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Executives

Sherry Lauderback – Investor Relations

Grant Beard – President and Chief Executive Officer

Mark Zeffiro – Chief Financial Officer

Analysts

Thomas Klamka – Credit Suisse

John Inch – Merrill Lynch

[Fred Taylor]

Walter Liptak – Barrington Research

Alan Weber – Robotti & Company

Joe Fox – Keybanc Capital Markets

[Dory] – Barclays Capital

TriMas (TRS) Q3 2003 Earnings Call November 10, 2008 11:00 AM ET

Operator

Thank you for standing by. Welcome to the TriMas third quarter earnings results 2008 conference call. (Operator Instructions) I would now like to turn the presentation over to your host, Miss. Sherry Lauderback, Vice President, Investor Relations. Miss Lauderback, please begin.

Sherry Lauderback

Thank you. Thank you and welcome to TriMas Corporation third quarter 2008 earnings call. Participating onto the call today are Grant Beard, TriMas’ President and CEO, and Mark Zeffiro our Chief Financial Officer. Also with us is Bob Zalupski, our Vice President of Finance Operations.

Grant and Mark will review TriMas’ third quarter operating and financial results, in addition to providing the company’s outlook into the remainder of 2008. After our prepared remarks, we will then open the call to questions.

To facilitate this review of our results, we have provided a press release and a power point presentation on our company website www.TriMasCorp.com under the investor section. In addition, a replay of this call will be available later today by calling 866-837-8032 with an access code of 1300101.

Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. We caution everyone to be guided in their analysis of TriMas by referring to our Form 10-K and our Form 10-Q for a list of factors that could cause the results to differ from those anticipated in such forward-looking statements.

Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our website where considerably more information may be found.

At this point, I would like to turn the call over to Grant Beard, TriMas President and CEO.

Grant Beard

Thank you Sherry. Good morning and welcome to the TriMas Corporation third quarter 2008 earnings call. This morning Mark Zeffiro, our CFO and I will review our third quarter results in addition to our segment highlights for the quarter. Together, we will also provide a financial overview of our company as of September 30, 2008 and discuss the company’s outlook for the remainder of the year. After our formal comments are complete, we will open up the call for Q&A.

During the first nine months of 2008, we have performed well against the objectives we set at the beginning of the year. Our third quarter results were strong, and we are pleased with our strategic growth and cost initiatives continue to show progress. Our company delivered solid performance within the quarter by meeting our earnings expectations in a difficult and rapidly changing economic environment.

Our strategic growth priorities, which are focused on the ad markets of energy. Aerospace, medical, pharmaceutical, and specialty packaging, continue to transition our overall portfolio. During the third quarter, the packaging systems, energy products, and industrial specialty groups collectively grew sales by 21% year-over-year as a result of our new product customer and geographic expansion initiatives. It’s important to note that these three segments generated 88% of our segment operating profits during the quarter.

The positive performance of these three segments continues to be partially offset by the impact of the consumer recession within the United States and our exposure to consumer discretionary spending within our RV/Trailer products and recreational accessories segment, that we collectively call Cequent.

While TriMas revenue grew at an overall rate of 7.1% for the third quarter, these two groups, known as Cequent, our revenues declined by 10% and although we believe this performance was against an overall end market that was down by approximately 20% in comparison to last year, we continue to see weakness due to the broader based economic environment and do not see a catalyst for improvement for these groups in the near term.

While we remain focused on aligning sequence cost structure with market realities, we continue to be aggressive in our efforts to gain market share, launch new products, and expand our markets to continue to drive our relative revenue performance and position these segments for when the end markets return.

Clearly, the events of the past several weeks have created an additional level of uncertainty with respect to global economy. In October, we experienced additional demand weakness, most noticeably in our Cequent businesses. Consumer confidence is down, credit is tight, and consumers have less money to spend. These uncertain times require our company to continue balancing our growth initiatives with cost management. We remain committed to an aggressive cost management environment that is founded on the disciplines of lean, that will continue to drive managerial, as well as operational leverage within our company.

We believe it is prudent to accelerate our profit improvement plan, which is focused on operating improvements and fixed cost reductions across our businesses. We are taking decisive steps to strengthen TriMas in a tough environment and believe these actions will remove 15 million of fixed costs from TriMas in 2009 and ultimately support $30 million in annualized savings by 2010.

We are committed to rationalizing our fixed cost structure, enhancing our free cash flow to improve our balance sheet and support our positive growth initiatives. These actions, which will be discussed by Mark in more detail shortly, will strengthen our company in 2009 and beyond. Notwithstanding the impact of our consumer discretionary spend exposure, we still see significant backlogs in our Aerospace and energy businesses as well as tremendous support for our specialty packaging and medical component initiatives.

TriMas has never had more commercial opportunities in front of it as a company, than it does at present time. In the third quarter alone, TriMas secured over $30 million in new revenue awards that will benefit future periods. TriMas has a great group of diversified businesses within its portfolio. We believe that the composition of this portfolio combined with the disciplined execution of our growth initiatives and our talented team, will enable us to react quickly to changing market conditions, and outperform our competitors in markets that we serve. We believe this is evidenced within the financial results achieved in the third quarter.

