TriMas Corporation
TRIMAS CORP (Form: 10-Q, Received: 10/27/2016 13:32:20)
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, 2016

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 21, 2016 , the number of outstanding shares of the Registrant's common stock, $0.01 par value, was 45,500,944 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: 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 identify attractive acquisition candidates, successfully integrate acquired operations or realize the intended benefits of such acquisitions; 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, 2015. 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,
2016

December 31,
2015
Assets
 
(unaudited)
 

Current assets:
 

 

Cash and cash equivalents
 
$
22,550


$
19,450

Receivables, net of reserves of approximately $4.3 million and $3.7 million as of September 30, 2016 and December 31, 2015, respectively
 
130,440


121,990

Inventories
 
171,260


167,370

Prepaid expenses and other current assets
 
7,530


17,810

Total current assets
 
331,780

 
326,620

Property and equipment, net
 
182,000


181,130

Goodwill
 
377,380


378,920

Other intangibles, net
 
258,400


273,870

Other assets
 
8,840


9,760

Total assets
 
$
1,158,400

 
$
1,170,300

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Current maturities, long-term debt
 
$
13,840


$
13,850

Accounts payable
 
76,140


88,420

Accrued liabilities
 
45,950


50,480

Total current liabilities
 
135,930

 
152,750

Long-term debt, net
 
388,580


405,780

Deferred income taxes
 
9,530


11,260

Other long-term liabilities
 
57,350


53,320

Total liabilities
 
591,390

 
623,110

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: 45,500,944 shares at September 30, 2016 and 45,322,527 shares at December 31, 2015
 
460

 
450

Paid-in capital
 
815,920

 
812,160

Accumulated deficit
 
(226,560
)
 
(254,120
)
Accumulated other comprehensive loss
 
(22,810
)
 
(11,300
)
Total shareholders' equity
 
567,010

 
547,190

Total liabilities and shareholders' equity
 
$
1,158,400

 
$
1,170,300



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
September 30,
 
Nine months ended
September 30,
 
 
2016
 
2015
 
2016
 
2015
Net sales
 
$
202,290

 
$
222,190

 
$
608,490

 
$
671,220

Cost of sales
 
(144,240
)
 
(159,720
)
 
(437,440
)
 
(484,110
)
Gross profit
 
58,050

 
62,470

 
171,050

 
187,110

Selling, general and administrative expenses
 
(40,260
)
 
(40,910
)
 
(118,150
)
 
(123,320
)
Operating profit
 
17,790

 
21,560

 
52,900

 
63,790

Other expense, net:
 
 
 
 
 
 
 
 
Interest expense
 
(3,480
)
 
(3,440
)
 
(10,230
)
 
(10,610
)
Debt financing and extinguishment costs
 

 

 

 
(1,970
)
Other expense, net
 
(200
)
 
(720
)
 
(130
)
 
(2,330
)
Other expense, net
 
(3,680
)
 
(4,160
)
 
(10,360
)
 
(14,910
)
Income from continuing operations before income tax expense
 
14,110

 
17,400

 
42,540

 
48,880

Income tax expense
 
(5,330
)
 
(5,690
)
 
(14,980
)
 
(16,740
)
Income from continuing operations
 
8,780

 
11,710

 
27,560

 
32,140

Loss from discontinued operations, net of tax
 

 

 

 
(4,740
)
Net income
 
$
8,780

 
$
11,710

 
$
27,560

 
$
27,400

Basic earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.19

 
$
0.26

 
$
0.61

 
$
0.71

Discontinued operations
 

 

 

 
(0.10
)
Net income per share
 
$
0.19

 
$
0.26

 
$
0.61

 
$
0.61

Weighted average common shares—basic
 
45,435,936

 
45,157,412

 
45,381,592

 
45,102,067

Diluted earnings per share:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.19

 
$
0.26

 
$
0.60

 
$
0.70

Discontinued operations
 

 

 

 
(0.10
)
Net income per share
 
$
0.19

 
$
0.26

 
$
0.60

 
$
0.60

Weighted average common shares—diluted
 
45,760,455

 
45,499,104

 
45,713,873

 
45,439,618



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,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
8,780

 
$
11,710

 
$
27,560

 
$
27,400

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Defined benefit pension and postretirement plans (Note 13)
 
140

 
200

 
440

 
2,930

Foreign currency translation
 
(1,550
)
 
(4,760
)
 
(8,290
)
 
(10,420
)
Derivative instruments (Note 8)
 
630

 
(3,180
)
 
(3,660
)
 
(3,890
)
Total other comprehensive loss
 
(780
)
 
(7,740
)
 
(11,510
)
 
