TriMas Corporation
TRIMAS CORP (Form: 10-Q, Received: 10/29/2015 16:07:16)
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, 2015

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 October 26, 2015 , the number of outstanding shares of the Registrant's common stock, $0.01 par value, was 45,282,253 shares.


Table of Contents

TriMas Corporation
Index
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1

Table of Contents

Forward-Looking Statements
This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 about our financial condition, results of operations and business. These forward-looking statements can be identified by the use of forward-looking words, such as “may,” “could,” “should,” “estimate,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “target,” “plan” or other comparable words, or by discussions of strategy that may involve risks and uncertainties.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties which could materially affect our business, financial condition or future results including, but not limited to, risks and uncertainties with respect to: the Company's leverage; liabilities imposed by the Company's debt instruments; market demand; competitive factors; supply constraints; material and energy costs; risks and uncertainties associated with intangible assets, including goodwill or other intangible asset impairment charges; technology factors; litigation; government and regulatory actions; the Company's accounting policies; future trends; general economic and currency conditions; various conditions specific to the Company's business and industry; the Company’s ability to integrate Allfast and attain the expected synergies, including that the acquisition is accretive; the Company’s ability to attain the Financial Improvement Plan targeted savings and free cash flow amounts; future prospects of the Company; and other risks that are discussed in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2014. The risks described in our Annual Report on Form 10-K and elsewhere in this report 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.
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 caution readers not to place undue reliance on the statements, which speak only as of the date of this report. 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.
We disclose important factors that could cause our actual results to differ materially from our expectations implied by our forward-looking statements 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
(Dollars in thousands)


 
September 30,
2015

December 31,
2014
Assets
 
(unaudited)
 

Current assets:
 

 

Cash and cash equivalents
 
$
22,460


$
24,420

Receivables, net of reserves of approximately $3.5 million and $2.2 million as of September 30, 2015 and December 31, 2014, respectively
 
144,600


132,800

Inventories
 
176,410


171,260

Deferred income taxes
 
24,030


24,030

Prepaid expenses and other current assets
 
12,550


8,690

Current assets, discontinued operations
 

 
197,420

Total current assets
 
380,050

 
558,620

Property and equipment, net
 
174,320


177,470

Goodwill
 
455,430


460,080

Other intangibles, net
 
281,230


297,420

Other assets
 
21,930


27,960

Non-current assets, discontinued operations
 

 
140,200

Total assets
 
$
1,312,960

 
$
1,661,750

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Current maturities, long-term debt
 
$
13,860


$
23,400

Accounts payable
 
84,060


103,510

Accrued liabilities
 
61,870


63,110

Current liabilities, discontinued operations
 

 
119,900

Total current liabilities
 
159,790

 
309,920

Long-term debt
 
445,560


615,170

Deferred income taxes
 
42,350


46,320

Other long-term liabilities
 
57,400


64,450

Non-current liabilities, discontinued operations
 

 
35,260

Total liabilities
 
705,100

 
1,071,120

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: 45,282,876 shares at September 30, 2015 and 45,280,385 shares at December 31, 2014
 
450

 
450

Paid-in capital
 
810,200

 
806,810

Accumulated deficit
 
(193,320
)
 
(226,850
)
Accumulated other comprehensive income (loss)
 
(9,470
)
 
10,220

Total shareholders' equity
 
607,860

 
590,630

Total liabilities and shareholders' equity
 
$
1,312,960

 
$
1,661,750



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

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Table of Contents

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,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
222,190

 
$
222,330

 
$
671,220

 
$
663,870

Cost of sales
 
(159,720
)
 
(162,460
)
 
(484,110
)
 
(480,800
)
Gross profit
 
62,470

 
59,870

 
187,110

 
183,070

Selling, general and administrative expenses
 
(40,910
)
 
(39,350
)
 
(123,320
)
 
(113,070
)
Operating profit
 
21,560

 
20,520

 
63,790

 
70,000

Other expense, net:
 
 
 
 
 
 
 
 
Interest expense
 
(3,440
)
 
(2,080
)
 
(10,610
)
 
(6,310
)
Debt financing and extinguishment costs
 

 

 
(1,970
)
 

Other expense, net
 
(720
)
 
(1,730
)
 
(2,330
)
 
(3,450
)
Other expense, net
 
(4,160
)
 
(3,810
)
 
(14,910
)
 
(9,760
)
Income from continuing operations before income tax expense
 
17,400

 
16,710

 
48,880

 
60,240

Income tax expense
 
(5,690
)
 
(5,620
)
 
(16,740
)
 
(21,020
)
Income from continuing operations
 
11,710

 
11,090

 
32,140

 
39,220

Income (loss) from discontinued operations, net of tax
 

 
11,140

 
(4,740
)
 
28,590

Net income
 
11,710

 
22,230

 
27,400

 
67,810

Less: Net income attributable to noncontrolling interests
 

 

 

 
810

Net income attributable to TriMas Corporation
 
$
11,710

 
$
22,230

 
$
27,400

 
$
67,000

Basic earnings per share attributable to TriMas Corporation:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.26

 
$
0.24

 
$
0.71

 
$
0.85

Discontinued operations
 

 
0.25

 
(0.10
)
 
0.64

Net income per share
 
$
0.26

 
$
0.49

 
$
0.61

 
$
1.49

Weighted average common shares—basic
 
45,157,412

 
44,919,340

 
45,102,067

 
44,863,008

Diluted earnings per share attributable to TriMas Corporation:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.26

 
$
0.24

 
$
0.70

 
$
0.85

Discontinued operations
 

 
0.25

 
(0.10
)
 
0.63

Net income per share
 
$
0.26

 
$
0.49

 
$
0.60

 
$
1.48

Weighted average common shares—diluted
 
45,499,104

 
45,276,199

 
45,439,618

 
45,231,058



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,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
11,710

