TriMas Corporation
TRIMAS CORP (Form: 10-Q, Received: 04/28/2015 16:56:48)
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 March 31, 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 April 24, 2015 , the number of outstanding shares of the Registrant's common stock, $0.01 par value, was 45,290,599 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; 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 successfully execute the spin-off of the Cequent businesses within the expected time frame or at all; the taxable nature of the spin-off; future prospects of the Company and Cequent as independent companies; 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 undo 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
(Unaudited—dollars in thousands)


 
March 31,
2015

December 31,
2014
Assets
 

 

Current assets:
 

 

Cash and cash equivalents
 
$
23,730


$
24,420

Receivables, net of reserves of approximately $5.4 million as of March 31, 2015 and December 31, 2014, respectively
 
220,380


196,320

Inventories
 
301,440


294,630

Deferred income taxes
 
28,720


28,870

Prepaid expenses and other current assets
 
17,630


14,380

Total current assets
 
591,900

 
558,620

Property and equipment, net
 
228,170


232,650

Goodwill
 
461,700


466,660

Other intangibles, net
 
354,840


363,930

Other assets
 
37,130


39,890

Total assets
 
$
1,673,740

 
$
1,661,750

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Current maturities, long-term debt
 
$
23,590


$
23,860

Accounts payable
 
174,710


185,010

Accrued liabilities
 
90,730


101,050

Total current liabilities
 
289,030

 
309,920

Long-term debt
 
647,910


615,470

Deferred income taxes
 
54,250


55,290

Other long-term liabilities
 
84,030


90,440

Total liabilities
 
1,075,220

 
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: 45,290,149 shares at March 31, 2015 and 45,280,385 shares at December 31, 2014
 
450

 
450

Paid-in capital
 
807,400

 
806,810

Accumulated deficit
 
(212,870
)
 
(226,850
)
Accumulated other comprehensive income
 
3,540

 
10,220

Total shareholders' equity
 
598,520

 
590,630

Total liabilities and shareholders' equity
 
$
1,673,740

 
$
1,661,750



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
March 31,
 
 
2015
 
2014
Net sales
 
$
366,490

 
$
365,390

Cost of sales
 
(268,270
)
 
(269,450
)
Gross profit
 
98,220

 
95,940

Selling, general and administrative expenses
 
(70,720
)
 
(63,670
)
Operating profit
 
27,500

 
32,270

Other expense, net:
 
 
 
 
Interest expense
 
(4,670
)
 
(3,470
)
Other expense, net
 
(2,570
)
 
(950
)
Other expense, net
 
(7,240
)
 
(4,420
)
Income from continuing operations before income tax expense
 
20,260

 
27,850

Income tax expense
 
(6,280
)
 
(8,620
)
Income from continuing operations
 
13,980

 
19,230

Income from discontinued operations, net of income tax expense
 

 
150

Net income
 
13,980

 
19,380

Less: Net income attributable to noncontrolling interests
 

 
810

Net income attributable to TriMas Corporation
 
$
13,980

 
$
18,570

Basic earnings per share attributable to TriMas Corporation:
 
 
 
 
Continuing operations
 
$
0.31

 
$
0.41

Discontinued operations
 

 

Net income per share
 
$
0.31

 
$
0.41

Weighted average common shares—basic
 
44,997,961

 
44,768,594

Diluted earnings per share attributable to TriMas Corporation:
 
 
 
 
Continuing operations
 
$
0.31

 
$
0.41

Discontinued operations
 

 

Net income per share
 
$
0.31

 
$
0.41

Weighted average common shares—diluted
 
45,400,843

 
45,186,114



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
March 31,
 
 
2015
 
2014
Net income
 
$
13,980

 
$
19,380

Other comprehensive income:
 
 
 
 
Defined benefit pension and postretirement plans (net of tax of $0.1 million for each of the three months ended March 31, 2015 and 2014) (Note 13)
 
250

 
180

Foreign currency translation
 
(6,540
)
 
1,880

Derivative instruments (net of tax of $0.1 million for each of the three months ended March 31, 2015 and 2014) (Note 8)
 
(390
)
 
310

Total other comprehensive income (loss)
 
(6,680
)
 
2,370

Total comprehensive income
 
7,300

 
21,750

Less: Net income attributable to noncontrolling interests
 

 
810

Total comprehensive income attributable to TriMas Corporation
 
$
7,300

 
$
20,940



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)
 
 
Three months ended
March 31,
 
 
2015
 
2014
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
13,980

 
$
19,380

Adjustments to reconcile net income to net cash used for operating activities:
 

 

Loss on dispositions of property and equipment
 
50

 
70

Depreciation
 
7,620

 
8,030

Amortization of intangible assets
 
7,220

 
5,480

Amortization of debt issue costs
 
510

 
480

Deferred income taxes
 
(490
)
 
(2,820
)
Non-cash compensation expense
 
2,520

 
2,280

Excess tax benefits from stock based compensation
 
(200
)
 
(760
)
Increase in receivables
 
(29,080
)
 
(44,960
)
(Increase) decrease in inventories
 
(10,210
)
 
1,800

(Increase) decrease in prepaid expenses and other assets
 
(3,480
)
 
100

Decrease in accounts payable and accrued liabilities
 
(9,560
)
 
(13,910
)
Other, net
 
(2,150
)
 
160

Net cash used for operating activities
 
(23,270
)
 
(24,670
)
Cash Flows from Investing Activities:
 

 

Capital expenditures
 
(8,010
)
 
(9,030
)
Net proceeds from disposition of property and equipment
 
640

 
240

Net cash used for investing activities
 
(7,370
)
 
(8,790
)
Cash Flows from Financing Activities:
 

 

Proceeds from borrowings on term loan facilities
 
29,930

 
46,750

Repayments of borrowings on term loan facilities
 
(35,760
)
 
(46,340
)
Proceeds from borrowings on revolving credit and accounts receivable facilities
 
289,440

 
331,120

Repayments of borrowings on revolving credit and accounts receivable facilities
 
(246,020
)
 
(239,900
)
Payments for deferred purchase price
 
(5,710
)
 

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
 
(2,560
)
 
(2,670
)
Proceeds from exercise of stock options
 
430

 
140

Excess tax benefits from stock based compensation
 
200

 
760

Net cash provided by financing activities
 
29,950

 
38,280

Cash and Cash Equivalents:
 

 

Increase (decrease) for the period
 
(690
)
 
4,820

At beginning of period
 
24,420

 
27,000

At end of period
 
$
23,730

 
$
31,820

Supplemental disclosure of cash flow information:
 

 

