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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FEBRUARY 21, 2003
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
TRIMAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 333-100351 38-2687639
(State or other jurisdiction of Commission file number (IRS Employer
incorporation or organization) Identification No.)
39400 WOODWARD AVENUE, SUITE 130
BLOOMFIELD HILLS, MICHIGAN 48304
(Address of principal executive offices, including zip code)
(248) 631-5400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
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EXPLANATORY NOTE
This Form 8-K/A is being filed to amend the Form 8-K filed on February
25, 2003 to include the financial statements and pro forma financial information
referred to in Item 7 below relating to our acquisition of all of the
outstanding capital stock of Highland Group Corporation. At the time of the
filing on the Form 8-K, it was impractical for us to provide the financial and
pro forma information.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 21, 2003, TriMas Corporation (the "Company") announced its
acquisition of Highland Group Corporation ("Highland") pursuant to a Purchase
Agreement (the "Purchase Agreement") dated as of February 21, 2003, by and among
TriMas Company LLC, a subsidiary of the Company, the shareholders and option
holders of Highland (the "Sellers") and FNL Management Corp. as Sellers'
Representative.
The consideration for the acquisition was approximately $70.5 million,
plus the amount of certain tax benefits, in cash. The purchase price is subject
to adjustment based upon actual working capital and taxes owed at closing. The
purchase price was financed through drawings on the Company's revolving credit
facility and cash on hand, as well as an equity investment by Heartland
Industrial Partners, L.P., and its affiliates. Since January 1, 2003, Heartland
has made approximately $30.0 million of equity investments in the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Independent Auditor's Report............................................. F-1
Balance Sheets as of December 31, 2002 and 2001.......................... F-2
Statements of Operations and Retained Earnings for the Years Ended
December 31, 2002, 2001 and 2000..................................... F-3
Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and
2000................................................................. F-4
Notes to Financial Statements............................................ F-5
(b) Pro Forma Financial Information, in accordance with Item 7(b)(1) of Form 8-K.
Unaudited Pro Forma Financial Information................................ F-11
Unaudited Pro Forma Combined Statement of Operations for the Year Ended
December 31, 2002.................................................... F-12
Notes to Unaudited Pro Forma Combined Statement of Operations............ F-13
Unaudited Pro Forma Combined Balance Sheet as of December 31, 2002....... F-17
Notes to Unaudited Pro Forma Combined Balance Sheet...................... F-18
-2-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRIMAS CORPORATION
DATE: May 7, 2003 By:
-------------------------------------------
Name: Todd R. Peters
Title: Executive Vice President and Chief
Financial Officer
-3-
INDEPENDENT AUDITORS' REPORT
January 17, 2003
To the Shareholders
HIGHLAND GROUP CORPORATION
We have audited the accompanying balance sheets of Highland Group
Corporation as of December 31, 2002 and 2001, and the related statements of
operations and retained earnings, and cash flows for the years ended December
31, 2002, 2001 and 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Highland Group
Corporation as of December 31, 2002 and 2001, and the results of its operations
and its cash flows for the years ended December 31, 2002, 2001 and 2000 in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 12 to the financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" effective January 1, 2002.
Walthall, Drake & Wallace LLP
Certified Public Accountants
F-1
HIGHLAND GROUP CORPORATION
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
- --------------------------------------------------------------------------------
ASSETS
2002 2001
------------- --------------
CURRENT
Cash $ 291,369 $ 401,799
Receivables, net of allowance of $106,252 and $421,000 in
2002 and 2001, respectively 9,441,336 7,181,310
Inventories 7,180,531 5,460,922
Prepaid expenses 427,968 524,283
Deferred tax asset 30,000 175,000
------------ ----------
TOTAL CURRENT ASSETS 17,371,204 13,743,314
PROPERTY, PLANT AND EQUIPMENT
Land 80,400 80,400
Building and improvements 1,945,850 1,877,087
Machinery and equipment 520,755 459,937
Tooling 2,773,952 2,480,934
Data processing and office equipment 411,747 337,830
Show booth 120,290 112,493
------------ ----------
5,852,994 5,348,681
Less: Accumulated depreciation 2,106,192 1,384,922
------------ ----------
3,746,802 3,963,759
OTHER ASSETS
Goodwill, net 9,964,892 9,964,892
Patent, net 212,917 234,208
Deposits 13,521 12,350
Debt issuance costs, net -- 50,000
------------ ----------
10,191,330 10,261,450
------------ ----------
TOTAL ASSETS $ 31,309,336 $ 27,968,523
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
2002 2001
------------- -------------
CURRENT
Bank overdraft $ 604,396 $ 632,249
Long-term debt, current portion 2,200,000 2,250,000
Accounts payable 1,936,007 1,910,702
Accrued liabilities 2,306,219 2,072,182
------------ ----------
TOTAL CURRENT LIABILITIES 7,046,622 6,865,133
LONG-TERM DEBT
Long-term debt, less current portion 3,681,361 5,881,361
Revolving credit line 1,531,061 1,012,792
Deferred tax liability 315,000 25,000
------------ ----------
5,527,422 6,919,153
------------ ----------
TOTAL LIABILITIES 12,574,044 13,784,286
COMMON STOCK
No par value; 2000 shares authorized;
1000 shares issued and outstanding 6,266,666 6,266,666
RETAINED EARNINGS 12,468,626 7,917,571
------------ ----------
TOTAL STOCKHOLDERS' EQUITY 18,735,292 14,184,237
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,309,336 $ 27,968,523
============ ==========
The accompanying notes are an integral part of the financial statements.