 
$
22,230

 
$
27,400

 
$
67,810

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Defined benefit pension and postretirement plans (Note 14)
 
200

 
180

 
2,930

 
530

Foreign currency translation
 
(4,760
)
 
(10,620
)
 
(10,420
)
 
(5,760
)
Derivative instruments (Note 9)
 
(3,180
)
 
250

 
(3,890
)
 
30

Total other comprehensive loss
 
(7,740
)
 
(10,190
)
 
(11,380
)
 
(5,200
)
Total comprehensive income
 
3,970

 
12,040

 
16,020

 
62,610

Less: Net income attributable to noncontrolling interests
 

 

 

 
810

Total comprehensive income attributable to TriMas Corporation
 
$
3,970

 
$
12,040

 
$
16,020

 
$
61,800



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)
 
 
Nine months ended September 30,
 
 
2015
 
2014
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
27,400

 
$
67,810

Income (loss) from discontinued operations
 
(4,740
)
 
28,590

Income from continuing operations
 
32,140

 
39,220

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

 

Loss on dispositions of property and equipment
 
590

 
430

Depreciation
 
16,430

 
15,350

Amortization of intangible assets
 
15,790

 
10,900

Amortization of debt issue costs
 
1,360

 
1,430

Deferred income taxes
 
(4,220
)
 
(7,120
)
Non-cash compensation expense
 
4,590

 
6,450

Excess tax benefits from stock based compensation
 
(300
)
 
(1,100
)
Debt financing and extinguishment costs
 
1,970

 

Increase in receivables
 
(15,790
)
 
(24,610
)
Increase in inventories
 
(7,010
)
 
(1,970
)
(Increase) decrease in prepaid expenses and other assets
 
(1,020
)
 
1,320

Increase (decrease) in accounts payable and accrued liabilities
 
(15,540
)
 
11,970

Other, net
 
(250
)
 
370

Net cash provided by operating activities of continuing operations, net of acquisition impact
 
28,740

 
52,640

Net cash provided by (used for) operating activities of discontinued operations
 
(14,030
)
 
12,260

Net cash provided by operating activities, net of acquisition impact
 
14,710

 
64,900

Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(20,360
)
 
(18,320
)
Acquisition of businesses, net of cash acquired
 

 
(27,510
)
Net proceeds from disposition of property and equipment
 
1,680

 
50

Net cash used for investing activities of continuing operations
 
(18,680
)
 
(45,780
)
Net cash used for investing activities of discontinued operations
 
(2,510
)
 
(2,510
)
Net cash used for investing activities
 
(21,190
)
 
(48,290
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from borrowings on term loan facilities
 
275,000

 

Repayments of borrowings on term loan facilities
 
(441,410
)
 
(6,660
)
Proceeds from borrowings on revolving credit and accounts receivable facilities
 
995,620

 
732,480

Repayments of borrowings on revolving credit and accounts receivable facilities
 
(1,006,490
)
 
(687,520
)
Payments for deferred purchase price
 
(5,810
)
 

Debt financing fees
 
(1,850
)
 

Distributions to noncontrolling interests
 

 
(580
)
Payment for noncontrolling interests
 

 
(51,000
)
Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations
 
(2,620
)
 
(2,780
)
Proceeds from exercise of stock options
 
430

 
480

Excess tax benefits from stock based compensation
 
300

 
1,100

Cash transferred to the Cequent businesses
 
(17,050
)
 

Net cash used for financing activities of continuing operations
 
(203,880
)
 
(14,480
)
Net cash provided by financing activities of discontinued operations
 
208,400

 
940

Net cash provided by (used for) financing activities
 
4,520

 
(13,540
)
Cash and Cash Equivalents:
 

 

Net increase (decrease) for the period
 
(1,960
)
 
3,070

At beginning of period
 
24,420

 
27,000

At end of period
 
$
22,460

 
$
30,070

Supplemental disclosure of cash flow information:
 

 

Cash paid for interest
 
$
12,320

 
$
7,960

Cash paid for taxes
 
$
22,260

 
$
25,610

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, 2015
(Unaudited—dollars in thousands)

 
 
Common
Stock
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Balances, December 31, 2014
 
$
450

 
$
806,810

 
$
(226,850
)
 
$
10,220

 
$
590,630

Net income attributable to TriMas Corporation
 

 

 
27,400

 

 
27,400

Other comprehensive loss
 

 

 

 
(11,380
)
 
(11,380
)
Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations
 

 
(2,620
)
 

 

 
(2,620
)
Stock option exercises and restricted stock vestings
 

 
430

 

 

 
430

Excess tax benefits from stock based compensation
 

 
300

 

 

 
300

Non-cash compensation expense
 

 
5,280

 

 

 
5,280

Distribution of the Cequent businesses
 

 

 
6,130

 
(8,310
)
 
(2,180
)
Balances, September 30, 2015
 
$
450

 
$
810,200

 
$
(193,320
)
 
$
(9,470
)
 