Cash paid for interest
 
$
4,710

 
$
3,010

Cash paid for taxes
 
$
8,340

 
$
2,660



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

6

Table of Contents

TriMas Corporation
Consolidated Statement of Shareholders' Equity
Three Months Ended March 31, 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
 

 

 
13,980

 

 
13,980

Other comprehensive loss
 

 

 

 
(6,680
)
 
(6,680
)
Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations
 

 
(2,560
)
 

 

 
(2,560
)
Stock option exercises and restricted stock vestings
 

 
430

 

 

 
430

Excess tax benefits from stock based compensation
 

 
200

 

 

 
200

Non-cash compensation expense
 

 
2,520

 

 

 
2,520

Balances, March 31, 2015
 
$
450

 
$
807,400

 
$
(212,870
)
 
$
3,540

 
$
598,520



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, Engineered Components, Cequent Asia Pacific Europe Africa ("Cequent APEA") and Cequent Americas. See Note  10 , " 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 2014 Annual Report on Form 10-K.
On December 8, 2014, the Company announced that its Board of Directors had approved a plan to pursue a separation of its Cequent businesses through a spin-off, creating a new independent publicly traded company, Horizon Global Corporation("Horizon"). The transaction is expected to be tax-free to shareholders and is targeted to be completed by mid 2015, subject to certain conditions including, among others, approval of the Company's Board of Directors, declaration of the effectiveness of the registration statement on Form S-1 by the SEC and receipt of an opinion from counsel regarding the tax free nature of the spin-off. One time transaction costs in connection with the separation of the two companies, including dedicated internal and third party amounts, are expected to be approximately $30 million .
2 . New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 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 2014-09 is currently effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, subject to an additional one year deferral as recently proposed by the FASB. 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
During the third quarter of 2014, the Company ceased operations of its former NI Industries business and received approximately $6.7 million for the sale of certain intellectual property and related inventory and tooling. NI Industries manufactured cartridge cases for the defense industry and was party to a U.S. Government facility maintenance contract.
The results of the aforementioned business are reported as discontinued operations for all periods presented. Results of discontinued operations are summarized as follows:
 
 
Three months ended March 31,
 
 
2015
 
2014
 
 
(dollars in thousands)
Net sales
 
$

 
$
2,350

Income from discontinued operations, before income taxes
 
$

 
$
250

Income tax expense
 

 
(100
)
Income from discontinued operations, net of income taxes
 
$

 
$
150


8

Table of Contents

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

4 . Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the three months ended March 31, 2015 are summarized as follows:
 
Packaging
 
Energy
 
Aerospace
 
Engineered Components
 
Cequent APEA
 
Cequent Americas
 
Total
 
(dollars in thousands)
Balance, December 31, 2014
$
169,350

 
$
73,180

 
$
210,130

 
$
7,420

 
$

 
$
6,580

 
$
466,660

Foreign currency translation and other
(2,810
)
 
(1,040
)
 

 

 

 
(1,110
)
 
(4,960
)
Balance, March 31, 2015
$
166,540

 
$
72,140

 
$
210,130

 
$
7,420

 
$

 
$
5,470

 
$
461,700

The gross carrying amounts and accumulated amortization of the Company's other intangibles as of March 31, 2015 and December 31, 2014 are summarized below. The Company amortizes these assets over periods ranging from one to 30  years.
 
 
As of March 31, 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
 
$
108,530

 
$
(46,380
)
 
$
109,460

 
$
(44,370
)
   Customer relationships, 15 – 25 years
 
237,610

 
(106,600
)
 
237,610

 
(103,390
)
Total customer relationships
 
346,140

 
(152,980
)
 
347,070

 
(147,760
)
   Technology and other, 1 – 15 years
 
72,560

 
(33,840
)
 
71,830

 
(32,250
)
   Technology and other, 17 – 30 years
 
43,300

 
(27,670
)
 
44,120

 
(27,560
)
Total technology and other
 
115,860

 
(61,510
)
 
115,950

 
(59,810
)
Indefinite-lived intangible assets:
 

 

 

 

 Trademark/Trade names
 
107,330

 

 
108,480

 

Total other intangible assets
 
$
569,330

 
$
(214,490
)
 
$
571,500

 
$
(207,570
)
Amortization expense related to intangible assets as included in the accompanying consolidated statement of income is summarized as follows:
 
 
Three months ended March 31,
 
 
2015
 
2014
 
 
(dollars in thousands)
Technology and other, included in cost of sales
 
$
1,660

 
$
1,230

Customer relationships, included in selling, general and administrative expenses
 
5,560

 
4,250

Total amortization expense
 
$
7,220

 
$
5,480


9

Table of Contents

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

5 . Inventories
Inventories consist of the following components:
 
 
March 31,
2015
 
December 31,
2014
 
 
(dollars in thousands)
Finished goods
 
$
196,950

 
$
194,690

Work in process
 
30,010

 
30,790

Raw materials
 
74,480

 
69,150

Total inventories
 
$
301,440

 
$
294,630

6 . Property and Equipment, Net
Property and equipment consists of the following components:
 
 
March 31,
2015
 
December 31,
2014
 
 
(dollars in thousands)
Land and land improvements
 
$
14,760

 
$
15,000

Buildings
 
68,440

 
69,820

Machinery and equipment
 
380,180

 
383,440

 
 
463,380

 
468,260

Less: Accumulated depreciation
 
235,210

 
235,610

Property and equipment, net
 
$
228,170

 
$
232,650

Depreciation expense as included in the accompanying consolidated statement of income is as follows:
 
 
Three months ended March 31,
 
 
2015
 
2014
 
 
(dollars in thousands)
Depreciation expense, included in cost of sales
 
$
6,510

 
$
6,740

Depreciation expense, included in selling, general and administrative expense
 
1,110

 
1,280

Total depreciation expense
 
$
7,620

 
$
8,020

7 . Long-term Debt
The Company's long-term debt consists of the following:
 
 
March 31,
2015
 
December 31,
2014
 
 
(dollars in thousands)
Credit Agreement
 
$
580,040

 
$
559,530

Receivables facility and other
 
91,460

 
79,800

 
 
671,500

 
639,330

Less: Current maturities, long-term debt
 
23,590

 
23,860

Long-term debt
 
$
647,910

 
$
615,470


10

Table of Contents

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

Credit Agreement
The Company is a party to a credit agreement (as amended and restated, the "Credit Agreement") consisting of a $575.0 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 October 16, 2018 and is subject to interest at London Interbank Offered Rates ("LIBOR") plus 1.625% , and a $450.0 million senior secured term loan A facility ("Term Loan A Facility"), which matures on October 16, 2018 and is subject to interest at LIBOR plus 1.625% . 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 March 31, 2015, no amounts are due under this provision.
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 March 31, 2015 and December 31, 2014 , the Company had letters of credit of approximately $22.9 million and $21.9 million , respectively, issued and outstanding.
At March 31, 2015 , the Company had approximately $144.6 million outstanding under its revolving credit facility and had $407.5 million potentially available after giving effect to approximately $22.9 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 $141.0 million and $192.0 million at March 31, 2015 and December 31, 2014 , 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 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 March 31, 2015 , the Company was in compliance with its financial covenants contained in the Credit Agreement.
As of March 31, 2015 and December 31, 2014 , the Company's Term Loan A Facility traded at approximately 97.3% and 99.5% of par value, respectively, and the Company's revolving credit facility traded at approximately 95.9% 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.

