Trimas_093012_10Q
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, 2012

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 o
 
Accelerated filer x
 
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 25, 2012, the number of outstanding shares of the Registrant's common stock, $0.01 par value, was 39,299,544 shares.

Table of Contents

TriMas Corporation
Index
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1
Table of Contents

Forward-Looking Statements
This report contains forward-looking statements (as that term is defined by the federal securities laws) about our financial condition, results of operations and business. You can find many of these statements by looking for words such as "may," "will," "expect," "anticipate," "believe," "estimate" and similar words used in this report.
These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution readers not to place undue reliance on the statements, which speak only as of the date of this report.
The cautionary statements set forth above should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We do not undertake any obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statement to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
You should carefully consider the factors discussed in Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deemed to be immaterial also may materially adversely affect our business, financial position and results of operations or cash flows.
We disclose important factors that could cause our actual results to differ materially from our expectations under Part I, Item 2., "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this report. These cautionary statements qualify all forward-looking statements attributed to us or persons acting on our behalf. When we indicate that an event, condition or circumstance could or would have an adverse effect on us, we mean to include effects upon our business, financial and other condition, results of operations, prospects and ability to service our debt.


2
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

TriMas Corporation
Consolidated Balance Sheet
(Unaudited—dollars in thousands)


 
September 30,
2012

December 31,
2011
Assets
 

 

Current assets:
 

 

Cash and cash equivalents
 
$
26,090


$
88,920

Receivables, net of reserves of approximately $3.8 million as of September 30, 2012 and December 31, 2011, respectively
 
185,040


135,610

Inventories
 
220,450


178,030

Deferred income taxes
 
18,510


18,510

Prepaid expenses and other current assets
 
10,150


10,620

Total current assets
 
460,240

 
431,690

Property and equipment, net
 
180,100


159,210

Goodwill
 
269,260


215,360

Other intangibles, net
 
208,910


155,670

Other assets
 
26,780


24,610

Total assets
 
$
1,145,290

 
$
986,540

Liabilities and Shareholders' Equity
 

 

Current liabilities:
 

 

Current maturities, long-term debt
 
$
17,950


$
7,290

Accounts payable
 
148,890


146,930

Accrued liabilities
 
79,480


70,140

Total current liabilities
 
246,320

 
224,360

Long-term debt
 
412,040


462,610

Deferred income taxes
 
66,340


64,780

Other long-term liabilities
 
78,780


61,000

Total liabilities
 
803,480

 
812,750

Redeemable noncontrolling interests
 
26,370

 
—

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: 39,299,544 shares at September 30, 2012 and 34,613,607 shares at December 31, 2011
 
390

 
350

Paid-in capital
 
631,250

 
538,610

Accumulated deficit
 
(356,930
)
 
(404,750
)
Accumulated other comprehensive income
 
40,730

 
39,580

Total shareholders' equity
 
315,440

 
173,790

Total liabilities and shareholders' equity
 
$
1,145,290

 
$
986,540



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

3
Table of Contents

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

 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2012
 
2011
 
2012
 
2011
Net sales
 
$
335,870

 
$
277,660

 
$
971,870

 
$
824,310

Cost of sales
 
(245,730
)
 
(195,720
)
 
(706,930
)
 
(582,260
)
Gross profit
 
90,140

 
81,940

 
264,940

 
242,050

Selling, general and administrative expenses
 
(53,550
)
 
(46,170
)
 
(156,730
)
 
(137,180
)
Net gain on dispositions of property and equipment
 
10

 
20

 
330

 
50

Operating profit
 
36,600

 
35,790

 
108,540

 
104,920

Other expense, net:
 
 
 
 
 
 
 
 
Interest expense
 
(9,450
)
 
(10,730
)
 
(30,420
)
 
(34,370
)
Debt extinguishment costs
 
—

 
—

 
(6,560
)
 
(3,970
)
Other income (expense), net
 
140

 
540

 
(2,410
)
 
(1,170
)
Other expense, net
 
(9,310
)
 
(10,190
)
 
(39,390
)
 
(39,510
)
Income from continuing operations before income tax expense
 
27,290

 
25,600

 
69,150

 
65,410

Income tax expense
 
(7,330
)
 
(8,620
)
 
(19,770
)
 
(21,730
)
Income from continuing operations
 
19,960

 
16,980

 
49,380

 
43,680

Income from discontinued operations, net of income tax expense
 
—

 
1,290

 
—

 
3,430

Net income
 
19,960

 
18,270

 
49,380

 
47,110

Less: Net income attributable to noncontrolling interests
 
1,290

 
—

 
1,560

 
—

Net income attributable to TriMas Corporation
 
$
18,670

 
$
18,270

 
$
47,820

 
$
47,110

Basic earnings per share attributable to TriMas Corporation:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.48

 
$
0.49

 
$
1.29

 
$
1.28

Discontinued operations
 
—

 
0.04

 
—

 
0.10

Net income per share
 
$
0.48

 
$
0.53

 
$
1.29

 
$
1.38

Weighted average common shares—basic
 
39,045,282

 
34,417,879

 
36,994,192

 
34,182,592

Diluted earnings per share attributable to TriMas Corporation:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.47

 
$
0.49

 
$
1.28

 
$
1.26

Discontinued operations
 
—

 
0.03

 
—

 
0.10

Net income per share
 
$
0.47

 
$
0.52

 
$
1.28

 
$
1.36

Weighted average common shares—diluted
 
39,508,503

 
34,901,277

 
37,379,292

 
34,736,307




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,
 
 
2012
 
2011
 
2012
 
2011
Net income
 
$
19,960

 
$
18,270

 
$
49,380

 
$
47,110

Other comprehensive income:
 
 
 
 
 
 
 
 
Amortization of defined benefit plan deferred (gains) losses (net of tax of $470 thousand and $30 thousand, and $360 thousand and $90 thousand for the three and nine months ended September 30, 2012 and 2011, respectively) (Note 14)
 
(740
)
 
60

 
(530
)
 
170

Foreign currency translation
 
3,040

 
(11,340
)
 
2,680

 
(3,990
)
Net changes in unrealized loss on derivative instruments (net of tax of $0.1 million for the three months ended September 30, 2012, and $0.6 million and $0.1 million for the nine months ended September 30, 2012 and 2011, respectively) (Note 9)
 
(80
)
 
—

 
(1,000
)
 
230

Total other comprehensive income (loss)
 