$
607,860



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, Aerospace, Energy and Engineered Components. See Note  11 , " Segment Information ," for further information on each of the Company's reportable segments.
On June 30, 2015, the Company completed the previously announced spin-off of its Cequent businesses, creating a new independent publicly traded company, Horizon Global Corporation ("Horizon"). In addition, on June 30, 2015, immediately prior to the effective time of the spin-off, Horizon paid a cash distribution to the Company of $214.5 million using the proceeds of its new debt financing arrangement and cash on hand.
Consistent with previous estimates, the Company incurred approximately $30 million of one-time, pre-tax costs associated with the spin-off, of which approximately $29 million was incurred during 2015. These costs primarily related to financing, legal, tax and accounting services rendered by third parties. Of the $30 million in costs, approximately $18 million was included in income (loss) from discontinued operations, $9 million was capitalized as deferred financing fees associated with Horizon's debt issuance coincident with the spin-off and was included in the balance sheet of the discontinued operations and approximately $3 million relates to fees associated with the Company's refinancing of long-term debt, of which approximately $2 million was included in income from continuing operations as debt financing and extinguishment costs and approximately $1 million was capitalized as deferred financing fees in the accompanying consolidated balance sheet.
The financial position, results of operations and cash flows of the Cequent businesses are reflected as discontinued operations for all periods presented through the date of the spin-off. See Note 3 , " Discontinued Operations ," for further details regarding the spin-off.
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 2014 Annual Report on Form 10-K.
2 . New Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for Measurement - Period Adjustments" ("ASU 2015-16"). ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date must be recorded in the reporting period in which the adjustment amounts are determined rather than retrospectively. Additionally, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. The Company is in the process of assessing the impact of the adoption of ASU 2015-16 on its consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory" ("ASU 2015-11"). ASU 2015-11 requires an entity to measure inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and is to be applied prospectively with early adoption permitted. The Company is in the process of assessing the impact of adoption of ASU 2015-11 on its consolidated financial statements.

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Table of Contents

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

In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU 2015-15, "Interest - Imputation of Interest (Subtopic 835-30) - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements," which clarifies ASU 2015-03 by stating that the staff of the Securities and Exchange Commission ("SEC") would not object to an entity deferring and presenting debt issuance costs associated with line-of-credit arrangements as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 is currently effective for fiscal years, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. The Company is in the process of assessing the impact of the adoption of ASU 2015-03 on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 requires that an entity recognize 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 2014-09 was originally effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" ("ASU 2015-14"), which defers ASU 2014-09 by one year, making it effective for annual reporting periods beginning on or after December 15, 2017 while also providing for early adoption, but not before the original effective date. The Company is in the process of assessing the impact of the adoption of ASU 2014-09 on its consolidated financial statements.
3 . Discontinued Operations
Spin-off of the Cequent businesses
On June 30, 2015, the Company completed the previously announced spin-off of its Cequent businesses (comprised of the former Cequent Americas and Cequent Asia Pacific Europe Africa ("Cequent APEA") reportable segments), creating a new independent publicly traded company, Horizon, through the distribution of 100% of the Company's interest in Horizon to holders of the Company's common stock. On June 30, 2015, each of the Company's shareholders of record as of the close of business on the record date of June 25, 2015 received two shares of Horizon common stock for every five shares of TriMas common stock held. In addition, on June 30, 2015, immediately prior to the effective time of the spin-off, Horizon entered into a new debt financing arrangement and used the proceeds to make a cash distribution of $214.5 million to the Company.
The Cequent businesses are presented as discontinued operations in the Company's consolidated balance sheet, the consolidated statements of income and cash flows for all periods presented.

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

The carrying value of the assets and liabilities immediately preceding the spin-off of the Cequent businesses on June 30, 2015, and as of December 31, 2014 were as follows:
 
 
Immediately preceding the spin-off on June 30, 2015
 
December 31,
2014
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
17,050

 
$

Receivables, net
 
92,750

 
63,520

Inventories
 
125,750

 
123,370

Deferred income taxes
 
4,840

 
4,840

Prepaid expenses and other current assets
 
6,520

 
5,690

Total current assets
 
246,910

 
197,420

Property and equipment, net
 
$
48,870

 
$
55,180

Goodwill
 
5,630

 
6,580

Other intangibles, net
 
61,400

 
66,510

Other assets
 
15,910

 
11,930

Total assets
 
$
378,720

 
$
337,620

Liabilities
 
 
 
 
Current liabilities:
 
 
 
 
Current maturities, long-term debt
 
$
17,940

 
$
460

Accounts payable
 
81,830

 
81,500

Accrued liabilities
 
44,190

 
37,940

Total current liabilities
 
143,960

 
119,900

Long-term debt
 
195,460

 
300

Deferred income taxes
 
9,220

 
8,970

Other long-term liabilities
 
27,900

 
25,990

Total liabilities
 
$
376,540

 
$
155,160

Following the spin-off, there were no assets or liabilities remaining from the Cequent operations.

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Table of Contents

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


Results of discontinued operations, including the discontinued Cequent businesses and NI Industries, are summarized as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2014
 
2015
 
2014
 
 
(dollars in thousands)
Net sales
 
$
157,870

 
$
300,900

 
$
488,050

Cost of sales
 
(119,700
)
 
(227,860
)
 
(366,740
)
Gross profit
 
38,170

 
73,040

 
121,310

Selling, general and administrative expenses
 
(27,100
)
 
(72,360
)
 
(83,090
)
Operating profit
 
11,070

 
680

 
38,220

Interest expense
 
(1,280
)
 
(2,540
)
 
(3,960
)
Other expense, net
 
6,080

 
(1,970
)
 
4,870

Other expense, net
 
4,800

 
(4,510
)
 
910

Income (loss) from discontinued operations, before income taxes
 
15,870

 
(3,830
)
 
39,130

Income tax expense
 
(4,730
)
 
(910
)
 
(10,540
)
Income (loss) from discontinued operations, net of tax
 
$
11,140

 
$
(4,740
)
 