F-2
HIGHLAND GROUP CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
------------- ------------- -------------
SALES
Gross sales $ 52,944,587 $ 43,887,409 $ 36,754,017
Less returns and allowances 3,709,967 2,895,378 2,273,208
---------- ---------- ----------
NET SALES 49,234,620 40,992,031 34,480,809
COST OF SALES 31,248,218 25,417,507 21,664,797
---------- ---------- ----------
GROSS PROFIT 17,986,402 15,574,524 12,816,012
IMPORT/ROYALTY INCOME 15,345 58,946 22,053
DISTRIBUTION EXPENSES 2,805,963 2,259,296 2,220,283
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,385,505 7,220,089 5,848,966
---------- ---------- ----------
OPERATING INCOME 8,810,279 6,154,085 4,768,816
OTHER EXPENSE
Amortization, debt issue costs 50,000 50,000 50,000
Interest, net 772,479 1,114,601 1,595,518
---------- ---------- ----------
822,479 1,164,601 1,645,518
---------- ---------- ----------
INCOME BEFORE TAXES 7,987,800 4,989,484 3,123,298
PROVISION FOR INCOME TAXES 3,436,745 1,701,821 1,277,037
---------- ---------- ----------
NET INCOME 4,551,055 3,287,663 1,846,261
RETAINED EARNINGS - BEGINNING 7,917,571 4,629,908 2,783,647
---------- ---------- ----------
RETAINED EARNINGS - ENDING $ 12,468,626 $ 7,917,571 $ 4,629,908
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-3
HIGHLAND GROUP CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
------------- ------------- -------------
SALES
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,551,055 $ 3,287,663 $ 1,846,261
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 792,561 1,598,093 1,353,569
Deferred taxes 435,000 (150,000) --
----------- ------------ -------------
5,778,616 4,735,756 3,199,830
Changes in assets and liabilities:
Accounts receivable (2,260,026) (14,178) (321,695)
Inventories (1,719,609) (1,459,733) 78,894
Other current assets 96,315 208,428 617,306
Deposits (1,171) 2,676 (5,695)
Accounts payable 25,305 146,154 838,557
Other accrued liabilities 234,037 873,511 139,281
----------- ------------ -------------
Total changes in assets and liabilities (3,625,149) (243,142) 1,346,648
----------- ------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,153,467 4,492,614 4,546,478
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (504,313) (887,271) (1,894,784)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (27,853) 66,393 80,349
Revolving credit line, net 518,269 (980,173) (943,655)
Payments on long-term debt (2,250,000) (2,302,083) (1,777,084)
----------- ------------ -------------
NET CASH USED IN FINANCING ACTIVITIES (1,759,584) (3,215,863) (2,640,390)
----------- ------------ -------------
NET INCREASE (DECREASE) IN CASH (110,430) 389,480 11,304
CASH - BEGINNING 401,799 12,319 1,015
----------- ------------ -------------
CASH - ENDING $ 291,369 $ 401,799 $ 12,319
=========== ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year:
Interest $ 813,497 $ 1,229,889 $ 1,561,502
=========== ============ =============
Income taxes $ 2,771,897 $ 1,710,390 $ 1,078,306
=========== ============ =============
The accompanying notes are an integral part of the financial statements.
F-4
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
- --------------------
Highland Group Corporation was incorporated in December 1997 for the purpose of
acquiring the operating business of Highland Group Industries LP, effective
January 1, 1998. The Company is engaged in the manufacturing and distribution of
automotive accessories with a manufacturing facility located in Sheffield,
Pennsylvania and corporate offices located in Solon, Ohio. Major retail chains
make up the principal market.
Receivables and allowance for doubtful accounts
- -----------------------------------------------
Receivables are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances that are still
outstanding after management has used reasonable collection efforts are written
off through a charge to the valuation allowance and a credit to trade accounts
receivable.
Inventories
- -----------
Inventories are stated at the lower of cost or market with cost being determined
on the first-in, first-out (FIFO) basis. Finished goods is comprised of both
finished goods and products purchased for resale.
The following is a summary of inventories at the lower of cost or market:
2002 2001
---------- ----------
Raw Materials $2,396,552 $2,122,313
Work-In-Process 380,091 389,851
Finished Goods 4,403,888 2,948,758
--------- ---------
$7,180,531 $5,460,922
========= =========
Depreciation
- ------------
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Depreciation
expense totaled $721,270, $620,902 and $376,377 for the years ended 2002, 2001
and 2000, respectively.
Advertising expense
- -------------------
The cost of advertising is expensed as incurred. The Company incurred
$1,657,067, $1,699,887 and $1,631,690 in advertising and marketing expenses
during 2002, 2001 and 2000, respectively.
Statements of cash flows
- ------------------------
The Company considers cash-on-hand and demand deposits in banks as cash for the
purpose of the Statements of Cash Flows.
F-5
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Debt issuance costs
- -------------------
Debt issuance costs are amortized over the term of the related contract.
Amortization charged to operations for 2002, 2001 and 2000 was $50,000 each
year.