For the third quarter, TriMas’ revenues were up 7.1% to $276.9 million, including sales increase of 21% from our packaging, energy, and industrial specialty segments, collectively. A sales decline of 10% from our sequent businesses was in the quarter. Our adjusted EBITDA was $38.1 million or an increase of over 8%, largely driven by the success in our aerospace, energy, and packaging businesses.

Income and diluted EPS from continuing operations were both off in excess of 50% when compared to the third quarter of 2007. Our company drove over $24 million in operational free cash flow, compared to $10 million in the third quarter of ’07. With all operating segments producing positive cash flow.

At the same time, our total indebtedness including amounts outstanding on our A/R Securitization, were down almost $42 million, with the company having over $141 million of availability and $5 million in cash at quarter end. This performance was in line with our expectations and supports the balance of initiatives being implemented across TriMas.

Now, as we move into our segment slides, starting on slide 8, you can see that while 62% of our quarterly revenues were from packaging systems, energy products, and industrial specialty segments, these three segments also accounted for, again, 88% of the segment operating profit of our company. This is a result of our focused growth in the specialty packaging, aerospace, energy, and medical end markets. And unfortunately, also is reflective of the pressures we are seeing in our consumer facing Cequent businesses, which now have less influence on our overall results.

Let’s now look at each of our reporting segments starting with our packaging systems segment on slide 9. Packaging systems saw revenue growth of 13% in the quarter, with its industrial closure and specialty dispensing product lines being up and its commercial construction products being essentially flat, as compared to the third quarter of ’07. Strategically, we continue to transition this group to have increased exposure into growing end markets such as food, beverage, pharmaceutical, and medical, which over time will moderate the group’s exposure to cyclical industries such as construction. Even in our business that traditionally serve as the commercial construction market, we are seeing success with the new product endeavors into specialty and technical paves.

Our earnings improved in this segment as a result of increased sales, partially offset by the increases in raw material costs and expenses incurred to support the sales growth initiatives I have previously mentioned. In addition, the group also continues its investment into international expansion initiatives for its core specialty dispenser enclosure product lines. As we expand our efforts into Western Europe and Southeast Asia, we believe these initiatives will drive long term growth in both revenues and earnings. In the near term, we expect modest growth within this group, with results being moderated by our product exposure to the United States commercial construction market and a potential slowdown of other industrial markets.

Within our next group, energy products, we saw significant revenue growth of more than 37% compared to the third quarter of ’07. This was driven by strong demand, new products, and market expansion. Our new compressor and gas equipment offerings are being well received in the market and we finished the third quarter with a substantial backlog for our engine product lines.

Our strategy of expanding our well site content is being implemented and is exceeding our expectations. Our other company in this segment, Lamons Gasket, continues to execute its international expansion plan with the support of majors such as Exxon Mobile, and Dow Chemical. To support these global customers, Lamons has expanded operations in Europe and Asia. Overall, this segment’s earnings in the quarter also showed solid conversion with adjusted EBITDA being up 56% and operating profit up 68. This group’s outlook is for moderated growth as a result of recent softening in commodity prices, offset by the fact that we sell predominantly MRO and replacement products, coupled with our international and product expansion initiatives.

Our third segment, industrial specialties, have revenue growth of 16% and adjusted EBITDA and operating profit growth of 18% and 22%,, respectively, as compared to the third quarter of ’07. During the quarter, we saw continued growth and substantial backlogs in our aerospace faster product lines, as they continue to launch new products and gain applications. In addition, our specialty cylinder business continued to gain a share in Europe, Africa, and South America. We saw improved margins in our specialty tool, defense, and aerospace businesses, which were partially offset by lower absorption of fixed costs in our specialty fittings business.

The segment’s product expansion initiatives into medical components, also continued to progress during the quarter. This group’s outlook is also for moderated growth due to the overall economic climate in the United States and Europe for basic industrial products, with a positive effect coming from our product end market expansion initiatives.

Our fourth segment, RV and Trailer Products, saw its revenue fall almost 9% as compared to third quarter of ’07. This was a direct result of reduced demand in the US and Canadian end markets. This decrease was driven by continued weakness is consumer discretionary spending, consumer confidence, and credit availability. Earnings for the group were directly impacted by reduced volumes and associated under absorption of fixed costs. Earnings conversion in this segment however, were unacceptable. This group is now aggressively migrating its activities to low cost environments and we’ll increasingly leverage our own assets in Mexico and in Southeast Asia. This group is currently positioning the implementation of further reductions of its fixed cost footprint in organizational spend in North America.

As the group continues its implementation of cost initiatives, it will also continue to lever its great brands and market positions. And while its end serve markets remain weak, especially in the United States, the group’s initiatives in Southeast Asia and Australia are producing growth opportunities. We expect this group to continue to outperform its served markets, dramatically reduce fixed cost levels, and aggressively leverage our market leadership position, as it continues to work through the cyclical bottom of its served markets.

In our last group, recreational accessories, saw its revenues decline 11% with greater declines in adjusted EBITDA and operating profit, as a result of lower sales volumes and a less favorable sales mix. We continue to see a shift away from our more customized, high-profit, heavy duty towing applications to lower priced items. This pattern is expected to continue until we work through the cyclical bottom of our served markets. The earnings conversion in this group is also unacceptable. This group will continue to aggressively leverage our market leadership positions and reduce both fixed and variable costs as required.

