TriMas Corporation
TRIMAS CORP (Form: 10-Q, Received: 07/31/2014 16:08:51)
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 June 30, 2014

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  x
 
Accelerated filer  o
 
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 July 25, 2014 , the number of outstanding shares of the Registrant's common stock, $0.01 par value, was 45,259,060 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, 2013 , 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 conditions, 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)


 
June 30,
2014

December 31,
2013
Assets
 

 

Current assets:
 

 

Cash and cash equivalents
 
$
38,380


$
27,000

Receivables, net of reserves of approximately $4.6 million and $3.6 million as of June 30, 2014 and December 31, 2013, respectively
 
246,340


180,210

Inventories
 
260,950


270,690

Deferred income taxes
 
18,340


18,340

Prepaid expenses and other current assets
 
18,780


18,770

Total current assets
 
582,790

 
515,010

Property and equipment, net
 
212,130


206,150

Goodwill
 
312,270


309,660

Other intangibles, net
 
209,910


219,530

Other assets
 
47,540


50,430

Total assets
 
$
1,364,640

 
$
1,300,780

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Current maturities, long-term debt
 
$
14,570


$
10,290

Accounts payable
 
175,300


166,090

Accrued liabilities
 
79,440


85,130

Total current liabilities
 
269,310

 
261,510

Long-term debt
 
353,910


295,450

Deferred income taxes
 
54,180


64,940

Other long-term liabilities
 
100,980


99,990

Total liabilities
 
778,380

 
721,890

Redeemable noncontrolling interests
 

 
29,480

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: 45,259,060 shares at June 30, 2014 and 45,003,214 shares at December 31, 2013
 
450

 
450

Paid-in capital
 
803,540

 
816,450

Accumulated deficit
 
(250,550
)
 
(295,320
)
Accumulated other comprehensive income
 
32,820

 
27,830

Total shareholders' equity
 
586,260

 
549,410

Total liabilities and shareholders' equity
 
$
1,364,640

 
$
1,300,780



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

3

Table of Contents

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

 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2014
 
2013
 
2014
 
2013
Net sales
 
$
403,980

 
$
378,030

 
$
771,720

 
$
715,810

Cost of sales
 
(294,220
)
 
(274,720
)
 
(565,380
)
 
(529,100
)
Gross profit
 
109,760

 
103,310

 
206,340

 
186,710

Selling, general and administrative expenses
 
(65,720
)
 
(61,670
)
 
(129,710
)
 
(121,330
)
Operating profit
 
44,040

 
41,640

 
76,630

 
65,380

Other expense, net:
 
 
 
 
 
 
 
 
Interest expense
 
(3,440
)
 
(5,540
)
 
(6,910
)
 
(10,750
)
Other income (expense), net
 
(1,910
)
 
300

 
(2,930
)
 
(1,930
)
Other expense, net
 
(5,350
)
 
(5,240
)
 
(9,840
)
 
(12,680
)
Income from continuing operations before income tax expense
 
38,690

 
36,400

 
66,790

 
52,700

Income tax expense
 
(12,490
)
 
(9,300
)
 
(21,210
)
 
(11,560
)
Income from continuing operations
 
26,200

 
27,100

 
45,580

 
41,140

Income from discontinued operations, net of income tax expense
 

 
700

 

 
700

Net income
 
26,200

 
27,800

 
45,580

 
41,840

Less: Net income attributable to noncontrolling interests
 

 
910

 
810

 
1,770

Net income attributable to TriMas Corporation
 
$
26,200

 
$
26,890

 
$
44,770

 
$
40,070

Basic earnings per share attributable to TriMas Corporation:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.58

 
$
0.66

 
$
1.00

 
$
1.00

Discontinued operations
 

 
0.02

 

 
0.02

Net income per share
 
$
0.58

 
$
0.68

 
$
1.00

 
$
1.02

Weighted average common shares—basic
 
44,901,090

 
39,425,471

 
44,834,842

 
39,330,125

Diluted earnings per share attributable to TriMas Corporation:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.58

 
$
0.65

 
$
0.99

 
$
0.99

Discontinued operations
 

 
0.02

 

 
0.02

Net income per share
 
$
0.58

 
$
0.67

 
$
0.99

 
$
1.01

Weighted average common shares—diluted
 
45,230,862

 
39,886,593

 
45,208,488

 
39,790,349



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
June 30,
 
Six months ended
June 30,
 
 
2014
 
2013
 
2014
 
2013
Net income
 
$
26,200

 
$
27,800

 
$
45,580

 
$
41,840

Other comprehensive income:
 
 
 
 
 
 
 
 
Amortization of defined benefit plan deferred losses (net of tax of $0.1 million for the three months ended June 30, 2014 and 2013, and $0.2 million for the six months ended June 30, 2014 and 2013, respectively) (Note 16)
 
170

 
190

 
350

 
390

Foreign currency translation
 
2,980

 
(8,470
)
 
