TriMas Corp (TRS) 2009 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the TriMas fourth quarter and full year 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. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Sherry Lauderback.

Thank you. Thank you and welcome to the TriMas Corporation fourth quarter 2009 earnings call. Participating on the call today are Dave Wathen, TriMas' President and CEO, and Mark Zeffiro, our Chief Financial Officer. Dave and Mark will review TriMas' fourth quarter and full year operating and financial results, in addition to providing an update on our key strategic initiatives and 2010 outlook. After our prepared remarks we will then open the call up for your 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 888-211-2648, with an access code of 495602.

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 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' President and CEO.

Thanks, Sherry. Good morning. Our agenda is that I will share a few overview comments on what we feel was a very strong performance for TriMas in the fourth quarter. Mark will then discuss our fourth quarter performance in more detail, and update you on the TriMas key initiatives that we have shown you previously. Then I will look forward and comment on what we expect in 2010 for TriMas, and we will wrap up with answers to your questions.

My perspective of the fourth quarter is that TriMas has accomplished a transition. We have installed, tested and seen results from our new business processes for multiple quarters, such that I am convinced that we now have a solid foundation for continuous operating improvement across all of our businesses.

Now we will build on this by increasing our growth activities and really leveraging our cost position. TriMas' revenue in the fourth quarter were down 10%, which is an encouraging improvement over earlier in the year, and our overall operating margins have continued to improve as our productivity initiatives reduced costs.

Packaging and Cequent are leading in both revenue and margin improvement. In Packaging, sales were up 20% over Q4 '08 with operating profit doubling. And in Cequent, sales and operating profit were each up $11 million over Q4 '08. That is Leverage with a capital L. These results are much better than just climbing out of a recession. They demonstrate the combined leverage of effective growth programs and successful productivity initiatives driving down costs.

We have previously shown you our profit improvement plan, and we finished Q4 exceeding our previous guidance and our working capital improvement programs have allowed TriMas to achieve an additional $15 million reduction in the fourth quarter. To achieve working capital of 14.5% of sales, compared to 17.3% of sales at the end of Q4 2008. There is more to do here, but our processes are working.

Q4 has not historically been a good quarter for cash flow for TriMas, but in fourth quarter 2009 we generated $16 million. Although we have made limited investments in growth programs in 2009, I have been encouraged by the results. These have certainly helped packaging and Cequent, and in our other segments growth programs including the Rotterdam service facility, gas products expansion and energy, export sales and engineered components, and additional titanium products in Aerospace are showing encouraging results -- will add substantially to growth programs going forward.

And I am sure you all are aware that we have successfully refinanced our debt in Q4, so that we can focus more on the upsides of TriMas. All-in-all a good quarter. That convinces me that our TriMas operating model is producing continuous improvement in all of our businesses.

Now let me share a year-over-year quarterly sales trend chart that I watch carefully. There are some important messages here. You can see Cequent and Packaging on a strong upswing, both crossing the flat year-on-year sales level line in Q4. We see some improvements in Engineered Components and Energy appears to have hit bottom, it is just starting to show signs of improvement.

Aerospace is our late cycle business, and we will continue to focus on our growth initiatives. You also get a reminder here of how steeply this recession occurred. Overall it seems to me that TriMas' revenues have stabilized, and are on the upswing and I am looking forward to the leverage we will get in profitability.

Now I am going to turn it over to Mark who is going to provide you with more information on the fourth quarter and full year results for TriMas.

Thank you, Dave. Good morning. Let's turn to our fourth quarter financials on Slide 7. As Dave mentioned, our fourth quarter sales were $191 million, down approximately 10% compared to the fourth quarter of 2008. This is quite an improvement compared to the declines we experienced during the first three quarters of 2009.

In our Packaging and Cequent businesses we continue to see improvements in the end market demand and the positive effects of our new product and market share growth initiatives. Our other segments -- still feeling the negative impacts of the global recession as you can see in the results during the quarter.

Gross margin in the quarter was up 500 basis points compared to Q4 of 2008, and adjusted EBITDA, excluding all of our special items, was $26.8 million, up 10%. As you can see, our cost and productivity actions are positively impacting our results as operating profit and adjusted EBITDA margins both improved 250 basis points compared to the fourth quarter of 2008, despite these sales declines.

Considering the negative backdrop of the economy, we are quite pleased with the conversion rate we achieved during the quarter. As most of you are aware, we successfully refinanced our debt during the fourth quarter, extending our debt maturities, while providing additional financial flexibility for the future. I will talk a little more about this on a later slide.

Excluding special items -- which includes the refinancing costs, gains on debt extinguishment, as well as the business restructuring costs -- income from continuing operations improved to $3.6 million, or $0.11 per share from $0.02 per share in Q4 of 2008. We are pleased with these improvements, especially during a quarter where the seasonality of our business traditionally has had a negative impact on Q4.