Stock option plan
- -----------------
The Company has a stock-based employee compensation plan, which is described
more fully in Note 9. The Company accounts for this plan under the recognition
and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under this plan had an
exercise price equal to the market value of the underlying stock on the date of
grant. The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based
employee compensation.
2002 2001 2000
---------- ---------- ---------
Net income, as reported $4,551,055 $3,287,663 1,846,261
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards (12,453) (24,906) (51,324)
--------- --------- ---------
$4,538,602 $3,262,757 1,794,937
========= ========= =========
NOTE 2 - USE OF ESTIMATES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 - REVOLVING CREDIT LINE
The Company has a revolving line of credit agreement with a commercial bank
which allows for maximum borrowings of $10,000,000. Interest is payable monthly
at a fluctuating rate based on the prime rate plus a margin amount. The margin
amount can range from .5% to 1.0% based upon certain financial ratios of the
Company. The Company may also elect a fixed interest rate for a specified period
of time, based on the applicable LIBOR rate and margin amount. The margin amount
for LIBOR loans is either 2.75% or 3.25%, based upon certain financial ratios of
the Company. The interest rate at December 31, 2002 is 4.75%. The loan is
secured by eligible accounts receivable, inventories, equipment and a first
mortgage on the Company's real property. Amounts borrowed under this agreement
totaled $1,531,061 and $1,012,792 at December 31, 2002 and 2001, respectively.
The Company is also required to pay a commitment fee to the bank on the unused
portion of the credit line, at an annual rate of .375%.
The Company's cash management arrangement with its commercial bank provides
automatic coverage of overdrafts up to its credit limit.
F-6
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
- --------------------------------------------------------------------------------
NOTE 4 - RELATED PARTY TRANSACTIONS
Management services are being provided by the majority shareholder of the
Company under a management agreement for a fee of $25,000 per month. The total
fees paid in 2002, 2001 and 2000 were $300,000 each year. The agreement is for a
one-year term commencing in January 1998 with an annual renewal provision. The
Company has a note payable (see Note 5) to the majority shareholder of the
Company. Interest expense under this note for 2002, 2001 and 2000 was $168,000
each year.
NOTE 5 - LONG-TERM DEBT
The following is a summary of long-term debt:
2002 2001
------------------------ ------------------------
Current Long-Term Current Long-Term
------- ---------- ------- ---------
The Company had a note payable to a commercial bank, dated
January 9, 1998, in the original amount of $8,000,000. This
note was increased in January 2000, with an additional
$2,000,000 being lent, resulting in an adjusted amount of
$8,131,261. The note is payable in twenty-four quarterly
principal payments which increase from $250,000 to $375,000
through 2006. Interest is payable quarterly at prime rate
plus a margin amount. The margin amount can range from .5%
to 1.5%, based upon certain financial ratios of the Company.
The Company may also elect a fixed rate based on the
applicable LIBOR rate and margin amount. The margin amount
for the LIBOR rate is either 3.25% or 3.75%, based upon
certain financial ratios of the Company. The interest rate
at December 31, 2002 is 5.25%. $1,500,000 $2,981,361 $1,437,500 $4,481,361
The Company had a liability to the partners of the Company's
predecessor entity, in the original amount of $3,250,000
pursuant to an earn-out agreement. The agreement required a
payment of $812,500 in addition to the execution of a
promissory note in the amount of $2,437,500 and was payable
in three annual installments of $812,500 each, commencing
March 15, 2000 with the final payment March 15, 2002.
Interest was payable monthly, at an annual rate of 10% on
the outstanding balance. -- -- 812,500 --
The Company has a note payable to the majority shareholder
of the Company, dated January 9, 1998, in the original
amount of $1,400,000. The note is payable in two
installments of $700,000 each on December 31, 2003 and 2004.
Interest is payable monthly, at an annual rate of 12%, on
the outstanding balance. 700,000 700,000 -- 1,400,000
F-7
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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NOTE 5 - LONG-TERM DEBT (CONTINUED)
The following are maturities of long-term debt:
Year
----
2003 $2,200,000
2004 2,200,000
2005 1,410,900
2006 70,461
---------
$5,881,361
=========
Interest expense for 2002, 2001 and 2000 totaled $772,479, $1,114,601 and
$1,595,518, respectively.
NOTE 6 - LEASES
The Company leases office space in Solon, Ohio. Rent expense for 2002, 2001 and
2000 under this lease was $63,136 each year. The Company leases equipment under
operating leases expiring through 2004. Equipment rental expense for 2002, 2001
and 2000 under these leases totaled $58,520, $59,252 and $55,272, respectively.
The future minimum rentals under these agreements are as follows:
Year Equipment Real Estate
---- --------- -----------
2003 $ 39,435 $ 63,136
2004 7,690 52,613
2005 2,723 --
-------- ---------
$ 49,848 $ 115,749
======== =========
NOTE 7 - PROFIT SHARING PLAN
The Company has a qualified profit sharing plan which permits participants to
make contributions by salary reduction pursuant to Section 401(k) of the
Internal Revenue Code. The Company contributes 3% of each qualified employee's
salary into the plan. The cost incurred for contributions under this arrangement
was $180,924, $194,070 and $113,303 for 2002, 2001 and 2000, respectively.