The outlook for this group is the same as our RV and Trailer Products segments. In both these groups, known as Cequent, we are implementing initiatives to simplify our business and dramatically reduce fixed costs, which Mark will discuss in more detail in a moment. These businesses are required to drive both free cash flow and positive returns for our portfolio, even in this cyclical downturn.

With our end market outlook for 2009 to be weaker for this group, our initiatives position this group to do just that. Again, we believe that these businesses and market leaders, will be positively positioned for the eventual cyclical recovery and will drive future shareholder value, but in the short term, they will be aggressively managed to support our overall portfolio.

Our company, as you can see, remains a tale of two cities. The good news is, that despite all the challenges we face, including financial market turmoil, credit market tightening, and a recessionary environment, our strategies for growth remain constant, as evidence in the third quarter continue to show progress.

At this point, I would like to hand the call over to Mark to take our listeners through our financial review, Mark.

Mark Zeffiro

Good morning and thank you, Grant. I’ll begin my comments referencing page 15 of the slide presentation. First, let’s consider our results for the quarter. We delivered quarterly sales of $276 million, a 7.1 increase versus a year ago. As you heard, the packaging systems, energy products, and industrial specialty segments had a sizable effect in quarter with a combined sales growth of 21%. This performance was offset by continued end market declines in our RV and Trailer Products, and Recreational Accessories segments, collectively called Cequent, which resulted in a 10% sales decline during the quarter for these groups. Our price initiatives contributed 5% of the increase in revenues in the quarter and foreign exchange also contributed 70 basis points.

Gross margin percentage declined in the quarter by 110 basis points as the beneficial efforts of our pricing initiatives were more than offset by demand softness and a less favorable mix within the businesses. During the quarter, we continued efforts to right size our investment in inventory by reducing our planned production output during the quarter, which resulted in yet further under absorption in related manufacturing variances.

We remain committed to our end markets, but also recognize the need to balance this commitment with our needs to right size our working capital commitments. We will discuss these efforts in greater detail a bit later in our remarks.

During the quarter, our SG&A spending increased $1.2 million compared to the prior year. This is driven predominantly by the year on year advances in growth related resources for the packaging and energy businesses and our investment in Australia. SG&A as a percent of sales was slightly down at 15.8% versus 16.1% in 2007, driven by sales leveraged predominantly in the energy segment.

Benefits of our Q2 actions, previously announced to reduce costs at the corporate office, contributed $700,000 in the quarter.

Operating profit for the quarter was 27.9 million or 10.1% of sales. This represents an increase of $2.4 million and a 25 basis point improvement versus the year ago period.

Continue to move down the income statement. Interest expense decreased by $2.1 million in the quarter, driven by a more favorable, weighted average cost of borrowings and continued reductions in the outstanding debt.

Our weighted average cost of borrowings was 5.2% in the quarter, versus 7.5% in the prior year. During the quarter, our effective tax rate was 40%, as we recognized a shift in expected geographical mix of earnings, the higher rate tax jurisdiction. On a year-to-date basis, our sales of $854 million represented an increase of 2.7%, versus the first nine months of 2007. The dynamics for the year-to-date are similar to the quarter, with the energy products and industrial specialties segment collectively drawing 13% year-to-date. This significant growth was largely offset by declines in the RV/Trailer and Recreational accessories segments, a retraction at 6.5 and 10.2% respectively.

Currency exchange contributed approximately $12 million or 1.3% of the sales increase versus 2007. For the year-to-date since September gross margin percentages were 26.2%, which represents a 120 basis point decline compared to the same period of last year. The drivers of this decrease are consistent with my comments for Q3, most notably are manufacturing actions representing a 70 basis points of this decline, with a similar effect stemming from less favorable sales mix, most notably within the Cequent businesses.

Year-to-date September, our SG&A performance is consistent with my quarterly commentary. SG&A is a percentage of sales with 15.7%, excluding the effect of the restructuring activities, and showed improvement versus a year ago, at 16.1%. The restructuring actions have resulted in $800,000 in reductions, year-to-date.

Turning to slide 16, our reported diluted earnings per share was $0.25 for the quarter and $0.76 year-to-date, versus 2007 Q3 income of $0.16 and $0.34 per share for the quarter and for the first nine months of 2007, respectively. Our relative EPS performance for the quarter is most notable, as the operational comparability’s show the benefit of continued cost reductions and the growth initiatives resulted in an EPS growth of 56%.

In summary, our performance through the third quarter was in line with our guidance provided throughout the year. We have seen conversion of growth initiatives in our energy, industrial, specialty, and packaging segments. This has been challenged by end market performance of the Cequent businesses. Yet, despite these challenging economic times, through these first nine months, we are relatively pleased with the business operating performance.

As for the balance sheet on slide 17, I will discuss a few highlighted accounts for the business. Our reported accounts receivable balance increased $13 million compared a year ago period. But, after consideration of the net activity in our securitization program, which represents $33 million, our performance remains relatively flat to that of 2007. That performance in DSO was more than a 13% improvement versus a year ago.

As per inventory, it increased versus a year ago period by $19.6 million, largely as a result of trapped commodity inflation at the period of $15.3 million. We have seen net reductions of $2.6 million in the Cequent businesses, offset by needed investments in the energy segment. We have also funded inventory needs for new product launches, Asia’s supply chain efforts, and regional growth requirements. We continue to focus time and effort around purchasing efficiency and gross inventory management, to drive net reductions in our inventory levels.

