TriMas Corp (TRS) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TriMas Second Quarter 2009 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press, star, then zero, on your touch tone telephone. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Sherry Lauderback, Vice President of Investor Relations and Communications.

Thank you. Thank you and welcome to the TriMas Corporation's Second Quarter 2009 Earnings call. Participating on the call today are Dave Wathen, TriMas's President, and CEO and Mark Zeffiro, our Chief Financial Officer. Also with us today is Bob Zalupski, our Vice President of Finance and Treasurer.

Dave and Mark will review TriMas's second quarter results, in addition to providing an update on our key strategic initiatives. 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 PowerPoint 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 866-211-2648 with an access code of 1378537.

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 Form 10-Q for a list of factors that could cause our results to differ from those anticipated in any 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 Dave Wathen, TriMas's President and CEO.

Thanks, Sherry, and good morning. For those of you listening, I appreciate your attention and your continued support as we implement changes at TriMas that maximize our performance and increase our value.

As painful as this recession is for everybody, it has allowed us to tighten our focus and to accelerate the changes identified by our TriMas business processes. I'll provide an overview of our main priorities and tactics to achieve them. Mark Zeffiro will provide you with an update on our key initiatives and highlight each business segment and then we'll gladly answer your questions.

So going on to page four, second quarter remarks, I really have three messages. First, we are executing our anti-recession tactics well. Two, we are growing share. And three, our strategic and operating processes are becoming ingrained for future improvements. Of course the issue with operating successfully in a recession is not about figuring out what to do. The issue is executing. And I believe we are doing that very well.

Sequentially, versus first quarter, for TriMas in total, our people improved most every key operating metric, including revenue, margins, earnings and working capital. And while we have segments that are operating better or worse than our internal targets, every segment is producing positive free cash flow. And you all know that cash flow is priority one for us in this recession.

We are employing this cash flow to reduce debt and we're very happy to have driven debt down $38 million this quarter and be down over $100 million versus a year ago. And you know what this does for our ongoing interest costs.

If we compare ourselves to second quarter 2008, the tough comparison is revenue, down 26% this quarter. But the good news is that we have rapidly resized our businesses to operate to this revenue level and are producing improving operating numbers and balance sheet metrics, even at these lower revenues.

I've shared with you in the past that in spite of this recession we are carefully allocating resources to several high-impact new product programs and geographic growth programs that were identified in our strategic planning process. For TriMas, these kinds of programs deliver incremental share. A couple of good examples are titanium screws and collars for aircraft assembly at Monogram, that have grown our fastener content on airframes. And our new gasket and bolt facility, the Lamons, is open in Europe and is already obtaining orders against our global contracts.

You know that each of our businesses serves a focused, sometimes quite narrow, segment of products for chosen markets and customers, and that we fiercely defend our positions in these core markets, where we tend to have high share. Our growth programs are all focused on expanded contented for incremental geography for these same markets. So we intend to continue to hold share in our core focus areas and grow with new products and geography.

Our TriMas business process provides the commonality across our company that drives how we plan, how we measure and review, how we make sure we have the right people and that we reward the right performance. I'd like to briefly describe this process.

Turning to slide five, I'd like to reiterate our priorities. One of my key roles is to set and communicate priorities and I'm sure that anyone you meet within TriMas knows these priorities. We continually improve our operations for cost and cycle time. We learn to run with ever less working capital and use the cash flow to improve our balance sheet and to reinvest in our businesses. These are all areas that are within our control.

The next slide, six, lays out our TriMas business process, showing when each activity occurs, when we do internal reviews, and when we review the output of each process with our Board for their oversight and governance. I've shared with you that we are funding some of the growth and cost-out programs identified in our strategic plan from earlier this year. And you can see that we've just finished our people planning process, where we make sure we've got the right talents and people to execute our strategic plans.

Another key process in managing the set of businesses is implementing the right incentives. And on the next chart, I'll share an overview of TriMas's short-term incentive system. Every one of us, in our work lives, responds to how we are measured and rewarded. At TriMas, we've designed a weighted matrix that balances performance metrics that are under the control of each management team. The specific targets are different for each SVU and for corporate. They are achievable targets and we review where each team is performing at each quarterly operating review.