$
28,590

NI Industries
During the third quarter of 2014, the Company ceased operations of its former NI Industries business, which manufactured cartridge cases for the defense industry and was party to a U.S. Government facility maintenance contract. During the three months ended September 30, 2014, the Company received approximately $6.7 million for the sale of certain intellectual property and related inventory and tooling. Net sales for NI Industries were approximately $0.1 million and $3.4 million for the three months and nine months ended September 30, 2014 , respectively, and net income was approximately $3.8 million for both the three months and nine months ended September 30, 2014 . There were no net sales or net income (loss) for NI Industries during the three or nine months ended September 30, 2015 .
4. Acquisitions
In July 2014, the Company completed the acquisition of Lion Holdings PVT. Ltd. ("Lion Holdings") within the Company's Packaging reportable segment for the amount of approximately $27.5 million , net of cash acquired. Located in both India and Vietnam, Lion Holdings specializes in the manufacture of highly engineered dispensing solutions and generated approximately $10 million in revenue for the twelve months ended June 30, 2014.
5 . Goodwill and Other Intangible Assets
In connection with the Company’s reporting, forecasting and analysis of the results of operations during the third quarter of 2015, the Company determined that there were indicators of a decline in fair value of the Company’s Energy and engine products reporting units due to a significant decline in profitability levels, which also may indicate a potential impairment of the recorded goodwill and/or indefinite-lived intangible assets. In addition, the Company’s stock price and resulting market capitalization declined approximately 30% during the third quarter of 2015, which management believes is partially due to the decline in profitability of the aforementioned two reporting units. The Company considers the reduction in total Company market capitalization, which is a significant input to estimated total Company fair value, as an indicator that the fair value of the Energy and engine products reporting units, and/or other reporting units, may be less than the carrying value.

11

Table of Contents

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

In September 2015, the Company announced a broadly-focused financial improvement plan, to be implemented over the next few quarters and expected to result in improved operational efficiencies, profitability, and cash flow. The plan includes significant cost savings actions within the Energy and engine products reporting units, the impact of which the Company is evaluating in connection with an estimate of fair value.
Given this fact pattern and indicators of potential impairment, the Company determined it would perform an impairment analysis of each of the Company’s reporting units and indefinite-lived trademarks/tradenames, along with a comparison of the estimated aggregate fair value of all reporting units to the Company’s market capitalization.  As the financial improvement plan was not announced until mid-September and is an important input to the estimation of the fair value of Company’s reporting units, and the market capitalization continued to be volatile throughout August and September, there was inadequate time within the third quarter to complete the impairment analysis.  The Company expects to complete the testing during the fourth quarter of 2015.  

Changes in the carrying amount of goodwill for the nine months ended September 30, 2015 are summarized as follows:
 
Packaging
 
Aerospace
 
Energy
 
Engineered Components
 
Total
 
(dollars in thousands)
Balance, December 31, 2014
$
169,350

 
$
210,130

 
$
73,180

 
$
7,420

 
$
460,080

Foreign currency translation and other
(2,560
)
 

 
(2,090
)
 

 
(4,650
)
Balance, September 30, 2015
$
166,790

 
$
210,130

 
$
71,090

 
$
7,420

 
$
455,430

The gross carrying amounts and accumulated amortization of the Company's other intangibles as of September 30, 2015 and December 31, 2014 are summarized below. The Company amortizes these assets over periods ranging from one to 30  years.
 
 
As of September 30, 2015
 
As of December 31, 2014
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
 
$
74,970

 
$
(24,020
)
 
$
75,300

 
$
(18,180
)
   Customer relationships, 15 – 25 years
 
132,230

 
(36,330
)
 
132,230

 
(31,140
)
Total customer relationships
 
207,200

 
(60,350
)
 
207,530

 
(49,320
)
   Technology and other, 1 – 15 years
 
57,870

 
(21,800
)
 
58,040

 
(18,750
)
   Technology and other, 17 – 30 years
 
43,310

 
(28,730
)
 
43,300

 
(27,150
)
Total technology and other
 
101,180

 
(50,530
)
 
101,340

 
(45,900
)
Indefinite-lived intangible assets:
 

 

 

 

 Trademark/Trade names
 
83,730

 

 
83,770

 

Total other intangible assets
 
$
392,110

 
$
(110,880
)
 
$
392,640

 
$
(95,220
)
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,
 
 
2015
 
2014
 
2015
 
2014
 
 
(dollars in thousands)
Technology and other, included in cost of sales
 
$
1,480

 
$
1,150

 
$
4,560

 
$
3,450

Customer relationships, included in selling, general and administrative expenses
 
3,730

 
2,570

 
11,230

 
7,450

Total amortization expense
 
$
5,210

 
$
3,720

 
$
15,790

 
$
10,900


12

Table of Contents

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

6 . Inventories
Inventories consist of the following components:
 
 
September 30,
2015
 
December 31,
2014
 
 
(dollars in thousands)
Finished goods
 
$
106,020

 
$
104,760

Work in process
 
23,030

 
24,300

Raw materials
 
47,360

 
42,200

Total inventories
 
$
176,410

 
$
171,260

7 . Property and Equipment, Net
Property and equipment consists of the following components:
 
 
September 30,
2015
 
December 31,
2014
 
 
(dollars in thousands)
Land and land improvements
 
$
13,890

 
$
14,710

Buildings
 
63,310

 
60,570

Machinery and equipment
 
269,110

 
262,670

 
 
346,310

 
337,950

Less: Accumulated depreciation
 
171,990

 
160,480

Property and equipment, net
 
$
174,320

 
$
177,470

Depreciation expense as included in the accompanying consolidated statement of income is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(dollars in thousands)
Depreciation expense, included in cost of sales
 
$
4,950

 
$
4,330

 
$
14,330

 
$
13,160

Depreciation expense, included in selling, general and administrative expense
 
650

 
640

 
2,100

 
2,190

Total depreciation expense
 
$
5,600

 
$
4,970

 
$
16,430

 
$
15,350

8 . Long-term Debt
The Company's long-term debt consists of the following:
 
 
September 30,
2015
 
December 31,
2014
 
 
(dollars in thousands)
Credit Agreement
 
$
390,120

 
$
559,530

Receivables facility and other
 
69,300

 
79,040

 
 
