TriMas Corp (TRS) 2005 Q2 法說會逐字稿

(OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Tuesday, August 9, 2005. I would now like to turn the conference over to Mr. Skip Autry, Chief Financial Officer of TriMas Corporation. Please go ahead, sir.

Thank you and welcome to our second quarter 2005 conference call. Our President and CEO, Grant Beard and I will review TriMas' second quarter performance. To facilitate the review we have provided a press release and PowerPoint presentation on our Company website trimascorp.com. After our prepared remarks we will have a Q&A session for the audience. Also present with us today from TriMas is Bob DeLucci, our Vice President of Finance and Treasurer. A replay of this call will be available later today by calling 800-633-8284 with the reservation number 21257221.

Please note that certain information on this call may be forward-looking and contains statements based on our current plans, expectations, assumptions, and environmental trends which may affect the Company's future operating results and financial position. Such statements involve risks and uncertainties which cannot be predicted or quantified, and may cause future activities and operating results to differ materially from those discussed. These risks are more fully discussed in our filings with the SEC. At this point I would like to turn the call over to Grant Beard, our President and CEO.

Welcome to today's call. Today we will profile TriMas' second quarter financial and operating highlights. We will profile the second quarter's financial performance, overview the capitalization of our Company at the end of the second quarter, and then overview what we believe to be the priorities and the focuses of management and Company for the remainder of '05. And then they will open up the presentation to Q&A. For those following along with our slide deck, I would please ask you to turn to the slide titled "2005 Second Quarter Financial Highlights".

TriMas had sales of 294.6 million in the quarter, representing an increase of 10.4 million, or 3.7% over second quarter of 2004. When you exclude steel surcharges recovered from customers, we estimate our sales increased a modest 1% over the second quarter of '04.

Within the Company net sales at our Cequent Transportation Accessories Group decreased 5.5% compared to the prior year from 150.6 million in Q2 of '04 to 142.4 million in the second quarter of '05. With the exception of our Cequent Group of companies, each of our other business segments had year-over-year revenue growth in the quarter, reflecting the benefit of new product introductions, market share gains, and overall economic expansion.

Sales levels at Rieke Industrial Specialties and Fastening Systems increased 1.5, 25.8 and 5.8% respectively. The Company's adjusted EBITDA within the second quarter was 35.6 million. This represented a decrease of 5.2 million, or 12.8%, as compared to the second quarter of 2004.

Turning to the next page. The Company's reported operating income for the quarter was 27.8 million, or a decrease of 3.1 million as compared to the operating income levels of the second quarter of 2004. The impact of reduced sales volumes and increase in material costs, principally in our Cequent Towing and Consumer Products business units, more than offset the continued strong earnings performance within our Industrial Specialties and Fastening Systems Group of companies.

Labor, variable and fixed costs during the quarter were reduced by approximately 8.8 million as compared to the second quarter of 2004. Expenses related to plant consolidation and restructuring activities decreased some $3 million to 1.4 million in the quarter, as compared to a spend level of 4.4 million in the second quarter of 2004.

Our second quarter net income was $4.1 million, or $0.20 a share. This compares to the $9 million of net income, or $0.44 a share, we had in the same period a year ago. Increased borrowing costs of 2.6 million variant (ph) and currency exchange losses, 1.7 million, on intercompany loans denominated in foreign currencies net of related tax effects significantly contributed to the decline in net income between years.

Turning to the next page. The Company's total debt and securitization at the end of the quarter was 783.9 million, a decrease of approximately 30 million and 24 million respectively when compared to the end of the first quarter of 2005, and compared Q2 of '04. The reduction in debt was due principally to aggressive collections of receivables and deferrals of payable payments to the trades during the quarter.

TriMas finished the second quarter with 182.6 million of net operating working capital. This represented 15.5% of sales. Although we had improvements achieved in the quarter, we continue to believe working capital can be improved via better inventory management, principally within our Cequent Group of companies.

TriMas' bank LTM was 145.1 million, which supported our lending ratios of 5.4 vs. a leverage covenant of 5.5, and an interest coverage ratio of 2.1 vs. a coverage covenant of 2X. TriMas had 3.9 million in cash at quarter end, and had $18.3 million of available liquidity under our revolving credit agreement.

Turning the page, within our Cequent Group of companies, the second quarter sales decreased 8.2 million to 142.4 million, or 5.5% underneath last year's 150.6. Excluding the impact of steel and the favorable effects currencies, sales in the quarter decreased almost 10%.