(11,380
)
Total comprehensive income
 
$
8,000

 
$
3,970

 
$
16,050

 
$
16,020



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,
 
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
27,560

 
$
27,400

Loss from discontinued operations
 

 
(4,740
)
Income from continuing operations
 
27,560

 
32,140

Adjustments to reconcile net income to net cash provided by operating activities:
 

 

Loss on dispositions of property and equipment
 
1,350

 
590

Depreciation
 
17,710

 
16,430

Amortization of intangible assets
 
15,330

 
15,790

Amortization of debt issue costs
 
1,000

 
1,360

Deferred income taxes
 
360

 
(4,220
)
Non-cash compensation expense
 
5,240

 
4,590

Excess tax benefits from stock based compensation
 
(640
)
 
(300
)
Debt financing and extinguishment costs
 

 
1,970

Increase in receivables
 
(9,790
)
 
(15,790
)
Increase in inventories
 
(4,560
)
 
(7,010
)
(Increase) decrease in prepaid expenses and other assets
 
10,780

 
(1,020
)
Decrease in accounts payable and accrued liabilities
 
(17,150
)
 
(15,540
)
Other, net
 
(780
)
 
(250
)
Net cash provided by operating activities of continuing operations
 
46,410

 
28,740

Net cash used for operating activities of discontinued operations
 

 
(14,030
)
Net cash provided by operating activities
 
46,410

 
14,710

Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(22,390
)
 
(20,360
)
Net proceeds from disposition of property and equipment
 
120

 
1,680

Net cash used for investing activities of continuing operations
 
(22,270
)
 
(18,680
)
Net cash used for investing activities of discontinued operations
 

 
(2,510
)
Net cash used for investing activities
 
(22,270
)
 
(21,190
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from borrowings on term loan facilities
 

 
275,000

Repayments of borrowings on term loan facilities
 
(10,380
)
 
(441,410
)
Proceeds from borrowings on revolving credit and accounts receivable facilities
 
314,860

 
995,620

Repayments of borrowings on revolving credit and accounts receivable facilities
 
(324,780
)
 
(1,006,490
)
Payments for deferred purchase price
 

 
(5,810
)
Debt financing fees
 

 
(1,850
)
Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations
 
(1,500
)
 
(2,620
)
Proceeds from exercise of stock options
 
120

 
430

Excess tax benefits from stock based compensation
 
640

 
300

Cash transferred to the Cequent businesses
 

 
(17,050
)
Net cash used for financing activities of continuing operations
 
(21,040
)
 
(203,880
)
Net cash provided by financing activities of discontinued operations
 

 
208,400

Net cash provided by (used for) financing activities
 
(21,040
)
 
4,520

Cash and Cash Equivalents:
 

 

Net increase (decrease) for the period
 
3,100

 
(1,960
)
At beginning of period
 
19,450

 
24,420

At end of period
 
$
22,550

 
$
22,460

Supplemental disclosure of cash flow information:
 

 

Cash paid for interest
 
$
8,870

 
$
12,320

Cash paid for taxes
 
$
9,130

 
$
22,260



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, 2016
(Unaudited—dollars in thousands)

 
 
Common
Stock
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Balances, December 31, 2015
 
$
450

 
$
812,160

 
$
(254,120
)
 
$
(11,300
)
 
$
547,190

Net income
 

 

 
27,560

 

 
27,560

Other comprehensive loss
 

 

 

 
(11,510
)
 
(11,510
)
Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations
 

 
(1,500
)
 

 

 
(1,500
)
Stock option exercises and restricted stock vestings
 
10

 
110

 

 

 
120

Tax effect from stock based compensation
 

 
(90
)
 

 

 
(90
)
Non-cash compensation expense
 

 
5,240

 

 

 
5,240

Balances, September 30, 2016
 
$
460

 
$
815,920

 
$
(226,560
)
 
$
(22,810
)
 
$
567,010



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  10 , " Segment Information ," for further information on each of the Company's reportable segments.
On June 30, 2015, the Company completed the 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. 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 the 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 the 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 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 2015 Annual Report on Form 10-K.
2 . New Accounting Pronouncements
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"). ASU 2016-15 clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows, with the objective of reducing existing diversity in practice. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and is to be applied using a retrospective approach with early adoption permitted. The Company is in the process of assessing the impact of adoption of ASU 2016-15 on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718)" ("ASU 2016-09"). ASU 2016-09 simplifies several aspects of accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The Company is in the process of assessing the impact of adoption of ASU 2016-09 on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). ASU 2016-02 requires that lessees, at the lease commencement date, recognize a lease liability representing the lessee's obligation to make lease payments arising from a lease as well as a right-of-use asset, which represents the lessee's right to use, or control the use of a specified asset, for the lease term. The new guidance also aligns lessor accounting to the lessee accounting model and to Topic 606, "Revenue from Contracts with Customers." ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 and is to be applied using a modified retrospective approach with early adoption permitted. The Company is in the process of assessing the impact of the adoption of ASU 2016-02 on its consolidated financial statements.