On Slide 8, full year 2009 sales were $804 million, down 20.7%, within the previous guidance range provided of down 20% to 25%. Our profit improvement plan efforts mitigated the negative impacts of these sales volume declines driven by the recession. Despite these topline declines, adjusted EBITDA margin, excluding those special items, was relatively flat compared to 2008.

We are pleased with our free cash flow of $115 million for the year, compared to $38 million in 2008. This strong cash flow enabled us to reduce our total indebtedness by over $115 million since December 31 of 2008.

I would now like to spend a few moments focusing on some of the key initiatives which have enabled us to better navigate these challenging times, and are the foundation for the new TriMas. I would like first to talk about our improvements in profit and productivity on Slide 9.

We exceeded our goal and realized $32 million in cost reductions in 2009 with $8.9 million of savings during the fourth quarter. This run rate equivocates to approximately $35 million of annualized cost savings. We remain focused on cost reduction and ongoing productivity initiatives in 2010.

Moving on to Slide 10. In addition to aggressively reducing fixed costs, we also focused on improving working capital to maximize cash flow. We achieved a 36% working capital reduction compared to the fourth quarter of 2008, driven by decreases in inventory and Accounts Receivable. And compared to the end of the third quarter we reduced our investment in working capital by 12%, or by approximately $15 million. Operating working capital as a percentage of sales was 14.5% at year end, compared to 17.3% at Q4 of 2008.

Throughout 2009 we reduced working capital to a level we have not seen in TriMas for many years. This working capital reduction is not just due to a retreat in sales, but also due to the focus and change in processes. Over $20 million of our 2009 working capital reduction was driven by these process improvements.

While we are pleased overall, with the progress we have made, we do feel that there is more work to do in this area in 2010, as it will be more challenging to reduce working capital and inventory levels in a sales growth environment.

Now let's move on to our next initiative, debt reduction, on Slide 11. As I mentioned earlier, we reduced total indebtedness, including amounts outstanding under our Accounts Receivable facility, by over $115 million during 2009 compared to a year ago. As a result of this debt reduction and lower interest rates we reduced our interest expense by over $10 million during the year compared to 2008.

At year end we had debt of $515 million, and $9.5 million in cash on the balance sheet. We ended the quarter with approximately $124 million of cash and aggregate availability under our revolving credit and Accounts Receivable facilities, and our leverage ratio was 3.68, compared to our covenant requirement of 4.50.

During the fourth quarter we also successfully refinanced our debt as discussed on Slide 12. We were opportunistic given the dynamics of the financial markets, and felt it was the right time to extend our debt maturities and reduce the risk of refinancing for TriMas. We extended the maturity of our revolver until 2013, our term loan until 2015, and the new bonds until 2017. And along the way, we also loosened our financial covenants.

We also secured a new Accounts Receivable facility with a three year commitment and lower funding costs. While we expect to incur approximately $5 million more in interest costs for 2010 compared to 2009, these refinance activities provided us with additional flexibility to continue the pace of change for TriMas as seen in 2009, and accelerate our productivity and growth initiatives into 2010.

Slide 13 summarizes our initiatives and their impact on 2009. As you can see, the results of our productivity, working capital and debt initiatives was outstanding free cash flow. In 2009 we generated free cash flow of over $115 million, or in excess of $3 per share, compared to $39 million in 2008. In 2010 we will maintain our focus on cash generation but recognize that these results will be a difficult comparison.

Whether it is our cost savings, working capital or interest expense initiatives you can see that we improved our estimates throughout the year. The TriMas team takes our commitment seriously. We started 2009 with a level of commitment, and drove to exceed these commitments throughout the year. We will continue to practice this and build on a culture of delivering on our commitments to all of our stakeholders.

At this point I would like to shift gears and review the performance by operating segments beginning with the Packaging segment on Slide 15. All of my segment discussion will be excluding special items, to provide you with a better understanding of the underlying business trends.

Packaging sales for the fourth quarter increased over 20% compared to Q4 of 2008, driven by growth in Specialty Dispensing and new products, and to a lesser extent the favorable effects of currency exchange.

Industrial closers were relatively flat for the quarter which is an encouraging sign, but the real story is the growth in adjusted EBITDA of 52%, and operating profit of greater than 100% for the period compared to a year ago, resulting from higher sales and cost reductions. Margins improved substantially with operating profit margin improving from 14.7% in Q4 2008, to 25.1% during Q4 of 2009. As this segment is early cycle, we view it as well-positioned for the economic recovery. The key initiatives for the segment remain product extension and geographic expansion.