Cequent experienced lower demand for towing products in its wholesale distributor and installer markets due to higher finished good inventory levels within these channels. The group had significant competitive pricing pressures impacting margins across all channels served, but especially in retail. The group's earnings deterioration is a result of volume decline, pricing pressures, insufficient recovery of steel and other material cost increases via pricing, and excessive overhead costs in relationship to unit volume levels. The group's adjusted EBITDA in the second quarter decreased $13 million to 14.8 million, from 27.8 in the second quarter of 2004.

Its quarterly operating profit was 10.5 million as compared to 22.9 million in the second quarter of 2004. Continued pricing pressure is expected as market demand within this group of companies remains flat, and increased competition from Southeast Asia continues in many of our lower end or less engineered product categories.

Turning the page. The volatility within Cequent business has obviously compressed TriMas' available liquidity, masked the positive earnings growth within our other businesses, and frankly, has driven us to take decisive action within the group. Starting within the second quarter TriMas initiated the following actions which will drive both improved performance, and we believe reduce the earnings volatility within this group of companies known as Cequent.

We removed a layer of management. We eliminated 87 salaried positions. We initiated the closure of two small plans and announced a third last week. We initiated the simplification of our distribution system, with the expectation of two to three sites to be eliminated. We initiated a SKU reduction program which is has already eliminated over 1,000 part numbers in its first 90 days. We began customer and product line profitability reviews, which will define the product lines we continue to support. And we have initiated customer performance feedback reviews with our senior management to make sure our performance out in the market is excellent. We believe that Cequent businesses via these initiatives will positively work through the convergence of material price increases and unit volume reductions and allow us to regain earnings momentum within this group.

Turning to the next slide. Within our Rieke Packaging Systems Group net sales for the second quarter were 35.2 million, or up 1.1% as compared to last year. In the second quarter core product sales did decrease some 5.9%, while new specialty dispensing products increased 2.3 million to 6.7 million as compared to the levels of Q2 of last year.

The group's adjusted EBITDA decreased 2.2 million in the quarter to 9.4 million from the 11.6 million in the second quarter of '04. The group's operating income for the second quarter decreased $800,000 to 8.5 million as compared to the 9.3 million we had in the second quarter of 2004. The decrease in operating profits and EBITDA between years is due to steel cost recovery issues in our product lines in Europe, and a non-recurring tooling related investment for a strategic product line. While the earnings momentum did abate in the second quarter, Rieke does expect positive earnings momentum for the remainder of 2005.

Turning to the next slide. Within our Fastening Systems Group of companies the 2000 second quarter -- 2005 sales did increase 5.8%, or 2.1 million to 39.1 million from the $37 million level in Q2 of '04. Excluding steel price increases recovered from customers, however, sales were approximately flat as compared to the year ago period.

Sales within our aerospace fastener business during the quarter improved an impressive 32.2% as compared to the second quarter of '04, due to an overall increase in the commercial and business jet build rates coming through 2005. And as a result both manufacturers and distributors began buying ahead to replenish inventory levels. We finished the second quarter with a backlog in our aerospace business of approximately $18 million.

Excluding steel price increases recovered from customers, among sales within our industrial fasteners unit in the quarter declined about 10.7%, or 2.9 million, as compared to the second quarter of '04. We believe this is attributable to manufacturing activity levels declining slightly as our major customers adjusted their inventory levels partially in response to high-volume units, both ordered and shipped, within the first quarter of 2005.

Turning to the next slide. The group's adjusted EBITDA in the quarter was 4.5 million compared to a -1.2 million in the second quarter of '04. Overall the group does expect to recover approximately 90% of increased steel cost via pricing and surcharges as we continue to work across the remainder of 2005. Our operating profit within this group was -- improved 5.8 million to 3 million as compared to a loss of 2.8 in the second quarter of 2004.

Costs associated with the Lake Erie Products restructuring activities decreased 1.8 million between years as the consolidation of our Cleveland or Lakewood facility into our Frankfort campus was essentially completed at the end of last year. These companies do expect continued earnings momentum across the remainder of 2005.

Turning to the next slide. Within our ISG Industrial Systems Group of companies we had net sales in the quarter of 77.9 million. This represented an increase of 25.8% as compared to the same period a year ago. This was driven by new product introductions, market share gains, and overall economic expansion within the markets served.