8

Table of Contents

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

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.
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. Since the issuance of the original standard, the FASB has issued several subsequent updates including the following: 1) the deferral of 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 (ASU 2015-14); 2) clarification of the implementation guidance on principal versus agent considerations (ASU 2016-08); 3) further guidance on identifying performance obligations in a contract as well as clarifications on the licensing implementation guidance (ASU 2016-10); 4) rescission of several SEC Staff Announcements that are codified in Topic 605, including, among other items, guidance related to accounting for shipping and handling fees and costs, freight services and consideration given by a vendor to a customer (ASU 2016-11); and 5) additional guidance and practical expedients in response to identified implementation issues (ASU 2016-12). The Company is in the process of assessing the impact of the adoption of these ASUs on its consolidated financial statements.
3 . Discontinued Operations
On June 30, 2015, the Company completed the 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 approximately $214.5 million to the Company.
Following the spin-off, there were no assets or liabilities remaining from the Cequent operations. The Cequent businesses are presented as discontinued operations in the Company's consolidated statement of income and cash flows for all periods presented.
Results of discontinued operations are summarized as follows (dollars in thousands):
 
 
Nine months ended September 30,
 
 
2015
Net sales
 
$
300,900

Cost of sales
 
(227,860
)
Gross profit
 
73,040

Selling, general and administrative expenses
 
(72,360
)
Operating profit
 
680

Interest expense
 
(2,540
)
Other expense, net
 
(1,970
)
Other expense, net
 
(4,510
)
Loss from discontinued operations, before income taxes
 
(3,830
)
Income tax expense
 
(910
)
Loss from discontinued operations, net of tax
 
$
(4,740
)

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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 nine months ended September 30, 2016 are summarized as follows (dollars in thousands):
 
Packaging
 
Aerospace
 
Energy
 
Engineered Components
 
Total
Balance, December 31, 2015
$
165,730

 
$
206,630

 
$

 
$
6,560

 
$
378,920

Foreign currency translation and other
(1,540
)
 

 

 

 
(1,540
)
Balance, September 30, 2016
$
164,190

 
$
206,630

 
$

 
$
6,560

 
$
377,380

The Company amortizes its other intangible assets over periods ranging from one to 30  years. The gross carrying amounts and accumulated amortization of the Company's other intangibles as of September 30, 2016 and December 31, 2015 are summarized below (dollars in thousands).
 
 
As of September 30, 2016
 
As of December 31, 2015
Intangible Category by Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
Finite-lived intangible assets:
 

 

 

 

   Customer relationships, 5 – 12 years
 
$
74,730

 
$
(31,770
)
 
$
74,890

 
$
(25,960
)
   Customer relationships, 15 – 25 years
 
132,230

 
(43,240
)
 
132,230

 
(38,060
)
Total customer relationships
 
206,960

 
(75,010
)
 
207,120

 
(64,020
)
   Technology and other, 1 – 15 years
 
57,780

 
(25,420
)
 
57,860

 
(22,770
)
   Technology and other, 17 – 30 years
 
43,300

 
(30,840
)
 
43,300

 
(29,250
)
Total technology and other
 
101,080

 
(56,260
)
 
101,160

 
(52,020
)
Indefinite-lived intangible assets:
 

 

 

 

 Trademark/Trade names
 
81,630

 

 
81,630

 

Total other intangible assets
 
$
389,670

 
$
(131,270
)
 
$
389,910

 
$
(116,040
)
Amortization expense related to intangible assets as included in the accompanying consolidated statement of income is summarized as follows (dollars in thousands):
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Technology and other, included in cost of sales
 
$
1,460

 
$
1,480

 
$
4,230

 
$
4,560

Customer relationships, included in selling, general and administrative expenses
 
3,680

 
3,730

 
11,100

 
11,230

Total amortization expense
 
$
5,140

 
$
5,210

 
$
15,330

 
$
15,790

5 . Inventories
Inventories consist of the following components (dollars in thousands):
 
 
September 30,
2016
 
December 31,
2015
Finished goods
 
$
97,800

 
$
101,480

Work in process
 
28,820

 
23,620

Raw materials
 
44,640

 
42,270

Total inventories
 
$
171,260

 
$
167,370


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Table of Contents

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

6 . Property and Equipment, Net
Property and equipment consists of the following components (dollars in thousands):
 
 
September 30,
2016
 
December 31,
2015
Land and land improvements
 
$
15,040

 
$
14,820

Buildings
 
69,390

 
67,790

Machinery and equipment
 
286,580

 
274,650

 
 