NOTE 8 - CONTINGENCIES
The Company is from time to time named as a defendant in lawsuits filed by
consumers. The consumers allege the Company manufactured faulty products which
caused harm. The lawsuits seek compensatory and punitive damages in various
amounts. The Company believes the suits are completely without merit and intends
to vigorously defend its position.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position of the company.
F-8
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
- --------------------------------------------------------------------------------
NOTE 9 - STOCK OPTION PLAN
Effective February 24, 1999 the Company adopted the Highland Group Corporation
1999 Key Employees Stock Option Plan. Effective August 7, 2001 the plan was
amended, restated and renamed the Highland Group Corporation Management Stock
Option Plan. The plan allows for options to be granted to Key employees as well
as outside directors of the Company. Options granted under this plan are
nonqualified stock options. Options may be issued for an aggregate of 64 shares
under this plan. For Key employees options vest over a two-year period from the
grant date, with 50% vesting after one year. For outside directors, options are
50% vested as of the grant date, 25% as of January 10, 2002 and the remaining
25% on January 10, 2003. The options expire on the tenth anniversary of the
effective date.
Grant Number of Shares Exercise Price for
Date Options Granted For Each Option
------- ------------------- -----------
2/24/99 38.50 $11,545
6/01/00 4.25 23,000
8/07/01 8.49 9,000
Options for a total of 51.24 shares have been granted, or approximately 5% of
the equity value of the Company.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APBO No. 25), and related
interpretations, in accounting for this stock option plan. The company has
elected this treatment because, as discussed below, the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123), requires the use
of highly subjective assumptions in option valuation models. Under APBO No. 25,
no compensation expense has been recognized on the financial statements because
the exercise price of the Company's stock options is not less than the fair
market value of the shares at the grant date.
Pro forma information regarding net income, determined as if the Company had
adopted SFAS No. 123, is required by that statement, and is disclosed in Note 1
of these statements. The fair value for these options was estimated at the grant
date using the Black-Scholes option pricing model with the following assumptions
for all options granted: a risk-free interest rate of 4.89%; an expected life of
the options of five years for 1999 options; four years for 2000 options; two
years for 2002 options; no expected dividend yield; and no volatility factor.
NOTE 10 - INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The deferred tax benefit is comprised of allowance for doubtful accounts,
depreciation, amortization of goodwill, and various expense accruals.
The provision for income tax consists of the following:
2002 2001 2000
----------- ----------- ------------
Current tax expense $ 3,136,745 $ 1,851,821 $ 1,277,037
Deferred tax benefit 300,000 (150,000) --
--------- --------- ---------
$ 3,436,745 $ 1,701,821 $ 1,277,037
========== ========== ===========
F-9
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(CONCLUDED)
- --------------------------------------------------------------------------------
NOTE 11 - MAJOR CUSTOMERS AND SUPPLIERS
Sales to one customer aggregated 44% in 2002. Sales to the Company's top three
customers aggregated 63% and 57% in 2001 and 2000. The Company made
approximately 48% of its purchases from two suppliers in each of 2002 and 2001
and this purchases amount was 49% in 2000. The Company grants credit to
customers, many of whom are major retail chains.
NOTE 12 - INTANGIBLE ASSETS
Effective January 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), which
provides that Goodwill shall no longer be amortized. Instead, Goodwill is to be
tested for impairment on an annual basis. The effect of this standard is that
the Company will no longer recognize amortization expense on its books for
Goodwill. If Goodwill were determined to be impaired, a charge to current
operation would be made in the year of impairment. The Company completed its
transitional goodwill impairment assessment and its annual impairment assessment
with no adjustment to the carrying value of its goodwill. Goodwill continues to
be amortized for tax purposes. The Company has a patent that is being amortized
over a 15-year period on a straight-line basis. Aggregate intangible
amortization expense was $21,292, $927,191 and $927,191 in 2002, 2001 and 2000,
respectively.
2002 2001
-------------------------- -------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------- -------- ------------
Amortizable Intangible Assets:
Patent $ 319,375 $ (106,458) $ 319,375 $ (85,167)
=========== =========== =========== ===========
Unamortizable Intangible Assets:
Goodwill $13,588,489 $(3,623,597) $13,588,489 $(3,623,597)
=========== =========== =========== ===========
Future Estimated Amortization Expense
- -------------------------------------
For the year ended:
2003 $21,292
2004 21,292
2005 21,292
2006 21,292
2007 21,292
Pro Forma Information
- ---------------------
2002 2001 2000
---------- ---------- ----------
Reported net income $4,551,055 $3,287,663 $1,846,261
Add back: Goodwill amortization -- 905,899 905,899
---------- ---------- ----------
Adjusted net income $4,551,055 $4,193,562 $2,752,160
========== ========== ==========
F-10
TRIMAS CORPORATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN MILLIONS)
Prior to the acquisition of Highland, the Company acquired all of the capital
stock of HammerBlow Acquisition Corp. ("HammerBlow") from 2000 Riverside Capital
Appreciation Fund, L.P., and other stockholders of HammerBlow on January 30,
2003. The Company is not required under Regulation S-X to provide pro forma
financial information related to our acquisition of all of the capital stock of
HammerBlow, however, we have elected to do so in connection with the acquisition
of Highland.