Sales within our Aeroengine Group for its engine and replacement parts increased 61.5% versus a year ago, a direct benefit from high levels of drilling activity in both the United States and Canada due to the high commodity prices for oil and natural gas.

Our Norris Cylinder Group had a sales increase of 31.9 million, as adjusted for steel over the second quarter of '04, and coming into the third quarter with a strong backlog. Sales within our Lamons Speciality Gasket business increased 10.9% compared to the second quarter of '04, and is a direct result of significant oil refinery and turnaround activity at several major customers.

Our Compac business sales in the quarter increased 9% compared to the second quarter of '04 due to the continued strength in residential building and improved pricing from customers. And within our Precision Tool Company we are beginning to see real growth in its strategic initiative of selling into the specialty medical equipment market. This has been partially offset by weaker demand for our standard cutting tools, particularly in the automotive supplies segment.

Turning to the next slide . ISG as a composite had adjusted EBITDA for the quarter of 11.9 million compared to 8.6 for the second quarter of 2004. Operating income for the quarter increased 48.1% to $10 million, or 12.9% of sales, from the 6.8 million level a year ago. And this group of companies also continues to have earnings momentum as it walks across the remainder of 2005.

Turning to the next slide, I would ask Skip to more formally review the financial performance within the quarter of TriMas.

Page 14 summarizes the financial performance of our second quarter. Let me highlight a few points. Cequent sales were off 5.4%, or almost 10% when adjusted for steel and foreign exchange, of roughly $14 million. This sales decline is attributed to a very strong year ago Q2 sales quarter due to customer pull ahead orders to avoid steel related price increases. We believe this pull ahead approximated 5 to $10 million last year. Additionally, last year a onetime retail sales channel fill occurred between 2 and $3 million. And we are also experiencing lower current year sales in our installer and WD channels due to weakening marine and RV-related demand.

The EBITDA of the sales decline was approximately $5 million. The remaining EBITDA loss of approximately $8 million relates to not passing increased costs along to our retail customers, and continued price competition due to dropping volumes in the WD and installer channels, partially offset by lower fixed costs across the segment.

Rieke sales were up 1.5%, while EBITDA was down 19%, or $2.2 million. This decline is misleading in that $1.3 million of the decline relates to foreign currency mark-to-market losses on intercompany loans between TriMas subsidiaries, and a $0.4 million onetime tooling costs adjustment. The remaining margin loss is related to steel cost recovery in Europe.

Fastening Systems sales were up 5.8% or flat when adjusted for steel. Our aerospace fastener business increased, essentially off since the decline in sales of our industrial fastener business. The segment's improved EBITDA comes from lower non-recurring spending, improved mix, that is more aerospace and less industrial, and improved operational performance including lower variable and fixed cost levels in our industrial fastener business.

Industrial Specialties sales improved 25.8%, or 24.3% up when adjusted for steel. As you would expect, our energy-related businesses are experiencing strong sales growth within the segment, and the EBITDA increase is in line with the sales money. Additionally, you should note that restructuring costs decreased to $1.4 million in the quarter compared to 4.4 million a year ago as we complete the major elements of our restructuring efforts.

Turning to page 15. Debt decrease is expected in the quarter by about $30 million. This decrease was due to reduced working capital investments for receivables of roughly $19 million (technical difficulty) inventory of 5, although Cequent reduced inventory $11 million in the quarter, and a $6 million or modest increase in trade payables. Bank LTM EBITDA stood at 145.1 million, yielding a 5.4 leverage ratio versus the 5.5 covenant. I would also like to point out that we extended our securitization arrangement through December 2007 with improved advance rates and lower borrowing costs.

At this point I would like to ask Grant to wrap up our prepared comments.

Turning to page 16, or entitled, "TriMas Corporation 2005 Focus and Priorities". While the second quarter certainly was a disappointment for TriMas, especially within our aftermarket group, I think it is important to underscore or highlight that TriMas is forecasting solid year-over-year improvement, earnings growth in our Industrial Specialties Group, Fastening Systems, and Rieke businesses. We do expect 12 out of 14 of our business units to have positive earnings growth as compared to their levels in 2004.

TriMas' earnings issues are within the Cequent Group of companies, and as a group Cequent is focused on the following. We are focused on lowering our fixed costs base. That is the opportunity to extract or reduce our SG&A expenses. Shrinking the group's manufacturing and distribution footprint. We talked a little bit about that earlier in the presentation. And now, frankly, taking advantage of some of the assets that we acquired over the last couple of years, namely our low-cost Mexican operations both in steel and electrical products.

