UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One) | |||
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||
For the Quarterly Period Ended | |||
Or | |||
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
(Address of principal executive offices, including zip code)
(248 ) 631-5450
(Registrant's telephone number, including area code)
Title of each class | Trading symbol(s) | Name of exchange on which registered |
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 ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ||
Emerging growth company | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 23, 2019, the number of outstanding shares of the Registrant's common stock, $0.01 par value, was 45,243,642 shares.
TriMas Corporation
Index
1
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: general economic and currency conditions; material and energy costs; risks and uncertainties associated with intangible assets, including goodwill or other intangible asset impairment charges; competitive factors; future trends; our ability to realize our business strategies; our ability to identify attractive acquisition candidates, successfully integrate acquired operations or realize the intended benefits of such acquisitions; information technology and other cyber-related risks; the performance of our subcontractors and suppliers; supply constraints; market demand; intellectual property factors; litigation; government and regulatory actions, including, without limitation, the impact of tariffs, quotas and surcharges; our leverage; liabilities imposed by our debt instruments; labor disputes; changes to fiscal and tax policies; contingent liabilities relating to acquisition activities; the disruption of operations from catastrophic or extraordinary events, including natural disasters; the potential impact of Brexit; tax considerations relating to the Cequent spin-off; our future prospects; 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, 2018. 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, except as required by law.
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
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
TriMas Corporation
Consolidated Balance Sheet
(Dollars in thousands)
June 30, 2019 | December 31, 2018 | |||||||
Assets | (unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Receivables, net of reserves of approximately $3.7 million and $3.4 million as of June 30, 2019 and December 31, 2018, respectively | ||||||||
Inventories | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Property and equipment, net | ||||||||
Operating lease right-of-use assets | ||||||||
Goodwill | ||||||||
Other intangibles, net | ||||||||
Deferred income taxes | ||||||||
Other assets | ||||||||
Total assets | $ | $ | ||||||
Liabilities and Shareholders' Equity | ||||||||
Current liabilities: | ||||||||
Current maturities, long-term debt | $ | $ | ||||||
Accounts payable | ||||||||
Accrued liabilities | ||||||||
Operating lease liabilities, current portion | ||||||||
Total current liabilities | ||||||||
Long-term debt, net | ||||||||
Operating lease liabilities | ||||||||
Deferred income taxes | ||||||||
Other long-term liabilities | ||||||||
Total liabilities | ||||||||
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: 45,243,419 shares at June 30, 2019 and 45,527,993 shares at December 31, 2018 | ||||||||
Paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Total shareholders' equity | ||||||||
Total liabilities and shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
3
TriMas Corporation
Consolidated Statement of Income
(Unaudited—dollars in thousands, except for per share amounts)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales | $ | $ | $ | $ | ||||||||||||
Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Gross profit | ||||||||||||||||
Selling, general and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Operating profit | ||||||||||||||||
Other expense, net: | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense), net | ( | ) | ( | ) | ||||||||||||
Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income before income tax expense | ||||||||||||||||
Income tax expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Net income | $ | $ | $ | $ | ||||||||||||
Basic earnings per share: | ||||||||||||||||
Net income per share | $ | $ | $ | $ | ||||||||||||
Weighted average common shares—basic | ||||||||||||||||
Diluted earnings per share: | ||||||||||||||||
Net income per share | $ | $ | $ | $ | ||||||||||||
Weighted average common shares—diluted | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
4
TriMas Corporation
Consolidated Statement of Comprehensive Income
(Unaudited—dollars in thousands)
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net income | $ | $ | $ | $ | ||||||||||||
Other comprehensive income (loss): | ||||||||||||||||
Defined benefit plans (Note 16) | ||||||||||||||||
Foreign currency translation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Derivative instruments (Note 10) | ( | ) | ||||||||||||||
Total other comprehensive income (loss) | ( | ) | ||||||||||||||
Total comprehensive income | $ | $ | $ | $ | ||||||||||||
The accompanying notes are an integral part of these financial statements.