Moving on to slide 18, which details our capital position, our total indebtedness as of September 2008, was $627 million, which represents a reduction of more than $23 million compared to June 30, 2008 and a $42 million improvement versus a year ago. We are particularly pleased with our cash flow from operations for the quarter. If when we’re looking at the underlying performance, that is to say exclude the effects of the accounts receivable securitization, which by its nature is more of a financing activity, one would see a recurring cash provided from operations of $49 million versus $18 million in the year ago, year-to-date period, which you can find for reference on page 27. This improvement is largely attributable to better overall working capital levels and income from operations.

We ended the quarter with $142 million of available liquidity under our revolving credit and securitization facilities and nearly $5 million in cash. We also maintained our significant cushion relative to our financial covenants. Our financial performance as of September 2008 resulted in interest coverage and leverage ratios of 2.66 times and 4.08 times, respectively, as compared to our covenant requirements of 2 and 5.

It is important to note that our bank covenants allow for the exclusion of certain cost cutting expenses. We will continue to focus on our liquidity through our operational efforts in working capital, CapEx efficiency, and profit improvement. We also continue to focus efforts to monetize on non-core assets and divesting of non-strategically aligned product lines.

Given the events of the past few weeks, I would like to remind everyone that we do not have any significant debt maturities until 2012. Our accounts receivable securitization, which is 364 day facility, is scheduled for a renewal in February 2009. Overall, we are comfortable with our banking partners we have chosen and do not foresee any challenges with our existing credit agreements.

During the first nine months of 2009, we performed well against the objectives that we included in our outlook at the beginning of the year. Despite this solid performance, the macro economic events of October have caused additional demand weakness in certain businesses, most notably our Cequent businesses.

Due to these trends and the company’s limited visibility into future demands, combined with yet further actions to reduce production in inventory, commodity volatility, the company has revised its full year 2008 diluted EPS from continuing operations guidance range to $0.71 to $0.75 per share. Consistent with our previous guidance, we have excluded the effects of special items.

To add clarity, our reduction in guidance is affected by actions we have and will take to continue to address our production levels and inventory position. These actions are expected to reduce our inventory by $10 million and have an EPS effect of approximately $0.05 per share. Secondly, the volatility in commodity has added period pressure and will have an approximate effect of $0.06 EPS. In addition, worsened end markets in our Cequent businesses have affected our forecast by $0.04 a share, as we reflect in our results, the lower end market expectations. Foreign exchange changes also affected our guidance by $0.01 a share.

Despite our solid performance today in 2008, we are announcing deceleration of our Profit Improvement Plan. That company has reduced segment fixed overhead as a percent of sales by 160 basis points over the past five years, from 20.1% in 2003 to 18.5% in 2008, in efforts to drive value in our existing businesses. The reductions have come from the consolidation of facilities, staffing, and other general productivity. We will continue our efforts to structure the business to better align with the newest commercial realities. This will result in a simpler, more streamlined organization, and in doing so we will take significant actions to reduce fixed overhead costs across the corporation, but most notably, in the Cequent set of businesses.

As we target efficiencies needed in our fixed cost structures, we will focus on areas that will include the consolidation of distribution, manufacturing facilities, reductions in staffing levels, and efforts to simplify our business activities. We will simplify our businesses to drive focus, productivity, and support their own markets. The investments already completed in low cost or production areas will be leveraged even more greatly as we execute our plans.

We anticipate our plans will reduce our fixed cost spending to realize $15 million in savings in 2009 versus the 2008 spending levels. This will equate to a run rate savings level in 2009 of approximately $20 million. To realize the 2009 savings, the corporation will spend between $7 and $9 million in restructuring costs that does not contemplate asset write-offs. At this point, we believe those amounts are not material. Our profit improvement plans are expected to realize $30 million as we complete the implementation of these actions through 2010. We remain committed to making our business more profitable and yet better position to capitalize on opportunities upon the resurgence of the economy.

At this point I would like to turn it back over to Grant, our CEO, for closing commentary.

Grant Beard

Thanks Mark. As Mark indicated we are faced with the challenge of balancing our growth initiatives with aggressive cost reductions and productivity improvements. As you know, we have been actively reducing our costs and footprint within TriMas, so commitment and action are not an issue. We have already consolidated over 12 plants, 16 distribution locations and established key facilities and low cost environments. We’ve established centralized purchasing functions and set up off-shore buying offices with approximately $130 million of our product being sourced from low cost countries. We’ve reduced overhead and administrative costs in this business. The point is, TriMas has made significant investments already that will allow us to drive our next set of profit improvement initiatives that Mark spoke to without great disruption or risk and we believe that these will yield $30 million of additional fixed cost reductions by 2010. These actions will enable us to mitigate the current challenges of a volatile macroeconomic market and at the same time drive enhanced results in the future. TriMas is committed to not only manage as required but position our portfolio for substantial margin and earnings expansion as the economy recovers. So in the meantime, we will continue to focus our capital on strategic growth initiatives with our focus on value creation opportunities and growing end markets of specialty packaging, energy, aerospace and medical components. We will continue to deploy capital frugally. We have already begun to reduce working capital levels in the company and are positioning to monetize non-core properties and assets to bolster our balance sheet. We recognize the debt levels in our company are significant and while indebtedness is declining we are committed to protecting our liquidity. We expect our initiatives to continue to generate strong free cash flow, strengthen our balance sheet and first and foremost preserve our opportunities.