371,010

 
357,260

Less: Accumulated depreciation
 
189,010

 
176,130

Property and equipment, net
 
$
182,000

 
$
181,130

Depreciation expense as included in the accompanying consolidated statement of income is as follows (dollars in thousands):
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Depreciation expense, included in cost of sales
 
$
5,120

 
$
4,950

 
$
15,590

 
$
14,330

Depreciation expense, included in selling, general and administrative expenses
 
610

 
650

 
2,120

 
2,100

Total depreciation expense
 
$
5,730

 
$
5,600

 
$
17,710

 
$
16,430

7 . Long-term Debt
The Company's long-term debt consists of the following (dollars in thousands):
 
 
September 30,
2016
 
December 31,
2015
Credit Agreement
 
$
358,480

 
$
371,820

Receivables facility and other
 
48,990

 
53,860

Debt issuance costs
 
(5,050
)
 
(6,050
)
 
 
402,420

 
419,630

Less: Current maturities, long-term debt
 
13,840

 
13,850

Long-term debt, net
 
$
388,580

 
$
405,780

Credit Agreement
The Company is party to a credit agreement (the "Credit Agreement"), consisting 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.

11

Table of Contents

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

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, 2016 , 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, 2016 and December 31, 2015 , the Company had letters of credit of approximately $16.3 million and $21.6 million , respectively, issued and outstanding.
At September 30, 2016 , the Company had approximately $97.2 million outstanding under its revolving credit facility and had approximately $386.5 million potentially available after giving effect to approximately $16.3 million of letters of credit issued and outstanding. At December 31, 2015 , the Company had approximately $100.3 million outstanding under its revolving credit facility and had approximately $378.1 million potentially available after giving effect to approximately $21.6 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 approximately $78.3 million and $107.4 million at September 30, 2016 and December 31, 2015 , 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 approximately $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, 2016 , the Company was in compliance with its financial covenants contained in the Credit Agreement.
In June 2015, the Company amended its 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. In connection with entering into the amended Credit Agreement, the Company incurred approximately $1.8 million in fees to complete the Credit Agreement, of which approximately $1.4 million was capitalized as deferred financing fees as of June 30, 2015 and $0.4 million was recorded as debt financing fees in the accompanying consolidated statement of income during the three months ended June 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 term loan during the three months ended June 30, 2015.
As of September 30, 2016 and December 31, 2015 , the Company's Term Loan A Facility traded at approximately 99.6% of par value and the Company's revolving credit facility traded at approximately 99.3% of par value. The valuations of the Credit Agreement were determined based on Level 2 inputs under the fair value hierarchy, as defined.

12

Table of Contents

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

Receivables Facility
The Company is 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 $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 1-month LIBOR-based rate plus a usage fee of 1.00% and a fee on the unused portion of the facility of 0.35% as of September 30, 2016 and 2015 .
The Company had approximately $48.8 million and $53.6 million outstanding under the facility as of September 30, 2016 and December 31, 2015 , respectively, and approximately $8.6 million and $7.1 million available but not utilized as of September 30, 2016 and December 31, 2015 , respectively. Aggregate costs incurred under the facility were approximately $0.2 million for the three months ended September 30, 2016 and 2015 , and $0.7 million for the nine months ended September 30, 2016 and 2015 , respectively, and are included in interest expense in the accompanying consolidated statement of income. The facility expires on June 30, 2020 .
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 1-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, 2016 , 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 1.9% .
8 . 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, 2016 , the Company had interest rate swap agreements in place that hedge a declining notional value of debt ranging from approximately $248.2 million to approximately $192.7 million , amortizing consistent with future scheduled 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, 2016 and December 31, 2015 , the fair value carrying amount of the Company's derivative instruments are recorded as follows (dollars in thousands):
 
 
 
 
Asset / (Liability) Derivatives
 
 
Balance Sheet Caption
 
September 30,
2016
 
December 31,
2015
Derivatives designated as hedging instruments
 
 
 
 
 
 
Interest rate swaps
 
Other assets
 
$

 
$
430

Interest rate swaps
 
Accrued liabilities
 
(1,000
)
 
(150
)
Interest rate swaps
 
Other long-term liabilities
 
(7,800
)
 
(3,180
)
Total derivatives designated as hedging instruments
 
 
 
$
(8,800
)
 
$
(2,900
)

13

Table of Contents

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

The following table summarizes the loss recognized in accumulated other comprehensive income or loss ("AOCI") as of September 30, 2016 and December 31, 2015 , and the amounts reclassified from AOCI into earnings for the three and nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
Amount of 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,
2016
 
As of December 31, 2015
 
Location of Loss Reclassified from AOCI into Earnings (Effective Portion)
 
2016
 
2015
 
2016
 
2015
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
(5,450
)
 
$
(1,790
)
 
Interest expense
 
$
(250
)
 
$
(210
)
 
$
(470
)
 
$
(210
)
 
 
 
 
 
Loss from discontinued operations
 
$

 
$

 
$

 
$
(440
)
Over the next 12 months , the Company expects to reclassify approximately $1.0 million of pre-tax deferred losses from AOCI to interest expense as the related interest payments for the designated interest rate swaps are funded.
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, 2016 and December 31, 2015 are shown below (dollars in thousands).  
 