2,220

 
(11,280
)
 
1,150

 
(3,590
)
Total comprehensive income
 
22,180

 
6,990

 
50,530

 
43,520

Less: Net income attributable to noncontrolling interests
 
1,290

 
—

 
1,560

 
—

Total comprehensive income attributable to TriMas Corporation
 
$
20,890

 
$
6,990

 
$
48,970

 
$
43,520





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,
 
 
2012
 
2011
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
49,380

 
$
47,110

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

 

Gain on dispositions of property and equipment
 
(330
)
 
(30
)
Depreciation
 
18,990

 
19,160

Amortization of intangible assets
 
14,460

 
10,780

Amortization of debt issue costs
 
2,240

 
2,230

Deferred income taxes
 
(3,480
)
 
14,420

Debt extinguishment costs
 
6,560

 
3,970

Non-cash compensation expense
 
6,640

 
2,580

Excess tax benefits from stock based compensation
 
(2,310
)
 
(3,840
)
Increase in receivables
 
(38,750
)
 
(39,080
)
Increase in inventories
 
(31,440
)
 
(13,500
)
Increase in prepaid expenses and other assets
 
(600
)
 
(2,320
)
Decrease in accounts payable and accrued liabilities
 
(6,130
)
 
(4,750
)
Other, net
 
170

 
(1,180
)
Net cash provided by operating activities, net of acquisition impact
 
15,400

 
35,550

Cash Flows from Investing Activities:
 

 

Capital expenditures
 
(36,440
)
 
(23,520
)
Acquisition of businesses, net of cash acquired
 
(84,600
)
 
(28,620
)
Net proceeds from disposition of assets
 
2,950

 
2,240

Net cash used for investing activities
 
(118,090
)
 
(49,900
)
Cash Flows from Financing Activities:
 

 

Proceeds from sale of common stock in connection with the Company's equity offering, net of issuance costs
 
79,040

 
—

Proceeds from borrowings on term loan facilities
 
140,370

 
226,520

Repayments of borrowings on term loan facilities
 
(130,850
)
 
(250,170
)
Proceeds from borrowings on revolving credit facilities and accounts receivable facility
 
555,300

 
551,900

Repayments of borrowings on revolving credit facilities and accounts receivable facility
 
(555,300
)
 
(547,020
)
Repurchase of 9¾% senior secured notes
 
(50,000
)
 
—

Senior secured notes redemption premium and debt financing fees
 
(4,880
)
 
(6,680
)
Distributions to noncontrolling interests
 
(820
)
 
—

Shares surrendered upon vesting of options and restricted stock awards to cover tax obligations
 
(990
)
 
(830
)
Proceeds from exercise of stock options
 
5,680

 
960

Excess tax benefits from stock based compensation
 
2,310

 
3,840

Net cash provided by (used for) financing activities
 
39,860

 
(21,480
)
Cash and Cash Equivalents:
 

 

Decrease for the period
 
(62,830
)
 
(35,830
)
At beginning of period
 
88,920

 
46,370

At end of period
 
$
26,090

 
$
10,540

Supplemental disclosure of cash flow information:
 

 

Cash paid for interest
 
$
20,990

 
$
25,350

Cash paid for taxes
 
$
23,000

 
$
12,140


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, 2012
(Unaudited—dollars in thousands)

 
 
TriMas Corporation
 
 
 
 
Common
Stock
 
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Total
Balances, December 31, 2011
 
$
350

 
$
538,610

 
$
(404,750
)
 
$
39,580

 
$
173,790

Net income attributable to TriMas Corporation
 
—

 
—

 
47,820

 
—

 
47,820

Other comprehensive income
 
—

 
—

 
—

 
1,150

 
1,150

Net proceeds from equity offering of common stock (Note 2)
 
40

 
79,000

 
—

 
—

 
79,040

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

 
(990
)
 
—

 
—

 
(990
)
Stock option exercises and restricted stock vestings
 
—

 
5,680

 
—

 
—

 
5,680

Excess tax benefits from stock based compensation
 
—

 
2,310

 
—

 
—

 
2,310

Non-cash compensation expense
 
—

 
6,640

 
—

 
—

 
6,640

Balances, September 30, 2012
 
$
390

 
$
631,250

 
$
(356,930
)
 
$
40,730

 
$
315,440




















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


7
Table of Contents

TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1. Basis of Presentation
TriMas Corporation ("TriMas" or the "Company"), and its consolidated subsidiaries, is a global manufacturer and distributor of products for commercial, industrial and consumer markets. The Company is principally engaged in the following reportable segments with diverse products and market channels: Packaging, Energy, Aerospace & Defense, Engineered Components, Cequent Asia Pacific and Cequent Americas. The Company renamed its former "Cequent North America" reportable segment "Cequent Americas" effective in the third quarter of 2012 following an acquisition in Brazil to more appropriately reflect the expanding geography covered by the businesses in this reportable segment. See Note 11, "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 the current year presentation. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company's 2011 Annual Report on Form 10-K.
2. Equity Offering
In May 2012, the Company issued 4,000,000 shares of its common stock via a public offering at a price of $20.75 per share. Net proceeds from the offering, after deducting underwriting discounts, commissions and offering expenses of $4.0 million, totaled approximately $79.0 million. Approximately $54.9 million of the net proceeds were utilized to redeem $50.0 million aggregate principal of the Company's 9¾% senior secured notes due 2017 ("Senior Notes"). The remaining net proceeds were used for general corporate purposes, including acquisitions, capital expenditures and working capital requirements. See Note 8, "Long-term Debt," for further information on the Company's partial redemption of its Senior Notes.
3. Discontinued Operations and Assets Held for Sale
During the third quarter of 2011, the Company committed to a plan to exit its precision tool cutting and specialty fittings lines of business, both of which were part of the Engineered Components reportable segment. The businesses were sold in December 2011 for cash proceeds of $36.4 million and a note receivable of $2.2 million, which was collected during the second quarter of 2012, resulting in a pre-tax gain on sale of approximately $10.3 million. The purchase agreement also includes up to $2.5 million of additional contingent consideration, based on achievement of certain levels of future financial performance in 2012 and 2013.
The results of the aforementioned businesses are reported as discontinued operations for all periods presented. Results of discontinued operations are summarized as follows:
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(dollars in thousands)
Net sales
 