In summary, we are taking steps to minimize the down-side risks of uncertain markets while investing in growth in those markets that we believe will out-perform the economy. We have a good portfolio of businesses supported by great brands and talented people. While the near-term has become more challenging, we will continue to make progress on our long-term growth strategies that will drive enhanced shareholder value into the future. At this point I would like to open up call for questions, Chris, and perhaps you could do that.

Operator

Yes, Sir.

Grant Beard

Thank you.

Question-and-Answer Session

Operator

You’re welcome. (Operator Instructions) Our first question or comment is from the line of Tom Klamka with Credit Suisse. Your line is open.

Grant Beard

Hi, Tom.

Thomas Klamka – Credit Suisse

Good morning, how are you?

Grant Beard

Good, how are you?

Thomas Klamka – Credit Suisse

Good, could you, excluding sequent for the time being, the other business all did very well in the quarter which is great, you seem to be also very bullish on their prospects for 2009 even though those end markets aren’t doing that well. And I guess maybe you could reconcile that for us, how do you see a bullish revenue outlook in face of what we’re looking at in economy.

Grant Beard

I think, Tom, that bullish is a strong statement. I think that we expect the opportunity to have moderated growth and I think that growth will be more challenged in 09 but I think as we push our product initiatives, our international expansion, as we continue to take our group-like packaging more and more into food and beverage and medical, as we continue the conversion of our specialty cutting tools in the medical as layman’s gasket continues to follow the major oil producers with its service model into Europe and Southeast Asia, we think that those groups have the opportunity to continue to expand even in the market that they’re in. I think bullish would be too strong an adjective.

Thomas Klamka – Credit Suisse

But you still see positive revenue comparisons in those businesses next year?

Grant Beard

We see the opportunity to do that, yes.

Thomas Klamka – Credit Suisse

Okay. And can you talk a minute about energy, the growth there in the last couple quarters has been very strong now that natural gas has come down, some of those buyers are a little more circumspect. What do you see happening there?

Grant Beard

Well, you know, I think that group has certain characteristics to it, Tom. You know the great majority of what we’re selling are MRO or replacement components into a utilization environments, so while commodity prices moving down have impact, you’re running those petro-chemical or those oil refineries really don’t necessarily care what the commodity prices are and we see continued support for those MRO products that we’re selling into Dow and Exxon and the like and we see a great deal of commitment by those companies to take our business, in a sense, outside of North America which is all incremental opportunity for us.

At the well site, clearly as commodity prices retract, capital spend should soften. Our backlogs at current moment would not suggest that is impacted us yet, but we recognize that the relative strength in 09 might be softer then 08, that said, we think that the movement we are doing in our well-site expansion, compression and metering and accumulation products, is really gaining great acceptance and we really do sell into the lowest of capital spend buyers in the market and we still see a lot of strength there.

Thomas Klamka – Credit Suisse

And can you talk about what you saw in October and currently in November versus the trend in September?

Grant Beard

Well, you know, I got to tell you, coming through the quarter of the third quarter we saw really quite a strong sense of strength everywhere. And I think that financial markets in the news were so dramatic in October, I think that there was just a collective pull-back almost everywhere. And I think it’s going to manifest itself mostly on top of our sequent businesses but we saw the world pull back and I’m sure you saw that in many of your other companies. And that led us to really reduce not only our revenue expectations for the quarter but immediately move in to lowering inventories and taking ours out of the quarter which had an immediate impact on our ability to support our guidance or our expected earnings level. But, we want to do what’s right for the company and we thought that that was prudent.

Thomas Klamka – Credit Suisse

Sure, great, okay. Thank you.

Grant Beard

Okay, thanks, Tom.

Operator

Thank you, sir. Our next question to come is from the line of John Inch with Merrill Lynch. Your line is open.

John Inch – Merrill Lynch

Thank you.

Grant Beard

Hi, John.

John Inch – Merrill Lynch

Morning, Grant. So, I want to ask you about the securitization program. Have the terms of that program really changed and as you guys look ahead do you think the opportunity to continue to securitize your receivables is going to be there? Just how should we think about that vis a vis the balance sheet and your prior comments?

Mark Zeffiro

Yeah, John, this is Mark. With respect to the securitization program, as I mentioned it’s up for renewal in February.

John Inch – Merrill Lynch

Right.

Mark Zeffiro

We’ve already started conversations with the current provider and are looking at others to that end. At this point in time, the cost structure of it has been equivalent to where it was previously. As you knew, it was CP plus 105 basis points, relatively stated, its more comparable to our revolver related debt levels in terms of the cost structure as of right now. So, I don’t expect it to go away, John, but it will be re-bid and re-tasked with its renewal and in February.

John Inch – Merrill Lynch

So, Mark, how should we, as we kind of put all of this into a bucket, how should we think about your ability as a company to continue to finance and possibly even take some market share, your own working capital, going forward. Is that something we need to be concerned about or is something you can adjust sort of concurrently, how to think about that?

Mark Zeffiro

What I would do, your question is a good one, John. We expect that this availability for us in terms of our overall liquidity will remain and in that end that’s the way that you should plan for it.

John Inch – Merrill Lynch

Maybe if anything, just the terms get a little bit more expensive, right? Is that the way to think about it?