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)
September 30, 2016
Interest rate swaps
 
Recurring
 
$
(8,800
)
 
$

 
$
(8,800
)
 
$

December 31, 2015
Interest rate swaps
 
Recurring
 
$
(2,900
)
 
$

 
$
(2,900
)
 
$


14

Table of Contents

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

9 . Commitments and Contingencies
Asbestos
As of September 30, 2016 , the Company was a party to 800 pending cases involving an aggregate of 5,714 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, 2015
 
7,992

 
266

 
1,990

 
26

 
$
16,963

 
$
3,160,000

Nine Months Ended September 30, 2016
 
6,242

 
98

 
610

 
16

 
$
23,969

 
$
2,187,040

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 5,714 claims pending at September 30, 2016 , 96 set forth specific amounts of damages (other than those stating the statutory minimum or maximum). At September 30, 2016 , of the 96 claims that set forth specific amounts, there were no claims seeking specific amounts for punitive damages. Below is a breakdown of the amount sought for those claims seeking specific amounts:
 
 
Compensatory
Range of damages sought (dollars in millions)
 
$0.0 to $0.6
 
$0.6 to $5.0
 
$5.0+
Number of claims
 
6
 
33
 
57
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 $8.2 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 6 to 18 months, 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.

15

Table of Contents

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

Based on the settlements made to date and the number of claims dismissed or withdrawn for lack of product identification, the Company believes that the relief sought (when specified) does not bear a reasonable relationship to its potential liability. Based upon the Company's experience to date, including the trend in annual defense and settlement costs incurred to date, and other available information (including the availability of excess insurance), the Company does not believe these cases will have a material adverse effect on its financial position and results of operations or cash flows.
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. During the second quarter of 2015, the Company resolved a matter related to a claim made against the Company by a competitor alleging false advertising for approximately $2.8 million , inclusive of attorney fees and expenses.
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, using steel and plastic within 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.

16

Table of Contents

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

Segment activity is as follows (dollars in thousands):
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2016
 
2015
 
2016
 
2015
Net Sales
 
 
 
 
 
 
 
 
Packaging
 
$
90,330

 
$
87,930

 
$
258,550

 
$
256,470

Aerospace
 
47,430

 
45,380

 
132,020

 
134,340

Energy
 
38,230

 
51,600

 
122,930

 
152,910

Engineered Components
 
26,300

 
37,280

 
94,990

 
127,500

Total
 
$
202,290

 
$
222,190

 
$
608,490

 
$
671,220

Operating Profit (Loss)
 
 
 
 
 
 
 
 
Packaging
 
$
20,090

 
$
21,870

 
$
59,340

 
$
60,090

Aerospace
 
6,660

 
7,110

 
13,670

 
22,410

Energy
 
(1,870
)
 
(3,560
)
 
(8,570
)
 
(10,390
)
Engineered Components
 
3,180

 
4,380

 
12,620

 
16,570

Corporate expenses
 
(10,270
)
 
(8,240
)
 
(24,160
)
 
(24,890
)
Total
 
$
17,790

 
$
21,560

 
$
52,900

 
$
63,790


17

Table of Contents

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

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.
Stock Options
The Company granted 150,000 stock option awards during the nine months ended September 30, 2016 . The Company estimated the grant-date fair value of the awards using the Black-Scholes option pricing model using the following weighted-average assumptions: risk-free interest rate of 1.1% , expected volatility of 32.3% and an expected term of 6 years. Information related to stock options at September 30, 2016 is as follows:
 
 
Number of
Stock Options
 
Weighted Average Option Price
 
Average  Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Outstanding at January 1, 2016
 
206,123

 
$
4.84

 

 

Granted
 
150,000

 
17.87

 
 
 
 
  Exercised
 
(106,217
)
 
1.09

 

 

  Cancelled
 

 

 

 

  Expired
 
(38,827
)
 
19.42

 
 
 
 
Outstanding at September 30, 2016
 
211,079

 
$
13.30

 
7.7
 
$
1,123,709

As of September 30, 2016 , there was approximately $1.0 million of unrecognized compensation cost related to stock options that is expected to be recorded over a weighted-average period of 2.8 years.
The Company recognized approximately $0.1 million of stock-based compensation related to stock options during the nine months ended September 30, 2016 and no stock-based compensation during the nine months ended September 30, 2015 . The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of income.
Restricted Shares
The Company awarded the following restricted shares during the nine months ended September 30, 2016 :
granted 2,800 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 235,251 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 42,740 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 41,174 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.