Now I'll make a few comments on the results for second quarter and then turn it over to Mark for some more specifics. So let's go on and look at second quarter in two ways, first compared to second quarter 2008 and then compared sequentially to first quarter 2009.

So comparing to last year, TriMas revenue for the quarter was down 26%. That's a difficult comparison, but we've resized our businesses and taken actions that keep us profitable and cash flow positive, even at these lower revenue levels.

We still intend to maintain our liquidity cushion, even if the markets stay at these recession levels. You can see that on this chart, we've held EBITDA, income and earnings per share very close to a year ago, and have driven our total debt below $550 million, mostly through inventory reductions and debt repurchases.

And at mid-year, we've generated more free cash flow than we did in all of last year.

The next page compares second quarter 2009 to first quarter 2009, which in many ways is more indicative of how our anti-recession actions have strengthened TriMas's staying power. On revenues up 3%, overall gross margin were up 120 basis points, showing that our productivity efforts are improving. EBITDA is clearly up. Cash flow is very positive. And our focus on working capital continues to show real results. The main message that I ask you to take away is that we have learned to run at these depressed revenue levels and we don't have to count on an upturn in the economy to meet our commitments.

We are achieving productivity, learning to run on lower inventories, reducing interest costs and still investing in new products. Each of these actions will help us in future periods. I'd love to see an upturn, but I won't let TriMas be dependent on an upturn.

Now Mark will update you on key initiatives, both overall and in each segment.

Thank you, Dave, and good morning. Before we delve into the quarterly business segment discussion, I would like to spend a few moments focusing on some of our key initiatives. While these initiatives enable us to better navigate through these challenging times, more importantly, they lay the foundation for the new TriMas and are aligned with our strategic vision and priorities Dave highlighted earlier.

I'd first like to talk about our improvements in profit and productivity on slide 12. 2009 has been a difficult year so far, but our management team has embraced the challenge and continues to press on all fronts and use all tactics needed to reduce costs.

In November 2008, we announced specific actions to achieve the first $6 million in cost savings. This goal was then increased to $30 million in cost reductions to be realized in 2009. You will note that our run rate and cost savings increased from $5.4 million in Q1 to $8.2 million in Q2. These cost savings will continue to step up throughout the remainder of 2009, as we complete our plan to close the Cequent, Mosinee, Wisconsin facility.

We are on schedule with this closure and are pleased to announce that the completed -- we have completed the integration of our former towing, trailer and electrical businesses into a single organization. This company is now able to provide its customers with a single point of contact, with multi-brand online ordering capability and centralized warehousing that offers a single point of shipment for all orders.

With these changes, Cequent has permanently reduced its fixed cost structure. As we move forward, we will continue to identify additional fixed and variable cost savings opportunities as well as execute successfully on those actions we have already defined.

As we progress, we will strive for at least 3% total cost productivity from all of our businesses every year.

Moving on to slide 13. In addition to aggressively reducing fixed costs throughout the business, we continue to focus on working capital improvement initiatives to maximize cash flow. Compared to the second quarter of 2008, we reduced working capital by $22 million, or 12%, to $154 million. Compared to the end of the first quarter, we reduced our investment in working capital by 11%, or approximately $19 million.

Our improvement in net working capital has been primarily due to significantly lower inventory levels. We have not followed our traditional inventory build cycle into April, but instead experienced sequential monthly declines throughout the second quarter. Inventory levels have been reduced to -- due to the lean initiatives we're implementing as well as flexing to lower demand.

While we are pleased with the progress we're making, we do feel we have more work to do across all of the businesses in 2009 and beyond. What I would like to focus on how we're implementing these new processes. We are using every tactic available to us and in certain instances, bringing in some external expertise to drive better in total processes and cycle times, which we feel will improve our inventory turns in all of our businesses.

In addition to our internal changes, we are proactively managing our vendor relationships to ensure that they work with us on working capital related initiatives. We're committed to reducing our investment in working capital during 2009, and we believe that the planned reductions in working capital will continue to result in a source of cash for the Company for the remainder of 2009. We believe these process changes will result in permanent lower levels of inventory for the corporation.