$
—

 
$
11,930

 
$
—

 
$
34,670

Income from discontinued operations before income tax expense
 
$
—

 
$
2,050

 
$
—

 
$
5,450

Income tax expense
 
—

 
(760
)
 
—

 
(2,020
)
Income from discontinued operations, net of income tax expense
 
$
—

 
$
1,290

 
$
—

 
$
3,430



8
Table of Contents

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

4. Acquisitions
Arminak & Associates
On February 24, 2012, the Company acquired 70% of the membership interests of Arminak & Associates, LLC ("Arminak") for the purchase price of approximately $67.7 million. Arminak is in the business of designing, manufacturing and supplying foamers, lotion pumps, fine mist sprayers and other packaging solutions for the cosmetic, personal care and household product markets. The acquisition of Arminak enhances the Company's highly-engineered product offering and provides access to large global customers in the cosmetic and personal care markets. Arminak is included in the Company's Packaging reportable segment.
The purchase agreement provides the Company an option to purchase, and the Sellers an option to sell, the remaining 30% noncontrolling interest at specified dates in the future based on a multiple of future earnings, as defined. The put and call options become exercisable during the first quarters of 2014, 2015 and 2016. During the first exercise period, in 2014, TriMas and Arminak's previous owners ("Sellers") have the opportunity to put or call a 10% interest in Arminak. During the second exercise period, in 2015, TriMas and the Sellers have the opportunity to put or call an additional 10%, or up to all remaining interests held by Sellers per joint agreement, as defined in the purchase agreement. Finally, during the third exercise period, in 2016, a call or put may be exercised for all or any portions of the remaining interests held by the Sellers.
The combination of a noncontrolling interest and a redemption feature resulted in a redeemable noncontrolling interest, which is classified outside of permanent equity on the accompanying consolidated balance sheet. In order to estimate the fair value of the redeemable noncontrolling interest in Arminak, the Company utilized the Monte Carlo valuation method, using variations of estimated future discounted cash flows given certain significant assumptions including expected revenue growth, minimum and maximum estimated levels of gross profit margin, future expected cash flows, amounts transferred during each put and call exercise period and appropriate discount rates. As these assumptions are not observable in the market, the calculation represents a Level 3 fair value measurement. The Company recorded the redeemable noncontrolling interest at fair value at the date of acquisition.
Each reporting period, the Company adjusts the carrying amount of the noncontrolling interest to the greater of (1) the initial carrying amount, increased or decreased for the noncontrolling interest's share of Arminak's net income or loss and its share of comprehensive income or loss and dividends and (2) the redemption value as determined by the specified multiple of earnings, as defined. This method views the end of the reporting period as if it were also the redemption date for the redeemable noncontrolling interest. If the fair value of the redeemable noncontrolling interest is less than the redemption value, there may be a charge to earnings per share attributable to TriMas Corporation. At September 30, 2012, the estimated fair value of the redeemable noncontrolling interest exceeded the redemption value.
Changes in the carrying amount of redeemable noncontrolling interest are summarized as follows:
 
 
Nine months ended
September 30, 2012
 
 
(dollars in thousands)
Beginning balance, February 24, 2012
 
$
25,630

Distributions to noncontrolling interests
 
(820
)
Net income attributable to noncontrolling interests
 
1,560

Ending balance, September 30, 2012
 
$
26,370


9
Table of Contents

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

The following table summarizes the fair value of consideration paid for Arminak, and the assets acquired and liabilities assumed, as well as the fair value of the noncontrolling interest in Arminak at the acquisition date. During the third quarter of 2012, the Company finalized the net working capital adjustment, which increased the total consideration by approximately $0.3 million, and made certain other insignificant measurement period adjustments to provisional amounts recognized at the acquisition date.
 
 
(dollars in thousands)
Consideration
 
 
Initial cash paid net of working capital adjustment
 
$
59,200

Contingent consideration (a)
 
8,490

Total consideration
 
$
67,690

Recognized amounts of identifiable assets acquired and liabilities assumed
 
 
Receivables
 
$
8,760

Inventories
 
4,200

Intangible assets other than goodwill (b)
 
48,400

Other assets
 
2,450

Accounts payable and accrued liabilities
 
(4,270
)
Long-term liabilities
 
(1,610
)
Total identifiable net assets
 
57,930

Redeemable noncontrolling interests
 
(25,630
)
Goodwill (c)
 
35,390

 
 
$
67,690

__________________________
(a) The contingent consideration represented the Company's best estimate, based on its review, at the time of purchase, of the underlying potential obligations estimated at a range of $8 million to $9 million, of certain Seller tax-related liabilities for which the Company has indemnified the Sellers as part of the purchase agreement. During the second and third quarters of 2012, the Company paid $3.7 million of additional purchase price related to the contingent consideration. The remaining liability range of $4.3 million to $5.3 million continues to represent the Company's best estimate of the remaining potential obligation at September 30, 2012.
(b) Consists of $33.0 million of customer relationships with an estimated 10 year useful life, $7.9 million of trademarks/trade names with an indefinite useful life and $7.5 million of technology and other intangible assets with an estimated 8 year useful life.
(c) All of the goodwill was assigned to the Company's Packaging reportable segment and is expected to be deductible for tax purposes.
The results of operations of Arminak are included in the Company's results beginning February 24, 2012. The actual amounts of net sales and net income of Arminak included in the accompanying consolidated statement of operations are summarized as follows:
 
 
Three months ended
September 30, 2012
 
Nine months ended
September 30, 2012
 
 
(dollars in thousands)
Net sales
 
$
23,640

 
$
45,000

Net income
 
$
4,310

 
$
5,210


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

The following table summarizes the supplemental pro forma results of the combined entity as if the acquisition had occurred on January 1, 2011. The supplemental pro forma information presented below is for informational purposes and is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated on January 1, 2011:
 
 
Pro forma Combined (a)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(dollars in thousands)
Net sales
 