18

Table of Contents

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

In addition, during the nine months ended September 30, 2016 , the Company issued 12,525 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 nine months ended September 30, 2016 , the Company awarded 198,956 performance-based shares of common stock to certain Company key employees which vest three years from the grant date 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 January 1, 2016 and ending December 31, 2018. 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 0.96% and annualized volatility of 35.8% .
During 2013, the Company awarded performance-based shares of common stock to certain Company key employees which were earned based upon the achievement of earnings per share compound annual growth rate and cash generation performance metrics over a period of three calendar years, beginning January 1, 2013 and ending on December 31, 2015. The Company attained 50% of the target on a weighted average basis, resulting in a reduction of 35,850 shares during the nine months ended September 30, 2016 .
Information related to restricted shares at September 30, 2016 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, 2016
 
765,314

 
$
23.73

 

 

  Granted
 
533,446

 
18.46

 

 

  Vested
 
(251,136
)
 
24.84

 

 

  Cancelled
 
(342,919
)
 
21.41

 

 

Outstanding at September 30, 2016
 
704,705

 
$
20.47

 
1.2
 
$
13,114,560

As of September 30, 2016 , there was approximately $6.3 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a weighted-average period of 1.9 years.
The Company recognized approximately $1.0 million and $1.7 million of stock-based compensation expense related to restricted shares during the three months ended September 30, 2016 and 2015 , respectively, and approximately $5.1 million and $4.6 million for the nine months ended September 30, 2016 and 2015 , respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying consolidated statement of income.

19

Table of Contents

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

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 is calculated to give effect to stock options and restricted share awards. The following table summarizes the dilutive effect of restricted shares and options to purchase common stock for the three and nine months ended September 30, 2016 and 2015 .
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2016
 
2015
 
2016
 
2015
Weighted average common shares—basic
 
45,435,936

 
45,157,412

 
45,381,592

 
45,102,067

Dilutive effect of restricted share awards
 
244,757

 
216,642

 
248,942

 
218,949

Dilutive effect of stock options
 
79,762

 
125,050

 
83,339

 
118,602

Weighted average common shares—diluted
 
45,760,455

 
45,499,104

 
45,713,873

 
45,439,618

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 and nine months ended September 30, 2016 and 2015 are as follows (dollars in thousands):
 
 
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,
 
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Service costs
 
$
250

 
$
210

 
$
740

 
$
680

 
$

 
$

 
$

 
$

Interest costs
 
390

 
380

 
1,180

 
1,210

 

 
10

 
10

 
20

Expected return on plan assets
 
(420
)
 
(420
)
 
(1,260
)
 
(1,430
)
 

 

 

 

Amortization of prior service cost
 

 

 
10

 
10

 

 

 

 

Settlement/curtailment loss
 

 

 

 
2,750

 

 

 

 

Amortization of net (gain)/loss
 
230

 
310

 
700

 
1,050

 
(10
)
 
(10
)
 
(40
)
 
(30
)
Net periodic benefit cost
 
$
450

 
$
480

 
$
1,370

 
$
4,270

 
$
(10
)
 
$

 
$
(30
)
 
$
(10
)
During the three months ended June 30, 2015, the Company settled the defined benefit obligation for certain current and former Cequent employees through purchasing annuities with an insurance company. The Company recognized a one-time settlement charge of approximately $2.8 million , which is included in loss from discontinued operations in the accompanying consolidated statement of income.
The Company contributed approximately $0.5 million and $1.6 million to its defined benefit pension plans during the three and nine months ended September 30, 2016 , respectively. The Company expects to contribute approximately $2.0 million to its defined benefit pension plans for the full year 2016 .