The total consideration paid for HammerBlow was $142.3 million (including our
previous investment of $9.0 million), subject to a trade working capital
adjustment pursuant to the purchase agreement. Of this amount, $7.2 million net,
of the purchase price is deferred, payable in January of 2004. The purchase
price was financed through drawings on the Company's revolving credit facility
and cash on hand, as well as an equity investment by Heartland and its
affiliates.
The unaudited pro forma combined balance sheet as of December 31, 2002
("Unaudited Pro Forma Combined Balance Sheet") gives pro forma effect to the
acquisitions of Highland Group Corporation ("Highland") and HammerBlow
Acquisition Corporation ("HammerBlow") as if they had occurred on December 31,
2002. The acquisitions of Highland and HammerBlow will be accounted for by the
purchase method of accounting pursuant to which the purchase price is allocated
among the acquired tangible and intangible assets and assumed liabilities in
accordance with estimates of their fair values at the date of acquisition. The
pro forma adjustments include the Company's preliminary determination of
purchase accounting adjustments required and are based upon available
information and certain assumptions that the Company believes to be reasonable
under the circumstances. Consequently, the amounts reflected in the Unaudited
Pro Forma Combined Balance Sheet are subject to change and the final values may
differ from the amounts reflected herein. However, the Company does not expect
that differences between the preliminary and final purchase price allocation
will have a material impact on the Company's financial position. The Unaudited
Pro Forma Combined Balance Sheet does not purport to be indicative of the
financial position of the Company had such transactions actually been completed
as of the assumed dates and for the periods presented, or which may result in
the future.
The unaudited pro forma combined statement of operations for the year ended
December 31, 2002 ("Unaudited Pro Forma Combined Statement of Operations") gives
pro forma effect to the acquisitions of Highland and HammerBlow as if they had
occurred on January 1, 2002. The Unaudited Pro Forma Combined Statement of
Operations may not be indicative of the results of operations of the Company had
such transactions actually been completed as of the assumed dates, or which may
occur in the future.
The unaudited pro forma financial information also includes adjustments needed
to give pro forma effect to the common stock issuance and related financing
transactions that occurred on June 6, 2002 between the Company, Metaldyne
Corporation and Heartland Industrial Partners ("Heartland") pursuant to a stock
purchase agreement. To effect the transactions contemplated by the stock
purchase agreement, the Company entered into a senior credit facility consisting
of a $150 million revolving credit facility, a $260 million term loan facility
and $125 million receivables securitization facility and issued senior
subordinated debentures with a face value of $352.8 million. In addition, on
December 10, 2002 the Company issued an additional $85.0 of senior subordinated
debentures. The bonds were issued to obtain cash to repurchase approximately
$20.0 million of TriMas common stock owned by Metaldyne, to fund potential
acquisitions, for debt repayment and for other general corporate purposes.
F-11
TRIMAS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2002
(IN MILLIONS)
TRIMAS HIGHLAND HAMMERBLOW PRO FORMA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA (a) ADJUSTMENTS COMBINED
---------- ---------- ------------- ----------- --------
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 733.6 $ 49.2 $ 109.5 $ -- $ 892.3
Cost of sales...................... (552.4) (31.2) (70.3) (0.6)(b) (655.0)
(0.5)(g)
----------- --------- ---------- ----------- ----------
Gross profit....................... 181.2 18.0 39.2 (1.1) 237.3
Selling, general and (0.8)(c)
administrative expense........... (114.1) (9.2) (25.2) (3.7)(g) (153.0)
----------- --------- ---------- ----------- ----------
Operating profit................... 67.1 8.8 14.0 (5.6) 84.3
Interest expense................... (60.0) (0.8) (3.9) 1.6(d) (63.1)
Other, net......................... (4.0) - (4.5) (0.1)(e) (8.6)
----------- --------- ---------- ----------- ----------
Income before income taxes and
cumulative effect of change in
accounting principle............. 3.1 8.0 5.6 (4.1) 12.6
Income tax expense................. (2.3) (3.4) (4.7) 1.6 (f) (8.8)
----------- --------- ---------- ----------- ----------
Income before cumulative effect of
change in accounting principle (1) 0.8 $ 4.6 $ 0.9 $ (2.5) $ 3.8
=========== ========= ========== =========== ==========
Cumulative effect of change in
recognition and measurement of
goodwill impairment.............. (36.6)
-------
Net loss........................... $ (35.8)
===========
(1) The cumulative effect of change in accounting principle is excluded
from the pro forma presentation.
F-12
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN MILLIONS)
For purposes of the Unaudited Pro Forma Combined Statement of Operations, the
results of TriMas for the twelve months ended December 31, 2002 have been
combined with the results of Highland for the twelve months ended December 31,
2002 and with the results of HammerBlow Pro Forma for the twelve months ended
November 30, 2002 to represent the Unaudited Pro Forma Combined Statement of
Operations for the year ended December 31, 2002.
a) HammerBlow acquired Tekonsha Towing Systems and Sure Pull Towing
Systems ("Tekonsha/Sure Pull") from Dana Corporation on November 21,
2002. HammerBlow's historical fiscal year results of operations do not
include the results of Tekonsha / Sure Pull prior to that date. The
HammerBlow Pro forma results include adjustments necessary to reflect
the estimated effects of this acquisition as if it had occurred on
December 1, 2001. The information for Tekonsha / Sure Pull has been
derived from financial information available for the period from
December 1, 2001 to the date of the acquisition. Financial information
subsequent to the date of the acquisition is included in the results of
HammerBlow.