459,420

 
638,570

Less: Current maturities, long-term debt
 
13,860

 
23,400

Long-term debt
 
$
445,560

 
$
615,170


13

Table of Contents

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

Credit Agreement
During the second quarter of 2015, the Company amended its credit agreement (the "Credit Agreement"), pursuant to which the Company was able to extend maturities and resize its credit facilities following the spin-off of the Cequent businesses. The cash distribution to the Company from Horizon was used to reduce the outstanding borrowings under the previous credit agreement. The Credit Agreement consists of a $500.0 million senior secured revolving credit facility, which permits borrowings denominated in specific foreign currencies ("Foreign Currency Loans"), subject to a $75.0 million sub limit, which matures on June 30, 2020 and is subject to interest at London Interbank Offered Rates ("LIBOR") plus 1.75%, and a $275.0 million senior secured term loan A facility ("Term Loan A Facility"), which matures on June 30, 2020 and is subject to interest at LIBOR plus 1.75%. The interest rate spread is based upon the leverage ratio, as defined, as of the most recent determination date.
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.
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. As of September 30, 2015 , no amounts are due under this provision.
The Company is also able to issue letters of credit, not to exceed $40.0 million in aggregate, against its revolving credit facility commitments. At September 30, 2015 and December 31, 2014 , the Company had letters of credit of approximately $22.4 million and $21.9 million , respectively, issued and outstanding.
At September 30, 2015 , the Company had approximately $115.1 million outstanding under its revolving credit facility and had $362.5 million potentially available after giving effect to approximately $22.4 million of letters of credit issued and outstanding. At December 31, 2014 , the Company had approximately $118.1 million outstanding under its revolving credit facility and had $435.0 million potentially available after giving effect to approximately $21.9 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 $107.3 million and $192.0 million at September 30, 2015 and December 31, 2014 , respectively, of borrowing capacity available for general corporate purposes.
Principal payments required under the Credit Agreement for the Term Loan A Facility are approximately $3.4 million due each fiscal quarter from December 2015 through September 2018 and approximately $5.2 million due each fiscal quarter from December 2018 through March 2020, with final payment of $202.8 million due on June 30, 2020.
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 $500.0 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 the 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 September 30, 2015 , the Company was in compliance with its financial covenants contained in the Credit Agreement.

14

Table of Contents

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

The Company incurred approximately $1.8 million in fees to complete the amendment of the Credit Agreement, of which approximately $1.4 million was capitalized as deferred financing fees and $0.4 million was recorded as debt financing fees in the accompanying consolidated statement of income during the nine months ended September 30, 2015. The Company also recorded non-cash debt extinguishment costs of $1.5 million related to the write-off of deferred financing fees associated with the previous credit facilities.
As of September 30, 2015 and December 31, 2014 , the Company's Term Loan A Facility traded at approximately 95.5% and 99.5% of par value and the Company's revolving credit facility traded at approximately 94.2% and 99.2% of par value, respectively. The valuations of the Credit Agreement 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. During the second quarter of 2015, the Company amended the facility to remove the Cequent businesses and to reduce the committed funding from $105.0 million to $75.0 million , with no other significant changes to the facility.
Under this facility, TSPC, from time to time, may sell an undivided fractional ownership interest in the pool of receivables up to approximately $75.0 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 1.00% and 1.15% as of September 30, 2015 and 2014 , respectively, and a fee on the unused portion of the facility of 0.35% as of September 30, 2015 and 2014 .
The Company had approximately $69.0 million and $78.7 million outstanding under the facility as of September 30, 2015 and December 31, 2014 , respectively. No amounts were available but not utilized as of September 30, 2015 . As of December 31, 2014 , approximately $1.6 million was available but not utilized. Aggregate costs incurred under the facility were approximately $0.2 million and $0.3 million for the three months ended September 30, 2015 and 2014 , respectively, and $0.7 million and $1.0 million for the nine months ended September 30, 2015 and 2014 , respectively, and are included in interest expense in the accompanying consolidated statement of income. The facility expires on October 16, 2018 .
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 agreement. As of September 30, 2015 , 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 1.8% .

15

Table of Contents

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

9 . Derivative Instruments
The Company utilizes interest rate swap agreements to fix the LIBOR-based variable portion of the interest rate on its long term debt. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. As of September 30, 2015 , the Company had interest rate swap agreements in place that hedge a notional value of debt ranging from approximately $251.5 million to approximately $192.7 million and amortize consistent with future debt principal payments. The interest rate swap agreements establish fixed interest rates in a range of 0.74% to 2.68% with various expiration terms extending to June 30, 2020. At inception, the interest rate swaps were and continue to be designated as cash flow hedges.
As of September 30, 2015 and December 31, 2014 , the fair value carrying amount of the Company's derivative instruments are recorded as follows:
 
 
 
 
Asset / (Liability) Derivatives
 
 
Balance Sheet Caption
 
September 30,
2015
 
December 31,
2014
 
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
Interest rate swaps
 
Other assets
 
$
90

 
$
1,270

Interest rate swaps
 
Accrued liabilities
 
(510
)
 
(180
)
Interest rate swaps
 
Other long-term liabilities
 
(4,470
)
 

Total derivatives designated as hedging instruments
 
 
 
$
(4,890
)
 
$
1,090

The following table summarizes the income (loss) recognized in accumulated other comprehensive income ("AOCI"), the amounts reclassified from AOCI into earnings and the amounts recognized directly into earnings as of September 30, 2015 and December 31, 2014 , and for the three and nine months ended September 30, 2015 and 2014 :
 
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,
2015
 
As of December 31, 2014
 
Location of Loss Reclassified from AOCI into Earnings (Effective Portion)
 
2015
 
2014
 
2015
 
2014
 
(dollars in thousands)
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
(3,030
)
 
$
680

 
Interest expense
 
$
(210
)
 
$

 
$
(210
)
 
$

 
 
 
 
 
Income (loss) from discontinued operations
 
$

 
$
(240
)
 
$
(440
)
 
$
(730
)
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.