$
335,870

 
$
295,080

 
$
979,900

 
$
867,310

Net income attributable to TriMas Corporation
 
$
18,670

 
$
19,390

 
$
49,790

 
$
45,420

___________________________
(a) The supplemental pro forma results from continuing operations reflect certain adjustments, such as adjustments for acquisition costs incurred and purchase accounting adjustments related to step-up in value and subsequent amortization of inventory and intangible assets.
Total acquisition costs incurred by the Company in connection with its purchase of Arminak, primarily related to third-party legal, accounting and tax diligence fees, were approximately $1.3 million, of which approximately $0.3 million were incurred during the fourth quarter of 2011 and $1.0 million were incurred during the first quarter of 2012. These costs are recorded in selling, general and administrative expenses in the accompanying consolidated statement of operations.
Other Acquisitions
During the third quarter of 2012, the Company completed acquisitions for approximately $22 million in cash, in aggregate, with an additional estimated $12 million of deferred purchase price and contingent consideration, based primarily on post-acquisition operating results, payable over the next five years. Within its Energy reportable segment, the Company acquired CIFAL Industrial e Comercial Ltda ("CIFAL"), a Brazilian manufacturer and supplier of specialty fasteners and stud bolts, primarily to the oil and gas industry. CIFAL generated approximately $9 million in revenue for the twelve months ended June 30, 2012. Within its Cequent Americas reportable segment, the Company acquired Engetran Engenharia, Industria, e Comericio de Pecas e Accesorios Veiculares Ltda ("Engetran"), a Brazilian manufacturer of trailering and towing products including trailer hitches, skid plates and related accessories. Engetran generated approximately $6 million in revenue for the twelve months ended June 30, 2012. Lastly, within its Cequent Asia Pacific reportable segment, the Company acquired Trail Com Limited ("Trail Com"). Trail Com, with locations in New Zealand and Australia, is a distributor of towing accessories and trailer components. Trail Com generated approximately $12 million in revenue for the twelve months ended June 30, 2012.

During the third quarter of 2011, the Company completed acquisitions for an aggregate amount of approximately $29.1 million. Within its Packaging reportable segment, the Company acquired the stock of Innovative Molding ("Innovative"), a manufacturer of specialty plastic closures for bottles and jars for the food and nutrition industries located in California, for the purchase price of $27.0 million. Within its Energy reportable segment, the Company purchased substantially all of the assets of a standard ring type joint gasket manufacturer located in Faridabad, India for the purchase price of approximately $2.1 million.

The results of operations of these other acquisitions are not significant compared to the overall results of operations of the Company.


11
Table of Contents

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

5. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended September 30, 2012 are summarized as follows:
 
Packaging
 
Energy
 
Aerospace & Defense
 
Engineered Components
 
Cequent Asia Pacific
 
Cequent Americas
 
Total
 
(dollars in thousands)
Balance, December 31, 2011
$
122,330

 
$
48,720

 
$
41,130

 
$
3,180

 
$
—

 
$
—

 
$
215,360

 Goodwill from acquisitions
35,390

 
14,200

 
—

 
—

 
—

 
3,500

 
53,090

 Foreign currency translation
590

 
220

 
—

 
—

 
—

 
—

 
810

Balance, September 30, 2012
$
158,310

 
$
63,140

 
$
41,130

 
$
3,180

 
$
—

 
$
3,500

 
$
269,260

The gross carrying amounts and accumulated amortization of the Company's other intangibles as of September 30, 2012 and December 31, 2011 are summarized below. The Company amortizes these assets over periods ranging from 1 to 30 years.
 
 
As of September 30, 2012
 
As of December 31, 2011
Intangible Category by Useful Life
 
Gross Carrying Amount
 
Accumulated Amortization
 
Gross Carrying Amount
 
Accumulated Amortization
 
 
(dollars in thousands)
Finite-lived intangible assets:
 

 

 

 

   Customer relationships, 5 – 12 years
 
$
84,590

 
$
(28,070
)
 
$
37,400

 
$
(23,410
)
   Customer relationships, 15 – 25 years
 
154,610

 
(83,900
)
 
154,610

 
(77,730
)
Total customer relationships
 
239,200

 
(111,970
)
 
192,010

 
(101,140
)
   Technology and other, 1 – 15 years
 
36,680

 
(25,550
)
 
29,360

 
(23,710
)
   Technology and other, 17 – 30 years
 
43,770

 
(22,520
)
 
43,640

 
(20,860
)
Total technology and other
 
80,450

 
(48,070
)
 
73,000

 
(44,570
)
Indefinite-lived intangible assets:
 

 

 

 

 Trademark/Trade names
 
49,300

 
—

 
36,370

 
—

Total other intangible assets
 
$
368,950

 
$
(160,040
)
 
$
301,380

 
$
(145,710
)
Amortization expense related to intangible assets as included in the accompanying consolidated statement of operations is summarized as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(dollars in thousands)
Technology and other, included in cost of sales
 
$
1,270

 
$
950

 
$
3,620

 
$
2,590

Customer relationships, included in selling, general and administrative expenses
 
4,000

 
2,790

 
10,840

 
8,190

Total amortization expense
 
$
5,270

 
$
3,740

 
$
14,460

 
$
10,780



12
Table of Contents

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

6. Inventories
Inventories consist of the following components:
 
 
September 30,
2012
 
December 31,
2011
 
 
(dollars in thousands)
Finished goods
 
$
146,340

 
$
119,020

Work in process
 
28,360

 
21,730

Raw materials
 
45,750

 
37,280

Total inventories
 
$
220,450

 
$
178,030

7. Property and Equipment, Net
Property and equipment consists of the following components:
 
 
September 30,
2012
 
December 31,
2011
 
 
(dollars in thousands)
Land and land improvements
 
$
5,840

 
$
5,740

Buildings
 
57,190

 
51,480

Machinery and equipment
 
325,600

 
291,960

 
 
388,630

 
349,180

Less: Accumulated depreciation
 
208,530

 
189,970

Property and equipment, net
 
$
180,100

 
$
159,210

Depreciation expense as included in the accompanying consolidated statement of operations is as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(dollars in thousands)
Depreciation expense, included in cost of sales
 
$
5,400

 
$
5,260

 
$
16,420

 
$
15,300

Depreciation expense, included in selling, general and administrative expense
 
900

 
730

 
2,570

 
2,200

Total depreciation expense
 
$
6,300

 
$
5,990

 
$
18,990

 
$
17,500



13
Table of Contents

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

8. Long-term Debt
The Company's long-term debt consists of the following:
 
 
September 30,
2012
 
December 31,
2011
 
 
(dollars in thousands)
U.S. bank debt and receivables facility
 
$
217,190

 
$
223,870

Non-U.S. bank debt and other
 
15,780

 
140

9¾% senior secured notes, due December 2017
 
197,020

 
245,890

 
 