11

Table of Contents

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

Receivables Facility
The Company is a party to an accounts receivable facility through TSPC, Inc. ("TSPC"), a wholly-owned subsidiary, to sell trade accounts receivable of substantially all of the Company's domestic business operations. Under this facility, TSPC, from time to time, may sell an undivided fractional ownership interest in the pool of receivables up to approximately $105.0 million to a third party multi-seller receivables funding company. The net amount financed under the facility is less than the face amount of accounts receivable by an amount that approximates the purchaser's financing costs. The cost of funds under this facility consisted of a 3-month LIBOR-based rate plus a usage fee of 1.00% and 1.35% as of March 31, 2015 and 2014 , respectively, and a fee on the unused portion of the facility of 0.35% and 0.40% as of March 31, 2015 and 2014 , respectively.
The Company had approximately $90.6 million and $78.7 million outstanding under the facility as of March 31, 2015 and December 31, 2014 , respectively, and $5.1 million and $1.6 million , respectively, available but not utilized. Aggregate costs incurred under the facility were approximately $0.2 million and $0.3 million for the three months ended March 31, 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 March 31, 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% .
Other Bank Debt
The Company's Australian subsidiary is party to a $20.0 million Australian dollar revolving debt facility, which matures on August 31, 2015 and is secured by substantially all the assets of the subsidiary. As of March 31, 2015 and December 31, 2014 , no amounts were outstanding under this agreement.
The Company's Dutch subsidiary is party to a credit agreement consisting of a $12.5 million uncommitted working capital facility agreement which matures on May 29, 2015 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 . No amounts were outstanding under this agreement as of March 31, 2015 . As of December 31, 2014 , approximately $0.1 million was outstanding on this facility.
8 . Derivative Instruments
Foreign Currency Exchange Rate Risk
As of March 31, 2015 , the Company was party to forward contracts to hedge changes in foreign currency exchange rates with notional amounts of approximately $16.5 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, the Thai baht and the Australian dollar and the U.S. dollar and the Australian dollar and mature at specified monthly settlement dates through March 2016. 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.

12

Table of Contents

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

Financial Statement Presentation
As of March 31, 2015 and December 31, 2014 , the fair value carrying amount of the Company's derivatives designated as hedging instruments are recorded as follows:
 
 
 
 
Asset / (Liability) Derivatives
 
 
Balance Sheet Caption
 
March 31,
2015
 
December 31,
2014
 
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
Interest rate swap
 
Other assets
 
$
860

 
$
1,270

Interest rate swap
 
Accrued liabilities
 
(550
)
 
(180
)
Foreign currency forward contracts
 
Other assets
 
290

 

Foreign currency forward contracts
 
Accrued liabilities
 
(210
)
 
(150
)
Total derivatives designated as hedging instruments
 
 
 
$
390

 
$
940

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 months ended March 31, 2015 and 2014 :
 
Amount of Income (Loss) Recognized in
AOCI on Derivative
(Effective Portion, net of tax)
 
 
 
Amount of Income (Loss) Reclassified
from AOCI into Earnings
 
 
 
 
Three months ended
March 31,
 
As of
March 31, 2015
 
As of December 31, 2014
 
Location of Income (Loss) Reclassified from AOCI into Earnings (Effective Portion)
 
2015
 
2014
 
(dollars in thousands)
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
Interest rate swap
$
190

 
$
680

 
Interest expense
 
$
(220
)
 
$
(240
)
Foreign currency forward contracts
$
30

 
$
(70
)
 
Cost of sales
 
$
(190
)
 
$
40

Over the next 12 months , the Company expects to reclassify approximately $0.6 million of pre-tax deferred losses from AOCI to interest expense as the related interest payments for the designated interest rate swap are funded and approximately $0.1 million of pre-tax deferred gains from AOCI to cost of sales as the intercompany inventory purchases are settled.

13

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 March 31, 2015 and December 31, 2014 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)
March 31, 2015
 
 
 
 
 
 
 
 
 
 
Interest rate swap
 
Recurring
 
$
310

 
$

 
$
310

 
$

Foreign currency forward contracts
 
Recurring
 
$
80

 
$

 
$
80

 
$

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

 
$

 
$
1,090

 
$

Foreign currency forward contracts
 
Recurring
 
$
(150
)
 
$

 
$
(150
)
 
$

9 . Commitments and Contingencies
Asbestos
As of March 31, 2015 , the Company was a party to 1,074 pending cases involving an aggregate of 7,733 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

Three Months Ended March 31, 2015
 
7,992

 
83

 
338

 
4

 
$
6,875

 
$
718,800

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.

14

Table of Contents

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 7,733 claims pending at March 31, 2015 , 126 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
 
75
 
30
 
21
 
22
 
58
 
46
 
120
 
5
 
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 $7.4 million . All relief sought in the asbestos cases is monetary in nature. To date, approximately 40% of the Company's costs related to settlement and defense of asbestos litigation have been covered by its primary insurance. Effective February 14, 2006, the Company entered into a coverage-in-place agreement with its first level excess carriers regarding the coverage to be provided to the Company for asbestos-related claims when the primary insurance is exhausted. The coverage-in-place agreement makes asbestos defense costs and indemnity coverage available to the Company that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. Nonetheless, the Company believes it is likely there will be a period within the next one or two years, prior to the commencement of coverage under this agreement and following exhaustion of the Company's primary insurance coverage, during which the Company will be solely responsible for defense costs and indemnity payments, the duration of which would be subject to the scope of damage awards and settlements paid.
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 which the Company does not believe are material.  In addition, a claim was recently made against the Company by a competitor alleging false advertising.  Although no formal demand has been made, the Company believes the competitor may be seeking in excess of $10 million .  However, the Company believes any such demand would be unreasonable and without merit. 

The Company does not believe claims and litigation will have a material adverse effect on its financial position and results of operations or cash flows.
10 . 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.