16

Table of Contents

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

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 swaps use observable inputs such as interest rate yield curves. 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, 2015 and December 31, 2014 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, 2015
Interest rate swaps
 
Recurring
 
$
(4,890
)
 
$

 
$
(4,890
)
 
$

December 31, 2014
Interest rate swaps
 
Recurring
 
$
1,090

 
$

 
$
1,090

 
$

10 . Commitments and Contingencies
Asbestos
As of September 30, 2015 , the Company was a party to 1,056 pending cases involving an aggregate of 6,297 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, 2014
 
7,975

 
210

 
155

 
38

 
$
18,734

 
$
2,800,000

Nine Months Ended September 30, 2015
 
7,992

 
221

 
1,897

 
19

 
$
10,318

 
$
2,326,180

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 6,297 claims pending at September 30, 2015 , 139 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
 
67
 
43
 
29
 
17
 
52
 
70
 
136
 
2
 
1
In addition, relatively few of the claims have reached the discovery stage and even fewer claims have gone past the discovery stage.

17

Table of Contents

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

Total settlement costs (exclusive of defense costs) for all asbestos-related cases, some of which were filed over 20 years ago, have been approximately $7.5 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.
Claims and Litigation
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.
11 . 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, using steel and plastic industrial and consumer packaging applications.
Aerospace – Permanent blind bolts, temporary fasteners, highly engineered specialty fasteners and other precision machined parts used in the commercial, business and military aerospace industries.
Energy – Metallic and non-metallic industrial sealant products and fasteners for the petroleum refining, petrochemical and other industrial markets.
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 for use at well sites for the oil and gas industry.

18

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,
 
 
2015
 
2014
 
2015
 
2014
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
 
Packaging
 
$
87,930

 
$
89,320

 
$
256,470

 
$
257,000

Aerospace
 
45,380

 
27,410

 
134,340

 
86,420

Energy
 
51,600

 
50,290

 
152,910

 
155,390

Engineered Components
 
37,280

 
55,310

 
127,500

 
165,060

Total
 
$
222,190

 
$
222,330

 
$
671,220

 
$
663,870

Operating Profit (Loss)
 
 
 
 
 
 
 
 
Packaging
 
$
21,870

 
$
20,770

 
$
60,090

 
$
59,670

Aerospace
 
7,110

 
3,870

 
22,410

 
14,390

Energy
 
(3,560
)
 
(1,100
)
 
(10,390
)
 
870

Engineered Components
 
4,380

 
8,090

 
16,570

 
24,920

Corporate expenses
 
(8,240
)
 
(11,110
)
 
(24,890
)
 
(29,850
)
Total
 
$
21,560

 
$
20,520

 
$
63,790

 
$
70,000

12 . 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.
Spin-off of the Cequent businesses
On June 30, 2015, due to the spin-off of the Cequent businesses, stock options and restricted shares previously granted to Cequent participants were cancelled and transferred to Horizon. On July 1, 2015, the Company adjusted the number of shares outstanding, and the exercise price of stock options, as required by the anti-dilution provisions of the Plans, to maintain the intrinsic value of the outstanding equity awards immediately post spin-off.

19

Table of Contents

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

Stock Options
The Company did not grant any stock option awards during the nine months ended September 30, 2015 . Information related to stock options at September 30, 2015 is as follows:
 
 
Number of
Stock Options
 
Weighted Average Option Price
 
Average  Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Outstanding at January 1, 2015 (a)
 
298,095

 
$
5.40

 

 

  Exercised
 
(40,158
)
 
10.83

 

 

  Cancelled
 
(5,769
)
 
5.95

 

 

  Expired
 
(2,961
)
 
19.42

 
 
 
 
Outstanding at September 30, 2015
 
249,207

 
$
4.35

 
2.9
 
$
3,131,237

__________________________
(a) Beginning balance and weighted average option price have been retrospectively adjusted to give effect to the distribution ratio as required per the anti-dilution provisions of the Plans, resulting in 46,428 additional shares.
As of September 30, 2015 , 249,207 stock options were exercisable under the Plans. The Company did not incur any stock-based compensation expense related to stock options during the nine months ended September 30, 2015 and 2014 .
Restricted Shares
The Company awarded the following restricted shares during the first nine months of 2015 :
granted 1,760 restricted shares of common stock to certain employees that are subject only to a service condition and vest on the first anniversary date of the award so long as the employee remains with the Company;
granted 209,825 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;
granted 42,937 restr icted shares of co mmon stock to certain employees which 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; and
granted 32,040 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.
In addition, the Company issued 6,275 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.
During the third quarter of 2015 , the Company awarded 192,348 performance-based shares of common stock to certain Company key employees which vest on March 1, 2018, so long as the employee remains with the Company. The performance criteria for these awards is based on the Company's total shareholder return ("TSR") relative to the TSR of the common stock of a pre-defined industry peer-group, measured over a period beginning September 10, 2015 and ending December 31, 2017. TSR is calculated as the Company's average closing stock price for the 20-trading days at the end of the performance period plus Company dividends, divided by the Company's average closing stock price for the 20-trading days prior to the start of the performance period. Depending on the performance achieved, the amount of shares earned can vary from 0% of the target award to a maximum of 200% of the target award. The Company estimated the grant-date fair value and term of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted-average assumptions: risk-free interest rate of 0.85% and annualized volatility of 35.8% .