429,990

 
469,900

Less: Current maturities, long-term debt
 
17,950

 
7,290

Long-term debt
 
$
412,040

 
$
462,610

U.S. Bank Debt
The Company is a party to a credit facility consisting of a $125.0 million revolving credit facility, which matures in June 2016 and is subject to interest at London Interbank Offered Rates ("LIBOR") plus 3.25%, and a $225.0 million term loan facility, which matures in June 2017 and is subject to interest at LIBOR plus 3.00% (subject to a 1.25% LIBOR floor) (collectively, the "Credit Agreement").
Under the Credit Agreement, the Company may be required to prepay a portion of its term loan under an excess cash flow sweep provision, as defined, with the amount of such prepayment based on the Company's leverage ratio, as defined. In April 2012, the Company prepaid $5.0 million of term loan principal under this provision. The Company is also able to issue letters of credit, not to exceed $50.0 million in aggregate, against its revolving credit facility commitments. At September 30, 2012 and December 31, 2011, the Company had letters of credit of approximately $23.3 million and $23.9 million, respectively, issued and outstanding.
At September 30, 2012 and December 31, 2011, the Company had no amounts outstanding under its revolving credit facilities and had $101.7 million and $101.1 million, respectively, potentially available after giving effect to approximately $23.3 million and $23.9 million, respectively, 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 $191.1 million and $158.8 million, respectively, of borrowing capacity available to it for general corporate purposes.
The debt under the Credit Agreement is an obligation of the Company and certain of its subsidiaries. Although the terms of the Credit Agreement do not restrict the Company's subsidiaries from making distributions to it in respect of its Senior Notes, it does contain certain other limitations on the distribution of funds from TriMas Company LLC, the Company's principal subsidiary. The restricted net assets of the guarantor subsidiaries of approximately $513.4 million and $412.8 million at September 30, 2012 and December 31, 2011, respectively, are presented in Note 17, "Supplemental Guarantor Condensed Consolidating Financial Information." The Credit Agreement also contains various negative and affirmative covenants and other requirements affecting the Company and its subsidiaries. The Company was in compliance with its covenants at September 30, 2012.
During the second quarter of 2011, the Company incurred $6.6 million in fees to complete the refinance of its U.S. bank debt, of which $4.2 million was capitalized as deferred financing fees and $2.4 million was recorded as debt extinguishment costs in the accompanying statement of operations. In addition, the Company also recorded debt extinguishment costs of $1.6 million related to deferred financing fees associated with the previous credit agreement.
The Company's term loan facility traded at approximately 99.8% and 99.0% of par value as of September 30, 2012 and December 31, 2011, respectively, and was valued based on Level 2 inputs as defined in the fair value hierarchy.
Non-U.S. Bank Debt
The Company's Australian subsidiary is party to a debt agreement which matures on May 31, 2013 and is secured by substantially all the assets of the subsidiary. At September 30, 2012, the balance outstanding under this agreement was approximately $15.6 million at an average interest rate of 3.6%. At December 31, 2011, the Company's Australian subsidiary had no amounts outstanding under this debt agreement.

14
Table of Contents

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

Notes
In June 2012, the Company completed a partial redemption of its Senior Notes using cash proceeds from its May 2012 equity offering, paying approximately $54.9 million to redeem $50.0 million in aggregate principal at a redemption price equal to 109.750% of the principal amount. In connection with this partial redemption, the Company also incurred non-cash debt extinguishment costs of approximately $1.7 million. See Note 2, "Equity Offering," for further information on the Company's equity offering.
The Company's Senior Notes indenture contains negative and affirmative covenants and other requirements that are comparable to those contained in the Credit Agreement. At September 30, 2012, the Company was in compliance with all such covenant requirements.
The Company's Senior Notes traded at approximately 115.0% and 108.5% of par value as of September 30, 2012 and December 31, 2011, respectively, and was valued based on Level 2 inputs as defined in the fair value hierarchy.
Receivables Facility
The Company is a party to an accounts receivable facility through TSPC, Inc. ("TSPC"), a wholly-owned subsidiary, to sell trade accounts receivable of substantially all of the Company's domestic business operations. Under this facility, TSPC, from time to time, may sell an undivided fractional ownership interest in the pool of receivables up to approximately $90.0 million to a third party multi-seller receivables funding company. The net amount financed under the facility is less than the face amount of accounts receivable by an amount that approximates the purchaser's financing costs. The cost of funds under this facility consisted of a 3-month LIBOR-based rate plus a usage fee of 1.50% as of September 30, 2012 and 2011, respectively, and a fee on the unused portion of the facility of 0.45% as of September 30, 2012 and 2011, respectively.
The Company did not have any amounts outstanding under the facility as of September 30, 2012 or December 31, 2011, but had $89.4 million and $57.6 million, respectively, available but not utilized. Aggregate costs incurred under the facility were $0.3 million and $0.5 million for the three months ended September 30, 2012 and 2011, respectively, and $0.8 million and $1.4 million for the nine months ended September 30, 2012 and 2011, respectively, and are included in interest expense in the accompanying consolidated statement of operations. The facility expires on September 15, 2015.
The cost of funds fees incurred are determined by calculating the estimated present value of the receivables sold compared to their carrying amount. The estimated present value factor is based on historical collection experience and a discount rate based on a 3-month LIBOR-based rate plus the usage fee discussed above and is computed in accordance with the terms of the securitization agreement. As of September 30, 2012, the cost of funds under the facility was based on an average liquidation period of the portfolio of approximately 1.6 months and an average discount rate of 1.8%.
9. Derivative Instruments
In March 2012, the Company entered into an interest rate swap agreement to fix the LIBOR-based variable portion of the interest rate on a total of $100.0 million notional amount of its term loan facility. The swap agreement fixes the LIBOR-based variable portion of the interest rate at 1.80% and expires on June 23, 2016. The Company has designated the swap agreement as a cash flow hedge.
In addition, the Company was party to a $125.0 million notional amount interest rate swap which expired in July 2011 and a second interest rate swap with a notional amount of $75.0 million which expired in the first quarter of 2011. Both of these swaps were associated with the Company's previous term loan facility, but during 2011 neither was designated as a hedging instrument. During 2011, a loss of $10 thousand was recognized in interest expense.