5
TriMas Corporation
Consolidated Statement of Cash Flows
(Unaudited—dollars in thousands)
Six months ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | $ | ||||||
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisition impact: | ||||||||
Loss on dispositions of assets | ||||||||
Depreciation | ||||||||
Amortization of intangible assets | ||||||||
Amortization of debt issue costs | ||||||||
Deferred income taxes | ||||||||
Non-cash compensation expense | ||||||||
Increase in receivables | ( | ) | ( | ) | ||||
Increase in inventories | ( | ) | ( | ) | ||||
Decrease in prepaid expenses and other assets | ||||||||
Decrease in accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
Other operating activities | ( | ) | ||||||
Net cash provided by operating activities, net of acquisition impact | ||||||||
Cash Flows from Investing Activities: | ||||||||
Capital expenditures | ( | ) | ( | ) | ||||
Acquisition of businesses, net of cash acquired | ( | ) | ||||||
Net proceeds from disposition of property and equipment | ||||||||
Net cash used for investing activities | ( | ) | ( | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from borrowings on revolving credit facilities | ||||||||
Repayments of borrowings on revolving credit facilities | ( | ) | ( | ) | ||||
Shares surrendered upon exercise and vesting of equity awards to cover taxes | ( | ) | ( | ) | ||||
Payments to purchase common stock | ( | ) | ( | ) | ||||
Net cash used for financing activities | ( | ) | ( | ) | ||||
Cash and Cash Equivalents: | ||||||||
Increase (decrease) for the period | ( | ) | ||||||
At beginning of period | ||||||||
At end of period | $ | $ | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | $ | ||||||
Cash paid for taxes | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
6
TriMas Corporation
Consolidated Statement of Shareholders' Equity
Three and Six Months Ended June 30, 2019 and 2018
(Unaudited—dollars in thousands)
Common Stock | Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||
Balances, December 31, 2018 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
Net income | — | — | — | |||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||
Purchase of common stock | — | ( | ) | — | — | ( | ) | |||||||||||||
Shares surrendered upon exercise and vesting of equity awards to cover taxes | — | ( | ) | — | — | ( | ) | |||||||||||||
Non-cash compensation expense | — | — | — | |||||||||||||||||
Impact of accounting standards adoption (Note 2) | — | — | ( | ) | ( | ) | ||||||||||||||
Balances, March 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
Net income | — | — | — | |||||||||||||||||
Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||
Purchase of common stock | ( | ) | ( | ) | — | — | ( | ) | ||||||||||||
Shares surrendered upon exercise and vesting of equity awards to cover taxes | — | ( | ) | — | — | ( | ) | |||||||||||||
Non-cash compensation expense | — | — | — | |||||||||||||||||
Balances, June 30, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
Common Stock | Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||
Balances, December 31, 2017 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
Net income | — | — | — | |||||||||||||||||
Other comprehensive loss | — | — | — | ( | ) | ( | ) | |||||||||||||
Shares surrendered upon exercise and vesting of equity awards to cover taxes | — | ( | ) | — | — | ( | ) | |||||||||||||
Non-cash compensation expense | — | — | — | |||||||||||||||||
Balances, March 31, 2018 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
Net income | — | — | — | |||||||||||||||||
Other comprehensive income | — | — | — | |||||||||||||||||
Purchase of common stock | — | ( | ) | — | — | ( | ) | |||||||||||||
Shares surrendered upon exercise and vesting of equity awards to cover taxes | — | ( | ) | — | — | ( | ) | |||||||||||||
Non-cash compensation expense | — | — | — | |||||||||||||||||
Balances, June 30, 2018 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||
The accompanying notes are an integral part of these financial statements.
7
1. Basis of Presentation
TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, is a diversified industrial manufacturer of products for customers in the consumer products, aerospace, industrial, petrochemical, refinery and oil and gas end markets.
In the first quarter of 2019, TriMas began reporting its machined components operations, located in Stanton, California and Tolleson, Arizona, in its Specialty Products reportable segment. This change was made in connection with the transition of leadership responsibilities out of Aerospace to Specialty Products, allowing the Company to better leverage the machining competencies and resources of these operations with the other businesses within the Specialty Products reportable segment, as well as provide the Company with the opportunity to expand sales of these products to customers outside of the aerospace market. In addition, this change enables the Company's Aerospace reportable segment to better focus on driving growth and innovation in its aerospace fastener and related product lines. See Note 13, "Segment Information," for further information on each of the Company's reportable segments.
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries and, in the opinion of management, contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of financial position and results of operations. Results of operations for interim periods are not necessarily indicative of results for the full year. Certain prior year amounts have been reclassified to conform with current year presentation. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company's 2018 Annual Report on Form 10-K.