We're also focused on lowering our variable costs. We have a major campaign on to reduce complexity in our part number SKU count. We're continuing to look at what we're making here in the United States, and what we should be buying offshore. I think most of you know we have set up buying offices in both Taiwan and Shanghai, and the level of activity is ramping up in both of those offices. And we are looking to reduce labor, whether it is moving labor out of our factories by getting more efficient, or displacing labor as we migrate into lower cost environments.

Probably most importantly it is about driving customer performance. Our focus continues to be on order fill and market share gains. And while -- when we feel we need to, we want to be able to provide fighting brands to channels that want them. We believe these initiatives will position Cequent to be more flexible, and frankly more profitable as a group of businesses. And we believe there is considerable earnings upside within the Cequent Group of companies.

Turning to the next page. Within TriMas, and until we seem real debt reduction and sustained earnings growth, all discretionary spend in this company is on hold. All capital spending is required to be approved by both Skip and I. And as we talked about, is our stakeholder day, we want to be smarter about how we're managing our earnings volatility. We do have real momentum in most of our businesses, therefore we want to be lean. We don't want to dis-enable those things that are working well within our Company.

In summary, we believe the initiatives that we have implemented will drive an estimated 15 million of annual costs from this business, and also allow us to regain about $10 million from additional pricing in 2005. We expect to see the benefits of these actions coming through our P&L, namely in the fourth quarter of this year. We will continue to work on working capital reductions and free cash flow initiatives. We believe that those both can yield another $35 million of debt reduction by the time we finish the year.

From our view, the TriMas businesses in aggregate are in solid shape. We do need to drive better outlet capabilities within our Cequent Group of companies, namely our towing products and our consumer products businesses. And frankly we should have been more proactive coming into '05, given the pressures that we have seen out in the market. That said, I think the response to our current earnings drag within the quarter, within these businesses, has been deliberate. These businesses are already leaner, and frankly they're getting stronger.

TriMas from our perspective has too much debt. Our focus is on free cash flow and driving that debt down. We as a management group will continue to explore all available options to strengthen our balance sheet. Our goal is to deleverage this business, return earnings growth, to reposition this Company for an eventual IPO.

That said, that concludes our formal comments. And Skip and I would like to open up the forum for questions and answers. So Judith, perhaps you could open the mike for us.

(OPERATOR INSTRUCTIONS). Tom Klamka from Credit Suisse First Boston.

Can you go back to Cequent again, as far as walking through the decline in profitability? The operating income decline was pretty close to the decline in sales. How much of that 8 million I guess piece was steel-related? And then how much of this decline year-over-year was due to the consumer/Wal-Mart channel?

I would say that if you just looked at our consumer business, roughly half of that decline is related to consumer. So the rest of it is partially attributed to steel. But it is also attributed to aggressive pricing actions that we are taking in the channels, given that volumes have been going down a quarter. So of the $5 million that related to the sales decline, the other 8, about half of it is related to consumer, and the other half of it is related to not passing along costs, and aggressive pricing actions.

Said another way, Tom, we have really gotten next to no price relief in what we will color retailer big-box. And we are -- frankly we're going through a review of product lines as we speak. And we won't participate in certain product lines if we can't make money on it. Our underlying materials doubled last year, and that has sort of put us in that position, but nonetheless we did not get recovery in that channel.

In our other channels we probably got about half, and thought we would get a little bit higher attainment in terms of being able to hold on to our pricing. The good news is, is that steel has turned the corner. And as we walk through '05 we expect cold-rolled and hot-rolled steel to continue to walk down. We haven't quite seen the benefit of it, but we are seeing it move out in the market, and it is coming down.

In the consumer channel I could see the pricing competition against the imported products. In the other channels your marketshare is very high in those sectors. What is happening on the price? It sounds like your pricing is still competitive. Are guys just saying, we're not paying the increase, we will go to somebody else, or what is actually happening there in the field?

A little of everything. I think that the markets stalled. Our biggest venues are personal watercraft, as you know, and that end market is down 20%. We were coming out with pricing at a time when unit volume was moving down, and inventory levels, finished good inventory levels out in our channels, were going up. So we just simply got no -- we did not get as much acceptance and movement. And I suppose you could argue that there were more people chasing a smaller bite of the apple, so you got a little bit of that going on.