15

Table of Contents

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

Energy – Metallic and non-metallic industrial sealant products and fasteners for the petroleum refining, petrochemical and other industrial markets.
Aerospace – Permanent blind bolts, temporary fasteners, highly engineered specialty fasteners and other precision machined parts used in the commercial, business and military aerospace industries.
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
March 31,
 
 
2015
 
2014
 
 
(dollars in thousands)
Net Sales
 
 
 
 
Packaging
 
$
78,960

 
$
81,430

Energy
 
51,160

 
52,780

Aerospace
 
45,740

 
27,190

Engineered Components
 
48,270

 
55,430

Cequent APEA
 
35,820

 
39,470

Cequent Americas
 
106,540

 
109,090

Total
 
$
366,490

 
$
365,390

Operating Profit (Loss)
 
 
 
 
Packaging
 
$
17,510

 
$
18,360

Energy
 
340

 
2,600

Aerospace
 
8,080

 
4,860

Engineered Components
 
5,970

 
7,880

Cequent APEA
 
2,250

 
2,500

Cequent Americas
 
5,910

 
5,710

Corporate expenses
 
(8,960
)
 
(9,640
)
Cequent separation costs
 
(3,600
)
 

Total
 
$
27,500

 
$
32,270

11 . 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.

16

Table of Contents

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

Stock Options
The Company did not grant any stock options during the three months ended March 31, 2015 . Information related to stock options at March 31, 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
 
251,667

 
$
6.39

 

 

  Exercised
 
(27,720
)
 
15.46

 

 

  Cancelled
 

 

 

 

  Expired
 
(2,500
)
 
23.00

 
 
 
 
Outstanding at March 31, 2015
 
221,447

 
$
5.07

 
3.5
 
$
5,696,237

As of March 31, 2015 , 221,447 stock options were exercisable under the Plans. The Company did not incur any stock-based compensation expense related to stock options during the three months ended March 31, 2015 and 2014 .
Restricted Shares
The Company awarded the following restricted shares during the first quarter of 2015 :
granted 1,100 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 174,874 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 35,813 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 26,704 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, during the three months ended March 31, 2015 , the Company issued 2,759 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 2012 , the Company awarded performance-based shares of common stock to certain Company key employees which were earned based upon the achievement of two performance metrics over a period of three calendar years, beginning January 1, 2012 and ending on December 31, 2014. Of this award, 75% of the awards were earned based upon the Company's earnings per share cumulative average growth rate over the performance period. The remaining 25% of the grants were earned based upon the Company's cash generation results. 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 .

17

Table of Contents

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

Information related to restricted shares at March 31, 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
 
725,459

 
$
29.59

 

 

  Granted
 
241,250

 
29.98

 

 

  Vested
 
(260,343
)
 
29.08

 

 

  Cancelled
 
(32,949
)
 
25.35

 

 

Outstanding at March 31, 2015
 
673,417

 
$
30.13

 
1.4
 
$
20,734,509

As of March 31, 2015 , there was approximately $11.4 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 $2.5 million and $2.3 million of stock-based compensation expense related to restricted shares during the three months ended March 31, 2015 and 2014 , respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of income.
12 . 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 are calculated to give effect to stock options and restricted share awards. The calculation of diluted earnings per share included 279,269 and 259,716 restricted shares for the three months ended March 31, 2015 and 2014 , respectively. The calculation of diluted earnings per share also included options to purchase 123,613 and 157,804 shares of common stock for the three months ended March 31, 2015 and 2014 , respectively.
13 . 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 months ended March 31, 2015 and 2014 are as follows:
 
 
Pension Plans
 
Other Postretirement Benefits
 
 
Three months ended
March 31,
 
Three months ended
March 31,
 
 
2015
 
2014
 
2015
 
2014
 
 
(dollars in thousands)
Service costs
 
$
240

 
$
190

 
$

 
$

Interest costs
 
420

 
440

 
10

 
10

Expected return on plan assets
 
(520
)
 
(520
)
 

 

Amortization of net (gain)/loss
 
380

 
280

 
(10
)
 
(20
)
Net periodic benefit cost
 
$
520

 
$
390

 
$

 
$
(10
)
The Company contributed approximately $0.7 million to its defined benefit pension plans during the three months ended March 31, 2015 . The Company expects to contribute approximately $3.5 million to its defined benefit pension plans for the full year 2015 .

18

Table of Contents

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

14 . Other Comprehensive Income
Changes in AOCI by component for the three months ended March 31, 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)
 

 
(710
)
 
(6,540
)
 
(7,250
)
Less: Net realized (losses) reclassified to net income (b)
 
(250
)
 
(320
)
 

 
(570
)
Net current-period change
 
250

 
(390
)
 
(6,540
)
 
(6,680
)
Balance, March 31, 2015
 
$
(13,930
)
 
$
220

 
$
17,250

 
$
3,540

__________________________
(a) Derivative instruments, net of income tax of $0.3 million . See Note 8 , " Derivative Instruments ," for further details.
(b) Defined benefit plans, net of income tax of $0.1 million . See Note 13 , " Defined Benefit Plans ," for additional details. Derivative instruments, net of income tax of $0.1 million . See Note 8 , " Derivative Instruments ," for further details.
Changes in AOCI by component for the three months ended March 31, 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 arising during the period (a)
 

 
200

 
1,880

 
2,080

Less: Net realized (losses) reclassified to net income (b)
 
(180
)
 
(110
)
 

 
(290
)
Net current-period change
 
180

 
310

 
1,880

 
2,370

Balance, March 31, 2014
 
$
(10,660
)
 
$
1,370

 
$
39,490

 
$
30,200

__________________________
(a) Derivative instruments, net of income tax of $0.1 million . See Note 8 , " Derivative Instruments ," for further details.
(b) Defined benefit plans, net of income tax of $0.1 million . See Note 13 , " Defined Benefit Plans ," for additional details. Derivative instruments, net of income tax of $0.1 million . See Note 8 , " Derivative Instruments ," for further details.