Mark Zeffiro

Possibly, yes.

John Inch – Merrill Lynch

Okay. And then, Mark or Grant, TriMas’ historical backlog during downturns, can you just refresh us again what typically plays out, and I understand, you know, your energy business probably has more proportionally obvious backlog, but how about some of those export businesses and other things, how would you characterize the backlog and the risk to backlog heading into next year based on what you’ve seen thus far?

Grant Beard

Yeah, John, our company by and large does not have the luxury of big backlogs in the best of times or the challenged times. So, we have visual backlogs in our energy and aerospace and where a small amount of revenue base, as you know, is in an OE environment, but most of our order intake is in a fairly short window which has ups and downs that may make us more nimble but it also makes projecting revenue a little bit more challenging. We don’t have a big backlog that’s subject to being cancelled but we don’t have a big backlog that really lends us to have a lot of visuals.

John Inch – Merrill Lynch

But with that (inaudible 00:47:28) Grant, does it traditionally does it hold in during recessions or does it fluctuate?

Grant Beard

Well, I think it depends where it is. For us, aerospace and our growing applications through our new product initiatives are holding up. Backlogs there have never been stronger and I think we’ve got a little counter-veiling thing happening in energy as well. We have so many new products coming out and we’re pushing ourselves into new markets, that that might be masking so other demand slow down. So, where we have backlogs we’ve not seen retrenchment.

John Inch – Merrill Lynch

Okay. Thank you very much.

Grant Beard

Thanks, John.

Operator

Thank you, Sir. Our next question or comment is from the line of Fred Taylor.

Grant Beard

Hi, Fred.

Mark Zeffiro

Hi, Fred.

Fred Taylor

Hi, how are you? Just a quick question, and maybe you’ve touched on it a little bit. But, you mentioned commodity inflation and inventory, as that settles down does it kind of go the other way that you’ve got to push through some higher priced inventory into next year’s sales and we might we see a reduction in gross profit margin?

Mark Zeffiro

That’s what’s contemplated directly in our Earning Guidance right now, Fred. If you were to think of it on a FIFO basis we have some higher cost inventory that will hit in Q4.

Fred Taylor

Thank you, that’s all I had.

Mark Zeffiro

Thank you, Fred.

Operator

Thank you, Sir. Our next question or comment is from the line of Walter Liptak of Barrington Research. Your line is open.

Grant Beard

Hi, Walt.

Mark Zeffiro

Good morning, Walt.

Walter Liptak – Barrington Research

Thanks. Good morning, guys. I guess my question is about the covenants for 2009 and I wonder if you could refresh us on what the bank IBITDA targets are and some of the bank covenants what they adjust to?

Mark Zeffiro

Well, our covenants step down as in (inaudible 00:49:15) Q3 to 475 and then at year end another 25 basis points to 450, Walt.

Walter Liptak – Barrington Research

Okay, so Q3 of 09, right?

Mark Zeffiro

That’s correct.

Walter Liptak – Barrington Research

Okay. And, you know, overall are you expecting with the performance (inaudible 00:49:37) program of revenue decline in 2009 considering that–it sounds like you’re looking for, you know, the Tale of Two Cities where you’ve got some segments up and then the sequent business is down?

Grant Beard

You know, Walt, I think where we’ve seen growth and where this company has its greatest margins, we will continue to see relative strength and relative opportunity. I think the consumer market exposure that we have through our product offering in sequent, we believe, especially in North America will continue to be weak and that is why we are looking there to in a sense right-size the business to its revenue levels. We’re market leaders, we’ve got good companies there but we have to have those business sort of right-size for our market. I just don’t see in the short-term a catalyst for the U.S. consumer to really step up there.

Walter Liptak – Barrington Research

Yeah, I don’t think anybody does. But, you’re obviously going to forecast through 09 what you think those sequent businesses can do. Are you expecting them to drop another 10% in 09?

Grant Beard

Well, you know, that’s a great question. You know, we came into this year and we’ve been about 10% down across a market that’s had a matrix probably twice that amount and I think that we will continue to see support for our product initiatives and our bundling our aggressiveness out in the market but I think that the market will probably be down another low double digit realm. You know, and I think what that does, it isn’t so much that you’ll see it directly impacted in our revenue, it’s just changes the complexion of what we sell. We sell down then to the more accessory (inaudible 00:51:43) non-customized product offering which is less profitable, so for us it will put more opportunity, I’ll say it that way, to lower working capital levels and give us a chance to consolidate into, frankly the investments we’ve already made in our low cost environments.

Walter Liptak – Barrington Research

Okay, great. Thanks for that.

Mark Zeffiro

Walt, I would also add to that is if you think about 2009 as other companies, maybe not TriMas, have seen harder financial outcomes, you know, the brands that Grant talks to have equity and commercial equity, and what we’re finding obviously is people have a flight to our quality of equity namely the brands that we carry. So, I would expect also see an increase demand, if you will, not at large, but an increased demand for our sets of products and our brands.

Walter Liptak – Barrington Research

Okay, yeah, that would be nice. I wonder if you could talk about the cost reduction a little bit and the $15 million expected in 2009 lower cost structure. Is that going to show up in manufacturing expenses being lower or is it SG&A overhead or a combination and what would the combination be?