2. New Accounting Pronouncements
Recently Issued Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)" ("ASU 2018-14"), which modifies the disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. ASU 2018-14 is to be applied retrospectively to all periods presented. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which simplifies the test for goodwill impairment by eliminating the requirement to perform a hypothetical purchase price allocation to measure the amount of goodwill impairment. ASU 2017-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company is in the process of assessing the impact of adoption on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which provides for the option to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act ("Tax Reform Act") classified within accumulated other comprehensive income (loss) ("AOCI") to retained earnings. The Company adopted ASU 2018-02 on January 1, 2019, and elected to reclassify approximately $1.3 million in stranded tax effects from accumulated other comprehensive loss to accumulated deficit on the accompanying consolidated balance sheet. The Company's accounting policy is to release the income tax effects from AOCI when a defined benefit plan or a derivative instrument is liquidated and/or settled.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" (“ASU 2016-02”) (the “New Lease Standard"), which requires lessees to recognize a lease liability and right-of-use (ROU) asset on its balance sheet for operating leases. Accounting for finance leases is substantially unchanged. The Company adopted the New Lease Standard on January 1, 2019 using a modified retrospective transition, with the cumulative-effect adjustment to the opening balance of accumulated deficit as of the effective date (the effective date method).
8
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
As a result of the adoption, the Company recognized approximately $40 million of right-of-use assets and lease liabilities on its consolidated balance sheet. Additionally, the Company recognized an approximate $0.1 million cumulative effective adjustment debit, net of tax, to accumulated deficit related to unamortized deferred losses for certain sale-leaseback transactions. The standard did not have an impact on the Company's consolidated statement of income.
3. Revenue
The following table presents the Company’s disaggregated net sales by primary end market served (dollars in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
Customer End Markets | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Consumer | $ | $ | $ | $ | ||||||||||||
Aerospace | ||||||||||||||||
Industrial | ||||||||||||||||
Oil and gas | ||||||||||||||||
Total net sales | $ | $ | $ | $ | ||||||||||||
4. Facility Closures
Bangalore, India facility
In May 2018, the Company exited its Bangalore, India facility within the Specialty Products reportable segment. In connection with this action, the Company recorded pre-tax charges of approximately $0.7 million within selling, general and administrative expenses and approximately $0.6 million within cost of sales related to severance benefits for employees involuntarily terminated, facility closure costs and costs related to the disposal of certain assets.
Reynosa, Mexico facility
In 2017, the Company ceased production at its Reynosa, Mexico facility within the Specialty Products reportable segment, and recorded a charge within cost of sales for estimated future unrecoverable lease obligations. During the second quarter of 2018, following entry into a sublease agreement for the facility, the Company re-evaluated its estimate of unrecoverable future obligations, and reduced its estimate by approximately $1.1 million.
5. Acquisitions
In April 2019, the Company acquired Taplast S.p.A. ("Taplast"), a designer and manufacturer of dispensers, closures and containers for the beauty and personal care, household, and food and beverage packaging end markets, for an aggregate amount of approximately $44.6 million, net of cash acquired. Located in both Italy and Slovakia, Taplast serves end markets in Europe and North America and generates approximately $32 million in annual revenue. Taplast is included in the Company's Packaging reportable segment.
In January 2019, the Company acquired Plastic Srl, a manufacturer of single-bodied and assembled polymeric caps and closures for use in home care product applications, for an aggregate amount of approximately $22.4 million, net of cash acquired. Located in Forli, Italy, Plastic Srl serves the home care market in Italy and other European countries and generates approximately $12 million in annual revenue. Plastic Srl is included in the Company's Packaging reportable segment.
9
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
In connection with these acquisitions, the Company recorded approximately $0.2 million and $1.2 million of non-cash purchase accounting-related expenses during the three and six months ended June 30, 2019, respectively. Of these amounts, approximately $0.9 million was recognized during the six months ended June 30, 2019, within selling, general and administrative expenses, primarily related to the write-off of the Plastic Srl trade name acquired that will not be used. In addition, approximately $0.2 million and $0.3 million was recognized during the three and six months ended June 30, 2019, respectively, within cost of sales related to the step-up in value and subsequent sale of inventory.
6. Goodwill and Other Intangible Assets
During the three months ended March 31, 2019, in an effort to better align the Company's machining competencies and resources, the Company began reporting its machined products operations within the Specialty Products reportable segment. These operations were previously reported in the Company's Aerospace reportable segment. As a result of the reporting structure change, the Company's previous Aerospace reporting unit was split into two new reporting units, Machined Products and Aerospace. The Company reallocated the goodwill attributed to the previous Aerospace reporting unit on a relative fair value basis between the Machined Products and the new Aerospace reporting units, resulting in an allocation of goodwill of $12.7 million and $133.7 million, respectively.
After the reallocation of goodwill, the Company performed a Step I quantitative assessment for both the Machined Products and the new Aerospace reporting units. As part of this assessment, the Company determined that the fair value of the Aerospace reporting unit exceeded its carrying value by more than 34 % and the fair value of the Machined Products reporting unit exceeded its carrying value by more than 13 %.