What are inventories like in the field at these distributors and installers at this point, given slower end market sales?

Year-over-year they are pretty healthy. If you looked at our business coming into '05, we had very strong early order activities. And the end market itself has slowed down -- personal watercraft, towable, RVs and the like. So I think if you were to sort of canvas our large WD wholesale distributors and our installers, there is a fairly high-level of finished good inventory sitting out there.

There is a high level?

Yes.

Third quarter last year sales at Cequent were also pretty strong -- sales and earnings. I'm assuming the same sort of decline, at least into Q3 and maybe Q4, as less meaningful anyway. But this is not an issue that turns around quickly.

No, in a sense -- the big season for this business has passed. And so we have adjusted to the demand levels. And I think the market will sell through what it has. And our channels will really position themselves now in a sense for 2006.

And we currently don't see the year-over-year decline in the third quarter nearly as large as it was in the second quarter. We will start to get closer to last year in the third quarter. And then as our costs and profit initiatives kick in in the fourth quarter, we would expect to improve over fourth quarter last year.

This announcement you put out on the Sheffield facility, was that facility dedicated to the consumer channel, and what happens there? Is all that outsourced or is it (multiple speakers)?

That was a facility that supported the former Highland, which is an entity that makes tie downs that is now going to be 100% in fact imported. And about 60 or 70% of the volume was already coming in from offshore. And the majority of that product does go into retail.

What do you see --?

It was -- a large part of what was done in Sheffield was a warehousing operation, which we now can fold into South Bend.

You're basically laying off -- I think you said 95 or 100 people out of Sheffield alone, I believe?

That's correct.

And has that been done yet, or when is that going to happen?

Those announcements have been made, and that facility is working its way down as we speak.

And then the last question on Rieke. It sounded like you were pretty bullish going forward, even though profitability was lower this quarter. Are you able now to get steel recovery? Have price increases been pushed through into the market since the second quarter?

For the most part across our product lines, yes. Our ring and lever business that we manufacture in Italy, we have not been able to get full recovery. And what we are doing there is some of our standard product we are bringing now in from Southeast Asia. So we will in effect meet the market. It is a strategic line we think we need to be in because we bundle it with other products.

Sarah Thompson from Lehman Brothers.

Just to follow-up on the Rieke side. Can you explain the decline again related to the FX mark-to-market loss?

Yes. It is basically we have got three intercompany loans between Rieke subsidiaries and other TriMas subsidiaries that are denominated in currencies other than the dollar. So for example, the German company owes the Australian company money, and it is denominated in Australian dollars. So to the extent the euro moves against the Australian dollar, we mark that to market. There is a foreign exchange gain, in this case a loss, at the quarter.

We looked at these transactions, frankly, as maybe not going through the P&L. But we had a lot of discussion with our outside auditors on this one, and we concluded that to be conservative, we would run the FX impact through the P&L. Going forward, our plan would be to just repay all these loans, and kind of remove the issue. And if you look at the effect of these transactions, they are excluded from operating income, but they are included in adjusted EBITDA. And from our perspective we look at them kind of as onetime non-recurring kinds of transactions.

And those are picked up then in your other expense lines?

Yes. Other than the costs associated with the securitization of receivables, that is the bulk of what is in that line.

That is helpful. And then on the fasteners, can you just talk a little bit more about that in terms of what happened in the quarter?

Really two very different things are happening. On the aerospace side there is a huge buildup of inventory in front of the demand curve that both Airbus and Boeing are creating for themselves. This is a business that really is enjoying now the ramp up of predicted plane builds coming through '05 and into '06. I'm not so sure we could sustain the levels that that business is operating on, but it does have a record backlog right now. It is a good -- that is not a past due backlog, it is a backlog.

On the industrial side our primary customers, people like Caterpillar and John Deere sort of went through the same thing. They had very strong years in '04. They came into '05 -- big backlog. We actually got caught up. And there was actually some volume taken out of our releases. It was not systemic. It is not market share gain. I think it is just companies level loading the amount of inventory they have in their own systems. So that is really what happened in the industrial side.

It helps me to understand it this way. We've got better mix. That is about one-third of the improvement, because we make more money on our aerospace fasteners than we do on our industrial fasteners. We have reduced the non-recurring spend related to the industrial side of the business. So that is roughly another one-third of the improvement. And then the remaining third just comes from lower-cost levels coming out of our industrial fasteners business as a result of the continuation of solidifying that business now that the move from Lakewood has been completed.

