affecting our ability to succeed include: our ability to create organic growth through product development, cross selling and extending product-line offerings, and our ability to quickly and cost-effectively introduce new products; our ability to acquire and integrate companies or products that supplement existing product lines, add new distribution channels, expand our geographic coverage or enable better absorption of overhead costs; our ability to manage our cost structure more efficiently via supply base management, internal sourcing and/or purchasing of materials, selective outsourcing and/or purchasing of support functions, working capital management, and greater leverage of our administrative functions. If we are unable to do any of the foregoing successfully, our financial condition and results of operations could be materially and adversely impacted.
There is some seasonality in the businesses within our Cequent reportable segments, primarily within Cequent Americas, where sales of towing and trailering products are generally stronger in the second and third quarters, as trailer original equipment manufacturers ("OEMs"), distributors and retailers acquire product for the spring and summer selling seasons. No other reportable segment experiences significant seasonal fluctuation. We do not consider sales order backlog to be a material factor in our business. A growing portion of our sales is derived from international sources, which exposes us to certain risks, including currency risks.
The demand for some of our products, particularly in our two Cequent reportable segments, is heavily influenced by consumer sentiment. Despite the sales increases in the past two years, we recognize that consumer sentiment and the end market conditions remain unstable, primarily for Cequent Americas, given continued uncertainties in employment levels and consumer credit availability, both of which significantly impact consumer discretionary spending.

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Table of Contents

We are sensitive to price movements in our raw materials supply base. Our largest material purchases are for steel, copper, aluminum, polyethylene and other resins and energy. Historically, we have experienced increasing costs of steel and resin and have worked with our suppliers to manage cost pressures and disruptions in supply. We also utilize pricing programs to pass increased steel, copper, aluminum and resin costs to customers. Although we may experience delays in our ability to implement price increases, we have been generally able to recover such increased costs. We may experience disruptions in supply in the future and may not be able to pass along higher costs associated with such disruptions to our customers in the form of price increases.
We report shipping and handling expenses associated with our Cequent Americas reportable segment's distribution network as an element of selling, general and administrative expenses in our consolidated statement of income. As such, gross margins for the Cequent Americas reportable segment may not be comparable to those of our other reportable segments, which primarily rely on third party distributors, for which all costs are included in cost of sales.


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Table of Contents

Segment Information and Supplemental Analysis
The following table summarizes financial information for our reportable segments for the three months ended September 30, 2013 and 2012 :
 
Three months ended September 30,
 
2013
 
As a Percentage
of Net Sales
 
2012
 
As a Percentage
of Net Sales
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
Packaging
$
82,010

 
23.0
%
 
$
77,240

 
23.0
%
Energy
47,680

 
13.4
%
 
45,460

 
13.5
%
Aerospace & Defense
26,540

 
7.5
%
 
20,810

 
6.2
%
Engineered Components
47,540

 
13.4
%
 
51,880

 
15.4
%
Cequent APEA
40,950

 
11.5
%
 
37,480

 
11.2
%
Cequent Americas
110,900

 
31.2
%
 
103,000

 
30.7
%
Total
$
355,620

 
100.0
%
 
$
335,870

 
100.0
%
Gross Profit
 
 
 
 
 
 
 
Packaging
$
30,490

 
37.2
%
 
$
26,280

 
34.0
%
Energy
10,190

 
21.4
%
 
11,640

 
25.6
%
Aerospace & Defense
9,300

 
35.0
%
 
8,570

 
41.2
%
Engineered Components
6,940

 
14.6
%
 
9,200

 
17.7
%
Cequent APEA
8,310

 
20.3
%
 
7,310

 
19.5
%
Cequent Americas
28,920

 
26.1
%
 
27,140

 
26.3
%
Total
$
94,150

 
26.5
%
 
$
90,140

 
26.8