HammerBlow's fiscal year end is November 30 and the HammerBlow Pro
Forma Statement of Operations for the twelve months ended November 30,
2002 is included below (in millions). The impact of the acquisition of
Tekonsha / Sure Pull is included in the consolidated balance sheet of
HammerBlow at November 30, 2002.
HAMMERBLOW TEKONSHA/SURE PRO FORMA HAMMERBLOW
HISTORICAL PULL HISTORICAL ADJUSTMENTS PRO FORMA
---------- --------------- ----------- ------------
Net sales......................... $ 68.0 $ 41.5 $ -- $ 109.5
Cost of sales..................... (43.9) (26.2) (0.2)(1) (70.3)
--------- -------- ------------ ---------
Gross profit...................... 24.1 15.3 (0.2) 39.2
Selling, general and administrative
expense......................... (14.2) (11.3) 0.3(1) (25.2)
--------- -------- ------------ ---------
Operating profit.................. 9.9 4.0 0.1 14.0
Interest expense.................. (2.9) -- (1.0)(2) (3.9)
Other, net........................ (4.4) (0.1) -- (4.5)
--------- -------- ------------ ---------
Income from continuing operations
before income tax............... 2.6 3.9 (0.9) 5.6
Income tax expense................ (2.1) (2.9) 0.3(3) (4.7)
--------- -------- ------------ ---------
Income from continuing
operations...................... $ 0.5 $ 1.0 $ (0.6) $ 0.9
========= ======== ============ =========
1) Reflects increased depreciation and amortization of $0.2 million
related to property and equipment and identified intangibles, based
on estimated fair values at the date of acquisition and estimated
remaining useful lives ranging from five to thirty years. Selling,
general and administrative expense has been decreased $.3 million to
reflect revenue for management services provided to a related
entity.
F-13
2) Reflects increased interest expense due to a change in capital
structure. This includes $10 million in various term loans bearing
an average rate of 5.6%, a $5.3 million revolver bearing a rate of
5.5%, a purchase note of $.5M bearing 8.5%, and loan origination
costs that are being amortized over the life of the related debt (3
years).
3) Reflects the estimated tax effect of the above adjustments at a
marginal tax rate of 38%.
b) As a result of the common stock issuance and related financing
transactions that occurred on June 6, 2002, Metaldyne no longer
provides a guarantee on certain TriMas leases. The existence of the
guarantee required that the leases be accounted for as capitalized
leases in periods prior to June 6, 2002. As a result of the guarantee
release, these leases are now accounted for as operating leases. This
adjustment reflects the recording of $0.9 million of rent expense
offset by a reduction of $0.3 million of capitalized lease asset
amortization expense for the twelve months ended December 31, 2002. An
additional add-back of $0.9 million related to interest expense on the
capitalized lease obligation for the twelve months ended December 31,
2002 is included in adjustment (d) below as a result of eliminating
this interest expense.
c) Pro forma adjustment to reflect ongoing corporate operating costs and
related party contractual arrangements with Heartland, Metaldyne and
the former owners of HammerBlow. Subsequent to June 6, 2002, certain
stand-alone operating costs and related party contract costs have been
recorded by the Company. The pro forma adjustment for the twelve months
ended December 31, 2002 is incremental to such costs recorded after
June 6, 2002.
DECEMBER 31, 2002
-----------------
(IN MILLIONS)
Corporate office costs (1)................ $ 2.5
Heartland Advisory Services (2)........... 1.7
Corporate Services agreement (3).......... 1.0
Management fee income (4)................. (0.5)
---------
Total Corporate operating costs 4.7
Less: Historical management fee (5) (3.9)
---------
Pro forma adjustment $ 0.8
=========
1) Represents the Company's estimate of stand-alone corporate
operating costs. Historically, such costs were allocated to
TriMas via the Metaldyne management fee. These pro forma costs
are premised upon certain assumptions necessary to operate on a
stand-alone basis. While the Company believes its pro forma
assumptions are reasonable, future operating costs may not
approximate the amounts of such adjustments.
2) In connection with the June 6, 2002 transactions, TriMas entered
into an advisory services agreement with Heartland at an annual
fee of $4.0 million plus expenses.
3) Under the terms of a Corporate Services agreement, TriMas agreed
to pay Metaldyne an annual fee of $2.5 million for human
resources, information systems, treasury services, audit, internal
audit, and tax, legal and other general corporate services.
4) The Company has entered into a management agreement with the
former owners of HammerBlow to continue to provide shared services
to a previously related entity. Annual fees to the Company for
providing such services are $0.8 million. The pro forma adjustment
includes only that amount which is incremental to the amount
already considered in note (a) adjustment (1) above.
5) Adjustment to eliminate the historical 1% management fee paid to
Metaldyne for corporate support and the historical management fees
of $0.3 million paid to each of the previous shareholders of
F-14
HammerBlow and Highland respectively. Metaldyne continued to
charge its management fee to TriMas through June 6, 2002, at which
point the Company began to incur the costs summarized in items
(1), (2), and (3) above.