4,860

 
(10,610
)
Net changes in unrealized gain (loss) on derivative instruments (net of tax of $0.3 million and $2.5 million, and $0.2 million and $2.9 million for the three and six months ended June 30, 2014 and 2013, respectively) (Note 11)
 
(530
)
 
4,070

 
(220
)
 
4,750

Total other comprehensive income (loss)
 
2,620

 
(4,210
)
 
4,990

 
(5,470
)
Total comprehensive income
 
28,820

 
23,590

 
50,570

 
36,370

Less: Net income attributable to noncontrolling interests
 

 
910

 
810

 
1,770

Total comprehensive income attributable to TriMas Corporation
 
$
28,820

 
$
22,680

 
$
49,760

 
$
34,600



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



5

Table of Contents


TriMas Corporation
Consolidated Statement of Cash Flows
(Unaudited—dollars in thousands)
 
 
Six months ended
June 30,
 
 
2014
 
2013
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
45,580

 
$
41,840

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

 

Loss on dispositions of property and equipment
 
240

 
10

Depreciation
 
16,320

 
14,560

Amortization of intangible assets
 
10,990

 
10,230

Amortization of debt issue costs
 
960

 
870

Deferred income taxes
 
(2,420
)
 
(3,470
)
Non-cash compensation expense
 
4,360

 
4,750

Excess tax benefits from stock based compensation
 
(1,030
)
 
(1,180
)
Increase in receivables
 
(63,500
)
 
(54,460
)
Decrease in inventories
 
11,520

 
1,320

(Increase) decrease in prepaid expenses and other assets
 
1,250

 
(2,240
)
Increase (decrease) in accounts payable and accrued liabilities
 
(1,880
)
 
2,320

Other, net
 
600

 
(1,010
)
Net cash provided by operating activities, net of acquisition impact
 
22,990

 
13,540

Cash Flows from Investing Activities:
 

 

Capital expenditures
 
(20,490
)
 
(25,920
)
Acquisition of businesses, net of cash acquired
 

 
(46,610
)
Net proceeds from disposition of assets
 
240

 
700

Net cash used for investing activities
 
(20,250
)
 
(71,830
)
Cash Flows from Financing Activities:
 

 

Proceeds from borrowings on term loan facilities
 
89,730

 
106,420

Repayments of borrowings on term loan facilities
 
(91,030
)
 
(104,830
)
Proceeds from borrowings on revolving credit and accounts receivable facilities
 
552,110

 
475,890

Repayments of borrowings on revolving credit and accounts receivable facilities
 
(489,310
)
 
(418,900
)
Distributions to noncontrolling interests
 
(580
)
 
(1,350
)
Payment for noncontrolling interests
 
(51,000
)
 

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
 
(2,740
)
 
(3,760
)
Proceeds from exercise of stock options
 
430

 
860

Excess tax benefits from stock based compensation
 
1,030

 
1,180

Net cash provided by financing activities
 
8,640

 
56,540

Cash and Cash Equivalents:
 

 

Increase (decrease) for the period
 
11,380

 
(1,750
)
At beginning of period
 
27,000

 
20,580

At end of period
 
$
38,380

 
$
18,830

Supplemental disclosure of cash flow information:
 

 

Cash paid for interest
 
$
5,550

 
$
8,280

Cash paid for taxes
 
$
10,740

 
$
13,830



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

6

Table of Contents

TriMas Corporation
Consolidated Statement of Shareholders' Equity
Six Months Ended June 30, 2014
(Unaudited—dollars in thousands)

 
 
Common
Stock
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Balances, December 31, 2013
 
$
450

 
$
816,450

 
$
(295,320
)
 
$
27,830

 
$
549,410

Net income attributable to TriMas Corporation
 

 

 
44,770

 

 
44,770

Other comprehensive income
 

 

 

 
4,990

 
4,990

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

 
(2,740
)
 

 

 
(2,740
)
Stock option exercises and restricted stock vestings
 

 
430

 

 

 
430

Excess tax benefits from stock based compensation
 

 
1,030

 

 

 
1,030

Non-cash compensation expense
 

 
4,360

 

 

 
4,360

Acquisition of remaining 30% interest in Arminak & Associates, LLC (net of tax of $8.4 million) (Note 6)
 

 
(15,990
)
 

 

 
(15,990
)
Balances, June 30, 2014
 
$
450

 
$
803,540

 
$
(250,550
)
 