15
Table of Contents

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

As of September 30, 2012 and December 31, 2011, the fair value carrying amount of the Company's interest rate swaps are recorded as follows:
 
 
 
 
Asset Derivatives
 
Liability Derivatives
 
 
Balance Sheet Caption
 
September 30,
2012
 
December 31,
2011
 
September 30,
2012
 
December 31,
2011
 
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate swap
 
Accrued liabilities
 
$
—

 
$
—

 
$
550

 
$
—

Interest rate swap
 
Other long-term liabilities
 
—

 
—

 
1,060

 
—

Total derivatives designated as hedging instruments
 
 
 
$
—

 
$
—

 
$
1,610

 
$
—

The effect of interest rate swaps on the consolidated statement of operations for the three and nine months ended September 30, 2012 and 2011 is summarized as follows:
 
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,
2012
 
As of December 31, 2011
 
Location of Loss Reclassified from AOCI into Earnings (Effective Portion)
 
2012
 
2011
 
2012
 
2011
 
(dollars in thousands)
 
 
 
(dollars in thousands)
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
(1,000
)
 
$
—

 
Interest expense
 
$
(140
)
 
$
—

 
$
(250
)
 
$
(360
)
Over the next 12 months, the Company expects to reclassify approximately $0.6 million of pre-tax deferred losses from accumulated other comprehensive income to interest expense as the related interest payments for the designated interest rate swaps are recognized.
 
Valuations of the interest rate swap were based on the income approach, which uses observable inputs such as interest rate yield curves and forward currency exchange rates. Fair value measurements and the fair value hierarchy level for the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 are shown below.  
 
 
 
 
September 30, 2012
Description
 
Frequency
 
Asset / (Liability)
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
 
 
 
(dollars in thousands)
Interest rate swaps
 
Recurring
 
$
(1,610
)
 
$
—

 
$
(1,610
)
 
$
—



16
Table of Contents

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

10. Commitments and Contingencies
Asbestos
As of September 30, 2012, the Company was a party to 1,119 pending cases involving an aggregate of 7,972 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, 2011
 
8,200

 
476

 
607

 
21

 
$
14,300

 
$
2,510,000

Nine Months Ended September 30, 2012
 
8,048

 
278

 
340

 
14

 
16,379

 
2,054,220

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 7,972 claims pending at September 30, 2012, 76 set forth specific amounts of damages (other than those stating the statutory minimum or maximum). Below is a breakdown of the amount sought for those claims seeking specific amounts:
 
 
Compensatory & Punitive
 
Compensatory Only
 
Punitive Only
Range of damages sought (in millions)
 
$0.2 to $5.0
 
$5.0 to $10.0
 
$10.0+
 
$0.1 to $0.6
 
$0.6 to $5.0
 
$5.0+
 
$0.0 to $2.5
 
$2.5 to $5.0
 
$5.0+
Number of claims
 
57
 
15
 
4
 
51
 
22
 
3
 
57
 
15
 
4
In addition, relatively few of the claims have reached the discovery stage and even fewer claims have gone past the discovery stage.
Total settlement costs (exclusive of defense costs) for all asbestos-related cases, some of which were filed over 20 years ago, have been approximately $6.3 million. All relief sought in the asbestos cases is monetary in nature. To date, approximately 40% of the Company's costs related to settlement and defense of asbestos litigation have been covered by its primary insurance. Effective February 14, 2006, the Company entered into a coverage-in-place agreement with its first level excess carriers regarding the coverage to be provided to the Company for asbestos-related claims when the primary insurance is exhausted. The coverage-in-place agreement makes asbestos defense costs and indemnity coverage available to the Company that might otherwise be disputed by the carriers and provides a methodology for the administration of such expenses. Nonetheless, the Company believes it is likely there will be a period within the next one or two years, prior to the commencement of coverage under this agreement and following exhaustion of the Company's primary insurance coverage, during which the Company will be solely responsible for defense costs and indemnity payments, the duration of which would be subject to the scope of damage awards and settlements paid.

17
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.
Ordinary Course Claims
The Company is subject to other claims and litigation in the ordinary course of business, but does not believe that any such claim or litigation will have a material adverse effect on its financial position and results of operations or cash flows.
11. Segment Information
TriMas groups its operating segments into reportable segments that provide similar products and services. Each operating segment has discrete financial information evaluated regularly by the Company's chief operating decision maker in determining resource allocation and assessing performance. Within these reportable segments, there are no individual products or product families for which reported net sales accounted for more than 10% of the Company's consolidated net sales. See below for more information regarding the types of products and services provided within each reportable segment:
Packaging – Highly engineered closure and dispensing systems for a range of end markets, including steel and plastic industrial and consumer packaging applications.
Energy – Metallic and non-metallic industrial sealant products and fasteners for the petroleum refining, petrochemical and other industrial markets.
Aerospace & Defense – Highly engineered specialty fasteners and screws for the commercial and military aerospace industries and military munitions components for the defense industry.
Engineered Components – High-pressure and low-pressure cylinders for the transportation, storage and dispensing of compressed gases, and natural gas engines, compressors, gas production equipment and chemical pumps engineered at well sites for the oil and gas industry.
Cequent Asia Pacific & Cequent Americas – Custom-engineered towing, trailering and electrical products including trailer couplers, winches, jacks, trailer brakes and brake control solutions, lighting accessories and roof racks for the recreational vehicle, agricultural/utility, marine, automotive and commercial trailer markets, functional vehicle accessories and cargo management solutions including vehicle hitches and receivers, sway controls, weight distribution and fifth-wheel hitches, hitch-mounted accessories and other accessory components.

18
Table of Contents

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

Segment activity is as follows:
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(dollars in thousands)
Net Sales
 
 
 
 
 
 
 
 
Packaging
 
$
77,240

 
$
46,090

 
$
202,250

 
$
137,890

Energy
 
45,460

 
42,690

 
143,220

 
125,810

Aerospace & Defense
 
20,810

 
20,330

 
58,000

 
60,160

Engineered Components
 
51,880

 
46,010

 
154,180

 
126,870

Cequent Asia Pacific
 
37,480

 
26,020

 
94,230

 
67,390

Cequent Americas
 
103,000

 
96,520

 
319,990

 
306,190

Total
 
$
335,870

 
$
277,660

 
$
971,870

 
$
824,310

Operating Profit (Loss)
 
 
 
 
 
 
 
 
Packaging
 
$
18,240

 
$
10,240

 
$
44,700

 
$
37,140

Energy
 
3,780

 
4,560

 
14,520

 
14,920

Aerospace & Defense
 
6,030

 
5,420

 
15,710

 
14,000

Engineered Components
 
6,310

 
7,730

 
22,620

 
19,010

Cequent Asia Pacific
 
3,950

 
5,250

 
9,000

 
9,720

Cequent Americas
 
8,430

 
9,580

 
28,090

 
30,630

Corporate expenses
 
(10,140
)
 