20

Table of Contents

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

14 . Other Comprehensive Income (Loss)
Changes in AOCI by component for the nine months ended September 30, 2016 are summarized as follows, net of tax (dollars in thousands):
 
 
Defined Benefit Plans
 
 Derivative Instruments
 
Foreign Currency Translation
 
Total
Balance, December 31, 2015
 
$
(12,370
)
 
$
(1,790
)
 
$
2,860

 
$
(11,300
)
Net unrealized losses arising during the period (a)
 

 
(3,950
)
 
(8,290
)
 
(12,240
)
Less: Net realized losses reclassified to net income (b)
 
(440
)
 
(290
)
 

 
(730
)
Net current-period other comprehensive income (loss)
 
440

 
(3,660
)
 
(8,290
)
 
(11,510
)
Balance, September 30, 2016
 
$
(11,930
)
 
$
(5,450
)
 
$
(5,430
)
 
$
(22,810
)
__________________________
(a) Derivative instruments, net of income tax of approximately $2.4 million . See Note 8 , " Derivative Instruments ," for further details.
(b) Defined benefit plans, net of income tax of approximately $0.2 million . See Note 13 , " Defined Benefit Plans ," for further details. Derivative instruments, net of income tax of approximately $0.2 million . See Note 8 , " Derivative Instruments ," for further details.
Changes in AOCI by component for the nine months ended September 30, 2015 are summarized as follows, net of tax (dollars in thousands):
 
 
Defined Benefit Plans
 
 Derivative Instruments
 
Foreign Currency Translation
 
Total
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)
 
(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 approximately $2.6 million . See Note 8 , " Derivative Instruments ," for further details.
(b) Defined benefit plans, net of income tax of approximately $1.7 million . See Note 13 , " Defined Benefit Plans ," for further details. Derivative instruments, net of income tax of approximately $0.3 million . See Note 8 , " 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, 2015.
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 are themselves significantly impacted by changes in economic conditions. There has been low overall economic growth, particularly in the United States, and global economic conditions appear to have been relatively stable over the past couple of years. The most significant external factor impacting us recently is the impact of lower oil prices, which began to decline in the fourth quarter of 2014, declined throughout 2015 and remained at low levels during the first nine months of 2016. This decline directly impacts our Arrow Engine business within our Engineered Components reportable segment (which serves the upstream oil and natural gas markets at the well site) and our Energy reportable segment, which primarily serves petrochemical and other refineries in the downstream oil and gas markets, as well as having a smaller portion of the business dedicated to upstream activity.
Our Arrow Engine business' revenue declined more than 50% during 2015 as compared to 2014, and again in the first nine months of 2016 compared with first nine months of 2015, and is expected to remain at a low level until the price of oil increases over a sustained period where its customers decide to increase their activity levels and related well-site investments. The Arrow Engine business reacted aggressively in cutting costs and structuring its business in response to the lower demand levels, and was able to remain at an approximately break-even profit level in 2015, and near break-even the first nine months of 2016 despite these significant reductions in revenue.
In our Energy business, the impact of the lower oil prices was muted in 2015 due to market share gains and adding product content to our product portfolio. We were able to essentially hold 2015 sales levels flat with 2014 until the fourth quarter, when capital spending was significantly reduced at many of our customers, and sales levels dropped more than 20% on a sequential basis. The sales level has remained at a lower level during the first nine months of 2016, as customers tightly manage spending initiatives.
In addition to the impact of lower oil prices, there has been a shift over the past two to three years in our Energy reportable segment from historical demand and activity, both in the United States and internationally. Petrochemical plants and refinery customers deferred shutdown activity, and we experienced decreases in engineering and construction ("E&C") customer activity. As noted above, we were able to hold sales levels essentially flat on a sequential quarterly basis in 2014 and until fourth quarter of 2015 with market share gains and additional product content; however, our margins declined significantly due to the mix of product sales and inefficiencies that resulted from the shift in activity levels. The current lower oil prices have continued to place further pressure on the top-line and predictability of customer order patterns. Given these factors, we have been restructuring the business and its fixed cost structure to better align with the current business environment. We closed as well as consolidated certain facilities during 2014 and 2015, and opened a new lower-cost facility in Mexico, which began production in the fourth quarter of 2015. We have begun, and expect to continue, to realize the cost savings and operational efficiencies associated with leveraging the new lower fixed cost structure and other initiatives.