On the fasteners side, you guys aren't seeing any further competition then just coming out of lower-cost regions? You're not feeling like you're losing any market share for fasteners coming out of Asia?

No, not right now. In fact a couple of our big customers have actually brought volume back because of quality and delivery issues. But in the types of products that we are seeing at present, no, we are not seeing that. And we are starting to see base material pricing in our wiring started work its way back down, which was a real issue last year, if you remember.

That's great. And then last question. At the very end you said you were going to leave open, I think, all available options. Does that mean that you are more focused on looking at the possibility of sale of businesses?

I guess the short answer is yes. TriMas has been in existence for three years. I think it is important that we look at the companies that have real sustainable growth and can drive value. We have in effect 14 individual businesses. And I think we should, and we will always look at the ways to maximize the benefit for our shareholders and stakeholders. The short answer is yes. And we are looking at options as we speak, but that is about all I want to say at this point. Okay?

Joe VonMeister from Jefferies.

I am seeing, just looking at the working capital balances in the quarter, a nice down tick in inventories, but an increase in trade payables. Are you expecting to be able to maintain that sort of trade support going forward?

Yes. Our payables levels around quarter end are kind of in the high 50s. And that is really quite natural for this business. We have typically been kind of in that range. And I think the essence of your question is, are you getting a little far out with your suppliers. And my answer to that would be no.

Can you give me a sense of what your rent expense in the quarter was, or put another way, did you incur any significant operating leases in the quarter?

You mean new ones?

Yes, new ones.

No, no. That's something we feel quite strongly about. We're not doing those kinds of transactions now.

Looking at the third quarter, I guess -- when I look at TriMas, I see Cequent has been so important to your free cash flow and EBITDA generation, having it faltering a little bit this year makes me somewhat concerned looking into the third and fourth quarter. Can you provide us with any guidance for the third quarter, in particular which is seasonally soft for Cequent?

We expect that Cequent will not return to prior year profitability in the third quarter. But we expect that it will in the fourth quarter. So --.

You said earlier that you expect fourth quarter EBITDA figures to be somewhat ahead of fourth quarter of last year?

Yes, sir.

Greg Hyatt from Wachovia.

A couple of things. I am dovetailing on what you just discussed. If you do some simple math, and you take your current debt balance and you take out 35 million, which I guess is what you guys are expecting between now and year end in terms of a reduction, you sort of have to do about $150 million in bank EBITDA to make your five-times covenant. And as I sort of think forward that is about a $5 million change between now and year end as compared to last year.

And I assume the second half is going to be a little softer this year than last year. And so I was trying to get my mind around how you get there? To what degree is that the impact of cost increases -- excuse me -- cost savings enjoyed, or to what degree that is made up by better fourth quarter performance? Could you just talk about that a little bit?

Yes. I would say as a Company the third quarter we don't expect much improvement over the prior year. But in the fourth quarter we will start to see the benefits of our profit improvement initiatives, both in terms of lower-cost and higher pricing. And we will be tight to covenant the rest of the year, so your math is appropriate. We will be right at covenant based upon our current forecasts through the year.

Great.

We want to be prudent about how we manage, but we need to be responsible to liquidity needs of the business. So we'll monitor our own performance. Our preference is to manage within the confines of our agreement, but we will look at our performance and if we have to adjust, we will contemplate that.

Understood. Thank you. In a related question, you mentioned that your securitization through the redo of that instrument, while we're able to change the terms that they were more favorable with respect to availability. Could you just talk about that a little bit?

Yes. It is basically in the mechanics of the arrangement. Before we were not given any availability for foreign receivables and now we will -- we believe we will be getting more availability for foreign receivables.

There was also an interesting calculation issue in that. Our intracompany receivables were included in the portfolio. And since we weren't settling those, that was increasing the delinquency factor built into the availability calculation. So that has been taken care of. So we look -- we're looking at a drag (ph) probably in the order of 15 to $20 million of additional availability based upon the changes that we have agreed to in the securitization arrangement.

That's exactly what I was looking for. And then lastly with respect to -- you talked about you're still trying to catch up on steel cost in your fastener business. Have you all experienced increases from your suppliers this year with respect to your industrial fasteners business?

No, the industrial wire prices are starting to go down. And we have a combination of fixed pricing contracts and contracts with steel surcharges. So we will, as the market moves down, we will correspondingly get some pressure to move down with it. And that really is now just starting. On the aerospace side, where we're using specially alloys like titanium, those metals are actually still going up.