Moving on to Slide 17 (sic). Energy sales were down 33% with continued margin pressure during Q4. These quarterly trends are consistent with what we have experienced all year. Even with these challenges the segment generated more free cash flow in the quarter and full year, compared to prior year periods. This segment has been directly affected by cyclical loads of natural gas and lower levels of activity in refineries and conversion plants.

We recognize that these businesses by their nature are cyclical, and as such actions have been taken to lessen the effects of the revenue retraction. In the interim, we have more work to do on improving supply chain and inventory levels in this set of businesses. We remain committed to this segment's growth initiatives, such as expanding complementary product lines at the well site, and expanding the gasket business with major customers globally.

During the fourth quarter we have begun to see an increase in the levels of order inquiries and quoting requests, and believe this may be the first indication of improving demand.

Aerospace & Defense sales declined 39% in Q4, compared to Q4 of 2008 which was a stronger quarter. Operating profit and adjusted EBITDA margins declined due to lower sales volumes and lower absorption of fixed costs, partially offset by reduced SG&A costs. The sales pressures represent actions in the supply chain to reduce inventory, and the consolidation of distributors.

We feel confident in our positions at Boeing and Airbus, and as demand recovers we are well-positioned as a result of the cost reductions and process improvements we have made. At the same time, we continue to selectively invest in growth initiatives that will benefit 2010. We are committed to this high margin business and have made the choice to expand our Aerospace fastener product line to increase content and applications per aircraft.

Moving on to the Engineered Components segment. This segment was most affected by the industrial recession with a reduction in sales in the quarter of 39%. While the sales were down almost 50% for all of 2009 compared to 2008, we believe this segment has started to show signs of improvement through increased order activity and inquiries.

We have reduced costs throughout the year, and in Q4 you can see the positive effects of these efforts. Adjusted EBITDA and operating profit both improved in Q4 compared to Q4 of 2008. We also generated more free cash flow in this segment during the year compared to 2008. Longer term though, the key initiatives in this segment remain focused around expanding the application of our technology and regional expansion.

Lastly, Cequent. Cequent sales were up 16% for the quarter versus Q4 of 2008, resulting from sales improvements in Australia, Asia Pacific, and retail businesses, and the favorable impact of currency exchange. Cequent experienced significant improvement in margins during the quarter. This business has been most positively affected by the profit improvement program, and has seen significant changes in its relative profitability and cash flow generation.

Although sales were down 12% for the year, we were able to improve operating profit margins by 240 basis points as a result of these cost reductions. While this performance is a good start to deliver on improved profitability levels, the absolute profit level still needs improvement. We believe that this business has embraced the continued need of productivity, and will continue to drive further improvements.

That concludes my comments. Now Dave will discuss our expectations for 2010.

Thanks, Mark. I will move to looking forward for TriMas. You might recognize this Strategic Aspirations slide on chart 21, since it is the same list that we showed you a quarter ago with our key aspirations being growth of earnings faster than revenues, strong continuous productivity, adding emphasis to our growth activities, improving turns, and improving our capital structure. Our 2010 operating plan moves TriMas down the path towards these aspirations, and I will summarize that premise with our 2010 playbook on the next page.

I have told you that our 2009 performance has convinced me that our structured TriMas operating Model gives us the foundation of continuous improvement that we need. Total cost productivity means continuous cost reduction on every line, material, labor head, overhead, services, everything. We currently track and measure over 100 cost out projects across TriMas.

One enhancement we have made is to establish a global sourcing team, to better focus and leverage our purchasing activities across TriMas. We started last year by utilizing some focused consulting help, and that showed us the opportunity we have and now we have hired several program managers, and on the ground resources, mostly in Asia.

We also had very significant improvements in working capital in 2009. The opportunity is not as great in 2010, but we will continue to apply tools and tactics to improve turns and generate cash. And we track and implement growth programs with the same intensity that we measure productivity programs.

I have told you that we are adding emphasis and resources to growth programs. Let me expand on this. First, while most businesses are seeing signs of recovery, it has been bumpy with limited visibility. Inventories in the channels are low, and unclear demand levels at our customers are causing both order rates and reschedules to fluctuate. Being able to respond to our customers' demand needs quickly helps us win businesses in this environment. This is one of the reasons we keep after improving our cycle times in everything we do.

Every one of our businesses has multiple new product programs, and we are straightforward about what we choose to fund. We are an applied technology company rather than an inventor. We ask our customers what we should add for them, and we stay with achievable low risk product programs. None are huge, we add features, we make larger or smaller versions, we add metric versions of a product, et cetera.

Our footprint expansion plans are mostly outside the United States. We added an energy products site in Rotterdam last year, now it is only natural to add satellite locations there. We are enhancing our export products where needed. This year we will ramp up our existing plant in Thailand, and we have multiple programs underway for customers in Asia. As you would expect we are carefully hiring a few people to help push these efforts. In Parallel, we will keep after our balance sheet to continue down the road to our aspirations of reduced leverage.