Now let's move on to the next initiative, debt reduction, on slide 14. During the second quarter, we deployed our capital prudently, using approximately $19 million in available cash to retire approximately $31 million in face value of senior subordinated notes, with an average price of approximately $61.

Combined with the first quarter, we have now retired a total of $63.2 million face value of these notes through the first six months.

As noted, we've reduced our total indebtedness, including the amount outstanding under our receivable securitization facility, by $102 million compared to a year ago, with $38 million of this reduction taking place in the second quarter. At June 30th, we had a debt of $547 million, including the funding, under our receivables securitization facility. We ended the quarter with $152.5 million of cash and aggregate availability under our revolving credit and receivables securitization facilities and our leverage ratio of 3.81 versus our covenant requirement of 5.0.

We continue to benefit from reduced interest costs, resulting from lower interest rates and reduced overall borrowings. As compared to our prior year, our total weighted average cost of credit facility borrowings decreased by -- from 5.2% to 3.9%. Our cash interest costs have decreased approximately $5 million year-to-date and we expect approximately $9 million to $10 million in cash interest savings for the full year.

I would now like to talk about our focus on improving free cash flow on slide 15 of the presentation. As you can see, we've generated significantly more cash flow during the first six months of 2009 at $53.7 million compared to the first six months of 2008. In fact, this amount is greater than our 2008 full-year free cash flow of $38.5 million. We are pleased with our free cash flow to income conversion rate of over 200% during the quarter. In addition, all segments were free cash flow positive during the quarter, despite the sales decline.

As Dave mentioned, all of our business leaders are now measured on cash flow and inventory turns. We plan to continue to reduce working capital levels in the businesses, as I previously discussed. We will continue to pursue opportunities to dispose of non-core or non-performing assets. A good example of this is the sale of the Compac business during the first quarter, with proceeds of approximately $21 million.

While values tend to be somewhat depressed in this environment, we are actively marketing a few facilities that are not adding value to the TriMas portfolio.

Moving on to slide 16, I would now like to summarize these initiatives and their positive impact on 2009. Whether it is our cost savings, working capital or interest expense initiatives, you can see that we're increasing our estimates of their positive impacts on 2009.

We now believe we will be able to reduce working capital by $25 million to $30 million, cash interest costs by $9 million to $10 million and CapEx by $7 million to $9 million compared to their 2008 levels. These improvements are expected to result in free cash flow of at least $70 million for 2009. Collectively, these efforts have resulted in a targeted minimum cushion with respect to our leverage ratio covenant of at least 0.4 times throughout 2009.

Switching gears, I would like now to discuss the segments' performance for the second quarter, which starts on slide 18. But before we begin, it's important to note that we realigned our operating companies within our five business segments. In summary, packaging and energy remain the same. Monogram Aerospace and NI moved into Aerospace and Defense. The remaining businesses of the former industrial specialty segment were renamed Engineered Components. And lastly, the former RV and Trailer and Recreational Accessory segments were combined to form Cequent.

Across these segments, certain themes will be noticeable. We've experienced significant reductions in end-market demand due to global recessionary forces. This has led to sales declines across all of our businesses. For some, the result was negative leverage due to lower fixed cost absorption. For others, we're really starting to see the benefits of our cost reductions and other initiatives on operating margins. Regardless, all the segments were free cash flow positive for the quarter and reduced SG&A spending levels, with even more reductions expected over the remainder of 2009.

We have realized $13 million in cost savings from the profit improvement plan year-to-date and we will see at least $17 million in the remainder of 2009.

Now let's begin on page 18. The first segment I would like to review is packaging. While sales were down for the quarter compared to the prior year, we did see a sequential sales improvement of $6 million compared to the first quarter. Our new product initiatives drove an increase in specialty dispensing product application sales, offset by year-over-year sales decline in industrial closure products and unfavorable currency impact of approximately $3 million versus Q2 of 2008. We did see some stabilization in the industrial closure business during the second quarter, though demands are -- remain at low levels.

While packaging adjusted EBITDA and operating profit declined to -- due to the decrease in sales, we experienced significant improvement in margin rates as a result of lower material costs and continued reductions in SG&A. Operating profit as a percentage of sales improved 280 basis points compared to the second quarter of 2008. We will continue to focus on cost reductions, both domestically and in Europe, to drive profit improvement. We will continue to invest in our specialty dispensing products, which are targeted at higher growth end-markets, such as pharmaceuticals, medical, food and beverage, personal care as well as geographic expansion.

Moving on to slide 19, sales in the energy segment decreased 34%, resulting from demand declines in aero engine at Lamons. In addition to facing challenging comparative performance levels from 2008, these businesses saw the significant declines in end-market demand. Sales of engines and related products decreased due to reduction of drilling activity and deferred completion on previously drilled wells. Sales of specialty gaskets and related fastening hardware decreased as a result of reduced production levels and turnaround activity at chemical conversion plants and refineries.

Negative leverage resulted due to the significant reduction in sales, the mix change between the businesses and the lower absorption of fixed costs. We continue to focus on reducing costs and our inventory levels in an effort to offset these challenges.

While focused on cost reductions, we continue to make strategic investments. During the second quarter, our Lamons gasket business expanded geographic footprint in support of global customers. Lamons received customer orders out of its new Rotterdam sales and service center and we opened yet another location, this one in Salt Lake City.

We continue to listen to our global customers and locate where they need us. Aero engines continues to -- its efforts to provide additional well-site content and expanded application of its gas compression line of products. Aero's -- Aero has also received orders from some new international markets. When the energy sector rebounds, we feel that this segment will be well positioned.

Let's move on to our new Aerospace and Defense segment on slide 20. This segment also experienced sales declines during the quarter, primarily due to blind-bolt fastener sales, resulting from program delays at commercial airframe manufacturers and inventory reductions at distribution customers.

Our defense business also experienced lower sales levels. Despite this decline in sales, the Aerospace and Defense segment showed margin improvement compared to second quarter of 2008, as well as the first quarter of 2009. We continue to reduce costs and working capital during the implementation of lean initiatives.

During the first half of the year, Monogram Aerospace was awarded new titanium screw business and additional fastener content of commercial airframes. This additional business allowed us to increase our content on certain aircraft and partially offset the lower demand. We will continue to work with our customers to expand our aerospace fastener product line and design new applications on aircraft.

Turning to slide 21, I would like to discuss our engineered component segment. The majority of the businesses within the segment have been significantly impacted by the economic downturn and its effect on industrial production. And therefore, all of the businesses experienced sales declines, most notably the Norris cylinder business.

Despite the significant top-line decline, this segment generated positive cash flow for the quarter. We are aggressively working on reducing costs and working capital in light of this segment's results and are in the process of integrating several of the businesses to better leverage capabilities and further reduce fixed costs. At Norris, we're expanding the geographic use and end-markets we serve with our cylinders through the design modification and new certifications. In addition, we continue to develop our specialty products for the medical components and tool markets.

As we move on to slide 22, there are specific messages regarding Cequent I would like to leave with you. The businesses are profitable, even at these lower volumes. The segment is generating positive, significantly positive, free cash flow. And the operating profit has improved as a result of the profit improvement plan as it's contributing $8 million in cost reductions to this segment in the first half of 2009, with another $12 million more to come in the back half. The continued volume pressures in this business have afforded us an opportunity to resize and simplify, preparing us for better days ahead.

After the second quarter, sales in the segment declined due to the current economic environment and weakened market conditions. While total segment sales were down approximately 20% year-over-year, sales in the consumer products business, which serves many large retailers, were actually up slightly as a result of continued market share gains and our broad product offering. This is offset by sales declines in Cequent performance products, Cequent Australia, and a negative impact of currency at $3.3 million compared to Q2 of 2008.

While adjusted EBITDA and operating profit in the quarter decreased due to a decline in sales and lower absorption of fixed costs, we did experience improved margins versus the first quarter of 2009 due to our aggressive cost reductions. This segment incurred approximately $2 million of costs associated with the planned closure of the Mosinee manufacturing facility and other business restructuring actions in the second quarter.

We continue to focus on working capital improvement initiatives to maximize cash flow. Improvement in the level of working capital during the quarter drove significant cash flow. We will continue to mitigate end-market declines by leveraging our strong brand names, extensive product portfolios to increase share across all our products. With our market-leading brands and our significant process improvements, combined with cost reductions, we will emerge from this recession with a much stronger set of businesses. That concludes my comments on the second quarter. Now Dave will wrap up.

So in summary, I will remind you of our TriMas priorities. This recession has only tightened our focus on these key priorities. We will continue to use our TriMas business processes to achieve these priorities and we are executing our plans that make us leaner, faster and stronger.

Now we'd like to answer your questions.

If you have a question at this time, please press, star, one on your touch tone telephone. If you question has been answered and you wish to remove yourself from the queue, please press the pound key.

And our first question comes from Walt Liptak from Barrington.

Good morning, Walt.

Good morning, gentlemen. This actually [Mike Rigerella], Walt's travelling today.

Good morning, Mike.

So I had a few questions for you guys.

I can see that you obviously lowered your debt and lowered your inventory levels. And I just kind of wanted to know, going forward, how should I look at that for the rest of the year?

Well, in terms of our commitments that we've made to the market, we maintain our guidance of 0.4 turns and our relative covenant performance.

Yes.

We will continue to use cash and our cash generation throughout the rest of the year to the best and highest use of the corporation, which at this point in time, will be the retirement of debt.

And especially if you're buying it in the market at lower than $1 -- for $1, right?

That's exactly right, Mike.

So going forward, how should I look at kind of the velocity of inventory reduction? And obviously you guys brought it down a good amount this quarter. How should I look at that going forward for the rest of the year?

If you look at the 2008 relative liquidation in the back half, that's a relative reduction, should be comparable to what you see naturally happen in 2009.

Okay. Okay. That makes sense.

I will comment -- I will add that we do have a lot of improvements to make. I mean, this is a long process to be world class at turns. And we are -- we're -- I'm not even close to being happy with our turns metrics. So we're on it.

Okay. That's good to hear. It seems like you have been doing pretty well so far. So I look forward to it.

Can I just switch focus to the [PIP] program? And just see -- I can see, obviously, how far you guys have got along this $30 million for the year.

Yes.

And just kind of see how should I look at it for the second half of the year? I mean, roughly, you guys are halfway there. Should I expect that half of it next quarter, half of it in the fourth quarter? Or --?

You'll see marginal step-ups throughout the rest of the year, Mike, but the rest of the $17 million that we'll experience between now and year-end, should be pretty evenly distributed.

Okay. Okay. That makes sense. That's all I've got, gentlemen. Great quarter.

Excellent. Thank you, Mike.

Thank you.

Our next question comes from Joe Box from KeyBanc Capital.

Good morning, Joe.

Hey. Good morning, guys.

I want to ask a quick question on your leverage ratio target of 2 times. What do you think a reasonable time frame is in terms of actually achieving that goal? And how are you thinking about some of the major drivers to get you to that 2 times?

Joe --.

We're both jumping in because we're pretty familiar with this. That was our -- is our strategic plan goal in our processes. You know I'm pretty structured about the way I think about when and how we do processes and how they roll together. We're looking at -- from that process, I'd say it's a three-year goal. We obviously would like to be as soon as possible.

It's -- and there's no -- and of course there's no single event that gets us there. It's profitable revenue growth driving leverage. It's less working capital employed, driving leverage, and continued debt pay down.

I can see a TriMas configured to doing that without having to make big substantial changes in the portfolio. Now that doesn't rule out making changes in the portfolio, but I'm not -- if you're asking the question, I'm not counting on a restructuring of the corporation to achieve that. I think we can do it operationally.

One thing I would add to Dave's comments there, Joe, was if you look historically at our total cost productivity, it ranges between 1% and 1.5% over the last three years. One of the things that we've reemphasized and put forth for all the businesses is an expectation of not less than 3% productivity on a total-cost-basis going forward. That's a significant contributor to us in terms of, not just cash flow, but obviously earnings power to help us delever the Company.

This wouldn't necessarily preclude alternatives here with regards to other equity alternatives, but frankly, we haven't planned for that. And as such, we think we can get there operationally.

That's fair. And good color as well.

I also have a question on you on your key initiatives slide. I mean, our key initiatives slide on page 16. You're taking up your expectation for most of the categories, and at the mid-point it assumes an incremental $23 million that can be contributed to free cash flow. But your free cash flow assumption at the bottom is actually only going to increase by about $10 million.