So on the industrial side the lag in terms of being able to recapture steel cost increases has to do with the fact that you're in these longer-term contracts, which don't have an escalator built into them?

No, the market is just starting to move. We started to see a movement this quarter, and we will probably -- and we expect to see further movement coming through the remainder of the year. That is a good thing. The availability is going up, and the price of that availability is going down. I do expect that as that becomes better understood, we will get some encouragement from customers to move down. We just have not seen it yet, and so we're not faced with that issue quite yet. We don't expect to have it degradate our underlying earnings, quite the opposite in fact.

Last question. Cequent on the installer side of the business, any changes in marketshare from your perspective there?

I think -- two things that -- I guess a couple of things have happened. I think the overall market coming into this year with personal watercraft being down as much as it was, so the available market has certainly shrunk. I also think on a more macro sense, I guess over the last couple of years with the advent of SUVs and factory installed I think that has eaten away a little bit at the available car part. That said, with the hybrids coming out I think you'll see the available car part actually going back up.

I do believe that if you went back and looked at '03 and '04 when we were busy consolidating factories and we put a little pressure on our service levels, clearly we lost some marketshare. But I think it is measured in 5 points or something like that, and not a huge movement in market. Our issues have been declining market base, volume level, and really the ability to cover completely our price absorption on steel vs. it being a share issue.

Philip Volpicelli with CIBC.

Just kind of tagging on the last question, with regard to the covenant in the third quarter stepping down to 5.25. It sounds like EBITDA is going to be down. I just want to get a sense, do you think that you can bring that debt down by 35 million and keep EBITDA at a level to get in compliance here? Or at what point will you make that decision to go to your banks and talk about amending the covenants?

We'll wait probably another month, and kind of see how the quarter shapes up in terms of profitability and further debt reduction. That is kind of how we have done it in the last couple of quarters. We get a little better view. We have been in contact with our banks. And their advice to us was when you think you've got a need, give us a call. So we've kind of reserved the first week of next month to go through that.

They remain supportive in general?

Yes. JP Morgan is our major bank and they are the bank said just renewed our securitization arrangement.

With regard to asset sales, I know on the investor day we had talked and you have mentioned that there are some things that are in the works, or you're contemplating currently selling. Is there anything that is imminent? Anything that you can talk about within the next quarter?

Not at this point. I could just tell you that there are properties that will be considered. We don't feel that the Company needs to do anything that is anything other than value oriented. And we'll consider looking at some options. And if those options become material, then you guys will know about it in an orderly way.

I think in the presentation you mentioned 18.3 of available liquidity on the revolver. And then you just talked about an extra 15 to 20 million on your securitization. The 18.3 does not include that 15 to 20 on the securitization --.

What you have to understand is the limiting factor is the leverage covenant. So if I have more availability under the securitization program, the limiting factor would still be the covenant.

Stuart Brown (ph) from EPS and Associates (ph).

Looking for some verification. I guess the comments you made with respect to your targets, you said that debt reduction, you're looking for 35 million of additional debt reduction. Is that relative to the Q2 balance or the fiscal year ending '04 balance?

Q2 balance.

And does that assume anything with respect to the AR? Are you looking for the AR to grow, decrease? Is that total including the AR?

Yes, that is total including AR.

And the stated cost reduction targets, are they also relative to fiscal year '04 full year cost, or current run rate, or how should we think about that?

They would be relative to the Q2 cost run rate. Because these are being put in in the main in the third quarter, so we would expect to see the improvement come through in the fourth quarter.

Also they are within Cequent?

No, I wouldn't say -- I would say yes, most of those are within Cequent, but they are spread across the Company. Roughly half in Cequent, and half the rest of the Company.

Just so I understand your comments regarding Rieke, obviously your earnings are down through the first half of '05 on a year-over-year basis. Notwithstanding that, do you expect that full year earnings will be ahead of '04? So you are implicitly saying that the second half '05 that is going to be stronger than the second half of '04, and offsetting the weakness in the first half, is that correct?

Yes.

Yes.

Finally, your CapEx for '05, what will that be?

It will be in the mid-20s.

Ashwin Krishman from Morgan Stanley.

Two questions. The first one was on the cost reductions that you have announced at Cequent. Could you quantify that on an EBITDA basis what that would mean?