Mark Zeffiro

It’s a combination of both, Walt. If you’re to look at this sequent set of businesses, they will likely show probably better or more significant reductions in the gross margin contribution, if you will, you know, the manufacturing side of the house. There will be SG&A effects as well, though. I mean, I would say it’s largely going to come through in terms (inaudible 00:53:38) gross margin effect.

Walter Liptak – Barrington Research

Okay. Okay, thanks, guys.

Grant Beard

Okay, thanks, Walt.

Operator

Thank you. Our next question or comment is from the line of Alan Weber of Robotti & Company. Your line is open.

Grant Beard

Hi, Alan

Alan Weber – Robotti & Company

Hi, good morning. A few questions, when you talk about the program for 09 for cost reductions, what is the cash outlay for that?

Mark Zeffiro

Alan, our current look is between $7 and $9 million would be largely cash. It would include severance, it will include, obviously, you know the cash equivalence of equal migrating facilities to a new location.

Alan Weber – Robotti & Company

And at this point, what do you expect CapEx to be for the balance of this year and for 09?

Mark Zeffiro

CapEx for the full year, we’re looking at (inaudible 00:54:31) sales, Alan, that would give us the ability now as we’re coming down through the rest of the year as we’ve got our sensitivity on ensuring that that 3% is really needed versus just the wants of the business. So, we’re being conservative in that respect.

Grant Beard

Yeah, I think on a outlook basis, we’ve spent on average about 3% about two thirds of that is directly related to new revenue initiatives, so in a sense its fairly manageable and about a third of that is sort of directly related to maintenance and PP&E and whatnot. So, if the end-markets prove to be weaker, we can choose to spend less, I mean we are very, sort of a capital efficient organization.

Alan Weber – Robotti & Company

Okay, and then of the cost savings that you are talking about, what percent is going to be in sequent business?

Grant Beard

I would say, without getting ahead of ourselves, a fair majority. And I think that evolution for these businesses are not to be five discreet businesses any longer that allow them to migrate into one operating group over the corresponding 12 to 24 months which will allow us–which would–you would see a steady stream of announcements coming, which is going to allow us to share manufacturing facilities, share distribution, share back offices and really lever some of those investments in the company. But, I will say that we’re looking at our total GNA environment and looking across our whole portfolio as ways to simplify and take non-value ad costs out. We have been a big proponent of letting these businesses live and a discreet environment and we think there’s leverage opportunities in a sense in the lowest form of transactional costs that we communize or centralize in the company.

Mark Zeffiro

Without affecting, obviously, the commercial or the equity side of each one of those businesses, so that will be the focus area, Alan.

Alan Weber – Robotti & Company

Okay. My final two questions–I think you said that 130 million of products are now sourced from low-cost countries?

Grant Beard

That’s correct.

Alan Weber – Robotti & Company

What do you think that will be in two or three years?

Grant Beard

That’s a good question. It will be more and it will be a combination of sourced and manufactured product through our own facilities. I regretfully–we will continue to migrate workers to our exposure to expensive workers in North America or at least in the United States and Canada. I can’t give you a specific number but, you know, several years ago it was next to nothing and we’ve moved very quickly and I think we continue to see opportunities as a cost arbitrator to move more.

Alan Weber – Robotti & Company

And I guess my final question has to do with kind of the balance sheet and capital structure. Given where your balance trade–is there anything you can do in terms of buying back bonds or any thought process like that or just, you know, kind of if you generate cash, you know, what (inaudible 00:57:57)

cash?

Mark Zeffiro

You know, that’s a great question, Alan, and we’ve had internally a significant amount of discussions as we continue to generate this free cash flow, how do we want to deploy it instead of just paying down revolvers is there an alternative here whereby we could maybe even buy back some of those bonds. That will be something as we continue to generate free cash flow and as the bonds are available at discount we will seriously look at.

Alan Weber – Robotti & Company

Okay, great. Thank you very much.

Grant Beard

Thank you.

Operator

Thank you. Our next question or comment is from Joe Fox with Keybanc Capital. Your line is open.

Joe Fox – Keybanc Capital Markets

Good morning, Grant, Mark and Sherry.

Sherry Lauderback

Hi.

Mark Zeffiro

Good morning.

Grant Beard

Hi, Joe.

Joe Fox – Keybanc Capital Markets

Can you guys just talk a little bit more about the cadence of your restructuring plan? Now, is that something that you guys are actively pursuing right now and maybe we would start to see some of the benefits in early 09? Or do you think that is something where the majority of the benefits are going to come from in the back half of the year?

Grant Beard

No, this is really something that was in a sense sort of happening anyway, and I think that you will see a steady series of announcements even in the remaining part of this quarter that will reinforce our commitment to the things that will add up to these numbers. So, the short answer is we’re implementing actions as we speak that will support those levels of savings and we expect to see them not just in the back half of the year but throughout the whole entire 09.

Mark Zeffiro

Hey, Joe, if you were to think about it, in order for us to realize $15 million worth of costs in 2009, and think about the size of the fixed cost structure, that means that we have to move fast. So, you are going to see–you will see not just a Q4, Q3 kind of lumpiness for 2009 but you will see stuff in the front half.

Joe Fox – Keybanc Capital Markets

Great, that’s helpful. Also if we assume that the weakness in sequent persists into 1Q09, which if sounds like you guys believe it will, as you look at the outlook for the other three segments in conjunction with your cost reduction efforts, do you think it’s reasonable to see EPS above 1Q08 levels?