19

Table of Contents

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 six reportable segments: Packaging, Energy, Aerospace, Engineered Components, Cequent APEA and Cequent Americas.
On December 8, 2014, our board of directors approved a plan to pursue a tax-free spin-off of the businesses that comprise our Cequent APEA and Cequent Americas reportable segments. We are targeting mid-2015 for completion of the proposed spin-off, although successful completion is contingent upon several factors, including but not limited to, final authorization and approval of our board of directors, receipt of governmental and regulatory approvals of the transactions contemplated by the spin-off, receipt of a tax opinion regarding the tax-free status of the spin-off, execution of intercompany agreements and the effectiveness of a registration statement with the SEC.
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. Although there has been little or no overall economic growth, particularly in the United States, global economic conditions appear to have been relatively stable over the past couple of years, with pockets of volatility such as oil prices and a stronger U.S. dollar impacting the first quarter of 2015. Thus, while we experienced some organic growth in certain of our businesses in the first quarter of 2015 versus 2014, the majority of our growth came via sales from companies acquired during 2014, and overall sales were essentially flat, as the aforementioned sales growth was offset by reductions in sales related to the lower oil prices and stronger U.S. dollar.
During 2014, we took 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. We also announced the closure of a European branch location in the first quarter of 2015. We continue to monitor our business needs, and may need to evaluate further actions should the negative trend in sales and profitability levels continue.
Over the past few years, we have executed on our growth strategies via bolt-on acquisitions 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 and the aforementioned moves 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 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. 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 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.

20

Table of Contents

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.
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 utility-related inputs. 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.
In addition to the aforementioned price movements in significant raw materials, certain of our businesses are sensitive to oil price movements. Our Arrow Engine business is most directly impacted by significant volatility in oil prices. Arrow's pumpjack and other engine sales and related parts, which comprise a significant portion of the business, are impacted by oil drilling levels, rig counts and commodity pricing. The decline of oil prices in late fourth quarter 2014 and into 2015 has significantly impacted demand levels in this business. Our other businesses may be impacted by volatile oil prices, but not as directly. For example, a portion of our Energy reportable segment serves upstream customers at oil well sites that have been impacted by changes in oil prices, while the majority of the segment provides parts for refineries and chemical plants, which may or may not choose to defer capital expenditures or changeover production stock, both of which would require retooling with our gaskets and bolts, in times of fluctuations in oil prices. Our Packaging reportable segment may be impacted by oil prices, as it is a significant driver of resin pricing, although we generally are able to maintain profit levels when oil prices change due to escalator/de-escalator clauses in contracts with many of our customers. Lastly, our Cequent businesses rely on consumer discretionary spending levels and confidence, which may be impacted when oil and gasoline prices are volatile.
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.



21

Table of Contents

Segment Information and Supplemental Analysis
The following table summarizes financial information for our reportable segments for the three months ended March 31, 2015 and 2014 :
 
Three months ended March 31,
 
2015
 
As a Percentage
of Net Sales
 
2014
 
As a Percentage
of Net Sales
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
Packaging
$
78,960

 
21.5
%
 
$
81,430

 
22.3
%
Energy
51,160

 
13.9
%
 
52,780

 
14.4
%
Aerospace
45,740

 
12.5
%
 
27,190

 
7.4
%
Engineered Components
48,270

 
13.2
%
 
55,430

 
15.2
%
Cequent APEA
35,820

 
9.8
%
 
39,470

 
10.8
%
Cequent Americas
106,540

 
29.1
%
 
109,090

 
29.9
%
Total
$
366,490

 
100.0
%
 
$
365,390

 
100.0
%
Gross Profit
 
 
 
 
 
 
 
Packaging
$
27,680

 
35.1
%
 
$
28,140

 
34.6
%
Energy
9,700

 
19.0
%
 
12,170

 
23.1
%
Aerospace
16,000

 
35.0
%
 
8,730

 
32.1
%
Engineered Components
9,540

 
19.8
%
 
11,400

 
20.6
%
Cequent APEA
7,170

 
20.0
%
 
7,990

 
20.2
%
Cequent Americas
28,130

 
26.4
%
 
27,510

 
25.2
%
Total
$
98,220

 
26.8
%
 
$
95,940

 
26.3
%
Selling, General and Administrative Expenses
 
 
 
 
 
 
 
Packaging
$
10,170

 
12.9
%
 
$
9,780

 
12.0
%
Energy
9,360

 
18.3
%
 
9,570

 
18.1
%
Aerospace
7,920

 
17.3
%
 
3,870

 
14.2
%
Engineered Components
3,570

 
7.4
%
 
3,520

 
6.4
%
Cequent APEA
4,920

 
13.7
%
 
5,490

 
13.9
%
Cequent Americas
22,220

 
20.9
%
 
21,800

 
20.0
%
Corporate expenses
8,960

 
N/A

 
9,640

 
N/A

Cequent separation costs
3,600

 
N/A

 

 
N/A

Total
$
70,720

 
19.3
%
 
$
63,670

 
17.4
%
Operating Profit (Loss)
 
 
 
 
 
 
 
Packaging
$
17,510

 
22.2
%
 
$
18,360

 
22.5
%
Energy
340

 
0.7
%
 
2,600

 
4.9
%
Aerospace
8,080

 
17.7
%
 
4,860

 
17.9
%
Engineered Components
5,970

 
12.4
%
 
7,880

 
14.2
%
Cequent APEA
2,250

 
6.3
%
 
2,500

 
6.3
%
Cequent Americas
5,910

 
5.5
%
 
5,710

 
5.2
%
Corporate expenses
(8,960
)
 
N/A

 
(9,640
)
 
N/A

Cequent separation costs
(3,600
)
 
N/A

 

 
N/A

Total
$
27,500

 
7.5
%
 
$
32,270

 
8.8
%
Depreciation and Amortization
 
 
 
 
 
 
 
Packaging
$
5,210

 
6.6
%
 
$
4,990

 
6.1
%
Energy
1,030

 
2.0
%
 
1,160

 
2.2
%
Aerospace
3,010

 
6.6
%
 
1,400

 
5.1
%
Engineered Components
1,090

 
2.3
%
 
1,100

 
2.0
%
Cequent APEA
1,660

 
4.6
%
 
1,840

 
4.7
%
Cequent Americas
2,720

 
2.6
%
 
2,940

 
2.7
%
Corporate expenses
120

 
N/A

 
70

 
N/A

Total
$
14,840

 
4.0
%
 
$
13,500

 
3.7
%


22

Table of Contents

Results of Operations
The principal factors impacting us during the three months ended March 31, 2015 , compared with the three months ended March 31, 2014 , were:
the planned spin-off of our Cequent Americas and Cequent APEA reportable segments, for which we incurred approximately $3.6 million of costs during the first quarter of 2015. No such costs were incurred during the prior year period;
the impact of our 2014 acquisitions (see below for impact by segment);
manufacturing and distribution footprint consolidation and relocation projects within our Energy reportable segment, under which we incurred approximately $1.4 million of costs during the first quarter of 2015; and
our fourth quarter 2014 amendment to our credit agreement ("Credit Agreement") to add $275.0 million incremental senior secured term loan A facility.