Have your assumptions for net income changed at all? Or is there another factor that I might be missing?

No. If you notice, what we did is we've continued to step up our expectations there, Joe. We -- if you remember in my comments there, I said it was at a minimum $70 million worth of free cash flow. And we actually see it as a conservative expectation.

Okay. That's alright.

But we are -- but our -- we are doing our modeling of the future conservatively. I mean, I'm serious that I -- as much as I'd like to see an upturn, I can't see us counting on one. But we all read the same news reports. And so we've got to do things that are within our control, be conservative with what we know we can deliver and make sure TriMas is okay even in those conditions. So you're seeing some of that in here. Some conservatism on what we absolutely know we've got in hand.

Okay. Fair enough. A last question and then I'll turn it over.

I'd like to dig into the $30 million cost savings. I know a lot of that's going to be permanent, via facility shutdowns and integration of businesses, but the merit deferrals and short work week, that's probably going to end up being temporary. Can you just give us a sense for what in the $30 million would be permanent versus what might be actually considered temporary? If you could quantify that, that would be helpful.

It -- Joe, there's obviously ongoing productivity expectations that we have for 2010 as well. So obviously those -- as you're building your model and thinking through what carries over and what comes in in 2010, you need to consider both aspects of that.

So what I would say is a good number would probably be more than 75% of this number is something that sticks and sticks on a go-forward basis. And obviously the ramp up of productivity initiatives in 2010 as we continue down the path of CapEx deployed for productivity as well as driving those initiatives at the businesses. We'll see an uptick in the front half there as well.

Great. Thanks. That was exactly what I was looking for.

Excellent.

Again, if you have a question, please press, star, one. And next, we go to Jordan Hollander from Jefferies and Company.

Good morning, Jordan.

Hey, guys. How are you?

Just want to clarify on the debt buy-back that your focus was still on the 9.875% notes. I think you said as long as they're under par, even though the price ran up, that's still the focus of the debt retirement?

That's available. Yes, Jordan, that would be the focus. That's the best and highest.

And what is your availability to buy those back now? At one point we talked about you were able to spend, I think, it was like $75 million cash on that?

We're about three quarters of the way there.

Okay.

And if our leverage for -- our leverage improves yet down to 3.25, there is some additional cash alternatives there as well.

Okay. Great. And then as far as on the leverage covenant, just taking a look at the slide you have in the back of the presentation, does that -- one of the add backs, the gain you get on the buy-backs, that's included in that number?

That's correct. That is exactly true.

Okay. So you'd have benefit throughout the whole year?

Yes, exactly right.

Okay. And then on to the asset sale. I think you said you're marketing some properties. Anything specific there that you can share?

We really -- you know we can't, as much as we'd like to. But we're a corporation that has -- closes some businesses and catch some properties and that sort of thing, and sometimes you look at it realistically and say, yes, so we're selling even at this price. And you grit your teeth and get on with it. So we're kind of in that mode.

Nothing imminent?

But there's nothing we can announce at this time.

Okay. Great.

But we were -- but we'll say we're on it. I mean, it's an obvious natural thing to be doing.

And then, just in July, have you guys seen any sequential improvement in demand that -- any business line? Or is it still kind of trending along where it was at second quarter levels?

As much as I'd like -- there are some positives, there are some positives. But there also continues to be a few negatives. Part of me was kind of believing the stuff that inventories have come out of every channel and that sort of thing. And we can see where we have business to sell through distribution. We can see inventories there.

But we are -- you know we aren't the only industrial business pulling inventories out, and still pulling inventories out. And so everything -- it seems like every time I've got a positive, there's a negative that offsets it. So you celebrate new things in a recession. Bumping along the bottom is starting to feel okay. But I can't yet say I'm seeing a real upside.

Okay. And then just lastly, just on Cequent, I guess, this sequential improvement you guys showed there on the EBITDA front. Is that all cost savings front? There's no real -- I imagine there's no real improvement in demand, so that's all just continuing forward.

There's more to write down about Cequent. Again, you celebrate different things. There's stabilization. And if you go back in time a little while around here, we and lots of reviewers were realistically running kind of scared about what can Cequent do to TriMas.