$
32,820

 
$
586,260



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. See Note  13 , "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 2013 Annual Report on Form 10-K.
2 . New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-9, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-9"). ASU 2014-9 requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-9 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption prohibited. The Company is in the process of assessing the impact of the adoption of ASU 2014-09 on its consolidated financial statements.
In April 2014, the FASB issued ASU 2014-8, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-8"). ASU 2014-8 changes the criteria for reporting discontinued operations and requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. ASU 2014-8 is effective for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods, and interim periods within those years, beginning on or after December 15, 2014, with early adoption permitted for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company expects to adopt ASU 2014-08 upon its required effective date.
3 . Facility Closures
Goshen, Indiana facility
In November 2012, the Company announced plans to close its manufacturing facility in Goshen, Indiana, moving production from Goshen to lower-cost manufacturing facilities during 2013. The Company completed the move and ceased operations in Goshen during the fourth quarter of 2013. During 2013, the Company recorded charges, primarily for severance benefits for its approximately 350 union hourly workers to be involuntarily terminated, of approximately $4.0 million , of which approximately $3.8 million was recorded in the three months ended March 31, 2013 and is included in cost of sales in the accompanying consolidated statement of income. Additionally, during 2012, the Company recorded charges, primarily for severance benefits for salaried employees to be involuntarily terminated as part of the closure of approximately $1.2 million . Through June 30, 2014 , the Company had paid the approximately $5.2 million of the total hourly and salaried severance benefit charges recorded.
In addition, during the three and six months ended June 30, 2013 , the Company incurred approximately $0.4 million and $0.7 million , respectively, of pre-tax non-cash charges related to accelerated depreciation expense as a result of shortening the expected lives on certain machinery, equipment and leasehold improvement assets that the Company no longer utilizes following the facility closure.

8

Table of Contents

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

S ã o Paulo, Brazil facility
In June 2014, the Company announced the restructuring of its Brazilian business within the Energy reportable segment, including plans to close its manufacturing facility in S ã o Paulo, Brazil during the third quarter of 2014. In connection with this action, the Company recorded charges of approximately $0.5 million , primarily related to severance benefits, for its approximately 60 employees to be involuntarily terminated as a result of this closure. This charge is included in cost of sales in the accompanying consolidated statement of income for the three months ended June 30, 2014.
The Company's manufacturing facility in S ã o Paulo is subject to a lease agreement expiring in 2022. The Company is currently assessing the potential recoverability of its future lease obligations for this facility, and will record an estimate of any future unrecoverable lease obligations upon the cease-use date of the facility.
4 . 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. No payout was received in 2014, as the 2013 financial performance criteria were not met.
5 . Acquisitions
No acquisitions were made during the six months ended June 30, 2014.
During the first half of 2013, the Company completed acquisitions for an aggregate amount of approximately $47 million , net of cash acquired. Of these acquisitions, the most significant are as follows:
Martinic Engineering, Inc. ("Martinic") within the Company's Aerospace & Defense reportable segment 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 Specialised Fasteners Limited ("Wulfrun") within the Company's Energy reportable segment 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.
C.P. Witter Limited ("Witter"), within the Company's Cequent APEA reportable segment, is a manufacturer of highly-engineered towbars and accessories which are distributed through a wide network of commercial dealers located in the United Kingdom, and generated approximately $20 million in revenue for the twelve months ended March 31, 2013.
The results of operations of the aforementioned acquisitions are not significant compared to the overall results of operations of the Company.

9

Table of Contents

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

6 . 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 , which is included in the Company's Packaging reportable segment. The original purchase agreement provided 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, and the original combination of a noncontrolling interest and a redemption feature resulted in a redeemable noncontrolling interest, which was classified outside of permanent equity on the accompanying consolidated balance sheet.
On March 11, 2014, in lieu of the put and call options in the original purchase agreement, the Company entered into a new agreement to purchase the entire 30% noncontrolling interest in Arminak for a cash purchase price of $51.0 million . The purchase agreement also includes additional contingent consideration of up to $7.0 million , with the amount to be earned based on the achievement of certain levels of 2015 financial performance. In order to estimate the fair value of the contingent consideration, the Company utilized the Monte Carlo valuation method, using variations of expected future payouts given certain significant assumptions including expected revenue and earnings growth, volatility and risk. As these assumptions are not observable in the market, the calculation represents a Level 3 fair value measurement. As of June 30, 2014, the estimated liability for the payout of contingent consideration is $3.1 million . The final contingent consideration is expected to be paid, if earned, in the second quarter of 2016.
As part of purchasing the remaining membership interest, the Company finalized the calculation of the redeemable noncontrolling interest as of March 11, 2014. Changes in the carrying amount of redeemable noncontrolling interest are summarized as follows:
 
 
Noncontrolling interest
 
 
(dollars in thousands)
Beginning balance, December 31, 2013
 
$
29,480

Distributions to noncontrolling interests
 
(580
)
Net income attributable to noncontrolling interests
 
810

Ending balance, March 11, 2014
 
$
29,710

The difference between the cash purchase price and final redeemable noncontrolling interest as of March 11, 2014 was recorded as a reduction in paid in capital, net of tax, as included in the accompanying consolidated statement of shareholders' equity.
7 . Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the six months ended June 30, 2014 are summarized as follows:
 