Three Months Ended March 31, 2015 Compared with Three Months Ended March 31, 2014
Overall, net sales increased approximately $1.1 million , or 0.3% , to $366.5 million for the three months ended March 31, 2015 , as compared with $365.4 million in the three months ended March 31, 2014 . During the first quarter of 2015 , net sales increased approximately $19.4 million due to our recent acquisitions. Sales levels also increased between years due to our expansion in international markets, new customer wins and increased sales to existing customers primarily in our Engineered Components, Cequent APEA and Cequent Americas reportable segments, and in our Aerospace reportable segment due to higher throughput in our facilities. These increases were partially offset by an approximate $11.1 million decrease in sales in our engine business within our Engineered Components reportable segment due to lower oil prices, softening in certain of our end markets, primarily in our Packaging reportable segments and the loss of certain customer programs in our Cequent APEA and Cequent Americas reportable segments. Net sales also decreased by approximately $7.7 million due to net unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Gross profit margin (gross profit as a percentage of sales) approximated 26.8% and 26.3% for the three months ended March 31, 2015 and 2014 , respectively. Gross profit margin increased in our Aerospace reportable segment due to higher margins associated with our Allfast Fastening Systems, Inc. ("Allfast") acquisition. Gross profit margin also increased due to continued productivity, cost reductions and automation efforts primarily in our Packaging, Cequent Americas, Engineered Components and Cequent APEA reportable segments. Additionally, gross profit margin improved due to a more favorable product sales mix primarily in our Packaging and Cequent Americas reportable segments. These increases in gross profit margin were partially offset by less favorable product sales mix in our Engineered Components reportable segment, cost and inefficiencies related to our restructuring and footprint optimization efforts in our Energy reportable segment, lower fixed cost absorption primarily in our Engineered Components and Cequent APEA reportable segments, increased freight costs in our Cequent Americas reportable segment and unfavorable currency exchange as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Operating profit margin (operating profit as a percentage of sales) approximated 7.5% and 8.8% for the three months ended March 31, 2015 and 2014 , respectively. Operating profit decreased approximately $4.8 million , or 14.8% , to $27.5 million for the three months ended March 31, 2015 , from $32.3 million for the three months ended March 31, 2014 , primarily due to approximately $3.6 million of charges recognized during the first quarter of 2015 associated with the planned spin-off of the Cequent businesses. Additionally, operating profit margin decreased due to a less favorable product sales mix primarily in our Engineered Components reportable segment, cost and inefficiencies related to our restructuring and footprint optimization efforts in our Energy reportable segment and lower fixed cost absorption primarily in our Engineered Components and Cequent APEA reportable segments. Partially offsetting the decreases in operating profit margin were continued productivity, cost reductions and automation efforts primarily in our Packaging, Cequent Americas, Engineered Components and Cequent APEA reportable segments as well as a more favorable product sales mix primarily in our Packaging and Cequent Americas reportable segments.
Interest expense increased approximately $1.2 million , to $4.7 million , for the three months ended March 31, 2015 , as compared to $3.5 million for the three months ended March 31, 2014 , due to an increase in our weighted-average variable rate borrowings to approximately $743.9 million in the three months ended March 31, 2015 , from approximately $406.0 million in the three months ended March 31, 2014 , primarily due to the amendment to our Credit Agreement to add a $275.0 million incremental senior secured term loan A facility, which was used to fund the Allfast acquisition within our Aerospace reportable segment during the fourth quarter of 2014. The effective weighted average interest rate on our variable rate borrowings, including our Credit Agreement and accounts receivable facilities, remained flat at approximately 1.8% for each of the three months ended March 31, 2015 and 2014 .

23

Table of Contents

Other expense, net increased approximately $1.6 million , to $2.6 million for the three months ended March 31, 2015 , as compared to $1.0 million for the three months ended March 31, 2014 , primarily due to higher losses on transactions denominated in foreign currencies.
The effective income tax rate for each of the three months ended March 31, 2015 and 2014 was 31.0% . During the three months ended March 31, 2015, the overall geographic mix of earnings was consistent with the three months ended March 31, 2014.
Net income from continuing operations decreased by approximately $5.2 million , to $14.0 million for the three months ended March 31, 2015 , compared to $19.2 million for the three months ended March 31, 2014 . The decrease was primarily the result of a $4.8 million decrease in operating profit, plus a $1.6 million increase in other expense, plus $1.2 million of higher interest expense, partially offset by a $2.3 million decrease in income tax expense.
Net income attributable to noncontrolling interest was $0.8 million for the three months ended March 31, 2014 . The income was related to our 70% acquisition of Arminak in February 2012, and represented the 30% interest not attributed to TriMas Corporation. We acquired the remaining 30% interest in Arminak on March 11, 2014.
See below for a discussion of operating results by segment.
Packaging. Net sales decreased approximately $2.4 million , or 3.0% , to $79.0 million in the three months ended March 31, 2015 , as compared to $81.4 million in the three months ended March 31, 2014 . Sales increased by approximately $2.9 million due to the acquisition of Lion Holdings Pvt. Ltd. ("Lion Holdings") in July of 2014. This increase was more than offset by decreased sales of our industrial closures of approximately $1.5 million, as a result of lower demand in Europe. In addition, sales of our specialty systems products decreased approximately $1.9 million, primarily due to port delays in the west coast of the United States and lower demand from customers in North America, where several new products were launched in the first quarter of 2014, with no significant new launches in the first quarter of 2015. Sales were also impacted by approximately $2.1 million of unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Packaging's gross profit decreased approximately $0.4 million to $27.7 million , or 35.1% of sales, in the three months ended March 31, 2015 , as compared to $28.1 million , or 34.6% of sales, in the three months ended March 31, 2014 . Gross profit decreased primarily due to the lower sales levels and approximately $1.0 million of foreign currency as a result of the stronger U.S. dollar. Gross profit margin increased primarily due to a more favorable product sales mix, as a larger percentage of our sales were generated by our higher margin U.S. industrial products, as well as decreased material costs and continued productivity and automation initiatives.
Packaging's selling, general and administrative expenses increased approximately $0.4 million to $10.2 million , or 12.9% of sales, in the three months ended March 31, 2015 , as compared to $9.8 million , or 12.0% of sales, in the three months ended March 31, 2014 , primarily as a result of increased costs associated with our Lion Holdings acquisition.
Packaging's operating profit decreased approximately $0.9 million to $17.5 million , or 22.2% of sales, in the three months ended March 31, 2015 , as compared to $18.4 million , or 22.5% of sales, in the three months ended March 31, 2014 . Operating profit and margin decreased primarily due to lower sales levels, unfavorable currency exchange and higher selling, general and administrative costs, which were partially offset by a more favorable product sales mix, lower material costs and continued productivity and automation initiatives.
Energy.     Net sales for the three months ended March 31, 2015 decreased approximately $1.6 million , or 3.1% , to $51.2 million , as compared to $52.8 million in the three months ended March 31, 2014 . Sales increased by approximately $1.3 million in our international branches due to continued geographic market expansion and new products. This increase was more than offset by approximately $1.1 million of lower sales in China and Brazil due to our restructuring activities in those regions and an approximately $0.6 million decrease in sales in North America, which has been impacted by a reduction in upstream customer sales resulting from the lower and volatile oil prices. Sales were also impacted by approximately $1.1 million due to net unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies.
Gross profit within Energy decreased approximately $2.5 million to $9.7 million , or 19.0% of sales, in the three months ended March 31, 2015 , as compared to $12.2 million , or 23.1% of sales, in the three months ended March 31, 2014 . Gross profit and gross profit margin decreased primarily due to higher material sourcing costs related to U.S. west coast port delays and the move of certain production to higher cost facilities to meet current orders. In addition, this segment was also impacted by costs and inefficiencies resulting from our restructuring and footprint optimization efforts and lower sales levels. These decreases were partially offset by improved margins at our more recent acquisitions through continued investment in capital and productivity projects.