----------------------------------
d) Pro forma adjustment to reflect interest expense related to borrowings
under the Company's bank credit agreement as a result of the June 6,
2002 transactions and the acquisition of Highland and HammerBlow, and
as a result of issuance of the original notes and additional notes.
YEAR ENDED
DECEMBER 31, 2002
-----------------
(IN MILLIONS)
Interest on revolving credit facility (1)....................... $ 2.8
Interest on $260 million bank term loan (2)..................... 11.5
Interest on 9 7/8% senior subordinating notes due 2012.......... 43.2
Interest accretion on deferred purchase price (3)............... 0.3
Amortization of debt issuance costs (4)......................... 3.6
Commitment and letter of credit fees (5)........................ 1.6
Accretion on original notes (6)................................. 0.2
Amortization on additional notes (7)............................ (0.1)
--------------
Pro forma interest expense...................................... 63.1
Less: Historical and pro forma interest expense................. 64.7
--------------
Pro forma adjustment............................................ $ (1.6)
================
1) The interest on the revolving credit facility is variable based on
LIBOR plus 2.00% - 2.75%, depending on our leverage ratio. At
December 31, 2002, the interest rate on the revolver was 4.44%
(LIBOR plus 2.75%). TriMas has not utilized the revolver as of
December 31, 2002 for operating purposes. The revolving credit
facility was used to partially finance the acquisitions of
HammerBlow and Highland. For purposes of the Unaudited Pro Forma
Combined Statement of Operations, the revolving credit facility
was assumed to be used to finance a portion ($57.1 million) of the
Highland acquisition and interest expense related to these
borrowings is $2.5 million. The revolver was also assumed to fund
working capital requirements of HammerBlow and Highland during
2002 and interest on these borrowings was $0.3 million.
A 0.125% increase or decrease in the assumed interest rate for the
revolving credit facility would change pro forma interest expense
by $0.1 million for the twelve months ended December 31, 2002.
2) The interest rate on the term loan facility is variable based on
LIBOR plus 2.50% - 2.75%, depending on the Company's leverage
ratio. At December 31, 2002, the interest rate on the term loan
facility was 4.44% (LIBOR plus 2.75%).
A 0.125% increase or decrease in the assumed interest rate for the
term loan facility would change pro forma interest expense by $0.3
million for the twelve months ended December 31, 2002.
3) Represents interest accretion on deferred purchase price of $7.5
million related to the acquisition of HammerBlow, due January
2004.
4) Costs of approximately $31.9 million were incurred in connection
with obtaining our senior credit facility ($13.1 million) and the
issuance of the outstanding notes ($18.8 million). These amounts
have been capitalized as debt issue costs and are being amortized
using the interest method over 7.5 years and 10 years,
respectively.
F-15
5) Consists of commitment fees on the revolving credit facility.
6) Represents accretion of discount on the original notes offered
hereby to their face value of $352.8 million.
7) Represents amortization of premium on the additional notes to
their face value of $85.0 million.
----------------------------------
e) Adjustment to Other, net is comprised of the following:
YEAR ENDED
DECEMBER 31, 2002
-----------------
(IN MILLIONS)
Commitment fees (1) $ 0.3
Elimination of accounts receivable financing costs (2) (2.3)
Loss on sale of receivables (3) 2.1
------------
Pro forma adjustment $ 0.1
============
1) Consists of commitment fees on the Company's accounts receivable
securitization facility.
2) Adjustment to eliminate financing costs related to the Company's
participation in the Metaldyne accounts receivable securitization
facility through June 6, 2002.
3) Adjustment for the loss on the sale of receivables under the
accounts receivable securitization facility which was assumed to
be used to partially finance the acquisition of HammerBlow. We
have not utilized the accounts receivable securitization facility
as of December 31, 2002 for operating purposes.
----------------------------------
f) To reflect the estimated tax effect of the above adjustments at a marginal
tax rate of 38%.
g) Reflects increased depreciation and amortization of $4.2 million related to
property and equipment and identified intangibles, based on estimated fair
values at the date of acquisition and remaining useful lives ranging from
three to forty years.