Grant Beard

You know, that’s a great question, Joe, and I’d love to be able to talk details in terms of 2009 guidance at this point. We’re still in the throes of our budgeting process and looking at yet the effects of this profit improvement plan for Q109, that we’re not quite ready to share with that.

Joe Fox – Keybanc Capital Markets

Fair enough. I thought I’d ask. Also, was there any impact to Monogram during the quarter due Boeing strike?

Grant Beard

No.

Joe Fox – Keybanc Capital Markets

Okay. And we’ve been hearing of some uncertainty in the supply chain due to production scheduling for the rest of the year. Is that something you’ve seen specifically from Boeing?

Grant Beard

So far, so good on our part, there has been some disruption in products that are outside of our offering that have gotten some press, but no we’ve not seen anything other than support for what we’re doing.

Joe Fox – Keybanc Capital Markets

Okay, and last question and then I’ll turn it over. I think it was Grant that mentioned earlier that you were going to explore some diffentures of non-core businesses, can you possible give us an idea of what those might be?

Grant Beard

We can’t but I will say that we’re committed and we are currently in the process of looking at assets that we believe are non-core and if we can be successful in getting those done we would take any net proceeds and drive them to debt reductions. So, we recognize our balance sheet, we want to preserve our flexibility and our growth initiatives and that’s certainly an avenue that we’re open to and are working hard on. But a little premature, but stay tuned.

Joe Fox – Keybanc Capital Markets

Thank you, guys.

Grant Beard

Okay.

Mark Zeffiro

Thank you.

Operator

Thank you. Our next question or comment is from the line of Sarah Thompson with Barclays Capital. Your line is open.

[Dory] – Barclays Capital

Good morning, this is Dory calling in for Sarah. Just a couple of real quick questions, the $7 to $9 million disbursements for the restructuring charges, what’s the timing of that?

Grant Beard

I’m sorry, who is that again?

[Dory] – Barclays Capital

It’s Dory

Grant Beard

Okay, Dory. What will happen, Dory, is we will see some of that in Q4 what I would say is about half of you’ll see in Q4 and the rest of it will be spread out over 2009.

[Dory] – Barclays Capital

Okay, and then just one last question, do you guys have a EBITDA target for the year?

Grant Beard

No, Dory, we don’t have a EBITDA target for the year.

[Dory] – Barclays Capital

Okay. Thank you.

Grant Beard

Sure.

Operator

Thank you. We have a follow-up question from the line of Tom Klamka. Your line is open once again, Sir.

Thomas Klamka – Credit Suisse

Mark, could you just give us the balance of the revolver and the term and then also if you could split that 141 million of availability between the revolver and the receivables facility.

Mark Zeffiro

Hey, Tom, give me one second. That’s a great question, I’ve got that here, and we’re talking about the end of Q3, correct?

Thomas Klamka – Credit Suisse

Yes.

Grant Beard

The balance of the term loan was $254 million or thereabouts, Tom. And in terms of that availability, the securitization is probably net of the balance we had at Q3 of $11 million I would say it’s about 50ish and the residual would be revolver.

Thomas Klamka – Credit Suisse

Great, thank you.

Operator

Thank you. Our final question in queue is a follow up from the line of Walt Liptak. Your line is open once again, Sir.

Grant Beard

Go ahead, Walt.

Walter Liptak – Barrington Research

Hi, thanks, I wonder if you could give us some help on the 09 tax rate, is there anything moving around?

Mark Zeffiro

No, you know, consistent tax rate was total year 2008 as well, what we just saw is we just had to adjust a bit in Q3 as respect to the shift in our overall income projections for the year, so, you know, 36-37% is if you’re doing your modeling for 2009, is a reasonable assumption.

Walter Liptak – Barrington Research

Okay, and when we think about free cash flow for 2009, excluding what might happen with net income, do you expect to generate some more free cash flow in 09 or because of inventory draw down, you know, a better free cash flow year?

Grant Beard

Well, we’re not really ready to give guidance, but we are certainly committed to driving free cash flow to strengthen our balance sheet and preserve our initiatives but we’re not quite ready to give guidance.

Walter Liptak – Barrington Research

Okay, alright. Fair enough. Thanks.

Grant Beard

Okay. That’s okay.

Operator

Thank you. There are no further questions in queue at this time. I would like to turn the conference to you for any closing remarks.

Grant Beard

Okay, thank you, Chris and thank you for your time and patience through our call today. You know, I think in closing I would say that TriMas has a solid third quarter, we had a year in which debt was reduced, cash flow is certainly improved and net earnings have increased. Our cost reduction initiatives certainly are putting pressure on the earnings in the fourth quarter of this year and potentially into the quarter of next year but are going to set this company up for enhanced performance as we move forward. I hope you recognize that we continue to focus on the value creation growth opportunities in concert and consistent with removing fixed costs and decreasing debt in our company. And we believe TriMas is an excellent company populated with very talented people with a wonderful future in front of us.

So, we thank you for your time and your support and look forward to talking to all of you soon.

Thank you.

Operator

Ladies and gentlemen this does conclude today’s conference call. We again thank you for your participation. You may all disconnect at this time.

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Source: TriMas Corporation Q3 2008 Earnings Call Transcript
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