24

Table of Contents

Selling, general and administrative expenses within Energy decreased approximately $0.2 million to $9.4 million , or 18.3% of sales, in the three months ended March 31, 2015 , as compared to $9.6 million , or 18.1% of sales, in the three months ended March 31, 2014 , as increased costs associated with our restructuring and footprint optimization efforts were more than offset by a reduction in selling, general and administrative costs resulting from our 2014 facility closures.
Overall, operating profit within Energy decreased approximately $2.3 million to approximately $0.3 million , or 0.7% of sales, in the three months ended March 31, 2015 , as compared to $2.6 million of income, or 4.9% of sales, in the three months ended March 31, 2014 . Operating profit and related margin decreased as a result of lower sales during the quarter, higher sourcing costs, port delays and restructuring related inefficiencies, which more than offset lower selling, general and administrative costs during the period.
Aerospace.     Net sales for the three months ended March 31, 2015 increased approximately $18.5 million , or 68.2% , to $45.7 million , as compared to $27.2 million in the three months ended March 31, 2014 . Sales increased approximately $16.5 million related to the acquisition of Allfast in the fourth quarter of 2014. The remainder of the increase primarily related to higher sales in our legacy aerospace business due to higher throughput in our facilities.
Gross profit within Aerospace increased approximately $7.3 million to $16.0 million , or 35.0% of sales, in the three months ended March 31, 2015 , from $8.7 million , or 32.1% of sales, in the three months ended March 31, 2014 , primarily due to increased sales resulting from the acquisition of Allfast. The increase in gross profit margin was partially offset by approximately $2.1 million of inventory step-up costs and approximately $0.6 million of incremental ongoing intangible asset amortization costs related to our recent acquisition. Gross profit margin also declined due to the sale of higher cost inventory in our legacy aerospace business.
Selling, general and administrative expenses increased approximately $4.0 million to $7.9 million , or 17.3% of sales, in the three months ended March 31, 2015 , as compared to $3.9 million , or 14.2% of sales, in the three months ended March 31, 2014 , primarily due to higher ongoing selling, general and administrative costs of approximately $1.7 million and higher incremental intangible asset amortization costs of approximately $1.2 million, both related to our Allfast acquisition. Additionally, we incurred approximately $0.8 million in costs in the first quarter of 2015 related to professional fees due to operational and leadership changes.
Operating profit within Aerospace increased approximately $3.2 million to $8.1 million , or 17.7% of sales, in the three months ended March 31, 2015 , as compared to $4.9 million , or 17.9% of sales, in the three months ended March 31, 2014 . While operating profit increased due to higher sales levels, operating profit margin declined primarily due to the sale of higher cost inventory in our legacy aerospace business and an increase in selling, general and administrative expenses.
Engineered Components.     Net sales for the three months ended March 31, 2015 decreased approximately $7.1 million , or 12.9% , to $48.3 million , as compared to $55.4 million in the three months ended March 31, 2014 . Sales in our engine business decreased approximately $11.1 million, due to an approximately $7.7 million decrease in sales of our slow speed and compressor engine and related products as a result of reduced levels of oil and gas drilling and well completions in the U.S. and Canada in response to lower oil prices. Sales further declined in our engine business as a result of an approximate $5.6 million order for our compressor packages in the first quarter of 2014 that did not recur, which was partially offset by an approximate $2.3 million increase in sales of our gas compression products as a result of both growth in our existing customer base and new customer wins. Sales in our industrial cylinder business increased by approximately $3.9 million, primarily due to sales growth in our large high pressure cylinder products.
Gross profit within Engineered Components decreased approximately $1.9 million to $9.5 million , or 19.8% of sales, in the three months ended March 31, 2015 , from $11.4 million , or 20.6% of sales, in the three months ended March 31, 2014 , primarily as a result of the decreased sales levels in our engine business. Gross profit margin in our engine business decreased as a result of lower fixed cost absorption and less favorable product sales mix, despite cost reductions to better align our cost structure with current demand levels. This was partially offset by increased gross profit and gross profit margin in our industrial cylinder business as a result of increased sales and continued productivity initiatives, as we continue to gain efficiencies from our previous acquisition, as well as increased operating leverage on the higher sales levels.
Selling, general and administrative expenses remained essentially flat at $3.6 million , or 7.4% of sales, in the three months ended March 31, 2015 , as compared to $3.5 million , or 6.4% of sales, in the three months ended March 31, 2014 , as our engine business continued to support its growth initiatives, including investments in new products and new markets, while our industrial cylinder business held spending constant, despite the increased sales during the period.
Operating profit within Engineered Components decreased approximately $1.9 million to $6.0 million , or 12.4% of sales, in the three months ended March 31, 2015 , as compared to $7.9 million , or 14.2% of sales, in the three months ended March 31, 2014 , primarily due to the reduced sales levels, with operating profit margin decreasing as a result of lower fixed cost absorption and a less favorable product mix in our engine business, which was partially offset by increased sales, productivity initiatives and additional operating leverage in our industrial cylinder business.