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

During 2014, the Company awarded performance-based shares of common stock to certain Company key employees which were earned based upon the achievement of the Company's pre-spin earnings per share ("EPS") cumulative average growth rate ("EPS CAGR") and average return on invested capital performance metrics over a period of three calendar years, beginning January 1, 2014 and ending on December 31, 2016. In the third quarter of 2015 , this award was modified due to the Company's spin-off of the Cequent businesses. At the time of the spin-off, the performance period was 50% complete, thus the Company decided to measure attainment for the half completed, and cancel the remaining performance shares. The Company determined that the original performance metrics resulted in a 30% attainment of the target on a weighted average basis, resulting in a reduction of 35,096 shares during the third quarter of 2015 . The Company awarded new performance-based grants of 86,924 restricted shares to these key employees, with the performance criteria based upon the Company's total TSR relative to the TSR of the common stock of a pre-defined industry peer-group and measured over the period beginning September 10, 2015 and ending December 31, 2016. Depending on the performance achieved, the amount of shares earned can vary from 0% of the target award to a maximum of 200% of the target award. These awards vest on March 5, 2017, so long as the employee remains with the Company. The Company estimated the grant-date fair value and term of the awards subject to a market condition using a Monte Carlo simulation model, using the following weighted-average assumptions: risk-free interest rate of 0.50% and annualized volatility of 38.8% .
During 2013, the Company also awarded performance-based shares of common stock to certain Company key employees which were earned based upon the achievement of EPS CAGR and cash generation performance metrics over a period of three calendar years, beginning January 1, 2013 and ending on December 31, 2015. In the third quarter of 2015, this award was modified due to the spin-off of the Cequent businesses. Due to the timing of the spin-off, the Company considered the performance measurement period complete for certain employees, resulting in an attainment of 50% of the target on a weighted average basis, resulting in a reduction of 14,331 shares during the third quarter of 2015 .
During 2012 , the Company awarded performance-based shares of common stock to certain Company key employees which were earned based upon the achievement of EPS CAGR and cash generation performance metrics over a period of three calendar years, beginning January 1, 2012 and ending on December 31, 2014. The Company attained 70.25% of the target on a weighted average basis, resulting in a reduction of 28,205 shares during the first quarter of 2015 .
Information related to restricted shares at September 30, 2015 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, 2015 (a)
 
867,236

 
$
24.66

 

 

  Granted
 
572,109

 
23.55

 

 

  Vested
 
(323,779
)
 
23.87

 

 

  Cancelled
 
(319,446
)
 
25.73

 

 

Outstanding at September 30, 2015
 
796,120

 
$
23.75

 
1.2
 
$
13,016,562

__________________________
(a) Beginning balance and weighted average grant date fair value have been retrospectively adjusted to give effect to the distribution ratio as required per the anti-dilution provisions of the Plans, resulting in 141,777 additional shares.
As of September 30, 2015 , there was approximately $10.4 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a weighted-average period of 2.0 years.
The Company recognized approximately $1.7 million and $2.3 million of stock-based compensation expense related to restricted shares during the three months ended September 30, 2015 and 2014 , respectively, and approximately $4.6 million and $6.5 million for the nine months ended September 30, 2015 and 2014 , respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of income.
13 . Earnings per Share
Net income is divided by the weighted average number of common shares outstanding during the period to calculate basic earnings per share. Diluted earnings per share is calculated to give effect to stock options and restricted share awards. The calculation of diluted earnings per share included 216,642 and 220,535 restricted shares for the three months ended September 30, 2015 and 2014 , respectively, and 218,949 and 221,835 restricted shares for the nine months ended September 30, 2015 and 2014 , respectively. The calculation of diluted earnings per share also included options to purchase 125,050 and 136,324 shares of common stock for the three months ended September 30, 2015 and 2014 , respectively, and 118,602 and 146,215 shares of common stock for the nine months ended September 30, 2015 and 2014 , respectively.
14 . 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, 2015 and 2014 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,
 
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 
(dollars in thousands)
Service costs
 
$
210

 
$
190

 
$
680

 
$
570

 
$

 
$

 
$

 
$

Interest costs
 
380

 
450

 
1,210

 
1,330

 
10

 
10

 
20

 
30

Expected return on plan assets
 
(420
)
 
(510
)
 
(1,430
)
 
(1,550
)
 

 

 

 

Amortization of prior service cost
 

 

 
10

 
10

 

 

 

 

Settlement/curtailment loss
 

 

 
2,750

 

 

 

 

 

Amortization of net (gain)/loss
 
310

 
270

 
1,050

 
830

 
(10
)
 
(20
)
 
(30
)
 
(70
)
Net periodic benefit cost
 
$
480

 
$
400

 
$
4,270

 
$
1,190

 
$

 
$
(10
)
 
$
(10
)
 
$
(40
)
During the second quarter of 2015, the Company recognized a one-time settlement charge associated with annuitizing the defined benefit obligations for certain current and former Cequent employees. The settlement charge of approximately $2.8 million is included in the income (loss) from discontinued operations in the accompanying consolidated statement of income.
The Company contributed approximately $0.5 million and $3.1 million to its defined benefit pension plans during the three and nine months ended September 30, 2015 , respectively. The Company expects to contribute approximately $3.5 million to its defined benefit pension plans for the full year 2015 .

