TriMas Corporation — FY2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual Form 10-K, not a quarterly filing; fourth-quarter data is included in the annual and quarterly tables. TriMas is a diversified manufacturer and distributor serving commercial, industrial and consumer markets through Packaging, Energy, Aerospace & Defense, Engineered Components, Cequent APEA and Cequent Americas.
Financial performance and position
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net sales | $1,394.9 million | $1,272.9 million | +9.6% |
| Gross profit | $353.4 million | $343.8 million | +2.8% |
| Gross margin | 25.3% | 27.0% | Down 170 bps |
| Operating profit | $120.5 million | $127.9 million | -5.7% |
| Operating margin | 8.6% | 10.0% | Down 140 bps |
| Income from continuing operations | $79.4 million | $36.3 million | +118.7% |
| Net income attributable to TriMas | $75.6 million | $33.9 million | +122.9% |
| Diluted EPS from continuing operations | $1.81 | $0.89 | +103.4% |
| Cash flow from operations | $87.6 million | $73.2 million | +19.7% |
| Capital expenditures | $39.5 million | $46.1 million | -14.4% |
| Total debt | $305.7 million | $422.4 million | -27.6% |
| Cash and cash equivalents | $27.0 million | $20.6 million | +31.2% |
Reported earnings benefited materially from a $44.4 million year-over-year reduction in debt extinguishment costs and a $17.5 million reduction in interest expense. The 2012 comparison included approximately $46.8 million of debt extinguishment costs, versus $2.5 million in 2013. The 2013 effective tax rate was 18.8%, compared with 14.1% in 2012.
Segment results
| Segment | 2013 sales | 2013 operating profit | 2013 operating margin |
|---|---|---|---|
| Packaging | $313.2 million | $83.8 million | 26.7% |
| Energy | $205.6 million | $8.6 million | 4.2% |
| Aerospace & Defense | $101.8 million | $23.8 million | 23.3% |
| Engineered Components | $185.4 million | $19.5 million | 10.5% |
| Cequent APEA | $151.6 million | $13.9 million | 9.2% |
| Cequent Americas | $437.3 million | $8.9 million | 2.0% |
Material changes versus the prior period
- Sales increased in five of six segments, led by Packaging, Aerospace & Defense and Cequent APEA. Engineered Components sales declined 7.3% because of weaker drilling activity and lower international demand.
- TriMas completed ten bolt-on acquisitions during 2013, investing approximately $105.8 million in cash plus $12.4 million of deferred or contingent consideration. Acquisitions included Martinic, Wulfrun, Witter, AL-KO assets, Mac Fasteners and DHF.
- Packaging operating profit increased $26.2 million, including a $10.5 million pre-tax gain on the sale of the Italian business.
- Cequent Americas operating profit fell $18.5 million. The segment incurred approximately $25.6 million of 2013 costs associated with the Goshen, Indiana closure and broader footprint consolidation, including severance, lease obligations, duplicate costs and manufacturing inefficiencies.
- Operating margins declined because of acquisition integration and purchase-accounting costs, lower-margin acquired businesses, facility relocation inefficiencies, unfavorable product mix and higher selling, general and administrative expenses.
- The company issued 5.175 million common shares for net proceeds of approximately $174.7 million and used proceeds partly to retire debt.
- TriMas entered a new credit agreement in October 2013, reducing interest-rate spreads, extending maturity to October 2018 and increasing revolving capacity.
Cash flow, debt and liquidity
Operating cash flow was $87.6 million. Investing cash use was $130.3 million, including $105.8 million for acquisitions and $39.5 million for capital expenditures, partly offset by $14.9 million of disposition proceeds. Financing activities provided $49.2 million, principally reflecting the equity offering and debt refinancing activity.
The new credit agreement includes a $575.0 million senior secured revolving facility and a $175.0 million term loan A, both priced at LIBOR plus 1.625% based on leverage. At year-end, $71.1 million was outstanding under the revolving facility, $57.0 million under the receivables facility, and approximately $360.3 million of borrowing capacity was available for general corporate purposes after leverage restrictions. The company reported a 1.67x actual leverage ratio versus a 3.50x covenant limit and 11.08x interest coverage versus a 3.00x minimum; it was in compliance with its covenants.
Approximately 43% of debt bore variable interest after consideration of swaps. Management stated that a 1% increase in applicable variable rates would increase annual interest expense by approximately $1.3 million. No dividends were paid because debt agreements restrict dividends and the company prioritizes debt repayment, operations and acquisitions.
Outlook, commentary and risks
Management expects 2014 to involve continued choppy demand, with the most significant challenges in the energy markets served by Lamons and Arrow Engine. The company expects to focus on integrating the ten 2013 acquisitions, achieving synergies, improving Cequent Americas manufacturing and logistics following the move to Mexico, reducing leverage and expanding liquidity.
- Key operational risks include cyclical demand, competitive pressure, raw-material and energy cost volatility, foreign exchange movements and international operating complexity.
- Acquisition integration may continue to pressure margins through purchase accounting, start-up expenses, lower acquired margins and increased overhead.
- Goodwill and other intangible assets totaled approximately $529.2 million, or 40.7% of total assets. Future underperformance could result in material impairment charges.
- TriMas was involved in asbestos litigation involving 7,975 claimants at year-end. Historical settlement costs were approximately $6.6 million, excluding defense costs; the company stated that it did not expect the matters to materially affect results, but warned that insurance coverage may become less available within one or two years.
- Contractual obligations totaled approximately $528.7 million, including $305.7 million of debt, $171.5 million of lease obligations, $23.5 million of deferred purchase price and contingent consideration, and $16.7 million of interest obligations.
- Unrecognized tax benefits were approximately $31.6 million at year-end, with related interest and penalties of approximately $1.8 million.
- In January 2014, TriMas entered foreign-currency contracts covering approximately $19 million of forecast Mexican-peso inventory purchases.
Important facts for investors to verify
- Whether Cequent Americas can restore margins after completing the Goshen closure and Mexican manufacturing transition.
- Whether Energy and Engineered Components recover from weaker energy-market and drilling demand.
- The pace and cost of integrating the ten 2013 acquisitions and the extent to which expected synergies are realized.
- Debt reduction, excess-cash-flow prepayment requirements and compliance with leverage and interest-coverage covenants.
- Exposure to variable interest rates, foreign exchange and steel, resin, copper and aluminum costs.
- Potential cash requirements from asbestos litigation, environmental matters, tax audits, indemnities and deferred acquisition consideration.
- Goodwill and intangible-asset carrying values relative to segment performance and future impairment risk.
- The sustainability of 2013 earnings growth, which was significantly aided by lower refinancing costs, lower interest expense and unusual disposition gains.