(6,990
)
 
(26,100
)
 
(20,500
)
Total
 
$
36,600

 
$
35,790

 
$
108,540

 
$
104,920

12. Equity Awards
The Company maintains the following long-term equity incentive plans: 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"). See below for details of awards under the Plans by type.
Stock Options
The Company did not grant any stock options during the three or nine months ended September 30, 2012. Information related to stock options at September 30, 2012 is as follows:
 
 
Number of Options
 
Weighted Average Option Price
 
Average  Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Outstanding at January 1, 2012
 
1,271,149

 
$
13.29

 

 

  Exercised
 
(509,763
)
 
10.90

 

 

  Cancelled
 
(2,500
)
 
23.00

 

 

  Expired
 
(15,308
)
 
20.00

 
 
 
 
Outstanding at September 30, 2012
 
743,578

 
$
14.76

 
4.4
 
$
6,950,057

As of September 30, 2012, 717,292 stock options were exercisable under the Plans. In addition, the fair value of options which vested during the nine months ended September 30, 2012 and 2011 was $0.4 million and $0.3 million, respectively.

19
Table of Contents

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

The Company did not incur significant stock-based compensation expense related to stock options during the three or nine months ended September 30, 2012 and 2011.
Restricted Shares
During the nine months ended September 30, 2012, the Company issued 6,302 shares related to director fee deferrals. The Company allows for its non-employee independent directors to make an annual election to defer all or a portion of their directors fees and to receive the deferred amount in cash or equity. Certain of the Company's directors have elected to defer all or a portion of their directors fees and to receive the amount in Company common stock at a future date.
The Company also awarded multiple restricted stock grants during the first quarter of 2012. First, the Company granted 19,532 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.
Secondly, the Company awarded 60,665 restricted shares of common stock to certain employees during the first quarter of 2012. These shares are subject only to a service condition and vest on the first anniversary date of the award. The awards were made to participants in the Company's short-term Incentive Compensation Plan ("ICP"), where, beginning in the 2010 plan year, all ICP participants whose target ICP 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 each year, following the previous plan year.
The Company awarded 206,064 restricted shares to certain Company key employees during the first quarter of 2012. Half of the restricted shares granted are service-based restricted stock units. These awards vest ratably over three years. The other half of the shares are subject to a performance condition and are earned based upon the achievement of two performance metrics over a period of three calendar years, beginning on January 1, 2012 and ending on December 31, 2014. Of this award, 75% of the awards are earned based upon the Company's earnings per share ("EPS") cumulative average growth rate ("EPS CAGR") over the performance period. The remaining 25% of the grants are earned based upon the Company's cash generation results. Cash generation is defined as the Company's cumulative three year cash flow from operating activities less capital expenditures, as publicly reported by the Company, plus or minus special items that may occur from time-to-time, divided by the Company's three-year income from continuing operations as publicly reported by the Company, plus or minus special items that may occur from time-to-time. Depending on the performance achieved for these two metrics, the amount of shares earned can vary from 30% of the target award to a maximum amount of 200% of the target award for the cash flow metric and 250% of the target award for the EPS CAGR metric. However, if these performance metrics are not achieved, no award will be earned. The performance awards vest on a "cliff" basis at the end of the three-year performance period.
During the first quarter of 2012, the Company also awarded 166,530 restricted shares to certain Company key employees which are solely performance-based grants. Of this award, 60% are earned based on 2012 earnings per share growth, and the remaining 40% are earned based on the EPS CAGR for 2012 and 2013. Depending on the performance achieved for these two specific metrics, the amount of shares earned can vary from 30% of the target award to a maximum amount of 250% of the target award. However, if these performance metrics are not achieved, no award will be earned.
In addition, the Company granted 16,440 restricted shares of its 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 his services prior to the vesting date.
Information related to restricted shares at September 30, 2012 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, 2012
 
332,043

 
$
16.25

 

 

  Granted
 
475,533

 
24.30

 

 

  Vested
 
(151,027
)
 
16.77

 

 

  Cancelled
 
(13,856
)
 
23.91

 

 

Outstanding at September 30, 2012
 
642,693

 
$
21.92

 
1.8
 
$
15,495,328


20
Table of Contents

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

As of September 30, 2012, there was approximately $8.8 million of unrecognized compensation cost related to unvested restricted shares that is expected to be recorded over a weighted-average period of 1.6 years.
The Company recognized approximately $2.7 million and $0.8 million of stock-based compensation expense related to restricted shares during the three months ended September 30, 2012 and 2011, respectively, and approximately $6.2 million and $2.4 million for the nine months ended September 30, 2012 and 2011, respectively. The stock-based compensation expense is included in selling, general and administrative expenses in the accompanying statement of operations.
13. Earnings per Share
Net earnings are divided by the weighted average number of shares outstanding during the period to calculate basic earnings per share. Diluted earnings per share are calculated to give effect to stock options and other stock-based awards. The calculation of diluted earnings per share included 289,120 and 156,213 restricted shares for the three months ended September 30, 2012 and 2011, respectively and 164,163 and 114,911 restricted shares for the nine months ended September 30, 2012 and 2011, respectively. The calculation of diluted earnings per share also included options to purchase 174,101 and 327,185 shares of common stock for the three months ended September 30, 2012 and 2011, respectively and 220,937 and 438,803 for the nine months ended September 30, 2012 and 2011, respectively.
14. Defined Benefit Plans
Net periodic pension and postretirement benefit costs for the Company's defined benefit pension plans and postretirement benefit plans cover foreign employees, union hourly employees and certain salaried employees. The components of net periodic pension and postretirement benefit costs for the three and nine months ended September 30, 2012 and 2011 are as follows:
 
 
Pension Plans
 
Other Postretirement Benefits
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
2012
 
2011
 
 
(dollars in thousands)
Service costs
 
$
150

 
$
160

 
$
450

 
$
480

 
$
—

 
$
—

 
$
—

 
$
—

Interest costs
 
410

 
400

 
1,210

 
1,200

 
20

 
10

 
40

 
30

Expected return on plan assets
 
(430
)
 
(400
)
 
(1,280
)
 
(1,210
)
 
—

 
—

 
—

 
—

Amortization of prior service cost
 
—

 
—

 
10

 
10

 
(70
)
 
