TriMas Corporation — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015, including fourth-quarter results. The filing presents continuing operations for Packaging, Aerospace, Energy and Engineered Components. Cequent was spun off as Horizon Global on June 30, 2015, and is presented as discontinued operations for all periods.
Business Context and Reporting Period
TriMas designs, manufactures and distributes engineered products for commercial, industrial and consumer markets. Packaging and Aerospace are the company’s principal strategic growth platforms, while Energy and Engineered Components were materially affected by lower oil prices, reduced drilling activity and weaker industrial demand.
- Approximately 4,200 employees at year-end; 49% were located outside the United States and 19% were unionized.
- Continuing-operations sales were 13.7% from foreign subsidiaries, with an additional $82.7 million of U.S. export sales.
- The Horizon spin-off reduced TriMas’s asset base and changed its capital structure. Horizon distributed $214.5 million of cash to TriMas in connection with the separation.
Financial Results and Key Metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Net sales | $864.0 million | $887.3 million | Down 2.6% |
| Gross profit | $236.1 million | $237.0 million | Down $0.9 million |
| Gross margin | 27.3% | 26.7% | Up 60 basis points |
| Operating profit (loss) | $(4.3) million | $86.7 million | Down $91.0 million |
| Operating margin | (0.5)% | 9.8% | Down 1,030 basis points |
| Income (loss) from continuing operations | $(28.7) million | $46.9 million | Declined $75.6 million |
| Net income (loss) | $(33.4) million | $69.3 million | Declined $102.7 million |
| Basic loss per share | $(0.74) | $1.53 | From profit to loss |
Fourth-quarter sales were $192.8 million versus $223.4 million in the prior-year quarter. Fourth-quarter loss from continuing operations was $60.8 million, including approximately $75.7 million of goodwill and indefinite-lived intangible asset impairment charges.
Segment Performance
| Segment | 2015 Sales | 2015 Operating Profit (Loss) | Key change versus 2014 |
|---|---|---|---|
| Packaging | $334.3 million | $78.5 million | Sales down 1.0%; profit up slightly as productivity and mix offset currency pressure. |
| Aerospace | $176.5 million | $28.3 million | Sales up 45.2%, primarily from Allfast and the Tolleson acquisition; margin improved to 16.0%. |
| Energy | $193.4 million | $(97.2) million | Sales down 6.4%; impairment, restructuring, port delays and weaker refinery and upstream demand drove the loss. |
| Engineered Components | $159.8 million | $18.2 million | Sales down 27.8%; engine and compression sales fell sharply with lower oil prices and drilling activity. |
Cash Flow, Debt and Liquidity
- Cash flow from operating activities of continuing operations was $76.6 million, down from $92.5 million in 2014.
- Capital expenditures were $28.7 million, compared with $23.0 million in 2014.
- Continuing-operations investing cash use was $37.0 million, including $10.0 million for acquisitions.
- Cash flow used in continuing-operations financing activities was $236.4 million, reflecting approximately $169.9 million of term-loan repayments and $39.5 million of repayments under receivables and revolving facilities.
- Year-end cash and cash equivalents were $19.5 million, compared with $24.4 million in 2014.
- Total debt was $419.6 million, net of debt issuance costs, versus $630.8 million in 2014. Approximately 66% of debt carried variable interest rates after considering swaps.
- At year-end, $100.3 million was outstanding under the revolving credit facility and $53.6 million under the receivables facility. Borrowing capacity available for general corporate purposes was $107.4 million after leverage restrictions.
- Actual leverage was 2.80x versus a 3.50x covenant limit; actual interest coverage was 12.77x versus a 3.00x minimum. TriMas reported compliance with its debt covenants.
- The amended senior secured facilities mature June 30, 2020, with $361.8 million of face-value debt maturities scheduled in 2020, including a final $202.8 million term-loan payment.
Material Changes Versus the Prior Comparable Period
- Lower oil prices caused Engineered Components engine and compression sales to decline more than 50% and materially reduced Energy demand.
- The stronger U.S. dollar reduced reported sales by approximately $13.1 million and gross profit by approximately $4.8 million.
- Aerospace sales benefited from the 2014 Allfast acquisition and the 2015 Tolleson asset acquisition; acquisition-related sales contributed approximately $57.5 million across the company.
- TriMas recorded approximately $74.1 million of goodwill impairment in Energy and Engineered Components and approximately $1.6 million of Energy trade-name write-offs, contributing to total fourth-quarter impairment charges of approximately $75.7 million.
- Energy’s operating loss widened from $6.7 million in 2014 to $97.2 million in 2015.
- The company increased its Financial Improvement Plan from an initial annual savings target of $15 million to approximately $22 million of annual run-rate savings. Implementation costs were estimated at approximately $6 million to $7 million, with most actions expected to be completed by the end of the first quarter of 2016.
- The company incurred approximately $30 million of pre-tax one-time costs related to the Horizon spin-off, including approximately $29 million in 2015.
Outlook, Risks, Contingencies and Unusual Items
Management expects lower oil prices, a strong U.S. dollar and general industrial weakness to remain headwinds in 2016. Management intends to emphasize Packaging and Aerospace, which it views as higher-growth and higher-margin platforms, while reducing fixed costs and improving profitability in Energy and Engineered Components.
- Future goodwill or intangible impairments remain possible if sales, profitability, stock price or forecast performance deteriorate. Goodwill and other intangible assets represented approximately 55.8% of total assets at year-end.
- Energy remains exposed to refinery shutdown deferrals, petrochemical capital spending, upstream activity and oil and gas prices.
- Debt restrictions limit dividends, acquisitions, additional borrowing, asset sales and capital expenditures. No dividends were paid in 2015 or 2014.
- Variable-rate debt creates interest-rate exposure; a 1% increase in applicable rates would increase annual interest expense by approximately $2.8 million.
- Lamons-related asbestos litigation involved 6,242 claimants in 1,035 pending cases at year-end. Historical settlement costs were approximately $7.8 million, excluding defense costs, and the company expects a possible 12-to-18-month period during which primary insurance may be exhausted before excess coverage begins.
- TriMas had approximately $7.2 million accrued for obligations to Metaldyne and could face up to approximately $2.4 million of additional charges if certain liabilities are accelerated.
- The company reported approximately $581.7 million of contractual cash obligations, including debt, leases, benefits, interest and deferred purchase price obligations.
- Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.
Important Facts for Investors to Verify
- Whether the $22 million Financial Improvement Plan savings target is achieved and whether additional restructuring charges are required.
- Energy and Engineered Components demand recovery assumptions, particularly sensitivity to oil prices, drilling activity and refinery spending.
- Remaining debt repayment requirements and the company’s ability to refinance or repay the large 2020 maturities.
- Potential additional goodwill, intangible asset, restructuring or facility-closure charges.
- Cash requirements and insurance coverage associated with asbestos claims, environmental matters and other contingencies.
- The financial and tax consequences of the Horizon spin-off, including remaining separation obligations and tax-sharing arrangements.