Packaging
 
Energy
 
Aerospace & Defense
 
Engineered Components
 
Cequent APEA
 
Cequent Americas
 
Total
 
(dollars in thousands)
Balance, December 31, 2013
$
158,060

 
$
75,920

 
$
61,080

 
$
7,420

 
$

 
$
7,180

 
$
309,660

Foreign currency translation and other
540

 
1,340

 

 

 

 
730

 
2,610

Balance, June 30, 2014
$
158,600

 
$
77,260

 
$
61,080

 
$
7,420

 
$

 
$
7,910

 
$
312,270


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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 June 30, 2014 and December 31, 2013 are summarized below. The Company amortizes these assets over periods ranging from 1 to 30  years.
 
 
As of June 30, 2014
 
As of December 31, 2013
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
 
$
105,810

 
$
(40,730
)
 
$
105,090

 
$
(36,260
)
   Customer relationships, 15 – 25 years
 
154,610

 
(98,310
)
 
154,610

 
(94,200
)
Total customer relationships
 
260,420

 
(139,040
)
 
259,700

 
(130,460
)
   Technology and other, 1 – 15 years
 
39,060

 
(30,430
)
 
38,980

 
(28,940
)
   Technology and other, 17 – 30 years
 
44,070

 
(26,430
)
 
43,990

 
(25,310
)
Total technology and other
 
83,130

 
(56,860
)
 
82,970

 
(54,250
)
Indefinite-lived intangible assets:
 

 

 

 

 Trademark/Trade names
 
62,260

 

 
61,570

 

Total other intangible assets
 
$
405,810

 
$
(195,900
)
 
$
404,240

 
$
(184,710
)
Amortization expense related to intangible assets as included in the accompanying consolidated statement of income is summarized as follows:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(dollars in thousands)
Technology and other, included in cost of sales
 
$
1,210

 
$
1,210

 
$
2,420

 
$
2,410

Customer relationships, included in selling, general and administrative expenses
 
4,300

 
3,940

 
8,570

 
7,820

Total amortization expense
 
$
5,510

 
$
5,150

 
$
10,990

 
$
10,230

8 . Inventories
Inventories consist of the following components:
 
 
June 30,
2014
 
December 31,
2013
 
 
(dollars in thousands)
Finished goods
 
$
156,910

 
$
173,140

Work in process
 
32,390

 
31,880

Raw materials
 
71,650

 
65,670

Total inventories
 
$
260,950

 
$
270,690


11

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

9 . Property and Equipment, Net
Property and equipment consists of the following components:
 
 
June 30,
2014
 
December 31,
2013
 
 
(dollars in thousands)
Land and land improvements
 
$
5,520

 
$
5,520

Buildings
 
63,500

 
61,960

Machinery and equipment
 
370,730

 
351,960

 
 
439,750

 
419,440

Less: Accumulated depreciation
 
227,620

 
213,290

Property and equipment, net
 
$
212,130

 
$
206,150

Depreciation expense as included in the accompanying consolidated statement of income is as follows:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(dollars in thousands)
Depreciation expense, included in cost of sales
 
$
6,990

 
$
6,410

 
$
13,730

 
$
12,470

Depreciation expense, included in selling, general and administrative expense
 
1,300

 
1,100

 
2,590

 
2,090

Total depreciation expense
 
$
8,290

 
$
7,510

 
$
16,320

 
$
14,560

10 . Long-term Debt
The Company's long-term debt consists of the following:
 
 
June 30,
2014
 
December 31,
2013
 
 
(dollars in thousands)
Credit Agreement
 
$
272,970

 
$
246,130

Receivables facility and other
 
95,510

 
59,610

 
 
368,480

 
305,740

Less: Current maturities, long-term debt
 
14,570

 
10,290

Long-term debt
 
$
353,910

 
$
295,450

Credit Agreement
The Company is a party to a credit agreement consisting of a $575.0 million senior secured revolving credit facility, which matures in October 2018 and is subject to interest at London Interbank Offered Rates ("LIBOR") plus 1.50% , and a $175.0 million senior secured term loan A facility, which matures in October 2018 and is subject to interest at LIBOR plus 1.50% (collectively, the "Credit Agreement"). The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date. Per the Credit Agreement, the senior secured revolving credit facility permits borrowings denominated in specific foreign currency ("Foreign Currency Loans"), subject to a $75.0 million sub limit.
The Credit Agreement also provides incremental term loan and/or revolving credit facility commitments in an amount not to exceed the greater of $300.0 million and an amount such that, after giving effect to such incremental 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. 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.