What does all of this mean for outlook in 2010? The next chart lays out our initial thoughts on key metrics in 2010. We expect to see sales growth of 4% to 7% overall. Core growth is a combination of some GDP growth, with some additional upsides in a few markets, and where we have seen competitors fail, as well as in markets growing faster than the US. I want new growth programs to help us get to the higher side of this range, but I am realistic that ramping up is always a timing challenge.

We will look to do a limited number of small bolt-on acquisitions in a few key end markets, and if we do a bolt-on acquisition we will buy in a disciplined manner and quickly integrate the asset into our operations. Our improving cost position will leverage well, we expect to see operating improvement of 60 to 100 basis points versus 2009 supported by our productivity activities. We expect to decrease working capital as a percent of sales and generate free cash flow of at least $30 million. We also expect to deliver EPS in excess of $0.60 in 2010, which would be a 39% increase over the 2009 EPS level of $0.43 excluding special items.

On the next slide, we also included a few of our additional assumptions to assist you with building your models and understanding where we are headed in 2010. And finally since this concept of ongoing productivity improvements year after year is fairly new to TriMas, let me close with a snapshot of how we plan to achieve additional cost productivity in 2010.

The key take-aways are that we have productivity initiatives in all of our businesses, and as you can see, this is not just about reducing overhead costs, but also pursuing material and labor productivity improvements. As we have said before, we will utilize these productivity savings to fund growth, as well as additional productivity initiatives, and to offset cost increases. We will definitely keep your updated on our progress in this area.

So now, with a reminder of how our TriMas operating model drives our focus on 2010 priorities, we will gladly answer your questions.

(Operator Instructions). Tom Klamka from Credit Suisse.

Good morning.

Good morning, Tom.

Good morning.

A couple of questions. First on the packaging side the margin improvement in earnings quarter-over-quarter, how much was that a benefit from lower input costs in the quarter year-over-year, and what have you seen there?

Actually what we have seen there is inflationary pressure Tom, with resins, as well as the relative improvement later in the year in terms of lower steel costs. It was a bit balanced there, but the team has done a nice job with regards to productivity initiatives to change material and material content focusing on regrind and relative reduced lower levels of virgin resin used in product.

Tom, I would call it productivity driven.

Right. Okay. And as far as the sales growth there on the specialty side, is that the market growing, are you guys moving into new markets, new products? What is driving that?

The market appears to be picking up some. Again, it is bumpy. Lynn who runs that told me the other day that while all the H1N1-related disinfectant dispensers and all that has tapered off a lot, that effort and us ramping up so fast in that, got us into some customers that we have been courting but weren't quite over the line with. And so it has been good for us. Some of it has really been new products and new customers.

Okay. On the Aerospace side, I think at the third quarter the expectation was that inventories have been rundown pretty skinny, and we should start to see some improvement there, and it looks like sales were roughly flat, maybe up $2 million sequentially. What is the outlook here for the Aerospace revenue side?

If you look at it, Tom, you can see the fact that we think we are still bumping along the bottom, in terms of where this is, from a cycle perspective. As you can see in the reference page, I believe it was five of the deck, with the quarterly sales year-on-year trend. We are not expecting a big uptick here into 2010. If indeed, the 787 does become significant for us later in the year, that would be a good fact. But we are not expecting a big uptick.

Okay. And Cequent, I think you attributed the revenue increase to Australia. Can you talk about what is happening in the US? And on the earnings increase year-over-year is that also mainly driven from the Asian business as opposed to US?

No. The earnings improvement is really across the board. US businesses and in Australia, all have really been strong on productivity. Some of it is structural kind of work like closing some operations, but most of it just the continuous small projects of reducing costs.

On the revenue side we had a strong year in 2009 in the consumer channels, as we got more shelf space for those products. I am convinced that our consolidation of what used to be several businesses into one in the US made us better on the front end, more consistent pricing programs, better customer service systems, consolidating shipping and labeling and all of that, and we just plain got easier to deal with.

It also gave us the opportunity to do programs with all products. And you know how it is, in spite of all being the same company you can kind of accidentally allow divisions to kind of compete with each other, instead of putting them together makes it one, and that is exactly what our customers have wanted. I have been to some customer meetings that have been encouraging talking about liking what we see.

We are moving into the selling season now on Cequent. What are you seeing there as far as ordering?

The people in those businesses keep telling me they are encouraged. I mean we get a daily order report, and it continues to be encouraging.

Okay. And you had I guess last year moved away from your sort of preseason sales to come up with more -- I guess you would be more of a seasonally loaded but less discounting kind of model. Is that the same thing this year?