Yes. Basically what has happened at Cequent is we've got a -- Companywide a $25 million profit improvement initiatives that is ongoing. Cequent is about half of that. And a portion of that profit improvement initiative is related to pricing. So the number around Cequent in terms of cost reduction on an annualized basis would be around $10 million.

When do you expect to realize the entire 10 million? Is that a full year '06 event or Q4 '05?

We will start to see a lot of it in the fourth quarter.

And the second question I had was on the $35 million debt reduction target, that doesn't include or contemplate any asset sales, right? That is just for the organic business itself?

That's correct.

That's correct. No business sales.

Dean Graves from Grandville Capital Management.

I wondered if you guys could talk a little bit more about the bullet point that mentioned that senior management is getting more involved in the Cequent customer feedback loop. If you could give us some color on more specifically what that means. And then two, to the extent you have been involved sort of what you have learned to date?

Sure. I think that organizationally looking back regretfully is always clearer than looking forward. I think we should have been better able to understand our marketplace coming into '04 -- or coming into '05, rather. We saw big early order activity, but it was really people driving inventory fill and taking discounts in the end versus a systemic market expansion. I just want to make sure that we as top leadership in this Company are hearing and listening to our customers both from a performance prospective, and making sure that in fact our order fill, our product line deliveries are in fact what our customers want.

I also want to get a better review and judge of what -- on a little bit maybe more macro basis -- of what is happening in the market. I think that could we have changed the demand flow in Cequent this year, of course not. But could we have been implementing and reacting a little did differently in the third and fourth quarter of last year, and protected some of our EBITDA degradation, of course. That was sort of the spirit of the intention. I want my leadership attached to the salespeople out in the field and make sure that we are really hearing what the field is telling us.

As a follow on, can you also tell us how you are doing with respect to order fill now, and how that relates to historic? And then also how relates to where you think you should be?

That is a fairly broad question. I would say that order fill performance on the main coming through this year is vastly improved over the last couple of years. And it is probably better than our historical baseline. That said, do we have pockets where we could be better? I think so. It is about really being reactive. And it really isn't at the big level. It isn't relationship at a specialty retail or at big WD who quarter in big quantities and are a little bit more natural from an order fill perspective. It is a small guy -- those 5,000 independent installers who may need some very distinct item and want it within a 24-hour window. That is the bread and butter of our Company. And that is ready where we make our money, and it is driven by service.

So that area continues to get a lot of focus. It is one of the reasons that after buying all these businesses, that now we are really putting a lot of focus on making sure that our product offering, our SKUs, really get a lot of attention, and that we just aren't just trying to sell more to the market than the market really wants to make it simpler, easier to service. I don't know if I'm answering your question but --.

That's helpful. Thanks Grant.

Joe VonMeister from Jefferies.

The CapEx -- just to review the CapEx forecast for the year in the mid-20s, I think you said previously that CapEx for Rieke has to be somewhere between 8.5 and 9% of sales?

Yes.

I think that came out of the investor day. So that is 12 million a year. Is that maintenance or does that include growth CapEx?

No, that is new product.

That is for everything?

Yes.

To get to the mid-20s you really have to scale fastening, industrial specialties and Cequent back. Is that a reasonable expectation?

I think it is reasonable, because we're living at that level. Remember we just have lived through a couple of years of fairly aggressive recapitalization, repotting, restructuring of this business -- these businesses. Our maintenance levels have come down. And the need for capacity in most of our businesses does not exist. We think that that is a fair number both for Rieke and in aggregate for TriMas. I guess said another way, we're not unnaturally not spending or something like that.

Fair enough.

Rieke is going to get more capital this year than Cequent.

Right. But it looks like it is a done deal. The other follow-up I had is when I look at your domestic subsidiaries it looks like your borrowing base is pretty close to being tapped out, or pretty much tapped out. Have you guys looked into, or do you plan looking into doing some kind of a second lien loan to provide some additional liquidity?

We have not.

Dean Graves from Danville Capital Management.

Skip, I wondered if you could just repeat what the tooling cost adjustment was in Rieke? I missed the number. And then maybe if you could just explain to us a little bit more what it is.

It was roughly a $400,000 adjustment to tooling costs in the quarter, kind of a one timer related to -- I won't get into the strategic product, but it was related to a strategic product.

Specialty closure.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. I will turn the call back to you.

We thank you for your questions and your attention in today's call. And as always, we appreciate the support that you guys provide our Company. Would that we will conclude our call. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you. Have a good day.