12

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

Beginning with the fiscal year ending December 31, 2014 (payable in 2015), the Company may be required to prepay a portion of its term loan A facility in an amount equal to a percentage of the Company's excess cash flow, as defined, with such percentage based on the Company's leverage ratio, as defined.
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 both June 30, 2014 and December 31, 2013 , the Company had letters of credit of approximately $24.1 million issued and outstanding.
At June 30, 2014 , the Company had $102.3 million outstanding under its revolving credit facility and had $448.6 million potentially available after giving effect to approximately $24.1 million of letters of credit issued and outstanding. At December 31, 2013 , the Company had $71.1 million outstanding under its revolving credit facility and had $479.8 million potentially available after giving effect to approximately $24.1 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 $356.4 million and $360.3 million at June 30, 2014 and December 31, 2013 , respectively, of borrowing capacity available 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 $575.0 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 Credit Agreement also contains various negative and affirmative covenants and other requirements affecting the Company and its subsidiaries, including restrictions on incurrence of debt, liens, mergers, investments, loans, advances, guarantee obligations, acquisitions, assets dispositions, sale-leaseback transactions, hedging agreements, dividends and other restricted payments, transactions with affiliates, restrictive agreements and amendments to charters, bylaws, and other material documents. The terms of the Credit Agreement also require the Company and its subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum leverage ratio (total consolidated indebtedness plus outstanding amounts under the accounts receivable securitization facility over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over cash interest expense, as defined). At June 30, 2014 , the Company was in compliance with its financial and other covenants contained in the Credit Agreement.
As of June 30, 2014 and December 31, 2013 , the Company's Credit Agreement traded at approximately 99.6% and 99.8% of par value, respectively. The valuations of the Credit Agreement was 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. In April 2014, the Company amended this $105.0 million facility, reducing the usage fee on amounts outstanding previously ranging from 1.20% or 1.35% , depending on the amounts drawn under the facility, to 1.15% . The amendment also reduced the cost of the unused portion of the facility from 0.40% to 0.35% and extended the maturity date from October 12, 2017 to October 16, 2018.
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 1.15% and 1.20% as of June 30, 2014 and 2013 , respectively, and a fee on the unused portion of the facility of 0.35% and 0.40% as of June 30, 2014 and 2013 , respectively.
The Company had $88.9 million and $57.0 million outstanding under the facility as of June 30, 2014 and December 31, 2013 , respectively, and $7.6 million and $20.2 million , respectively, available but not utilized. Aggregate costs incurred under the facility were $0.3 million and $0.4 million for the three months ended June 30, 2014 and 2013 , respectively, and $0.6 million and $0.7 million for the six months ended June 30, 2014 and 2013 , respectively, and are included in interest expense in the accompanying consolidated statement of income. The facility expires on October 16, 2018.

13

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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 June 30, 2014 , the cost of funds under the facility was based on an average liquidation period of the portfolio of approximately 1.7 months and an average discount rate of 1.6% .
Other Bank Debt
The Company's Australian subsidiary is party to a debt agreement which matures on July 31, 2014 and is secured by substantially all the assets of the subsidiary. At June 30, 2014 and December 31, 2013 , the balance outstanding under this agreement was approximately $5.2 million and $0.7 million , respectively, at an average interest rate of 4.6% at each of the periods then ended.
In May 2014, the Company's Dutch subsidiary entered into a credit agreement consisting of a $12.5 million uncommitted working capital facility agreement which matures on May 29, 2015, is subject to interest at LIBOR plus 2.75% per annum and is guaranteed by TriMas. In addition, this Dutch subsidiary is subject to an overdraft facility in conjunction with the uncommitted working capital facility up to $1.0 million , subject to interest at U.S. dollar prime rate plus 0.75% . No amounts were outstanding on this facility as of June 30, 2014.
11 . Derivative Instruments
Foreign Currency Exchange Rate Risk
As of June 30, 2014 , the Company was party to forward contracts to hedge changes in foreign currency exchange rates with notional amounts of approximately $18.6 million . The Company uses foreign currency forward contracts to mitigate the risk associated with fluctuations in currency rates impacting cash flows related to certain payments for contract manufacturing in its lower-cost manufacturing facilities. The foreign currency forward contracts hedge currency exposure between the Mexican peso and the U.S. dollar and the Thai baht and the Australian dollar and mature at specified monthly settlement dates through March 2015. At inception, the Company designated the foreign currency forward contracts as cash flow hedges.
Interest Rate Risk
In December 2012, the Company entered into an interest rate swap agreement to fix the LIBOR-based variable portion of the interest rates on its term loan A facility. 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. At inception, the Company designated the swap agreement as a cash flow hedge.
Financial Statement Presentation
As of June 30, 2014 and December 31, 2013 , the fair value carrying amount of the Company's derivatives designated as hedging instruments are recorded as follows:
 
 
 
 
Asset / (Liability) Derivatives
 
 
Balance Sheet Caption
 
June 30,
2014
 
December 31,
2013
 
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
Interest rate swap
 
Other assets
 
$
1,370

 
$
2,080

Interest rate swap
 
Accrued liabilities
 
(450
)
 
(360
)
Foreign currency forward contracts
 
Other assets
 
400

 

Foreign currency forward contracts
 
Accrued liabilities
 
(100
)
 

Total derivatives designated as hedging instruments
 
 
 
$
1,220

 
$
1,720


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 six months ended June 30, 2014 and 2013 :
 
Amount of Income Recognized
in AOCI on Derivative
(Effective Portion, net of tax)
 
 
 
Amount of Income (Loss) Reclassified
from AOCI into Earnings
 
 
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
As of
June 30,
2014
 
As of December 31, 2013
 
Location of Income (Loss) Reclassified from AOCI into Earnings (Effective Portion)
 
2014
 
2013
 
2014
 
2013
 
(dollars in thousands)
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap
$
570

 
$
1,060

 
Interest expense
 
$
(250
)
 
$
(310
)
 
$
(490
)
 
$
(320
)
Foreign currency forward contracts
$
270

 
$

 
Cost of sales
 
$
170

 
$

 
$
210

 
$

Over the next 12 months , the Company expects to reclassify approximately $0.5 million of pre-tax deferred gains from AOCI to interest expense as the related interest payments for the designated interest rate swap are funded and approximately $0.3 million of pre-tax deferred gains from AOCI to cost of sales as the intercompany inventory purchases are settled.
 
 
 
 
Amount of Loss Recognized in Earnings on Derivatives
 
 
Location of Loss
Recognized in Earnings on
Derivatives
 
Three months ended June 30,
 
Six months ended June 30,
 
 
 
2014
 
2013
 
2014
 
2013
 
 
 
 
(dollars in thousands)
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate swap
 
Interest expense
 
$

 
$
(140
)
 
$

 
$
(270
)

15

Table of Contents

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

Fair Value Measurements
The fair value of the Company's derivatives are estimated using an income approach based on valuation techniques to convert future amounts to a single, discounted amount. Estimates of the fair value of the Company's interest rate swap and foreign currency forward contracts use 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 June 30, 2014 and December 31, 2013 are shown below.  
 
 
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)
June 30, 2014
 
 
 
 
 
 
 
 
 
 
Interest rate swap
 
Recurring
 
$
920

 
$

 
$
920

 
$

Foreign currency forward contracts
 
Recurring
 
$
300

 
$

 
$
300

 
$

December 31, 2013
 
 
 
 
 
 
 
 
 
 
Interest rate swap
 
Recurring
 
$
1,720

 
$

 
$
1,720

 
$

12 . Commitments and Contingencies
Asbestos
As of June 30, 2014 , the Company was a party to 1,087 pending cases involving an aggregate of 7,985 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, 2013
 
7,880

 
360

 
226

 
39

 
$
8,294

 
$
2,620,000

Six Months Ended June 30, 2014
 
7,975

 
91

 
66

 
15

 
$
5,217

 
$
1,319,000

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.

16

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

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 7,985 claims pending at June 30, 2014 , 104 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
 
76
 
15
 
13
 
28
 
56
 
20
 
95
 
8
 
1
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 $6.7 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.
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.
13 . 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 – Permanent blind bolts, temporary fasteners, highly engineered specialty fasteners and other precision machined parts used in the commercial, business and military aerospace industries and military munitions components for the defense industry.

17

Table of Contents

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

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.
Segment activity is as follows:
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2014
 
2013
 
2014
 
2013
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
 
Packaging
 
$
86,250

 
$
78,640

 
$
167,680

 
$
152,990

Energy
 
52,320

 
58,820

 
105,100

 
113,740

Aerospace & Defense
 
32,800

 
23,740

 
62,340

 
44,710

Engineered Components
 
54,320

 
50,020

 
109,750

 
96,290

Cequent APEA
 
43,800

 
38,290

 
83,270

 
70,380

Cequent Americas
 
134,490

 
128,520

 
243,580

 
237,700

Total
 
$
403,980

 
$
378,030

 
$
771,720

 
$
715,810

Operating Profit (Loss)
 
 
 
 
 
 
 
 
Packaging
 
$
20,540

 
$
19,600

 
$
38,900

 
$
34,230

Energy
 
(630
)
 
5,210

 
1,970

 
11,080

Aerospace & Defense
 
5,290

 
5,520

 
10,470

 
9,270

Engineered Components
 
8,950

 
5,890

 
16,830

 
11,590

Cequent APEA
 
2,220

 
2,550

 
4,720

 
5,730

Cequent Americas
 
16,940

 
12,890

 
22,650

 
13,590

Corporate expenses
 
(9,270
)
 
(10,020
)
 
(18,910
)
 
(20,110
)
Total
 
$
44,040

 
$
41,640

 
$
76,630

 
$
65,380

14 . Equity Awards
The Company maintains the following long-term equity incentive plans: the TriMas Corporation Director Retainer Share Election Program, 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.

18

Table of Contents

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

Stock Options
The Company did not grant any stock options during the six months ended June 30, 2014 . Information related to stock options at June 30, 2014 is as follows:
 
 
Number of
Stock Options
 
Weighted Average Option Price
 
Average  Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Outstanding at January 1, 2014
 
342,448

 
$
9.92

 

 

  Exercised
 
(73,407
)
 
21.53

 

 

  Cancelled
 

 

 

 

  Expired
 

 

 
 
 
 
Outstanding at June 30, 2014
 
269,041

 
$
6.75

 
4.1
 
$
8,441,233

During the six months ended June 30, 2014 , 800 stock options vested, with all 269,041 outstanding options being exercisable under the Plans as of June 30, 2014 . The Company did not incur significant stock-based compensation expense related to stock options during the six months ended June 30, 2014 and 2013 .
Restricted Shares
During the six months ended June 30, 2014 , the Company issued 4,225 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 2014 . First, the Company granted 23,226 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 40,837 restr icted shares of co mmon stock to certain employees during the first quarter of 2014 . 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 243,124 r estricted shares of common stock to certain Company key employees during the first quarter of 2014 . 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, 2014 and ending on December 31, 2016. 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 three-year average return on invested capital ("ROIC"). ROIC is defined as the Company's after-tax operating profit, as publicly reported by the Company, plus or minus special items that may occur from time-to-time, divided by the Company's last five-quarter average of invested capital. Invested capital is comprised of the Company's long-term debt plus shareholders' equity plus non-controlling interest, less cash held. 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 ROIC 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 20,832 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 their service prior to the vesting date.

19

Table of Contents

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

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. For the 40% of shares subject to the 2012-2013 EPS CAGR metric, the performance conditions were satisfied, resulting in an attainment level of 125% of target. This resulted in an additional 16,054 shares granted during the first quarter of 2014.
Information related to restricted shares at June 30, 2014 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, 2014
 
654,400

 
$
26.00

 

 

  Granted
 
348,298

 
33.30

 

 

  Vested
 
(246,543
)
 
25.95

 

 

  Cancelled
 
(9,759
)
 
27.97

 

 

Outstanding at June 30, 2014
 
746,396

 
$
29.40

 
1.4
 
$
28,460,079

As of June 30, 2014 , there was approximately $13.1 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a weighted-average period of 2.2 years.
The Company recognized approximately $2.1 million of stock-based compensation expense related to restricted shares during the three months ended June 30, 2014 and 2013 , respectively, and approximately $4.4 million and $4.8 million for the six months ended June 30, 2014 and 2013 , respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of income.
15 . 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 185,255 and 286,279 restricted shares for the three months ended June 30, 2014 and 2013 , respectively, and 222,486 and 273,563 restricted shares for the six months ended June 30, 2014 and 2013 , respectively. The calculation of diluted earnings per share also included options to purchase 144,517 and 174,843 shares of common stock for the three months ended June 30, 2014 and 2013 , respectively, and 151,160 and 186,661 shares of common stock for the six months ended June 30, 2014 and 2013 , respectively.

20

Table of Contents

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

16 . 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 six months ended June 30, 2014 and 2013 are as follows:
 
 
Pension Plans
 
Other Postretirement Benefits
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
 
(dollars in thousands)
Service costs
 
$
190

 
$
170

 
$
380

 
$
350

 
$

 
$

 
$

 
$

Interest costs
 
440

 
410

 
880

 
820

 
10

 
10

 
20

 
20

Expected return on plan assets
 
(520
)
 
(460
)
 
(1,040
)
 
(920
)
 

 

 

 

Amortization of prior service cost
 
10

 
10

 
10

 
10

 

 

 

 

Amortization of net (gain)/loss
 
280

 
320

 
560

 
640

 
(30
)
 
(20
)
 
(50
)
 
(40
)
Net periodic benefit cost
 
$
400

 
$
450

 
$
790

 
$
900

 
$
(20
)
 
$
(10
)
 
$
(30
)
 
$
(20
)
The Company contributed approximately $0.5 million and $1.0 million to its defined benefit pension plans during the three and six months ended June 30, 2014 , respectively. The Company expects to contribute approximately $2.3 million to its defined benefit pension plans for the full year 2014 .