25

Table of Contents

Cequent APEA.     Net sales decreased approximately $3.7 million , or 9.2% , to $35.8 million in the three months ended March 31, 2015 , as compared to $39.5 million in the three months ended March 31, 2014 . Net sales were negatively impacted by approximately $4.0 million of unfavorable currency exchange, as our reported results in U.S. dollars were negatively impacted as a result of the stronger U.S. dollar relative to foreign currencies. Net sales to OE customers increased in South Africa and Thailand primarily due to increased demand from an existing customer and new program awards. This increase was offset by lower sales in Australia primarily due to the loss of an OE program.
Cequent APEA's gross profit decreased approximately $0.8 million to $7.2 million , or 20.0% of sales, in the three months ended March 31, 2015 , from approximately $8.0 million , or 20.2% of sales, in the three months ended March 31, 2014 . Gross profit was negatively impacted by approximately $0.8 million of foreign currency exchange as a result of the stronger U.S. dollar relative to foreign currencies. Gross profit margin was favorably impacted by improvements in Thailand and South Africa as a result of productivity and cost reduction initiatives and in the United Kingdom due to higher fixed cost absorption related to increased production levels, which was more than offset by reduced margins in Australia caused by lower fixed cost absorption related to a decline in production levels.
Selling, general and administrative expenses decreased approximately $0.6 million to $4.9 million , or 13.7% of sales, in the three months ended March 31, 2015 , as compared to $5.5 million , or 13.9% of sales, in the three months ended March 31, 2014 . Selling, general and administrative spending remained relatively flat during the three months ended March 31, 2015 , as compared to the three months ended March 31, 2014 , with the decrease quarter-over-quarter due primarily to the impact of foreign currency exchange as a result of the stronger U.S. dollar relative to foreign currencies.
Cequent APEA's operating profit decreased approximately $0.2 million to $2.3 million , or 6.3% of sales, in the three months ended March 31, 2015 , as compared to $2.5 million , or 6.3% of net sales, in the three months ended March 31, 2014 , primarily due to currency exchange. Operating profit margin remained flat as productivity and cost reduction initiatives in Thailand and South Africa offset lower fixed cost absorption in Australia and the impact of currency exchange and lower selling, general and administrative expenses.
Cequent Americas.     Net sales decreased approximately $2.6 million , or 2.3% , to $106.5 million in the three months ended March 31, 2015 , as compared to $109.1 million in the three months ended March 31, 2014 , primarily due to year-over-year decreases within our industrial and retail channels. Net sales within our industrial channel decreased approximately $1.4 million, primarily due to lower demand from our OE customers. Sales within our retail channel decreased approximately $1.3 million as growth in our e-commerce and broom and brush businesses were more than offset by a significant customer product roll-out in the first quarter of 2014 that did not recur. Our other market channels remained relatively flat year-over-year.
Cequent Americas' gross profit increased approximately $0.6 million to $28.1 million , or 26.4% of sales, in the three months ended March 31, 2015 , from approximately $27.5 million , or 25.2% of sales, in the three months ended March 31, 2014 , primarily due to continued manufacturing productivity projects, labor savings on production moved from our former Goshen, Indiana manufacturing facility to our lower cost country facilities and negotiated vendor cost reductions. Additionally, gross profit margin increased due to a more favorable product sales mix, as our higher margin towing, towing accessories and cargo management products comprised a higher percentage of our overall sales. These increases were partially offset by the sale of higher cost inventory as well as higher freight costs resulting from our footprint changes.
Selling, general and administrative expenses increased approximately $0.4 million to $22.2 million , or 20.9% of sales, in the three months ended March 31, 2015 , as compared to $21.8 million , or 20.0% of sales, in the three months ended March 31, 2014 , primarily due to increased sales promotion costs and the expansion and development of our website and e-commerce capabilities.
Cequent Americas' operating profit increased approximately $0.2 million to $5.9 million , or 5.5% of sales, in the three months ended March 31, 2015 , as compared to $5.7 million , or 5.2% of net sales, in the three months ended March 31, 2014 , as we began to realize the productivity benefits on the footprint consolidation and relocation project, due to a more favorable product sales mix and vendor cost reductions. This was partially offset by the impact of the sale of higher cost inventory, an overall decrease in sales and increased selling, general and administrative expenses.

26

Table of Contents

Corporate Expenses.     Corporate expenses consist of the following:
 
 
Three months ended March 31,
 
 
2015
 
2014
 
 
(in millions)
Corporate operating expenses
 
$
3.1

 
$
3.6

Employee costs and related benefits
 
5.9

 
6.0

Corporate expenses
 
$
9.0

 
$
9.6

Corporate expenses decreased approximately $0.6 million to $9.0 million for the three months ended March 31, 2015 , from $9.6 million for the three months ended March 31, 2014 . The decrease between years is primarily attributed to a decrease in costs associated with third party professional fees.
Cequent Separation Costs. Total costs associated with the planned spin-off of our Cequent businesses totaled $3.6 million for the three months ended March 31, 2015 .
Discontinued Operations.     The results of discontinued operations consist of the cessation of operations of the NI Industries business during September 2014. During the three months ended March 31, 2014 , income from discontinued operations, net of income tax expense, was $0.2 million . See Note 3 , " Discontinued Operations, " to our consolidated financial statements included in Part I, Item 1 of this quarterly report on Form 10-Q.
Liquidity and Capital Resources
Cash Flows
Cash flows used for operating activities were approximately $23.3 million and $24.7 million for the three months ended March 31, 2015 and 2014 , respectively. Significant changes in cash flows used for operating activities and the reasons for such changes are as follows:
For the three months ended March 31, 2015 , the Company generated $29.1 million of cash, based on the reported net income of $14.0 million and after considering the effects of non-cash items related to losses on dispositions of property and equipment, depreciation, amortization, stock-based compensation and related changes in excess tax benefits, changes in deferred income taxes, and other, net. For the three months ended March 31, 2014 , the Company generated $32.3 million in cash flows based on the reported net income of $19.4 million and after considering the effects of similar non-cash items.
Increases in accounts receivable resulted in a use of cash of approximately $29.1 million and $45.0 million for the three months ended March 31, 2015 and 2014 , respectively. The increase in accounts receivable is due primarily to the increase in year-over-year sales and the timing of sales and collection of cash within the period. Days sales outstanding of receivables remained relatively flat period-over-period.
For the three months ended March 31, 2015 , we used approximately $10.2 million for investment in our inventories. Inventory levels increased primarily to support our increased sales volumes as compared to year end. For the three months ended March 31, 2014 we reduced our investment in inventory, which resulted in a cash source of $1.8 million , as we did not need to make significant investments in additional inventory during the three months ended March 31, 2014 despite the increase in sales.
Prepaid expenses and other assets resulted in a use of cash of approximately $3.5 million for the three months ended March 31, 2015 , as compared to a cash source of approximately $0.1 million for the