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In addition to the impact of lower oil prices, the other significant external factor impacting our recent results is supply chain disruption within our Aerospace reportable segment. Beginning in the second quarter of 2015, our two largest Aerospace distribution customers began reducing their investment in on-hand inventory levels of fastener products, which we believe was partially in response to the decision of airframe original equipment ("OE") customers to source more product directly from the manufacturer. This trend has continued through the third quarter of 2016. While this has impacted our net sales, it has also had a significant impact on margin levels, as certain of these products historically command higher profit margins. In addition to the reduction in distribution customer sales, we also have experienced production and scheduling challenges in one of our Aerospace fastener facilities that has contributed to significantly lower margins in the first nine months of 2016 versus prior quarters and years. We established plans to address these matters and have been executing against those plans, as evidenced by our improved margins on a sequential quarterly basis during the second and third quarters of 2016. We will continue to monitor our operating results related to these matters and to determine if a trend develops that is other than temporary, in which case we may need to assess the potential for impairment of this reporting unit's long-lived assets, including goodwill and indefinite-lived intangible assets.
During the third quarter of 2015, given the uncertain economic environment and the impact on net sales and profitability of lower oil prices, a stronger U.S. dollar and slowing industrial production, 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. In February 2016, we added $7 million of cost savings actions, increasing the expected annual run-rate cost savings to $22 million. 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. We believe the FIP was necessary to help mitigate the external factors pressuring our revenue, and position the Company for improved profitability and operating leverage across a lower fixed cost structure in the future. The FIP is substantially complete, and the resulting savings is significantly helping to mitigate the impact of the reduction in year-over-year sales levels.
During the third quarter of 2016, given continued year-over-year net sales reductions, we accelerated additional facility consolidation actions in each of our reportable segments to more efficiently utilize our existing locations while better serving our customers. While each of the consolidation actions is not individually significant to the results of operations, they were enacted as part of our continuous improvement initiatives to optimize our manufacturing footprint and adapt to changing markets while remaining responsive to our customers. 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.
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, other than our fourth quarter has tended to be the lowest net sales quarter of the year given holiday shutdowns in certain customers or other customers deferring capital spending to the new year. 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 pass increased steel, 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.

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Table of Contents

Certain of our businesses are sensitive to oil price movements. As noted earlier, 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. In addition, a portion of our Energy reportable segment serves upstream customers at oil well sites that have been impacted by changes in oil prices. The majority of this segment provides parts for refineries and chemical plants, which may or may not decide to incur capital expenditures or changeover production stock, both of which require retooling with our gaskets and bolts, in times of fluctuating 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.

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Table of Contents

Segment Information and Supplemental Analysis
The following table summarizes financial information for our reportable segments for the three months ended September 30, 2016 and 2015 (dollars in thousands):
 
Three months ended September 30,
 
2016
 
As a Percentage
of Net Sales
 
2015
 
As a Percentage
of Net Sales
Net Sales
 
 
 
 
 
 
 
Packaging
$
90,330

 
44.7
 %
 
$
87,930

 
39.6
 %
Aerospace
47,430

 
23.4
 %
 
45,380

 
20.4
 %
Energy
38,230

 
18.9
 %
 
51,600

 
23.2
 %
Engineered Components
26,300

 
13.0
 %
 
37,280

 
16.8
 %
Total
$
202,290

 
100.0
 %
 
$
222,190

 
100.0
 %
Gross Profit
 
 
 
 
 
 
 
Packaging
$
32,180

 
35.6
 %
 
$
31,980

 
36.4
 %
Aerospace
13,080

 
27.6
 %
 
15,220

 
33.5
 %
Energy
7,670

 
20.1
 %
 
7,990

 
15.5
 %
Engineered Components
5,120

 
19.5
 %
 
7,280

 
19.5
 %
Total
$
58,050

 
28.7
 %
 
$
62,470

 
28.1
 %
Selling, General and Administrative Expenses
 
 
 
 
 
 
 
Packaging
$
12,090

 
13.4
 %
 
$
10,110

 
11.5
 %
Aerospace
6,420

 
13.5
 %
 
8,110

 
17.9
 %
Energy
9,540

 
25.0
 %
 
11,550

 
22.4
 %
Engineered Components
1,940

 
7.4
 %
 
2,900

 
7.8
 %
Corporate expenses
10,270

 
N/A

 
8,240

 
N/A

Total
$
40,260

 
19.9
 %
 
$
40,910

 
18.4
 %
Operating Profit (Loss)
 
 
 
 
 
 
 
Packaging
$
20,090

 
22.2
 %
 
$
21,870

 
24.9
 %
Aerospace
6,660

 
14.0
 %
 
7,110

 
15.7
 %
Energy
(1,870
)
 
(4.9
)%
 
(3,560
)
 
(6.9
)%
Engineered Components
3,180

 
12.1
 %
 
4,380

 
11.7
 %
Corporate expenses
(10,270
)
 
N/A

 
(8,240
)
 
N/A

Total
$
17,790

 
8.8
 %
 
$
21,560

 
9.7
 %
Depreciation and Amortization
 
 
 
 
 
 
 
Packaging
$
5,240

 
5.8
 %
 
$
5,200

 
5.9
 %
Aerospace
3,560

 
7.5
 %
 
3,300

 
7.3
 %
Energy
1,000

 
2.6
 %
 
1,240

 
2.4
 %
Engineered Components
1,020

 
3.9
 %
 
980

 
2.6
 %
Corporate expenses
50

 
N/A

 
90

 
N/A

Total
$
10,870

 
5.4
 %
 
$
10,810