F-16
TRIMAS CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 2002
(IN MILLIONS)
TRIMAS HIGHLAND HAMMERBLOW PRO FORMA COMBINED
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
ASSETS
Current Assets:
Cash and cash equivalents................. $ 100.4 $ 0.3 $ 0.7 $ (63.3)(a) $ 17.8
(20.0)(b)
(0.3)(c)
Receivables............................... 95.6 9.4 9.9 (48.8)(a) 66.1
Inventories............................... 91.4 7.2 16.5 3.6 (c) 118.7
Deferred income taxes..................... 18.3 -- -- -- 18.3
Prepaid expenses and other current
assets................................. 9.8 0.4 1.5 -- 11.7
-------- --------- -------- ------- --------
Total current assets................ 315.5 17.3 28.6 (128.8) 232.6
Property and equipment, net.................. 235.0 3.8 20.6 4.0 (c) 263.4
Excess of cost over net assets of
acquired companies........................ 511.9 10.0 33.4 67.2 (c) 622.5
Other intangibles............................ 286.3 0.2 2.6 76.3 (c) 365.4
Other assets................................. 62.1 -- 0.5 (9.0)(c) 53.6
-------- --------- -------- ------- --------
Total assets........................ $1,410.8 $ 31.3 $ 85.7 $ 9.7 $1,537.5
======== ========= ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft............................ $ -- $ 0.6 $ -- $ -- $ 0.6
Current maturities, long-term debt........ 3.0 2.2 -- (2.2)(c) 3.0
Accounts payable.......................... 54.5 2.0 6.0 -- 62.5
Accrued liabilities....................... 63.1 2.3 5.2 5.2 (c) 75.8
Other current liabilities................. -- -- 0.9 7.2 (a) 8.1
Due to Metaldyne.......................... 10.0 -- -- -- 10.0
--------- --------- -------- -------- --------
Total current liabilities........... 130.6 7.1 12.1 10.2 160.0
Long-term debt............................... 693.2 3.7 36.5 (40.2)(c) 693.2
Revolving credit line........................ -- 1.5 11.1 (12.6)(c) 57.1
57.1 (a)
Deferred income taxes........................ 155.9 0.3 1.1 28.5 (c) 185.8
Other long-term liabilities.................. 31.1 -- 0.7 -- 31.8
Due to Metaldyne............................. 12.0 -- -- -- 12.0
--------- --------- -------- -------- --------
Total liabilities...................... 1,022.8 12.6 61.5 43.0 1,139.9
Stockholders' Equity......................... 388.0 18.7 24.2 (20.0)(b) 397.6
14.0 (a)
16.0 (a)
(9.0)(c)
(34.3)(c)
--------- --------- -------- ------- --------
Total liabilities and
shareholders' equity............. $ 1,410.8 $ 31.3 $ 85.7 $ 9.7 $1,537.5
========= ========== ======== ======= ========
F-17
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The Unaudited Pro Forma Combined Balance Sheet includes Highland and HammerBlow
as of December 31, 2002 and November 30, 2002, respectively, and the adjustments
necessary to reflect the estimated effect of the acquisitions and the related
financing as if they had occurred on December 31, 2002.
a) The Unaudited Pro Forma Combined Balance Sheet assumes the following:
1) HammerBlow was acquired on January 30, 2003. The total
consideration paid was $142.3 million ($142.2 million cash,
including TriMas' $9.0 million existing equity interest, plus
$2.6 million of transaction costs, less adjustment for
compensation payments net of related tax benefits of $2.5
million). The cash paid to fund the acquisition was provided
through:
i. $63.3 million excess cash available from the $85 million
senior subordinated notes offering,
ii. $48.8 million draw on the revolving credit facility,
iii. $7.2 million net deferred purchase price to the former
shareholders of HammerBlow, and
iv. $14.0 million from the proceeds of the sale of 700,000 of
shares of common stock at $20 per share to Heartland.
On February 14, 2003, the Company utilized the accounts
receivable securitization facility to repay the revolving
credit facility in the amount of $48.8 million. For purposes
of the Unaudited Pro Forma Combined Financial Information, the
accounts receivable securitization facility is assumed to have
been used to fund the original draw of $48.8 million as the
revolving credit facility was subsequently used to fund the
Highland acquisition.
2) Highland was acquired on February 21, 2003. The total
consideration paid was $73.1 million ($70.5 million cash, plus
$1.3 million of transaction fees and $1.3 million for certain
tax benefits). The cash paid to fund this acquisition was
provided through: (i) $57.1 million draw on the revolving
credit facility and (ii) $16.0 million from the proceeds of
the sale of 800,000 of shares of common stock at $20 per share
to Heartland.
b) Reflects re-purchase of one million shares of our common stock from
Metaldyne, which occurred on April 2, 2003.
F-18
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(CONTINUED)
c) The acquisitions of HammerBlow and Highland will be accounted for by
the purchase method of accounting, pursuant to which the purchase price
is allocated among the acquired tangible and intangible assets and
assumed liabilities in accordance with their estimated fair values on
the date of acquisition. The impact of the step-up in basis of
inventory has been excluded from the Unaudited Pro Forma Combined
Statement of Operations as it will not be recurring. The purchase price
and estimated preliminary adjustments to historical book value as a
result of the acquisitions are as follows:
HAMMERBLOW HIGHLAND TOTAL
---------- -------- -----
Total purchase price...................................... $ 142.3 $ 73.1 $ 215.4
Net assets................................................ (15.6) (18.7) (34.3)
Existing TriMas equity interest in HammerBlow............. (9.0) -- (9.0)
Historical assets not acquired (Note 1)................... -- 0.3 0.3
Historical debt not assumed (Note 1)...................... (47.6) (7.4) (55.0)
-------- -------- --------
Excess of purchase price over book
value of acquired companies........... $ 70.1 $ 47.3 $ 117.4
-------- -------- --------
Adjustment allocated as follows:
Inventory............................................... $ 2.2 $ 1.4 $ 3.6
Property and equipment.................................. 1.8 2.2 4.0
Intangibles............................................. 51.8 24.5 76.3
Accrued liabilities..................................... (5.2) -- (5.2)
Deferred taxes.......................................... (18.6) (9.9) (28.5)
-------- -------- --------
Estimated goodwill adjustment........... $ 38.1 $ 29.1 $ 67.2
======== ======== ========
1) The acquisition of Highland was on a debt-free basis and cash-free basis.
The acquisition of HammerBlow was on a debt-free basis. The adjustment is
to eliminate the assets and liabilities not assumed in the acquisition.
F-19