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

15 . Other Comprehensive Income (Loss)
Changes in AOCI by component for the nine months ended September 30, 2015 are summarized as follows:
 
 
Defined Benefit Plans
 
 Derivative Instruments
 
Foreign Currency Translation
 
Total
 
 
(dollars in thousands)
Balance, December 31, 2014
 
$
(14,180
)
 
$
610

 
$
23,790

 
$
10,220

Net unrealized losses arising during the period (a)
 

 
(4,720
)
 
(10,420
)
 
(15,140
)
Less: Net realized losses reclassified to net income (b), (c)
 
(2,930
)
 
(830
)
 

 
(3,760
)
Net current-period other comprehensive income (loss)
 
2,930

 
(3,890
)
 
(10,420
)
 
(11,380
)
Less: Distribution of the Cequent businesses
 

 
250

 
(8,560
)
 
(8,310
)
Balance, September 30, 2015
 
$
(11,250
)
 
$
(3,030
)
 
$
4,810

 
$
(9,470
)
__________________________
(a) Derivative instruments, net of income tax of $2.6 million . See Note 9 , " Derivative Instruments ," for further details.
(b) Defined benefit plans, net of income tax of $1.7 million . See Note 14 , " Defined Benefit Plans ," for further details.
(c) Derivative instruments, net of income tax of $0.3 million . See Note 9 , " Derivative Instruments ," for further details.
Changes in AOCI by component for the nine months ended September 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 losses arising during the period (a)
 

 
(90
)
 
(5,760
)
 
(5,850
)
Less: Net realized losses reclassified to net income (b)
 
(530
)
 
(120
)
 

 
(650
)
Net current-period other comprehensive income (loss)
 
530

 
30

 
(5,760
)
 
(5,200
)
Balance, September 30, 2014
 
$
(10,310
)
 
$
1,090

 
$
31,850

 
$
22,630

__________________________
(a) Derivative instruments, net of income tax of $0.2 million . See Note 9 , " Derivative Instruments ," for further details.
(b) Defined benefit plans, net of income tax of $0.2 million . See Note 14 , " Defined Benefit Plans ," for further details. Derivative instruments, net of income tax of $0.2 million . See Note 9 , " Derivative Instruments ," for further details.


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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, 2014.
Introduction
We are a global manufacturer and distributor of products for commercial, industrial and consumer markets. We are principally engaged in four reportable segments: Packaging, Aerospace, Energy and Engineered Components.
On June 30, 2015, we completed the spin-off of our Cequent businesses, creating a new independent publicly-traded company, Horizon Global Corporation ("Horizon"). On June 30, 2015, our stockholders received two shares of Horizon common stock for every five shares of TriMas common stock that they held as of the close of business on June 25, 2015. The financial position, results of operations and cash flows of Horizon are included as discontinued operations for all periods presented through the date of the spin-off.
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. There has been little or no overall economic growth, particularly in the United States, although global economic conditions appear to have been relatively stable over the past couple of years. The two external factors that have impacted our results most significantly in the first nine months of 2015 are lower oil-related activity, primarily due to lower oil prices, and a stronger U.S. dollar. While we experienced some organic growth in certain of our businesses in the first nine months of 2015 compared to 2014, the majority of our growth was generated by sales from companies acquired during 2014. On a year-to-date basis, our 2015 third quarter sales were essentially flat with 2014, as the aforementioned sales growth was offset by reductions in sales resulting from the impact of lower oil prices and the stronger U.S. dollar.
During 2014, we undertook significant actions in our Energy reportable segment to reassess, restructure and optimize our manufacturing and sales footprints, as demand levels had been lower than historical levels over the past several quarters, starting in the third quarter of 2013, both in the United States and abroad, as petrochemical plants and refinery customers deferred shutdown activity, plus we experienced decreases in engineering and construction and original equipment manufacturer ("OEM") customer activity. The demand challenges also resulted in operating margin declines from historical levels. Given the reduced demand and resulting profitability challenges, during 2014, we announced the closure of a sales branch in China, a manufacturing facility in Brazil and the move of certain longer lead-time standard products from our Houston, Texas manufacturing facility to a new facility in Mexico by late 2015. In the first half of 2015, we also announced the consolidation of our Rotterdam, the Netherlands branch into our Antwerp, Belgium branch.
During the third quarter of 2015, given the impact of lower oil prices on net sales and profitability, the second quarter 2015 operating loss within the Energy business and the uncertain economic environment, we announced a financial improvement plan ("FIP") to improve our profitability, cash flow conversion and operational efficiency. As part of the FIP, we targeted cost actions to yield $15 million of annual savings, accelerating an additional $5 million of savings initiatives in the Energy business, with the remaining $10 million of savings expected to be spread relatively evenly across the remainder of the Company. By implementing the FIP, we believe we have lowered the cost structure of our engine-related business, allowing it to achieve break-even operating profit despite the more than 50% decline in sales as a result of the impact of lower oil prices. The FIP consisted of headcount reductions, manufacturing and administrative cost reduction and facility closures or consolidations, for which we estimate one-time cash and non-cash charges to implement of approximately $6 million to $7 million. We believe the FIP will help to mitigate the external factors pressuring our top-line, and position the Company for improved profitability and operating leverage across a lower fixed cost structure in the future. We continue to evaluate further actions as merited based on business performance, considering additional cost reductions or facility closures should sales and profitability levels continue below historical levels.
Over the past few years, we have executed on our growth strategies via bolt-on acquisitions, new products and geographic expansion within our existing platforms in each of our reportable segments. We have also proceeded with the aforementioned restructuring activities in our Energy reportable segment, 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 costs incurred to move, close or consolidate existing facilities, the incurrence of acquisition diligence and integration costs, the margin impact of acquiring 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. In addition to the energy end-market challenges, we have also incurred significant costs related to manufacturing inefficiencies associated with changes in aerospace customer demand

23

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with some distribution customer consolidation, a trend toward smaller lot order sizes and less consistent order patterns over the past few quarters. While these challenges and 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 acquisitions in the past few years have been integrated) as we integrate our acquisitions into our businesses, right-size our facilities and staffing levels to current and expected demand levels and patterns 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.
Our businesses do not experience 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.
We are sensitive to price movements in our raw materials supply base. Our largest material purchases are for steel, aluminum, polyethylene and other resins and utility-related inputs. Historically, we have experienced volatility in costs of steel and resin and have worked with our suppliers to manage costs and disruptions in supply. We also utilize pricing programs to