That is exactly it, Tom. We stepped away most drastically in Q4 of 2009 of that early order program, which had been pretty much standard across the industry. We have done that in an effort to actually level load volume within facilities historically, but the fact of the matter is we have done things to improve our ability on cycle time and fill rate, so you don't have to make those discretionary discounts to be able to get those orders. So instead it ends up being a healthier order volume for the organization.

Okay. And just the last question, you have got three add backs into EBITDA for the quarter. The severance, some fees, and then this add-back for lease obligations of $5.25 million. Can you talk about those, and what the cash impact of those are, and should they continue or are they one-time?

Let's start with do they continue or are they one-time. They are, indeed, one-time related efforts. The largest one was indeed the Mosinee recognition of the facility in -- basically the market value versus what we were paying in terms of that facility. That was that $5 million, and that was part and parcel of that productivity program across the year.

Is that a cash payment to get out of the lease, or is that a mark to market on the lease?

That is more characterized mark to market.

Is there any cash implication to it?

The cash implication is that it continues to be a burn over the period until such time that we sublet it.

And I guess is the cash burn already reflected in the P&L, or does this $5.25 million add back the full impact?

That $5.5 million is indeed, the discounted value of the difference between market value and what we were paying. So the underlying performance or the cash implication in the business was already contemplated.

Okay.

I believe you also spoke to the monitoring fees which happened within the quarter, which was in reference to really the refinancing activity, and it was part and parcel of the monetary agreement that was in place.

So that is just to Heartland. The Heartland annual management fees went away I thought a couple of years ago. Is this just because of the refi, or is this going to be recurring?

No, this is just because of the refi.

Okay. Okay. Great. Thank you very much.

Absolutely, Tom.

Matt Vittorioso from Barclays Capital.

Good morning.

Good morning, Matt.

Hi, Matt.

How are you? I was wondering if you could talk about your leverage covenant real quick. Clearly you have a good amount of cushion today. You did get some extra room on that covenant during the refinancing. As you move forward I believe if you exclude the gain on repurchasing debt over the past year, your leverage is closer to 4.7. Could you comment on how comfortable you are with that leverage covenant as you progress through 2010?

Thank you for that question. The refinance dealt with that eventuality, in terms of the elimination of the runoff of those bond gains on the debt extinguishment, which we purchased at a discount. We are very comfortable with our leverage calculation. We are very comfortable as to what it represents for 2010, hence why we didn't even talk to that from a guidance perspective in terms of 2010. We are very comfortable with that relative expansion and the loosening of those covenants.

Very good. And then moving to working capital. It looks like at least for the fourth quarter a lot of the working capital improvement came from an increase in payables. Would you expect that to reverse in Q1? Do you expect to generate free cash flow in the first quarter, how should we think about free cash flow moving throughout this coming year?

Free cash flow in Q1 should be a use for us, but will be on a working capital basis lower year-on-year. And we expect that working capital will be a source of cash for the entire year.

Lastly for me, very high level now that you appear to have a good portion of your business on pretty stable ground some of the early cycle businesses are starting to recover, at what point might you start thinking about what in the portfolio is core versus non-core? Have you had any of those thoughts, or is it your intention at this point to go forward with the entire portfolio?

We a year ago talked with the Board about our strategic ranking of businesses. I owe that to the Board again next quarter. So yes, we think about it. I am still right now focused on the improvements we can see coming out of all of our businesses, and I think that is good for us. So we will keep on that track.

I mean that said, we are responsible to our shareholders to maximize, and when somebody, I have a pretty standard answer when I get one of those kinds of calls, that hey, I like this business a lot, but if you like it more we ought to talk and that is part of my job description. That is kind of a long answer to say yes, we think about it. It feels like activity is picking up, and our job is to maximize overall for our shareholders and we will do it.

Thanks. And good quarter.

Thank you.

Thanks, Matt.

(Operator Instructions). Walt Liptak from Barrington Research.

Good morning guys, and congratulations too. I wanted to talk a little bit about the core growth guidance and the revenue guidance. Your revenue declined a lot in 2009, down some 20%, and it just looks very conservative talking about a 4% to 7% increase. So I wonder if we could go, and I know you have done a little bit of this already, talked about Aerospace maybe bumping along the bottom. But just talk about which segments are declining again in 2010, and which ones are moving up, because you obviously are going to have some that are going to be on very easy comps.

If you would, let me start with the Cequent business. We will expect growth and it should, and there is actually a chart in the presentation, Walt, that actually lays out some of the external factors for you to consider.

What number was that?

Give me one second, Walt.

In the Appendix, the first page of it.

Page 29 I believe it is, Walt. That should give you a sense as to how we are looking at the businesses. Cequent we are expecting that to show positive traction across the year from a sales and a growth perspective. The Packaging business as well, we are off to a relatively decent start to the year, and expect to see growth out of that segment as well.

You asked the question pointedly of do we expect retraction of any of these segments. No, we wouldn't expect retraction of any of these segments. And as such, the growth in Energy and Engineered Components would obviously be most notably commodity-reflected. And if you look at the future NYMEX strip, that would indicate that we should start to see growth here in the back half. Engineered Components is a bit longer cycle, but we are seeing upticks in terms of order volumes here in the first couple months of this year.

The one that is really a question for me is that we have seen a good start to the year in the Aerospace and Defense business, whereby the relative backlog has shown replenishment, which would point to me that we are at least not in a liquidation of backlog mode, and as such we would start to see some relative positive trends.

Was that backlog up in the fourth quarter, or is it up the beginning of 2010?

The beginning of 2010.

Okay.

And Walt, I would add, of course, we have, I am serious about having growth initiatives in each of our segments. I keep saying we aren't inventors but we do have a lot of applied technology to keep adding to our products and features, and we have taken our activity up in those kinds of programs. But overall if you are asking, we will continue to run TriMas on the conservative side. And it is bumpy out there, and lots of short-term ups and downs going on in every market you can name.

Okay.

And so I don't want to make the mistake of not capitalizing where we see an opportunity, I won't make that mistake. But at the same time, we will be kind of conservative about it.

Okay.

And controlled.

One other thing to contemplate here, is that you can look at the relative CapEx expectation for us in '09 versus '10, and you will see that it is in essence more than doubling as we have played the game very conservative and retreated and only did from a capital conservation perspective in 2009, we were very aggressive in terms of containing those expenditures.

2010 you are starting to see with a back to normalcy, our ability to actually support both productivity and growth initiatives through the additional CapEx spend. That doesn't mean that something unknown may not be out there, but we have the flexibility and have shown the track record to be able to peel that back as need be as well.

Productivity, you are talking about new machine tools, machinery and things like that?

Yes.

And sometimes machines to add new products.

New products.

And I did mention we are hiring a few technical people and sales people, too. A few, underline that word.

I wanted to ask about that, too. When I look overall at the guidance of exceeding $0.60, and I look at -- you also talk about 60 to 100 basis points of margin expansion, operating margin expansion, it implies -- and you look at the revenue -- it implies like 20% to 30% leverage, which appears kind of low to me, considering that even this quarter with revenue down in a lot of your segments you stayed nicely profitable, right? So I guess I wonder if there are some costs coming back that are keeping the operating leverage or somehow keeping the operating leverage to that 20% to 30% range.

There is, if you sat in one of our operating reviews, we really try to understand the separate buckets of what is driving the business. There is price externally up and down, there is inflation coming in up and down, there is productivity which is really content change, and yield improvements, there is overhead leverages, and so we really try to look at it in all the different buckets.

And, of course, you are right, we push productivity because we need it to offset the negative pressures. There is not a lot of goofy price pressure out there on selling price, but there is pricing pressure always, and you need productivity to offset that, and there is a little bit of inflation. I mean we can all watch the same numbers. It is pretty small amounts, but there is a little bit of cost pressure, and we mentioned resin for sure, there is a lot of rumbling about steel.

So we try to manage all of those things separately. Ultimately I will remind you that we try to be a little conservative on understanding what is in our control, and what might happen. And so that is why you are seeing those kinds of leverage ratios.

Okay. Can you help me understand what the corporate expense line might look like in 2010, and some of those selling and engineering costs coming back?

You are not going to see, I mean we tend to hold SG&A flat to down as a percent of sales, and just leverage on the way up. In the corporate expense, the corporate office we really try to run, we do run flat to down, and then you got to kind of deal with some of the special events whether it be fees repaid, or refinancing stuff, and all of that.

Circa $20 million, Walt.

Okay. All right, thanks very much, guys.

You bet, Walt.

Joe Box from KeyBanc Capital.

Good morning, everybody.

Good morning, Joe.

Good morning.

My first question is actually in regards to the Packaging margins. Can you guys just talk about the sustainability of your 4Q '09 operating margin levels, especially as you look to grow the Specialty Dispensing business?

It was very strong performance on the margin levels. I like the business even if the margins were down a little from that. I'll tell -- if there's anybody on the phone from the business listening to that they can cover their ears. But I like the business at these margins and even a little less, what I am really saying is it is a business that is worth spending money in to develop new products and to enter new markets. And we're a little light; we realize, for example, in Asia on our sales efforts, and so we have been ramping that up a little bit.

That means doing some spending on some products, which is mostly overhead, but it also means introduction costs and all that. You throw that all together and I would like to hold the margins even if we let them slip a little bit, I am more interesting in growing the topline.