Changes in the carrying amount of goodwill for the six months ended June 30, 2019 are summarized as follows (dollars in thousands):
Packaging | Aerospace | Specialty Products | Total | ||||||||||||
Balance, December 31, 2018 | $ | $ | $ | $ | |||||||||||
Goodwill from acquisitions | |||||||||||||||
Goodwill reassigned in segment realignment | ( | ) | |||||||||||||
Foreign currency translation and other | ( | ) | ( | ) | |||||||||||
Balance, June 30, 2019 | $ | $ | $ | $ | |||||||||||
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 are summarized below (dollars in thousands):
As of June 30, 2019 | As of December 31, 2018 | |||||||||||||||
Intangible Category by Useful Life | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
Finite-lived intangible assets: | ||||||||||||||||
Customer relationships, 5 – 12 years | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Customer relationships, 15 – 25 years | ( | ) | ( | ) | ||||||||||||
Total customer relationships | ( | ) | ( | ) | ||||||||||||
Technology and other, 1 – 15 years | ( | ) | ( | ) | ||||||||||||
Technology and other, 17 – 30 years | ( | ) | ( | ) | ||||||||||||
Total technology and other | ( | ) | ( | ) | ||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||
Trademark/Trade names | — | — | ||||||||||||||
Total other intangible assets | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
10
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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 June 30, | Six months ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Technology and other, included in cost of sales | $ | $ | $ | $ | ||||||||||||
Customer relationships, included in selling, general and administrative expenses | ||||||||||||||||
Total amortization expense | $ | $ | $ | $ | ||||||||||||
7. Inventories
Inventories consist of the following components (dollars in thousands):
June 30, 2019 | December 31, 2018 | |||||||
Finished goods | $ | $ | ||||||
Work in process | ||||||||
Raw materials | ||||||||
Total inventories | $ | $ | ||||||
8. Property and Equipment, Net
Property and equipment consists of the following components (dollars in thousands):
June 30, 2019 | December 31, 2018 | |||||||
Land and land improvements | $ | $ | ||||||
Buildings | ||||||||
Machinery and equipment | ||||||||
Less: Accumulated depreciation | ||||||||
Property and equipment, net | $ | $ | ||||||
Depreciation expense as included in the accompanying consolidated statement of income is as follows (dollars in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Depreciation expense, included in cost of sales | $ | $ | $ | $ | ||||||||||||
Depreciation expense, included in selling, general and administrative expenses | ||||||||||||||||
Total depreciation expense | $ | $ | $ | $ | ||||||||||||
11
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
9. Long-term Debt
The Company's long-term debt consists of the following (dollars in thousands):
June 30, 2019 | December 31, 2018 | |||||||
4.875% Senior Notes due October 2025 | $ | $ | ||||||
Other debt | ||||||||
Debt issuance costs | ( | ) | ( | ) | ||||
Less: Current maturities, long-term debt | ||||||||
Long-term debt, net | $ | $ | ||||||
Senior Notes
In September 2017, the Company issued $300.0 million aggregate principal amount of 4.875 % senior notes due October 15, 2025 ("Senior Notes") at par value in a private placement under Rule 144A of the Securities Act of 1933, as amended. The Senior Notes accrue interest at a rate of 4.875 % per annum, payable semi-annually in arrears on April 15 and October 15, commencing on April 15, 2018 . The payment of principal and interest is jointly and severally guaranteed, on a senior unsecured basis, by certain subsidiaries of the Company (each a "Guarantor" and collectively the "Guarantors"). The Senior Notes are pari passu in right of payment with all existing and future senior indebtedness and subordinated to all existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Prior to October 15, 2020, the Company may redeem up to 35 % of the principal amount of the Senior Notes at a redemption price of 104.875 % of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, with the net cash proceeds of one or more equity offerings provided that each such redemption occurs within 90 days of the date of closing of each such equity offering. In addition, the Company may redeem all or part of the Senior Notes at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus a "make whole" premium. On or after October 15, 2020, the Company may redeem all or part of the Senior Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the twelve-month period beginning on October 15 of the years indicated below:
Year | Percentage | ||
2020 | % | ||
2021 | % | ||
2022 and thereafter | % | ||
Credit Agreement
The Company is a party to a credit agreement ("Credit Agreement") consisting of a $300.0 million senior secured revolving credit facility, which permits borrowings denominated in specific foreign currencies, subject to a $125.0 million sub limit, matures on September 20, 2022 and is subject to interest at London Interbank Offered Rate ("LIBOR") plus 1.50 %. 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 revolving credit facility commitments in an amount not to exceed the greater of $200.0 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 3.00 to 1.00. The terms and conditions of any incremental revolving credit facility commitments must be no more favorable than the existing credit facility.