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

17 . Other Comprehensive Income
Changes in AOCI by component for the six months ended June 30, 2014 are summarized as follows:
 
 
Defined Benefit Plans
 
 Derivative Instruments
 
Foreign Currency Translation
 
Total
 
 
(dollars in thousands)
Balance, December 31, 2013
 
$
(10,840
)
 
$
1,060

 
$
37,610

 
$
27,830

Net unrealized gains (losses) arising during the period
 

 
(300
)
 
4,860

 
4,560

Less: Net realized (losses) reclassified to net income (a)
 
(350
)
 
(80
)
 

 
(430
)
Net current-period change
 
350

 
(220
)
 
4,860

 
4,990

Balance, June 30, 2014
 
$
(10,490
)
 
$
840

 
$
42,470

 
$
32,820

__________________________
(a) Defined benefit plans, net of income tax of $0.2 million . See Note 16 , " Defined Benefit Plans ," for additional details. Derivative instruments, net of income tax of $0.2 million . See Note 11 , " Derivative Instruments ," for further details.
Changes in AOCI by component for the six months ended June 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
 
390

 
4,380

 
(10,610
)
 
(5,840
)
Less: Net realized (losses) reclassified to net income (a)
 

 
(370
)
 

 
(370
)
Net current-period change
 
390

 
4,750

 
(10,610
)
 
(5,470
)
Balance, June 30, 2013
 
$
(12,050
)
 
$
3,070

 
$
42,770

 
$
33,790

__________________________
(a) Derivative instruments, net of income tax of $0.2 million . See Note 11 , " Derivative Instrument s," for additional details.
18 . Subsequent Events
In July 2014, the Company acquired the stock of Lion Holdings Pvt. Ltd. ("Lion Holdings") for the cash purchase price of approximately $27 million . The purchase price remains subject to the finalization of a net working capital adjustment, if any. Lion Holdings, with locations in India and Vietnam, specializes in the manufacture of highly engineered dispensing solutions and generated approximately $10 million in revenue for the twelve months ended June 30, 2014.




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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, 2013.
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. Global economic conditions, while remaining a bit choppy, have stabilized over the past 18 to 24 months, albeit with little or no overall economic growth, particularly in the United States. Based on the implementation of our organic and acquisition growth strategies, we have generated higher year-over-year net sales levels in five of our six reportable segments, with the exception being our Energy reportable segment. After strong demand in our Energy reportable segment in the first half of 2013, principally in the United States from engineering and construction customers, demand in the back half of 2013 and into the first half of 2014 has significantly declined, both in the United States and abroad, as petrochemical plants and refinery customers continue to defer shutdown activity combined with decreases in engineering and construction and original equipment manufacturers ("OEMs")customer activity. Given the reduced demand and resulting profitability challenges, we announced the closure of a sales branch in China and a manufacturing facility in Brazil during the second quarter of 2014, and may need to evaluate further actions should this negative trend continue.
Over the past few years, we have executed on our growth strategies via bolt-on acquisitions (ten in 2013) and geographic expansion within our existing platforms in each of our 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 have significantly contributed to increased net sales levels over this time period, our earnings margins over the period of execution have declined from historical levels, primarily due to the incurrence of duplicate move, acquisition diligence and integration costs, resulting from the acquisition of businesses with historically lower margins than our legacy businesses and due to increasing business in new markets to TriMas, where we make pricing decisions to penetrate new markets and do not yet have volume leverage. While these endeavors have significantly impacted margins, we believe that the margins in these businesses will moderate to historical levels over time (and have in Packaging, for example, where the Innovative Molding and Arminak & Associates acquisitions have been integrated) as we integrate them into our businesses and capitalize on productivity initiatives and volume efficiencies.
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 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 few 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 June 30, 2014 and 2013 :
 
Three months ended June 30,
 
2014
 
As a Percentage
of Net Sales
 
2013
 
As a Percentage
of Net Sales
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
Packaging
$
86,250

 
21.4
 %
 
$
78,640

 
20.8
%
Energy
52,320

 
13.0
 %
 
58,820

 
15.6
%
Aerospace & Defense
32,800

 
8.1
 %
 
23,740

 
6.3
%
Engineered Components
54,320

 
13.4
 %
 
50,020

 
13.2
%
Cequent APEA
43,800

 
10.8
 %
 
38,290

 
10.1
%
Cequent Americas
134,490

 
33.3
 %
 
128,520

 
34.0
%
Total
$
403,980

 
100.0
 %
 
$
378,030

 
100.0
%
Gross Profit
 
 
 
 
 
 
 
Packaging
$
30,450

 
35.3
 %
 
$
29,220

 
37.2
%
Energy
10,280

 
19.6
 %
 
15,510

 
26.4
%
Aerospace & Defense
9,800

 
29.9
 %
 
8,480

 
35.7
%
Engineered Components
12,570

 
23.1
 %
 
9,090

 
18.2
%
Cequent APEA
8,180

 
18.7
 %
 
7,910

 
20.7
%
Cequent Americas
38,480

 
28.6
 %
 
33,100

 
25.8
%
Total
$
109,760

 
27.2
 %
 
$
103,310

 
27.3
%
Selling, General and Administrative Expenses
 
 
 
 
 
 
 
Packaging
$
9,910

 
11.5
 %
 
$
9,620

 
12.2
%
Energy
10,910

 
20.9
 %
 
10,300

 
17.5
%
Aerospace & Defense
4,510

 
13.8
 %
 
2,960

 
12.5
%
Engineered Components
3,620