That is helpful, thanks. Also just a question on your Energy business. Where do you think the natural gas breakeven point is for your Aeroengine business, and do you think it is possible for natural gas to even retrace these levels, given the low cost shale plays out there right now?

We just use the forward markets to look at where we think natural gas is going. What is going on in that business is while it has still got a core product in engines, and there is some consumption of those, the work is all in what we call gas products, metering runs.

Last time I was in Tulsa they were packaging metering runs into complete systems that had separators on them and a skid and controls and valves, and the business is really growing itself more into a package systems business rather than just a components business, and that is where you will see the upside of that business as that kicks in.

You probably saw a press release about the natural gas compressors being used to fill vehicles that run on natural gas. There is a lot of activity. You could say, yes, it kind of hurts the gas field side of the business when the prices are low, but it makes the use of gas attractive in other applications, and I give the folks in that business credit for really jumping on that, and working the product so they have it.

Joe, I would add one thing to Dave's comments there, and this is Mark. Is you used the word what is the breakeven point of natural gas, and I just want to be clear, this business is profitable, was profitable despite the relative decline in end markets, and was cash flow positive. So I just wanted to make sure that was clear for everybody.

I guess I was actually just asking that more from an end user perspective. Where is it compelling for the end users to actually buy a new engine or replace an engine? Is it $6 net gas, $7, $8. I am trying to get a feel for that.

It is probably lower than that and call it $5. But you are right. There are so many other bigger drivers out there that impact it. And we are kind of bumping along close to it but not everybody would like -- in that business in the engines we would like to see it a little higher than it is now.

I know you talked a little bit about the compressors on your last call. Can you give us an update of what this business can actually do, or what this opportunity might be in 2010?

Of course we have sold a lot of compressors, a couple hundred of them over the last few years as compressors. The change is we are expanding our line of compressors, and we are also putting them into packaged systems. Compressors are used both in the moving of natural gas where you compress it before it goes on the lines. They are also used for further compression if you want to go into a vehicle. And so we are making sure we have got the products for all of that.

And again, it is an applied technology kind of a thing. It is just bringing to bear what we already know how to do, and putting it more into the system side and adding some controls. We did add some electronics people for the control side of this business. And I actually am encouraged by the activity levels we are seeing in that. It is a long slow change in the energy economy. A long slow change.

Okay. Just one last question for you, Mark. I know there is a number of moving pieces that are going into your interest expense assumings for 2010. Can you just tell us maybe what your assumption is for ending debt or debt paydown over the year?

I would go the other way, Joe. That free cash flow of $30 million should be available for either, A) debt paydown, or other uses based upon best and highest use for the cash.

Fair enough. Thank you, guys.

Okay.

Yvonne Varano from Jefferies.

Thanks.

Good morning, Yvonne.

Good morning. In looking at that topline sales growth number you have out there, how much do you think comes from some of the growth initiatives versus market rebound?

Well, if you look at what we said on I think it is page 23, we have a kind of range on the new program book of 1% to 3% on the topline. And I said I would like to be on the high side, but I am a realist about -- there is a lot of headwind in growing a business. We will keep getting better at that, and pushing the high side.

In what we call core growth, we have got part of that I would call just some market growth. But that is not a US GDP number by any means. We are seeing a stronger market growth in places like Australia, and parts of Asia, and all of that. We also have a few markets where we have had some competitors either drop out, or have enough troubles that it has given us opportunities, too. So I kind of put that in the core group, and that is how we get to the topline in total.

Okay. And then as you think about it do we see sort of sequential improvement in EPS, at least through the first three quarters of the year from what we saw in 4Q?

You should naturally see that, Yvonne, with the seasonality of our business you will see what is -- I would expect to see improvements in Q2 and Q3 for certain, simply because of the relative seasonality of the business.

Right.

Q1 will be a traditionally -- last year I believe it was $0.02 in terms of recurring EPS. I would expect obviously a positive comp on that as well.

Okay. And then for 4Q next year we know that the seasonality hits so that is down?

Well, if you think about some of the cost actions, I would also make sure that you are thinking through your model of we have lowered the overall breakeven point if you will, from a sales perspective of the corporation.

So one of the things that you should see here is that prior to 2008 and beyond Q4 had been a -- traditionally a breakeven at best kind of quarter. We are hopeful that this change is something that is a systemic and permanent change for the corporation.

Okay. Yes. And then just on the tax rate for 2010. What are you assuming?

37% to 39%.

We tried to help you with that on I think it is page 24.

I don't have those slides up.

No worries. 37% to 39%, Yvonne.

Okay. Great. That is it. Thanks very much.

Okay.

Tom Klamka from Credit Suisse.

Can you talk about your view I guess, of the intentions of your larger shareholders. Heartland filed this S3 to sell a portion of their shares, and there are some other large guys in there. Are they still in the process of exiting, evaluating, where do you see them shaking out?