12
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The Company's revolving credit facility allows for the issuance of letters of credit, not to exceed $40.0 million in aggregate. At June 30, 2019, the Company had no amounts outstanding under its revolving credit facility and had approximately $285.2 million potentially available after giving effect to approximately $14.8 million of letters of credit issued and outstanding. At December 31, 2018, the Company had no amounts outstanding under its revolving credit facility and had approximately $284.9 million potentially available after giving effect to approximately $15.1 million of letters of credit issued and outstanding. After consideration of leverage restrictions contained in the Credit Agreement, the Company had approximately $285.2 million and $284.9 million of borrowing capacity available for general corporate purposes at June 30, 2019 and December 31, 2018, respectively.
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 $125.0 million (equivalent) foreign currency sub limit of the $300.0 million senior secured revolving credit facility are secured by a cross-guarantee amongst, and 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 the ability, subject to certain exceptions and limitations, to incur 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 restricted subsidiaries to meet certain restrictive financial covenants and ratios computed quarterly, including a maximum total net leverage ratio (total consolidated indebtedness plus outstanding amounts under the accounts receivable securitization facility, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined), a maximum senior secured net leverage ratio (total consolidated senior secured indebtedness, less the aggregate amount of certain unrestricted cash and unrestricted permitted investments, as defined, over consolidated EBITDA, as defined) and a minimum interest expense coverage ratio (consolidated EBITDA, as defined, over the sum of consolidated cash interest expense, as defined, and preferred dividends, as defined). At June 30, 2019, the Company was in compliance with its financial covenants contained in the Credit Agreement.
Fair Value of Debt
The valuations of the Senior Notes and other debt were determined based on Level 2 inputs under the fair value hierarchy, as defined. The carrying amounts and fair values were as follows (dollars in thousands):
June 30, 2019 | December 31, 2018 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
Senior Notes | $ | $ | $ | $ | ||||||||||||
Other debt | ||||||||||||||||
10. Derivative Instruments
Derivatives Designated as Hedging Instruments
In October 2018, the Company entered into cross-currency swap agreements to hedge its net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. By doing so, the Company synthetically converted a portion of its U.S. dollar-based long-term debt into Euro-denominated long-term debt. The agreements have a five year tenor at notional amounts declining from $125.0 million to $75.0 million over the contract period. Under the terms of the swap agreements, the Company is to receive net interest payments at a fixed rate of approximately 2.9 % of the notional amount. At inception, the cross-currency swaps were designated as net investment hedges.
In October 2018, immediately prior to entering into these cross-currency swap agreements, the Company terminated its existing cross-currency swap agreements, de-designating the swaps as net investment hedges and receiving approximately $1.1 million of cash. The cross-currency swap agreements were entered into in October 2017 and hedged the Company's net investment in Euro-denominated assets against future volatility in the exchange rate between the U.S. dollar and the Euro. The agreements had a five year tenor at notional amounts declining from $150.0 million to $75.0 million over the contract period. Under the terms of the swap agreements, the Company was to receive net interest payments at a fixed rate of approximately 2.1 % of the notional amount.
13
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
As of June 30, 2019 and December 31, 2018, the fair value carrying amount of the Company's derivative instruments are recorded as follows (dollars in thousands):
Asset / (Liability) Derivatives | ||||||||||
Derivatives designated as hedging instruments | Balance Sheet Caption | June 30, 2019 | December 31, 2018 | |||||||
Net Investment Hedges | ||||||||||
Cross-currency swaps | Other assets | $ | $ | |||||||
The following table summarizes the income recognized in AOCI on derivative contracts designated as hedging instruments as of June 30, 2019 and December 31, 2018, and the amounts reclassified from AOCI into earnings for the three and six months ended June 30, 2019 and 2018 (dollars in thousands):
Amount of Income Recognized in AOCI on Derivative (Effective Portion, net of tax) | Amount of Income (Loss) Reclassified from AOCI into Earnings | ||||||||||||||||||||||||
Three months ended March 31, | Six months ended June 30, | ||||||||||||||||||||||||
As of June 30, 2019 | As of December 31, 2018 | Location of Income (Loss) Reclassified from AOCI into Earnings (Effective Portion) | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Net Investment Hedges | |||||||||||||||||||||||||
Cross-currency swaps | $ | $ | Other income (expense), net | ||||||||||||||||||||||