And I mean, it's become a stable business. And I give the teams in those businesses huge credit. I mean, I, again, I know, I really know how difficult it is to strip out SVUs and the combined front-ends and the combined price lists and reset sales people picking up new lines and on and on and on and on. And they're doing it well and executing extremely well and I will tell you that versus our internal forecasting system, Cequent -- the Cequent businesses have actually bumped up a little bit. But only a little bit.

Again, you celebrate different things. I don't know if that's a good enough answer, but versus being pretty brutal coming into this year on how bad it's going to be, we're actually bumping up a little bit both in revenue and in earnings.

Yes, no, I think that was a great -- contributing positive now is a big win there on the Cequent side.

Oh, yes, I mean, you look at the comparisons from '07 to '08, now look at '08 to '09, with revenues down. And again, as painful as it's been, it's a darn good thing we've taken that pain off and done the restructuring.

Okay. Great, guys. Thanks a lot.

Again, if you have a question, please press, star, one. And next on the line is Matt Vittorioso from Barclays Capital.

Good afternoon, guys. Good morning.

Good morning.

Good quarter. Just wanted to step in and I know you reiterated your expectation of maintaining, I think, it was the 4.4 times cushion on your covenant. I guess that's down over the course of the year to about 4.5. Just any color on -- I mean, you've booked yourself a pretty nice cushion thus far, with the amount of bonds that you can buy back, coming down, how comfortable are you around that cushion? Does that cushion have room to expand beyond the 0.4 time as we move forward?

Matt, we're going to maintain that guidance of 0.4 times, with every expectation both from Dave and I to outperform that expectation. We want to set an expectation that is somewhat conservative and we're going to continue to strike our efforts and our operational actions to ensure that we protect that cushion and add to it.

And this maybe this is a philosophical comment, but I mean, we do set a target that's reasonable. We could set a higher target and we could meet it by stripping more costs out, but I'm -- one of the things you've got to make constant judgments on is, how close are we to the bone? Or how much are we cutting to the bone in business and hurting the future and all that.

So that's part of the equation of what is a reasonable amount of cushion, what's a reasonable amount of liquidity and still be able to both run the businesses and invest a little in the future.

Right. And I think your comment was that you're about three-quarters of the way through your bond repurchasing basket. What was the comment that if you get your credit agreement leverage down to some level, you increase that basket? Could you just clarify that?

About --

Yes, if we achieve a covenant level of [3.25] (corrected by company after the call), the basket increases to $125 million in terms of our ability to buy back bonds.

So [3.25] (corrected by company after the call) times versus the current 3.8 or so? Yes?

Correct.

Perfect. Thanks very much.

Next on the line is Alan Weber from Robotti and Company.

Good morning. You talked about some of the cost initiatives and taking working capital out and you talked about the new products. Can you talk about, in a kind of in a flat economy, the new projects, the new products that you talk about, just what, contextually, not holding you to a forecast, what that means for revenue for the Company, either by segment or in aggregate?

The caveat is TriMas is not experts at the structure. And you know I spent a long time Emerson. Emerson are experts at this. But I've got in mind -- I know in my head how much of new products turns into new revenue versus replacements. And we need to run 20% or so new products as a percent to sales to refresh, and we're targeting running more at 30%. And reduced in the last several years.

And there's, I'll call it, 10% kind of revenue available to us with full investment run rate in new products. That's probably my best number.

And can that kind of a figure or thought process a year or two from now, you have a better -- at least in 2009, you'd be able to quantify if that is what you're currently seeing?

Oh, absolutely. I mean we are -- we're learning, we're learning them and installing and learning the processes of knowing what programs we're working on in each business, knowing where they're at versus the plan. And we're kind of halfway there in being really good at that -- at those kinds of processes and being able to truly track how we're doing.

I mean, and that's the way I see running TriMas. We've got good management teams in each business, Mark and I and the handful of headquarters folks just to need to know how we're doing against the plan that we've approved.

Okay. Great. Thank you very much.

And if you have a question, please press, star, one.

And I'm showing no further questions. Back to you, sir.

Well, thanks all. Again, we appreciate your support. I know we've got a variety of constituents on the phone, including employees. We sure appreciate everything you do for us and we really do intend to keep getting better.

So thanks for your support.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. And have a great day.