Tom, obviously I would encourage you to reach out to Heartland, but what we do know is the S3 has been filed, and we are in the process of making sure that shelf was otherwise appropriately put up in accordance with their needs. We don't have any additional knowledge at this point with regards to a planned exit or otherwise.

Did those shares get sold do you know, the 3.5 million?

The shelf hasn't even been active yet. We are still in the process of finalizing.

Okay, great, thanks.

(Operator Instructions). Jordan Hollander from Jefferies.

Hi, guys. Just a quick question as far as working capital going forward. With sales starting to tick up here, you guys obviously did a great job of bringing that number down on the working capital front. What are the expectations this year? Can you keep that percentage of sales flat? How should we look at that?

When I say -- I think we are past a transition point in fourth quarter, and I trust our operating systems. But really, yes, looking into some growth you start changing your metrics, and we are using working capital as a percent of sales, and then on things like inventory internally we are using days forward, which is a more indicative kind of a measurement.

I think we said we will improve and continue to improve working capital as a percent of sales. I mean I think that becomes the key metric in a company that is growing. And we came down a lot in 2009, and we will tick down some more in 2010. And it is tools and tactics, it is not brute force, it is bringing better skills and tactics and methods to everything from how we schedule, to how we collect money, to how we pay.

Great. Just one more, just on the Engineered Components division. I know it's one of the more late cycle divisions. Generally how far does that lag, some of the economic indicators that we have seen?

Jordan, that is that I view as that and the Aerospace business as our latest cycle businesses. We have seen order intake start to tick up here in Q1. So we have got positive indicators here, with regards to at least coming off the floor with regards to relative volume in order inquiry and activity.

Okay. Great, guys, thanks a lot.

Joe Box from KeyBanc Capital.

Hi, I apologize if I missed this earlier. But you were saying if resin is probably going up, and if there is some rumblings on steel potentially going up, where are you actually planning on getting the material productivity in 2010?

Also you laid out four different buckets on Slide 25. Can you maybe just highlight which of those different buckets are the easiest to get benefit, and which may be the hardest?

Material productivity, of course, comes from how you buy, what you buy, how you use it, what your yield rates are, and it is every piece of that. We have upgraded our capabilities in purchasing. We have been through a change of using some outside help to help us with that, and now we brought some people inside to leverage TriMas, because we do use some common things across all the businesses, and that is a piece of it for sure.

We continued to do redesigns whether it is a substitute material, or it is a -- get the same functionality for the customer, made from either a different material or a lighter weight product. We do, we continue to work, I love yield improvements in factories. I mean hardly any factory I have ever been is 100%. If you go from 98% to 98.5 that is an internal thing, you tend to get to keep that, and it is worth spending money.

And some of it is the old theme of Kaizen events and Lean, and all of that, and some is new machine tools, and some of it is new measuring systems, and all of that, so we have got a lot of that kind of activity going on. And people enjoy working on those kinds of projects, and there are always substitution kind of things. Whether it be a different kind of coating or even a different material, trying to go to a spec of steel that is easier to produce and therefore they'll sell a little less expensive. We have literally over 100 programs underway in productivity overall, and a lot of them are the ones I just described.

And I guess to be maybe a little bit more specific, do you think then that those productivity programs could be enough to offset any potential raw material inflationary pressures?

When you think about that, that as well as pricing initiatives, Joe, would be part and parcel of that, and you will note the margin expansion in terms of our guidance. Productivity adds to it, pricing capability adds to it, and that is how we focus the time. And one additional thought is that when you think about it, you asked relative to material, labor, overhead, which ones are the easiest to get.

Dave's comments really point to basically labor and material. But most notably material, because that is, on an order of magnitude, a larger spend for us than obviously labor. And the overhead productivity happens over time in terms of how you look at make/buy decisions in terms of either insource or outsource of the relative production. But that is part and parcel of what we are doing in the normal operating activity of the business.

I'd add one last thing to what Dave said in terms of productivity. And that is if you think about it the Cequent set of businesses probably had a head start as compared to the other segments, in terms of low cost country sourcing. They have been in or operated in China now for years, and as such, the rest of the segments are still catching up here. So I would expect and I still expect obviously out of Cequent productivity, but I would also expect to see more material productivity out of the rest of the segments.

Great, that is all for me. Thank you.

Thank you. I am showing no further questions at this time.

Well again, thank you everybody. We sure appreciate your support. 2009 was a year of transition, and we think we put -- like I have told you, I am convinced we have got the basics in place and operating processes that work and get us the continuous improvement we need, and we will keep at that. But we will leverage that by building on our growth programs, too. So again, we appreciate all of the support, and thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the conference, and you may now disconnect.