(70
)
 
(200
)
 
(200
)
Settlement/curtailment (gain)
 
—

 
—

 
—

 
—

 
(1,490
)
 
—

 
(1,490
)
 
—

Amortization of net (gain)/loss
 
260

 
180

 
790

 
530

 
(20
)
 
(20
)
 
(60
)
 
(60
)
Net periodic benefit cost
 
$
390

 
$
340

 
$
1,180

 
$
1,010

 
$
(1,560
)
 
$
(80
)
 
$
(1,710
)
 
$
(230
)
During the third quarter of 2012, the Company recognized previously deferred gains associated with one of the Company's postretirement benefit plans of approximately $1.5 million as a result of not having any remaining eligible participants.
The Company contributed approximately $1.0 million and $5.5 million to its defined benefit pension plans during the three and nine months ended September 30, 2012, respectively. The Company expects to contribute approximately $5.8 million to its defined benefit pension plans for the full year 2012.


21
Table of Contents

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

15. New Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update 2012-2, "Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment" ("ASU 2012-2"). ASU 2012-2 gives companies the option to perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, and in some cases, skip the two-step impairment test. The objective of the revised standard is to simplify how an entity tests indefinite-lived intangible assets for impairment and to reduce the cost and complexity of the annual impairment test. ASU 2012-2 will be effective annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is currently evaluating this guidance and the potential impact of the revised standard on the Company's annual indefinite-lived intangible asset impairment test.
16. Subsequent Event
In October 2012, the Company amended and restated its existing Credit Agreement (the "Amended and Restated Credit Agreement" or "ARCA"), pursuant to which the Company was able to reduce interest rates, extend maturities and increase its available liquidity. Below is a summary of the key terms under the ARCA:
Instrument
 
Amount
($ in millions)
 
Maturity Date
 
Interest Rate
Senior Secured Revolving Credit facility
 
$
250.0

 
10/11/2017
 
LIBOR plus 2.00%
Senior Secured Term Loan A facility
 
$
200.0

 
10/11/2017
 
LIBOR plus 2.00%
Senior Secured Term Loan B facility
 
$
200.0

 
10/11/2019
 
LIBOR plus 2.75% with a 1.00% LIBOR floor
The Company used the proceeds from borrowings under the ARCA to repay outstanding amounts under the existing Credit Agreement and to complete a tender offer for its Senior Notes, pursuant to which $176.5 million aggregate principal amount were repurchased, representing 88.3% of the aggregate principal amount outstanding.
The Company incurred approximately $40 million in cash costs during the fourth quarter to complete the above debt restructuring, primarily related to the tender offer premium in connection with the repurchase of the Senior Notes.
17. Supplemental Guarantor Condensed Consolidating Financial Information
Under an indenture dated December 29, 2009, TriMas Corporation, the parent company ("Parent"), issued its Senior Notes in a total principal amount of $250.0 million (face value). The outstanding Senior Notes are fully and unconditionally guaranteed on a joint and several basis by substantially all of the Company's domestic subsidiaries ("Guarantor Subsidiaries”). The Company's non-domestic subsidiaries and TSPC, Inc. have not guaranteed the Senior Notes ("Non-Guarantor Subsidiaries"). The Guarantor Subsidiaries have also guaranteed amounts outstanding under the Company's Credit Agreement.
The accompanying supplemental guarantor condensed, consolidating financial information is presented using the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the Company's share in the subsidiaries' cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.


22
Table of Contents

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

Supplemental Guarantor
Condensed Financial Statements
Consolidating Balance Sheet
(dollars in thousands)
 
 
September 30, 2012
 
 
Parent
 
Guarantor
 
Non-
Guarantor
 
Eliminations
 
Consolidated Total
Assets
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
—

 
$
5,860

 
$
20,230

 
$
—

 
$
26,090

Trade receivables, net
 
—

 
147,400

 
37,640

 
—

 
185,040

Receivables, intercompany
 
—

 
10,200

 
—

 
(10,200
)
 
—

Inventories
 
—

 
163,700

 
56,750

 
—

 
220,450

Deferred income taxes
 
—

 
17,320

 
1,190

 
—

 
18,510

Prepaid expenses and other current assets
 
—

 
8,590

 
1,560

 
—

 
10,150

Total current assets
 
—

 
353,070

 
117,370

 
(10,200
)
 
460,240

Investments in subsidiaries
 
513,420

 
170,050

 
—

 
(683,470
)
 
—

Property and equipment, net
 
—

 
111,420

 
68,680

 
—

 
180,100

Goodwill
 
—

 
204,680

 
64,580

 
—

 
269,260

Intangibles and other assets
 
4,780

 
203,640

 
28,610

 
(1,340
)
 
235,690

Total assets
 
$
518,200

 
$
1,042,860

 
$
279,240

 
$
(695,010
)
 
$
1,145,290

Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Current maturities, long-term debt
 
$
—

 
$
2,330

 
$
15,620

 
$
—

 
$
17,950

Accounts payable, trade
 
—

 
110,260

 
38,630

 
—

 
148,890

Accounts payable, intercompany
 
—

 
—

 
10,200

 
(10,200
)
 
—

Accrued liabilities
 
5,740

 
60,650

 
13,090

 
—

 
79,480

Total current liabilities
 
5,740

 
173,240

 
77,540

 
(10,200
)
 
246,320

Long-term debt
 
197,020

 
215,020

 
—

 
—

 
412,040

Deferred income taxes
 
—

 
56,760

 
10,920

 
(1,340
)
 
66,340

Other long-term liabilities
 
—

 
58,050

 
20,730

 
—

 
78,780

Total liabilities
 
202,760

 
503,070

 
109,190

 
(11,540
)
 
803,480

Redeemable noncontrolling interest
 
—

 
26,370

 
—

 
—

 
26,370

Total shareholders' equity
 
315,440

 
513,420

 
170,050

 
(683,470
)
 
315,440

Total liabilities and shareholders' equity
 
$
518,200

 
$
1,042,860

 
$
279,240

 
$
(695,010
)
 
$
1,145,290


23
Table of Contents

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

Supplemental Guarantor
Condensed Financial Statements
Consolidating Balance Sheet
(dollars in thousands)
 
 
December 31, 2011
 
 
Parent
 
Guarantor
 
Non-
Guarantor
 
Eliminations
 
Consolidated Total
Assets
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents